...andSupplyChainIntegrationPresentedby:

JerryB.KhouryCaliforniaManufacturingTechnologyCenter(CMTC)LeanManufacturingLAIPlenaryConference

OverviewHistoricalPerspectiveIndustryConsolidationViewfromOEMsCurrenttrendsDoD&R&DBudgetsremainflatEmploymentFutureTechnologyTrendsThepoweroftheinternetResourcesSummaryandUltimateGoalQ&AHistoricalPerspective

IndustryConsolidations&Mergers

ContinuesataLessorPaceMid80’stomid90’s37became4Mid90’stopresentnoticeableincreaseinM&AactivitywithinsupplychainsAstheConsolidationContinues

Primes&OEMsHavenewChallengesNotallsupplierspossessresourcesandcapabilitiestoundertakemajorimprovements(sixsigma,leanmanufacturing,continuousimprovement)Notallsuppliershaveabilitytoattract&retainhighcaliberpeoplewhounderstandprocesscontrol(CpK&6Sigma)Demographics,theagingworkforcecreates“KnowledgeManagement”challengesEffectiveCommunicationlinksbetweensub-tiersuppliersandendusersbecomeincreasinglyimportantEarlyinvolvementinthedesign&developmentphases,andteaming“beyond”theshopfloorbecomemorecrucialCurrentTrendsDefensebudgetwillgrowatabout4%,withammunitionandaircraftleadingtheincreaseR&DBudgetswillremainflatforcingmorePrime/SuppliercollaborationSupplierconsolidationwillcontinueasaresultofmergersAsprimesshiftto“lean”practices,supplierswillbeaskedtomanufacturemoremajorsub-assembliesandlesspiecepartsCurrentTrendsContinuedOEMswillcontinuetooutsourcemanufacturingJITdeliveriesinsupportofPOUdemandwillbecomemoreprevalentinordertoreduceinventoryandcarryingcostsOEMswillshiftto“assemble,test,andship”modelSuppliersandcustomerswillteam“beyond”theshopfloortodesignanddevelopnextgenerationproductsusingtheInternettocreateVirtualProductDesignandInnovationDoDProcurementGrowingat4%

($Mil)AerospaceR&DFundingRemainsFlatLessR&DwillcreatemorecollaborationbetweenprimesandsuppliersAerospaceisImportanttotheUSAccountsforMajorityofExports$BillionDataSource:CaliforniaEmploymentDevelopmentDepartment.EmploymentInSouthernCaliforniaImportancetotheStateofCaliforniaExcludesservices&agriculture;estimatesbasedonSICcodeinformation&coveragecompensation.Includesallindustrysegments,bothproduct-andservice-oriented.Approximately138,000jobsinprimaryA&DSICcodes,plusanestimated50,000jobsfor““mixedsuppliers””thatservemultipleindustriesinadditiontoA&D.Aerospaceis2ndLargestEmployer1996($Million)SouthernCaliforniaPayrollsByIndustryEntertainmentLeanMigrationThroughouttheSupplyChainEconomicsareforcingOEMs(Primes)toadopted““lean””asanenablingtechnologytoreducemanufacturingcostsandeliminatewasteTieronesuppliersarewellontheirwaytoimplementingleanbasedinpartonencouragementfromtheircustomers“Sub-Tier””suppliersstillresistimplementationofleanwithouta““BusinessCase””andpaybackanalysis(ROI)TheAerospaceSupplyChainNeedstoAcceleratetheShiftto““WorldClass””StatusPhaseIApprovedSupplierCapacityplanningSchedulingsystemsQualitysystemsComputerizedinformationsystemsInternalassessmentsPhaseIIPreferredSupplierLeanmanufacturingAdvancedqualitysystemsElectroniccommerceStrategicplanningPhaseIIIStrategicPartnersIntegratedcustomerteamsTotalqualitySub-contractorteamsFunctionalprocurementspecifications“Bestpractices””LeanManufacturingVirtualProductDevelopmentE-EnabledtransactionsWorldClassTheNewRealitiesPrimes(OEMs)willcontinueto““outsource””atanincreasedpaceMoreemphasiswillbeplacedon““sub-assembly””ahigher(BOM)levelPrimeswillfocuson““engineering&designexcellence”notonmanufacturingPrimeswillusetheInternettoimprovedesign,cost,schedule,qualityandplanningsynergiesAgoodstartingpointHostedby:Willimpactupto37,000suppliers...HundredsofAirlines……Totalcombinedprocurementoutlayof$71billion92%99%41%ProjectedBusiness-to-BusinessE-CommerceTransactionsOrganizationsareincreasinglyturningtotheinternettosourceindirectgoodsandservices-thosegoodsandserviceswhicharenotapartofcostofgoodssold.Thistypicallyincludessuchitemsasofficesupplies,travel,temporaryservicesanddesktopcomputers.C|M|T|C800)300-CMTCLosAngelesOrangeCountyInlandEmpireGreaterSacramentoSanFernandoValley/SanGabrielValleySanJoaquinValleyVentura/SantaBarbara4-YearEst.GrowthCurrentEst.$7Tril.By2004GeneralElectric&E-CommerceJackWelch,CEO“Thiscompany,likeeverycompanyintheworldtoday,isinthemidstofthebiggest,mosttransformationalrevolutioninthepastcentury,broughtonbytheInternet.””“WheredoestheInternetrankinpriority?It’snumberONE,TWO,THREEandFOUR.”OEM’s&Primeswant““WorldClass””suppliersSomeTechnologyFacts,IBM“Bandwith”willleapfrogGrewbyafactorof10Xoverthepast15yearsWillgrowbyafactorof150Xoverthenext15yearsIn1995,1TeraFlopcomputerplayedchesscomparablebrainpowerofalizardBy2010,100TeraFlopcomputerwillworkonGenefoldingprojectsBeforetheendofthedecadetherewillbe1to10PetaFlopcomputers12to15PFapproximatehumanbrainAdditionalTechnologyTrendsWaveDivisionMultiplexing(WDM)willbecomecommonplacewithFiberOpticcabletothehouseandofficeWirelessinterconnectionwillbeglobal,nowavailableinL.A.Internetwillbeintegratedintocommonappliances,atlowornocosttotheconsumerInternettechnologywillbeintegratedintomachinesandotherhardwareproductsfor7/24monitoringcapabilitiesVirtualteamswillbeformedtodesign“virtualproducts””on-line7/24onaglobalbasis.These““virtualteams”willbe““unformed”untilthenextprojectTheInternetPresentsThreatsandOpportunitiesOPPORTUNITIESCompetitiveadvantage,levelstheplayingfieldAwaytoexpandmarketreachAcceleratestimetomarketandlowerscostsEnhancescustomerrelationsEmpowersemployeesandcreateswhatBillGatescalls““KnowledgeWorkers””Streamlinesprocesses&reducescostAllowsfor7/24globalproductdesignAllowsforrapid“productmorphing”tomeetchangingcustomerneedsAllowsforglobaltradingpartnersAllowsfor““virtualteams”tobeformedandunformedbasedonneedThreatsCreatesInternationalcompetitiononamassivescaleAllowsfor7/24globalproductdesignreducingrelianceondomesticlaborChallengestraditionalthinkingandtraditionalbusinessmodelsTangibleBenefitsReductioninTransactionCostsBankingindustryreducestransactioncostsfrom$1.07to$0.01Travelagentbookingsgofrom$10.00to$2.00Trade(procurements)transactioncostsgofrom$150.00to$6.00Example:Raytheonreducesprocessingcostfrom$100to$3IndustrialAgeE-CommerceThenextrevolutionwillbeB2G(BusinesstoGovernment)WebEnabledTradingSiteFederal,StateandLocalGovernmentsspend$1.6TrillionongoodsandservicesTexaswebsitehasreducedtransactioncostsby83%from$120to$20CaliforniaiscurrentlyevaluatingandtestingE-CommercesolutionsIntegratingtheSupplyChainSupplierswillneedtobeabletorespondtoelectronic““pullsignals”withfirsttimequalitytosupportvirtual““Kanbans””Supplierswillneedtobe““E””enabledtoreduceadministrativecostswhilereducingcycletimesforspecificationchanges,quantitychanges,andschedulechangesCustomerswillcontinuetodemandquality,price,delivery,anddesignandintegrationsupportASSEMBLER22%SUPPLIERS-35%1STTIER22%2NDTIER10%3/4THTIER3%WhyIsThereaConcernWiththeAerospaceandDefenseSupplyChainandSupplyChainManagement?RAWMAT’L43%ValueStreamCostDistributionRecentUSAFandMITEstimatesIndicate70-80%ofValueisinsupplychainOtherFactorstoConsiderAsOEMsuseleantoreduce“directlabor””and“inventory””overheadcostsbecomealargerpercentageoftotalcostOneprimeindicatedthat““direct””manufacturingcostsare20%oftotalcostsThiswillforce““lean”beyondtheshopfloor.LeveragingthepoweroftheInternetcanhelpreduceoverheadcostsCMTCisWorkingonLeanBeyondtheShopFloorCourseworkandtrainingmaterialsarebeingdevelopedthroughacooperativegrant,includingaKnowledgeManagementmoduleWorkingwithIBM&OtherstoidentifyopportunitiestoleveragetechnologyOneclienthasdemonstratedsignificantsavingsandtimeintheprocurementareaandinthequalityrecordsareaLean=EliminatingtheWastesTypically95%ofTotalLeadTimeisNon-ValueAdded!!!RUNTIMEOrderProcessing,Transport,Storage,Waiting,Rework,MachineSetup,Inspection,MachineBreakdowns,etc...TotalLeadTimeDefinitionofValueAddedValueAddedAnyactivitythatincreasesthemarketformorfunctionoftheproductorservice.Thesearethingsthecustomeriswillingtopayfor.Non-ValueAddedAnyactivitythatdoesnotaddmarketformorfunctionorisnotnecessary.(Theseactivitiesshouldbeeliminated,simplified,reducedorintegrated.)Thingsthecustomerisnotwillingtopayfor.8WastesofLEANOverproductionmotionExtraProcessingTransportationInventorydefectsWaitingUnderutilizedPeopleLeanBuildingBlocksWhataleanfactorylookslikeWorkplaceOrganizationVisualLeanFactoryStandardizedWorkPlantLayoutQuickChangeoverPOUSTeamsBatchReductionQuality@SourcePull/KanbanOnePieceFlowCellularTaktTimeKeystoSuccessPrepareandMotivatePeopleWidespreadorientationtoCI,quality,trainingandrecruitingworkerswithappropriateskillsCreatecommonunderstandingofneedtochangetoleanEmployeeInvolvementPushdecisionmakingandsystemdevelopmentdowntothe““lowestlevels””TrainandtrulyempowerpeopleShareinformationandmanageexpectationsIdentify&empowerchampions,particularlyoperationsmanagersRemoveroadblocks(i.e.,people,layout,systems)MakeitbothdirectiveyetempoweringKeystoSuccessAtmosphereofExperimentationToleratemistakes,havepatience,etc.Willingnesstotakerisks(Safetynets)Install“enlightened””andrealisticperformancemeasures,evaluation,andrewardsystemsDoawaywithrigidperformancegoalsduringimplementationDomeasureresultsandnotnumberactivities/eventsTieimprovements,longterm,tokeymacrolevelperformancetargets.(i.e.inventoryturns,quality,delivery,overallcostreductions).Execute““pilot”projectspriortorollingoutacrossentireenterprise(e.g.,modellines,kaizenblitzes)Afterearlywinsinoperations,extendacrossENTIREorganizationImplementationSuccessFactorsImplementationPeopleneedtounderstandtheirnewrolesbeforechangeisimplementedEstablishtimelinesandtargets,establishsomeeasytoachieveneartermgoalsCI--ContinuousImprovementTrackimpactsassociatedwithchangesmade.Communicatethem.Monitor,““enforce,””andimprovethesystemImprovementLeapsAvoidmentalityofcollapsingoverthefinishline.ImplementationSuccessFactorsUnyieldingLeadershipStrategicvisionbasedonleanenterpriseaspartofoverallbusinessstrategy!ObserveoutsidesuccessesandfailuresAbilitytoquestionEVERYTHING,ask“why”atleast6timesDeepcommitmenttoEXCELLENCECaseStudiesDemonstrateResults“Youdon’’tunderstand,ourbusinessisdifferent....””LeanSupplierCaseStudiesDemonstrateImpactClient1-65Employees,Familyownedbusiness:Annualsavingsofover$37.3Kasaresultofstreamliningpaperflow,streamliningtheShipping/Receivingprocesses,andfloorspacereduction.Client2-230Employees,Corporation:Realizedimmediatecostsavingsof$25.8Kduetoa72%reductioninWIPandinventory.Annualsavingsof$16.9Kduetofloor-spacereduction,laborreduction,andsetupreduction.Client3-368Employees,Corporation:Realizedsavingsofover$30Kduetoa63%reductioninWIPandinventory.Annualsavingsof$19.3Kduetofloorspacereduction,laborreduction,andpaperflowreduction.Client4-186EmployeesCorporation:Goalofa50%actual70%.reductioninpaperworkdocumentationprocessGoalof50%actual47%reductionindatapackagebuildtimeGoal25%actual20%reductionindatastoragespacebyUsing5SmethodologyDeliveryleadtimereductionover7daysAnnualsavingsof$480KLeanCaseStudiesDemonstrateResults,ExpectDoubleDigitImpact72%reductioninWIPandinventory63%reductioninWIPandinventory70%reductionindocumentationprocess47%reductionindatapackagebuildtime20%reductioninfloorspaceBoeingAircraft,RocketdyneDivisionDecreasedmanufacturingcostsby97%Cutthedevelopmentcycleby50%,from2yearsto1Reducedmanufacturingcycletimeby63%,from2yearsto9monthsReducednumberofpartsfromhundredsto6Createdaknowledgedepositoryforre-useonsubsequentprojectsLeanManufacturingisNotNew“OneofthemostnoteworthyaccomplishmentsinkeepingthepriceofFordproductslowisthegradualshorteningoftheproductioncycle.Thelongeranarticleisintheprocessofmanufactureandthemoreitismovedabout,thegreaterisit’sultimatecost.””HenryFord,1926LessonLearned:Createdassemblylinesbutdidn’’tempowerworkerstoachievecontinuousandsustainedimprovementsHowCanYouGetHelptoPreparefortheFuture?CMTC,OurObjective-“…tohelpsmallandmediumsizemanufacturersincreasetheircompetitiveadvantagebyadoptingandimplementingimprovedmethodsofmanagementandmanufacturing””Neverunderestimatethe““power””ofanexternalchangeagent.CMTCIntroductionA501c3Private,Non-Profit,CorporationProvideconsultingservicestoCalifornia’ssmalltomedium-sizedmanufacturersensuringglobalcompetitivenessInformationTechnologyServicesSystemSelectionSystemsImplementatione-BusinessLeanEnterprisesServicesLeanAssessmentEnterpriseProcessImprovementInventoryandProductionManagementStrategicBusinessServicesStrategicManagementHumanResourcesStrategiesWorkforceDevelopmentOrganizationandManagementQualityManagementServicesQualitySystemsImplementationProductAssuranceEnvironmentalandSafetyOver140ProfessionalsinSevenRegionalCenterswithanaverageofover20yearsprofessionalexperienceWePartnerwithGovernmentAgencies,TradeAssociations,EducationalInstitutions&AerospacePrimesGovernmentCaliforniaTrade&CommerceAgencyUSAirForceNASA/JPLEmploymentTrainingPanelAssociationsAerospaceIndustriesAssociation(AIA)SocietyofAutomotiveEngineers(SAE)AmericanInstituteofAeronautics&Astronautics(AIAA)EducationalInstitutionsCommunityCollegeCentersforAppliedCompetitiveTechnologies(CACT)MIT/LAICorporationsAerojet(Gencorp)BoeingHughes(Boeing)LockheedMartinNorthropGrummanRaytheonTRWCMTCProvidesTangibleBenefitsReducecostsnotjustsellingpriceReducedeliverytime,cycletime,set-uptimeEliminatewasteSeekcontinuousimprovementImprovequalityImprovecustomerratingsandperceptionsIncreaseoverallcustomersatisfactionImproveemployeeinvolvement,moral,andcompanycultureHelp““transform””manufacturersAdditionalResourcesNIST/MEPCentersareLocatedNearYourSupplyChainsWecanreachanymanufacturerinthecountrywithintwohours!MEPCentersDeployingLean,aFourPhaseApproachGaintopManagement““BuyIn”andSupportPerformoverallcompanyassessmenttiedtocompanystrategic,operational,andmarketingplansDevelopstrategiclea