Managing Automation - June 2008 - (Page 26)

[ COVER STORY ] 2 billion [consumer] marketplace to have a presence where you start off outsourcing and then you wind up being somebody who sells there, then that becomes a good outsourcing strategy. I was just talking to a guy from General Motors. They’re the number one supplier of cars in China. They outsource, sure, but they outsource to basically get that consumer market. Are manufacturers beginning to reconsider their outsourcing or global operations strategies in light of these changing cost dynamics? but also the cost of quality because you really need to have it inspected where you’re actually building it. Although, as we look at some of the increases in the cost of doing business in China based on labor rates increasing and the lowering of the dollar, we may have to look at other areas, and, as Larry mentioned, Vietnam is one of them. India is another one. You have to say to yourself, “Do they have the infrastructure in place that would support the logistics for that?” and the costs there may be higher. HANLEY: There are a couple of interesting recent factors at play. Interestingly, now, with the weakness of the dollar, it does make the U.S. an increasingly lower-cost place to do business, and it shrinks the difference between a low-cost country and the U.S., given what’s happened to the dollar. It’s offset to some degree by the significant energy costs in the U.S. I think many of our manufacturers started out in places like China purely for the cost ad- DADMUN: A couple of years ago, we put together a [landed] cost model with some folks from Georgia Tech so that we could take a look at the true cost of manufacturing. That gets into the total cost of ownership and where would it make sense to actually have our products built for the lowest price, but at the same time taking into consideration not only the freight cost and the delivery cost, ma Photo courtesy: Linksys That all changed when Linksys went global, however. Now the company was dealing with many more distributors and dealers spread across the globe. Quickly, Linksys discovered that the manual approach it had been takoon after acquiring home- and small-office networking equipment ing to demand, inventory, and production planning didn’t scale. The comprovider Linksys in 2003, executives at Cisco Systems had a bright pany was able to track only its higher-volume SKUs in each country, and it idea: Wouldn’t it be great, they thought, to transform Linksys from a was attempting to forecast demand based on history rather than informacompany focused exclusively on North American markets into a global suption coming from the sales force and distribution partners. plier of wireless and wired communication products? Make it so, they said. “No one gave input from the market,” Payne says. “You had people in the There was just one small problem: Although Linksys relied on offshore market saying, ‘Those people in corporate don’t get it.’ And you had people in contractors for most of its production, the company and its people had corporate saying, ‘Those people in the market don’t get it.’ But, guess what? little, if any, experience operating a global supply network. They had They both didn’t get it, because they weren’t operating in a global context.” no experience tailoring Linksys’ products for markets outside North With no consistent demand planning process in place, there America. They had no experience working with distribution was no individual accountability. And the problem was exacerpartners to generate demand for Linksys products. And bated by the fact that, because many of Linksys’ global sales they had no experience generating production plans that regions were new with relatively small volumes, demand variabilaccurately responded to worldwide demand for and supply ity could be great, leading to frequent supply problems. of Linksys’ products. The result, Payne says, was that “demand planning was hor“So when they got the order from Cisco to go global, rific.” Plan accuracy was about 20%, and the company had they suddenly got a pretty glossy-eyed look,” says Linksys record-high inventories and backlogs. Between 35% and 40% of Vice President for Worldwide Operations Mark Payne, who Linksys’ shipments had to be expedited by airfreight. was one of the managers brought in to turn Linksys into a The company tried tweaking its planning processes. When global operation. that didn’t work, Linksys brought in Payne, who had previously Though Linksys was able to tap into some of Cisco’s been involved in sales and operations planning at pre-Hewlettexisting infrastructure for executing global transactions and Mark Payne Packard Compaq Computer and candy maker Mars Inc. Eighteen physically getting product to market, the business immedimonths ago, Payne introduced a new planning process and technology that ately ran into big problems attempting to track global demand while balancstresses accountability and hands-on planning of each and every SKU by a ing inventory and production schedules. Historically, Payne says, demand small group of individuals. planning at Linksys was largely a manual process involving pencil, paper, Payne’s system, which he calls “Make the Numbers, Don’t Change the e-mails, and phone calls. Though not the most efficient approach, it worked Numbers,” requires individual planners to take responsibility for balancing when the bulk of the business was flowing through a few large retailers, such three variables — a sales forecast, production plan, and inventory plan — as Staples and Wal-Mart. Making the World Flat S June 26 2008

Table of Contents Feed for the Digital Edition of Managing Automation - June 2008

Managing Automation - June 2008 Contents Take 1 SAP Cites Functionality, Cost Structure in Modified On-Demand Product Rollout Dassault Exec Predicts More PLM Consolidation The Blackberry Goes Native with SAP CRM QAD Brings MDM In-House with FullTilt Buy Power Experts Look to End Voltage Sags The Progressive Manufacturers Notes Cover Story: Playing the Globalization Game to Win Special Report Integration Transformation Industries Product Scan Advertiser Index Next

Managing Automation - June 2008

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