Managing Automation - June 2008 - (Page 27)

vantage. Now, as that market has hugely matured, they’ve concluded they have to be there, even with slightly higher cost, because there’s just a huge demand for their product. Kreg, are you seeing the same kinds of things? Are you seeing companies look at this whole equation in a more holistic way? think that’s the strategic nature that we’re going to have to get to. What other strategies are you seeing today with regard to addressing rising transportation and logistics costs? LAPIDE: As energy costs increase, they have to start revisiting when it doesn’t make sense to fly everything over from Asia into the U.S. A lot of the reason they do it is because the product is 30 days on a boat, in which case, it loses value in that 30 days. [But] what you have to look at is the total cost of the whole thing because there’s a whole cycle time of new development. It might mean that we may have to shrink our process development times [our new product development time] and make up for those extra 21 days. So, in other words, there are some process changes that can get made so that we don’t have to fly it; basically finish it up earlier and put it on ocean freight. KUKOR: They’re looking at it far more strategically now and saying, “How do I set up a structure in which, based on transportation cost or labor market rate, where I can move that product or ser vice around the globe and literally shut down one area and start up in another facility?” So part of my focus has been on developing a quality system, a documentation system, that I can literally shut down a plant in Mexico today and start up in China and run there for six months with a process, shut that down and move it to Vietnam, and then maybe reopen in Mexico, depending on the dollar value. I on a weekly basis. Each planner has responsibility for balancing these variables on up to 500 SKUs. “We hold people accountable by SKU by week,” Payne says. Each planner — four of them manage about 2,000 SKUs in total — uses what Payne calls a game board to track and plan each SKU’s sales forecast, production plan, and inventory plan. Planners meet weekly with sales representatives from all of Linksys’ global regions to get updated on market changes that may affect demand. They enter changes using the Financial Sales and Operations Planning (FS&OP) tool from Symphony Metreo Inc. The tool helps planners calculate inventories and production plans and communicate those to Linksys’ suppliers and contract manufacturers. The unique thing about Linksys’ planning process, Payne says, is that the company doesn’t use the planning engine in its Oracle E-Business Suite ERP system to generate production schedules. Doing so, in most cases, creates erratic production schedules and leads to inefficient use of plant assets, Payne says. That’s because most ERP systems hold inventory constant and let sales forecasts and production schedules fluctuate. That guarantees that the production schedule will be as erratic as the sales forecast. “If you hold inventory constant in a three-variable equation, and on the sales line you are constantly overselling or underselling, production ends up looking just like the sales line, always up and down,” Payne says. “But [production] assets hate that. You can’t run a plant like that. If you do, it’s very costly.” Although Linksys enforces upper and lower inventory-level limits on some SKUs, generally it lets planners assess and balance the sales forecasts and inventory and production plans. “We don’t let a system’s rules manipulate business decisions, because every decision is different,” Payne says. “We let a human mind decide and then tell the execution systems to execute.” Not surprisingly, when Payne introduced his planning approach at Linksys, there were more than a few skeptics. “The first thing they said was, ‘Oh my gosh, you’re going to make me manage every SKU? That’s crazy.’ They also predicted inventories would shoot up,” Payne says. Payne admits that, at first blush, it seems overly optimistic to expect a planner to manage up to 500 SKUs. But if planners are able to set minimum and maximum inventory levels correctly, they need to actively look at only about 100 of the 500 SKUs in a week, he says. And, of those, maybe only 20 or 30 involve changing sales forecasts that need to be addressed in the immediate week. Eighteen months after implementing the planning system at Linksys, Payne has garnered lots of believers. The company has been able to significantly reduce stock-outs globally while driving down inventory costs by 35% per year, he says. At the same time, Linksys has reduced shipping costs by 25% and cut expediting costs by 90%. Just as important, the planning approach has changed the culture at Linksys. With accurate sales, inventory, and production data for each SKU, the company can now slice and dice numbers by business unit, geography, or supplier, for example, to get an accurate view of trends and problem areas. “Suddenly everybody’s looking at the game boards to get a view of the world that means something to them,” says Payne, who has written a book on his planning technique, Make the Numbers, Don’t Chase the Numbers, (Pentworth Publishing). At the same time, Payne says, accountability for planning accuracy has improved. Because everyone in the company can see the sales commitments that are used to generate demand plans, salespeople are held to account. And, Payne says, the system is scalable. When Linksys decides to expand its global operation or make an acquisition, he says, all he has to do is add planners to oversee the new SKUs. “Before, we couldn’t see the rest of the world; we only saw North America retail,” Payne says. “Now we can see every SKU offered to the global marketplace. We’ve turned the world flat.” June 2008 27

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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