Avanade Expertise Speeds Development

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1 CASE STUDY Avanade Expertise Speeds Development Haldex Automates Lean Manufacturing Processes and Streamlines Operations with Microsoft Dynamics AX Haldex, a leading provider of automotive parts, sought to improve manufacturing productivity by implementing a strategic improvement program known as The Haldex Way. With help from Avanade, Haldex deployed a system built on Microsoft technologies to support the customer and automate lean manufacturing processes established by the improvement program. The solution has boosted productivity up to 50 percent, reduced inventory up to 35 percent, improved quality by 25 percent, accelerated sales by 11 percent, and increased earnings by 18 percent. COMPANY DESCRIPTION: Haldex manufactures proprietary automotive products for top automakers. The company includes four main divisions: hydraulic power systems and components, brake systems for heavy vehicles, spring wires, and electronically controlled four-wheel drive systems. Industry Geography Partnerships Technology Team Automotive Global Avanade Microsoft BizTalk Server, Microsoft Dynamics AX, Microsoft SQL Server 5-7 from Avanade from Haldex Size Solution Summary Based in Stockholm, Sweden, Haldex has 4,600 employees in 17 countries Avanade helped Haldex deploy a solution to automate lean manufacturing processes Avanade Assets Avanade Lean Enterprise Management solution

2 Customer Background Haldex Haldex provides automotive parts including systems for commercial vehicles, hydraulics, traction control, as well as Garphyttan wire products used in valve springs, piston rings, and fuel injection rings. The company s customers include top automakers such as Scania, Volvo, Volkswagen, and Audi. Based in Stockholm, Sweden, Haldex began in 1985 with a focus on garphyttan wire products. After acquiring Midland-Grau in 1998, Haldex shifted its emphasis on hydraulic systems, which today constitute more than 59 percent of the company s sales. Operating in 17 countries, Haldex has achieved an average annual growth rate of 14 percent since 1985, earning U.S.$33.5 million in net revenue in Business Challenge Manufacturer seeks to implement lean manufacturing strategies To remain competitive in today s global economy, manufacturers like Haldex must constantly find ways to cut costs. Since its inception, Haldex relied on a push-based business model: manufacturing products based on forecasts. The company managed the forecasts with several global enterprise resource planning (ERP) systems running on Virtual Address extension (VAX) machines from Digital Equipment Corporation (DEC). One downside to the push-based model was that it required high buffer inventories throughout the supply chain, so that the company could be sure it would have an adequate supply of products despite forecasts. Another challenge was that Haldex, like most manufacturers, had built its push-based model on disparate processes and applications for sales, customer service, manufacturing, and distribution limiting interoperability and information sharing. As a result, Haldex suffered from decreased productivity, slower lead times, lower customer satisfaction levels, and unnecessary waste in transportation and handling costs. In addition, the existing ERP systems offered limited report generation and data analysis. The aging hardware and software systems also required costly maintenance and support. In 2003, Haldex designed a corporate methodology, known as The Haldex Way, to drive production productivity using lean manufacturing principles and practices established by the Toyota Production System. A holistic solution that would revolutionize nearly every corporate procedure, The Haldex Way called for a pull-based business model, so that products would be manufactured based on actual customer demand rather than forecasts. A process known as Kanban a Japanese term that means card signal would monitor inventory levels and trigger additional production only when necessary. For example, whenever a product s inventory reaches a predetermined level, information from the product s Kanban card is submitted to operational units within the supply chain to order more inventory. Although originally Microsoft Dynamics AX was designed as a paper-based process, Haldex sought to implement Kanban, and other lean functionally rich, easy to use, strategies, using computing technologies. and we could keep our costs One of the objectives of The Haldex Way was to increase the productivity or efficiency of our supply chain, says Donovan Dean, Group Director of Information Technology at down by moving away from a Haldex, as well as emphasize respect for individuals and eliminate waste. Consequently, tier-one provider like Oracle. we wanted a system that could integrate process flows throughout the organization Donovan Dean and beyond, providing for integrated demand and supply scheduling with customers and Group Director, Information suppliers. Microsoft Dynamics AX delivers performance at the right price In January 2003, Haldex formed a team of 82 employees from 6 countries to identify a

