Technique An Electronics Supply Chain Success Story

Transcription

1 Inventory Profile Modeling Technique An Electronics Supply Chain Success Story Daniel lhui Senior Manager, Global SCM Operations Celestica Inc. 1 Daniel Hui, CPIM, CSCP, P.Eng., B.Sc.(Eng), MBA Senior Manager, Global SCM Operations, Celestica Inc. APICS Recognized Instructor, CPIM (Master) APICS Toronto Chapter Board Member , VP Education years experience with Fortune Global 500 companies, in Manufacturing, SCM, Operations, Logistics, Strategic Management 2 1

2 Agenda Introduction Complete Transformation of the Supply Chain Project Firefox Inventory Profile Modeling Technique Concepts and approaches Demo: building an inventory profile model Lessons learned 3 Celestica: Who we are Electronic Manufacturing Services (EMS) Industry Dedicated to building solid partnerships and providing flexible solutions to enable our customers success Our customers are primarily Tier 1 OEM Companies Through our strategic global footprint, Celestica provides customers with end to end supply chain solutions 4 2

3 Challenges of the electronics supply chain Short product life cycles Volatility in demand and supply Frequent engineering changes (high obsolescence risks) Falling commodity prices (high obsolescence costs) Supply base globalization l (extended dlead time) 5 Complete SCM Transformation Project FireFox In 2006, our senior leadership team commissioned Project FireFox to Re design and transform the SCM organization Change the culture Deliver breakthrough operational and financial results Improve processes and strategic business systems architecture 6 3

4 Our Results Inventory Turn Performance: Produced a milestone historical 9.7 turn quarter #1 amongst our industry peers Sustained inventory performance Return on Invested Capital (ROIC) Improvement: From 2% in Q to 29.5% in Q Flexibility Improvement: from 37% in Q to 58% in Q Celestica received the Supply Chain Council s 2011 Operations Excellence Award (Americas Region) for Project FireFox 7 Inventory optimization in a multi echelon supply chain Integral to the Project FireFox was to devise a method to determine the desired level of inventory to deliver both customer service and operations efficiency No longer can we allow inventory levels be optimized locally by applying local inventory policies without understanding the impact on the entire supply chain 8 4

5 Our approach Adopted a holistic approach to determine the overall inventory level in the entire supply chain for each customer program An Inventory Profile Model and related management processes were developed / enhanced: Map the supply chain network to understand dependencies Identify constraints Zero based thinking Applyoptimal planningpolices polices andparameters S&OP process managing profile gaps Technology solutions to enhance supply chain visibility Invest in people training 9 Traditional Inventory Management Locally Focused Issues with traditional inventory management in a multi echelon network: Inventory policies are determined independently at each node, generating excess inventory, e.g. multiple buffers at different nodes Limited or no demand visibility upstream or downstream Bullwhip effect amplifies the demand variability Poor service due to sub optimization 10 5

6 Multi Echelon Inventory Management Holistic approach to global inventory optimization 1 Global inventory target Objective of Inventory Profile Modeling Technique Distribution Outbound Hub Tier 3 Raw Material Suppliers Tier 2 Sub Asy Plants Tier 1 Logistics & Transportation Providers 2 Final Asy site Customers End Users Map SC Network Understand dependencies Eliminate multiple independent forecasts Supply Variability Demand Variability 3 Optimize Inventory investment Inventory profiling basics An inventory profile provides a picture of where inventory is tied up and how long inventory dwells (Days of Supply (DOS)) at different parts of the supply chain from end to end Visibility Make inventory profiles and performance gaps visible Inventory profiles and targets t are stated t din inventory days of supply (DOS) NOT inventory dollars 12 6

7 Inventory profiling basics How much inventory (in DOS) in the supply chain do we need to make a product and make the planned profit? Ifthere areno constraints (in a perfect world) This is The Optimal Profile How much inventory is planned? This is The Plan Profile How much inventory (days of supply) do we have now? This is The Actual Profile fl What are the gaps? And how do we close the gaps? 13 Sample actual supply chain Inventory profile High level view Whse Factory In transit FG FG 40D 7D Plant 1 6D 5D 14D FG DC/Hub Customers Location 1 50D 42D 6D 5D Plant 2 Plant 3 3D Plant 2 36D 6D 3D Customers Location 2 SC1: Plant 1 DC Customer location = 67d SC2: Plant 1 Plant 2 DC (40+7+6)* = 71d SC3: Plant 2 DC = 75D SC4: Plant 3 DC 42+3 = 45d 14 7

8 Sample actual supply chain Inventory profile Take SC1 the inventory profile shows there is inventory equivalent to 67 DOS tied up in the supply chain Majority of the inventory is tied up as RM / WIP (47 days of supply) at the plant Is 67 DOS good or bad? Whse RM 40 DOS Factory 7 DOS In Transit 6 DOS Hub / DC 14 DOS Customer Total 67 DOS of inventory 15 Sample actual supply chain inventory profile Total Whse Inv = 40 DOS Plant level view 6 DOS Total WIP Inv = 7 DOS Whse A items 10 DOS Whse B items Staging/queue Manufacturing Rework Inv 2 DOS 16 DOS Whse C items Whse non performing inv Whse inv awaiting QC/reciept 7 DOS 1DOS Quality Inspection Packaging FG waiting for shipping Shipping 16 8

9 Sample actual supply chain inventory profile In transit view Total In Transit Inventory = 6 DOS Wait at Terminal Weather / Other Delays Air Shipment Custom clearance Wait at Terminal Local Delivery 17 Inventory Profiles Optimal, the Plan and the Actual Whse RM 16 DOS Factory 4 DOS In Transit 4 DOS Hub / DC 10 DOS Customer Optimal profile = 34 DOS of inventory Whse RM 24 DOS Factory 5 DOS In Transit 5 DOS Hub / DC 12 DOS Customer Planned Profile = 46 DOS of inventory Whse RM 40 DOS Factory 7 DOS In Transit 6 DOS Hub / DC 14 DOS Customer Actual Profile = 67 DOS of inventory 18 9

10 Optimal profile Whse RM 16 DOS Factory 4 DOS In Transit 4 DOS Hub / DC 10 DOS Customer Optimal profile = 34 DOS of inventory Optimal inventory profile Zero based plan How much inventory is required if program run in a perfect world, free of constraints Includes ll allowable bl or acceptable non optimal elements, e.g. non performing inventory 19 Plan profile Whse RM 24 DOS Factory 5 DOS In Transit 5 DOS Hub / DC 12 DOS Customer Planned Profile = 46 DOS of inventory Plan profile the conditions under which the business planned to operate to achieve the profit objectives Includes certain non optimal elements (i.e. hard constraints thatarepartare ofthe system orpart ofthe contract) Pricing should cover all costs for operating under the suboptimal conditions 20 10

11 Actual Profile Whse RM 40 DOS Factory 7 DOS In Transit 6 DOS Hub / DC 14 DOS Customer Actual lprofile = 67 DOS of inventory The profile that is actually realized. Measure and manage the gaps to the Plan Profile Locate the gaps are and have action plan to close The gaps between the Plan Profile and the Actual Profile are made up of non optimal elements or wastes 21 Inventory Profiles Optimal, the Plan and the Actual 80 Inventory Profiles Actual Profile Plan Profile Optimal Profile Long term goal profile Optimal Non-Optimal (Hard constraints) Non-optimal (Controllable) 22 11

12 Optimal Inventory Profile Elements Factory Execution Store to Manufacturing Kitting / staging QC / Test / Inspection SCM Execution Planning parameters / Order Policy MPS/MRP compliance Economic MOQ/Lot size Customer Service Planned / contractual inventory Lean replenishment 23 Manufacturing Operations Assembly Pack and Ship Contractual buffers / safety stock VMI penetration Allowable non performing inventory Safety stock based on planned forecast accuracy How much raw material do we need in the warehouse? Order Policies (period coverage, n days demand) A 7 DOS, B 14 DOS, C 28 DOS Average Inv A 3.5 DOS, B 7 DOS, C 14 DOS Assuming ABC profile follows rule Total Average Inventory = weighted avg = 4.6 DOS Reality is we have a lot more MOQ/Lot sizes Critical parts shorts (load and chase) In transit Non performing inventory Buffers..etc. Average inventory = (Q / 2) 24 12

13 Inventory required in factory 1. Inventory is tied up in the factory as WIP inventory during the manufacturing lead time 2. Reality is WIPinventory DOSis muchhigherthanhigher manufacturinglead time Non conforming material (NCM) Re work (e.g. customer returns) Scrap / yield Aged WIP (work orders not closed after 30 days since build start date) Excesssub assembly sub buffer by contract to facilitate final assembly schedule 25 Inventory required for customer service 1. Finished goods inventory are kept to ensure short delivery lead time, provide best in class customer service and deliver our OTD commit 2. Amount of FG holding depends on the trade terms, e.g. ExW, FOB 3. Reality is we normally have much more FG than required Forecast Accuracy, Transportation costs etc 4. If the output of modules (e.g. PCA, sub assemblies) from one plant feeds into the FG Assembly operation at another plant we have a multi echelon supply chain 26 13

14 Demo Putting it all together 1. Create an optimal profile PCBA module Customer 2. Create a plan profile which include hard constraints Demo Microsoft Excel Worksheet 3. A sample actual profile showing the performance gaps 27 Sample inventory profile report Warehouse Inv Factory Inv In Plant FG Hub / DC Inv Total Inv Customers Inv $ DOS Inv $ DOS Inv $ DOS Inv $ DOS Inv $ DOS A $ $ $3.0 1 $ $ B $ $ $1.0 1 $ C $ $ $2.5 2 $ D $ $2.0 4 $1.0 2 $3.0 6 $ E $ $ $0.7 1 $ F $ $1.5 3 $ $ G $ $ $2.1 3 $6.0 8 $ H $ $ $ $ I $ $ $ $2.4 2 $ J $ $ $ $ $ Total Company $ $ $ $ $ Plan Profile

15 Factory Execution Cost of quality Product return Scrap / Yield Non optimal Profile Elements Re work Aged WIP Excessive wait time SCM Execution BOM errors MRP non compliance Component shortages Supply market constraint (Load and chase) Unplanned schedule changes Outdated planning parameters Excessive MOQ vs. order policy Excessive non performing Inv Customer Service Excessive transportation lot size Poor forecast accuracy (customer not pulling as planned) 29 Buffer inventory in excess of contract / policy Excessive in transit wait time Non optimal DOS some examples DC / HUB Poor forecast accuracy In transit lot size too high (taking advantage of FTL/FCL freight rate) Excessive SS WHSE FACTORY FG Transportation lead time (vs. costs) trade offs Unable to change to lean / VMI pull IN TRANSIT Unfavourable trade terms Excessive wait time Waiting for transportation Quality issues (re works, scraps) Unplanned schedule changes Poor inventory accuracy that lengthens the kitting/staging time BOM errors Failure to comply with MRP action messages Min. Order Qty too high (quantity discounts!) Shortages / Supply constraints Dock to stock process (2 hours or 7 days?) Forecast accuracy Planning parameters poorly maintained 15

16 Inventory improvement opportunities Where do we look? 1. Create inventory profiles where and how much inventory should be at each stage of the supply chain, in terms of DOS If there are no constraints (in a perfect world) the optimum profile. This is the ultimate goal The way it should be, i.e. the way you plan it This is the plan profile 2. Measureand and reportcontinuously the actual profile 3. The inventory DOS gaps between the actual profile and the plan profile identify improvement opportunities 31 Lessons Learned Profits / cash flow vs. customer service How much inventory do you need to deliver both profit and service? Market Demand Distribution Outbound Hub Tier 3 Tier 2 Tier 1 Logistics & Final Asy site Transportation Providers Customers End Users Raw Material Suppliers Sub-Asy Plants The supply chain should be designed To allow market demand pull inventory through the supply chain To be agile and synchronized as demand changes Set holistic inventory profile target Target is constant if stated in DOS Irrespective how demand dchanges in the short term Inventory $ target level should be dynamically adjusted as demand changes Actively manage and adjust the inventory profile to synchronize supply and demand 32 16

17 Thank you 33 17