3 new global platform. Although Oracle and MAPICS were already in use at several locations within the organization, the company wanted to evaluate other leading business systems as well, including SAP, IFS Applications, and Microsoft Dynamics AX. Haldex engaged Avanade to demonstrate how it would deploy Microsoft Dynamics AX in the Avanade Lean Enterprise Management solution. We chose Avanade because, at the time, it had implemented the largest Microsoft Dynamics AX system in the United States, so we went with the experienced vendor, Dean explains. Over the next 18 months, global executives viewed demonstrations of how each product would manage lean manufacturing and distribution, financials, order to cash, purchase to stock, customer relationship management, electronic data interchange (EDI) formats, and business intelligence. Avanade provides unmatched technical expertise During the evaluation period, a team of seven engineers from Avanade demonstrated the capabilities of its solution. We incorporated assets from our existing library of about 300 functional enhancement points for Microsoft Dynamics AX, says Michael Merfeld, Solution Director at Avanade. The assets manage capabilities required by larger enterprise customers, such as recurring general ledger entries or process automation. We also used key functional capabilities from products such as Microsoft BizTalk Server and software from several independent vendors, such as ebecs. In June 2004, Haldex selected Avanade to replace its main enterprise business solutions including order management, distribution, production, and finance with the Avanade Lean Enterprise Management solution built on Microsoft Dynamics AX. Microsoft Dynamics AX was functionally rich, easy to use, and we could keep our costs down by moving away from a tier-one provider like Oracle, explains Dean. Although the system itself is very feature-rich, Microsoft Dynamics was also the easiest to modify and upgrade. System flexibility was critical so that we could adopt the system with evolving business requirements. Any medium to large manufacturer should evaluate Microsoft Dynamics AX and the lean manufacturing extensions from Avanade to improve production, cost control, and time-to-market. Donovan Dean Group Director, Information The Solution Flexible technology accommodates business-specific requirements Avanade and Haldex began developing the solution in July 2004, combining the expertise of Avanade consultants in Microsoft technologies and lean manufacturing with the industry knowledge of employees at Haldex. At the project s peak, the deployment team included 7 Avanade consultants and 15 Haldex employees. An Avanade consultant was assigned to the finance team, the production team, and the customer service or order-to-cash team, says Dean. Each group also included representatives from a cross section of departments, plants, and divisions to help define financial, distribution, order management, and production capabilities, as well as standard work instructions for all processes. The teams first performed a gap analysis to determine what functionality was available with Microsoft Dynamics AX and what needed to be added. Developers used the Microsoft Dynamics AX language X++ to create several custom modules. For example, to help streamline financials, Haldex sought to replace the standard accounting system with a First In First Out (FIFO) methodology. Unlike the standard model that uses predetermined prices, FIFO accounting accommodates near real-time changes in product pricing. To support the FIFO model, developers created a custom module that could pull pricing data from suppliers and business units throughout the supply chain, updating the information in the system in near real time. This capability was very important for us, notes Dean, particularly now that the marketplace for direct material has recently seen costs increase between 20 to 40 percent.

4 Another key customization included the addition of what Haldex calls the core bank. When we sell a replacement part, we expect the old part that is taken off a vehicle to be returned to us for credit, says Dean. The ability to incorporate this We have already realized 10 to information into the accounting system was a capability we did not see in any of the 50 percent increases in systems we evaluated. productivity since we have Once the customizations were complete, the teams deployed the solution in a multitiered architecture running on IBM servers at the company s North American data deployed Microsoft Dynamics, and center in Kansas City, Kansas: those numbers will only increase as we continue to deploy the A database tier employs Microsoft SQL Server system in all of our facilities by the A business system tier runs Microsoft Dynamics AX. end of Donovan Dean An ecommerce business logic tier using Microsoft BizTalk Server. Group Director, Information An EDI and XML translation tier using Gentran from Sterling Commerce. Haldex separated the business logic in a separate tier to accommodate the unique EDI implementations of 50 different trading partners. Rather than creating an entirely new solution to communicate with all of our vendors, we pulled the customer-specific business logic out of our former order management system and incorporated it into BizTalk Server, Dean explains. Gentran manages and formats all incoming EDI transactions, and then communicates the information to BizTalk Server. BizTalk Server applies customer-specific business logic to the information, and then sends it to Microsoft Dynamics AX using XML. The process is reversed for outgoing communications. By January 2005, the data center in Kansas City supported the company s six manufacturing plants within the United States. Over the next 18 months, five manufacturing facilities in Canada, and one in Mexico, deployed the system also supported by the data center in Kansas. In addition, the data centere in Landskrona Sweden supported the corporate headquarters in Stockholm, Sweden, and manufacturing operations in Sweden, Germany, France, Hungary, and Spain. Another data center, in Shanghai, China, was built to support a manufacturing facility in Suzhou, China. Avanade Lean Enterprise Management Solution Avanade Value Experience and tools drive a successful implementation The Avanade Lean Enterprise Management solution includes Avanade offered the tools and expertise that Haldex required to build an architecture that a library of about 300 could automate lean manufacturing processes. Given the global manufacturing market today, we believe that lean manufacturing is a key component of our strategic survival, functional enhancements to says Dean, and the Avanade Lean Enterprise Management solution is a core component Microsoft Dynamics AX, in our implementation strategy. Any medium to large manufacturer should evaluate delivering capabilities often Microsoft Dynamics AX and the lean manufacturing extensions from Avanade to improve required by automotive production, cost control, and time-to-market. manufacturers deploying lean Dean says Avanade consultants expedited the implementation by providing technology and business process expertise. Avanade consultants offered outstanding functional manufacturing initiatives. knowledge of Microsoft Dynamics AX, and excellent project management skills providing programming support in building out our database and configuring Microsoft Dynamics AX. The functional team leader from Avanade was also very knowledgeable of accounting principles. She did an outstanding job guiding our implementation.

5 Results Significantly improved operational metrics By supporting The Haldex Way with a comprehensive and easy-to-use business system, Haldex has improved its business performance. For example, plants have seen the following advances in key business metrics: Increased productivity by 10 to 50 percent. Reduced inventory by 20 to 35 percent. Improved quality up to 25 percent. Reduced inventory space by up to 50 percent, allowing for new products and processes. Dean explains, We have already realized 10 to 50 percent increases in productivity since we have deployed Microsoft Dynamics, and those numbers will only increase as we continue to deploy the system in all of our facilities by the end of One reason for the improved metrics is the shift to a push-based business model. By building to order, we have reduced our inventory by 20 to 35 percent and reduced inventory space by up to 50 percent, Dean notes. This includes reductions in finished goods inventories at our distribution center and raw material inventories at our plants. We are also realizing significant savings in handling costs. The ability we have through Microsoft Dynamics to pull products as needed through the supply chain from our distribution centers to our plants as well as from our reline centers back to regional production centers, and then into the brake block production has also contributed to cost and inventory reductions. Increased visibility into supply chain The combination of the new system and lean processes provide greater insight into all aspects of business. Microsoft Dynamics AX allows us to see what is happening in our supply chain, so that we can better manage our operations, says Dean. And the software allows us to customize reports, which further streamlines decision making. We also have better visibility into our order log. We know exactly what it contains, opposed to our old process where we only knew what was forecasted. And because our FIFO accounting system allows us to see product costs reflected in near real time, we can work with real numbers, not predetermined costs. The visibility into information also expedites operations on the plant floor. Whenever a product ships from a warehouse or reline center, the system automatically generates a replenishment order. Our plant managers now have the ability to see product sales and shipments, and plan their production schedules accordingly, Dean notes. This is a big improvement over the old system where plant managers could only view static reports. By building to order, we have Increased earnings and sales reduced our inventory by 20 to 35 percent and reduced Only one year after deploying the Avanade Lean Management solution in North American manufacturing facilities, Haldex has realized other tangible benefits. inventory space by up to 50 Between 2004 and 2005, we realized an 18 percent increase in earnings and an 11 percent. percent increase in sales, says Dean. We attribute this growth to the ability of our Donovan Dean system to automate the processes established by The Haldex Way. Group Director, Information In addition, Haldex has been able to standardize, and consequently accelerate, its close process. Once we get all of our facilities running on Microsoft Dynamics AX by

6 the end of 2007, we expect to cut one or two days out of our close process, Dean explains. Enhanced employee satisfaction The human resources department at Haldex reports that employees like the increased involvement that The Haldex Way gives them in managing processes and making decisions that affect day-to-day business. Mary E. Murphy, a Haldex Way Change Agent, understands that the improvements made by the new technologies are built on philosophy and management. It takes all the people in an organization to make these kinds of changes. It involves culture change, behavior changes, thinking changes, and action changes, which starts with top management. Improvements can be made with technology, but ultimately it s the people that run the business using the technology that create sustained improvements. Dean adds, As business people identify changes they want to make in processes, our IT people can quickly modify the system to enable the changes. In addition, we are extremely satisfied with Avanade. Whenever we need something, Avanade delivers it. I m sure we will be relying on Avanade in the future. About Avanade Avanade is the leading technology integrator specializing in the Microsoft enterprise platform. Our people help customers around the world maximize their IT investment and create comprehensive solutions that drive business results. For more information about our services, please visit: