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24-hour product development
With collaboration tools, global design teams never sleep p16
ALSO: The energy-efficient plant p18 Managing supply chain risk p20
Joshua Dees Vice President of MIS Black Diamond Equipment Ltd.
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—Sidney Hill, Jr., executive editor
Social networking sites: No place to fool around
channel in lieu of flying to Las Vegas. I’m sure a lot of business executives trying to trim travel budgets see the value of that. Later in the conference, IBM unveiled several initiatives to help both its customers and business partners integrate social networking into their businesses. These announcements included: • IBM Atlas for Lotus Connections; and • IBM SOAsocial. IBM Atlas for Lotus Connections is a tool for creating internal virWhen someone questions how Tweeting will help the company tual communities in which people seeking knowledge turn a buck, ask them what treating a customer to a round of about specific topics can easily locate and submit golf has ever done for the bottom line. questions to co-workers to me that the people who insist on continuing with expertise in those areas. SOAsocial is an IBM-hosted community in that debate don’t know what’s actually happenwhich IBM partners and customers can connect ing on these sites. When a corporate executive inquires about to discuss new developments in the realm of the business value of an activity, what they’re service-oriented architecture. I managed to squeeze in a few minutes with really asking is, “How’s that going to make me Carter to discuss her opinion on this question money?” The next time someone asks you how of the business value of social networking. Tweeting will help the company turn a buck, Among the questions I asked: • Why should manufacturing executives be this should be your response: “What has taking a customer to dinner or out for a round of golf interested in social networking? • When did she realize social networking ever done for the bottom line?” There’s a social aspect to those activities— could be an actual business tool? On the first question, she said social networkpeople are there having a good time, and every now and then a business tip gets passed on, ing offers a low-risk way of connecting with a new contact is made, or contract terms are customers to generate new ideas for developing products and services. ironed out. When did she realize the value? Carter said Similar things are happening in the social netthe business value of social networking became working arena, and it’s a lot less expensive. It was easy to see the business value of apparent to her a couple of years ago, when a social networking at the recent IBM IMPACT customer responded to an item she posted on her Smart SOA Conference. It started with blog. “We started a dialogue . . . and ultimately it Sandy Carter, IBM’s VP of SOA, BPM, and resulted in a very large deal,” she said. And no one paid for a single round of golf. WebSphere, announcing that a large percentA video of my talk with Sandy Carter is availage of the 3,500 people who follow her on Twitter had asked if they could be apprised able on mbtmag.com. You also can follow me ■ of news from the conference through that on twitter at: www.twitter/mbtsid
or most businesspeople, the line between their work and personal lives has been blurry ever since companies started issuing laptops and cell phones. And now that we’re firmly ensconced in the era of Web 2.0, that line is being washed away completely. There’s still some debate about the business value of certain Web 2.0 technologies—specifically social networking sites like Facebook, MySpace, and Twitter. And it recently occurred
Manufacturing Business Technology
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VOL. 27 NO. 3 PERIODICAL
Views from the front
8 Corporate fraud on the rise with market
18 A matter of commitment
Model-based advanced process control helps create energy-efficient plants
8 Hot Tomato: Food supplier hopes ‘recall
drills’ will assure customers in a real crisis
9 Spending lag prompts supply chain
20 Supply chains at risk
Companies tap new technology to enact smart contingency plans—inbound and outbound
10 24-hour product development
With collaboration tools, global design teams never sleep
EDITORIAL STAFF Executive Editor
Sidney Hill, Jr.
2 Viewpoint—Sidney Hill, Jr.
Social networking sites: no place to fool around
14 A new of wave prosperity: AT&T chairman
sees mobile devices driving economic development
22 Upcoming conferences
16 Virtual commerce: Serious gaming is
becoming a real business tool
Electronic Products Editor
8 Corporate fraud is
on the rise
14 Better desktop
18 Run cleaner, more
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A sampling of what’s happening at mbtmag.com
Webcast: SOA as a Tool for Business
Hear how manufacturers are using serviceoriented architectures to build the agile technical and business infrastructures necessary to maintain a competitive edge in a constantly changing business environment.
Blog: Operation Green
MBT Senior Contributing Editor Roberto Michel separates fact from fiction in the green IT and manufacturing movement.
Columnist: Julie Fraser
Julie Fraser on why companies can no longer survive on strategic sourcing alone. www.MBTmag.com MAY/JUNE, 2009
Views from the front
Corporate fraud on the rise with market slowdown
he tough economic climate has negatively impacted just about every business sector, from real estate to retail, and services to manufacturing. Unfortunately, the lackluster market simultaneously also is stimulating growth of another disheartening trend: corporate fraud. Over the past year, fraud has grown in depth and breadth, becoming more widespread, and increasing in volume and value. According to the latest Kroll Global Fraud Report, the fastest growing types of fraud are information theft—27 percent, up from 22 percent—and regulatory and compliance breaches—25 percent, up from 19 percent. Both areas are up by more than five percentage points from last year’s survey. More than four out of five companies surveyed (85 percent) have suffered from corporate fraud in the past three years—up from 80 percent in last year’s survey. For larger companies the proportion suffering from fraud rose to 90 percent. The most common types of fraud in the manufacturing
industry are theft of physical assets or stock (53 percent), regulatory or compliance breach (27 percent), vendor, supplier or procurement fraud (25 percent), corruption and bribery (24 percent) and information theft, loss or attack (22 percent). The poor economy has increased competition for many businesses as typical revenue resources have dried up, says Blake Coppotelli, senior managing director of business intelligence and investigations for Kroll, a risk consulting company. “To move ahead in today’s climate, many companies have felt the need to pursue higher-risk opportunities to generate new revenue. Some have moved into geographic areas where they are inexperienced, or are dealing with unfamiliar suppliers or partners, Coppotelli says. “Companies that have been forced to cut overhead and other costs often do not dedicate enough resources to mitigating risks.” Coppotelli stresses the importance of training creative and innovative individuals to combat fraud since the perpetrators are incredibly adept and market savvy.
Hot Tomato: Food supplier hopes ‘recall drills’ will assure customers in a real crisis
n light of recent product recalls, manufacturers must be ready to respond quickly to supply chain issues to protect consumers as well as their own brand reputations. To that end, Moore, Okla.-based Vaughan Foods has enacted a plan to host two mock recalls a year. The events begin with the company’s quality assurance department, which is notified that a
Vaughn Foods decided to hold these drills after losing revenue when the tomato industry was hit by a recall in summer 2008. No Vaughn products were tainted, but customers remained wary. “We realized we have to minimize risk . . . and prevent serious problems from happening,” Gramillo says. “Track & trace in the process industries, such as food and beverage, is very challenging,” says Karin To prepare for potential recalls, Moore, Bursa, a VP with Logility, supplier of the software system Vaughn Foods uses for Okla.-based Vaughan Foods enacted product tracking. a plan to host two mock recalls a year. “Production operators and co-packers Once an event is in process, the quality may use the same semi-finished goods to make several other finished products,” Bursa assurance department team has three says. “Jam or jelly can be sold as a finished product but also can be used for pie filling, hours to complete the process. which adds another step as well as several mock recall is in effect, and the team has three hours to complete layers and levels to the process.” the process. The Logility Voyager system manages alert notification for a “We must isolate the contaminated product, have knowledge recall by automatically contacting partners via the Internet or about where the product is in the supply chain, and file accurate alerting customer relationship managers about the issue. “Since and timely reports to the authorities,” says Victor Gramillo, quality speed is of the essence during a recall, having quick access to assurance manager for Vaughan Foods, a supplier of fresh product data, vendor information, and locations where product last vegetables, refrigerated deli salads, soups, and fruit. resided is very important,” says Bursa.
Manufacturing Business Technology
Spending lag prompts supply chain management makeovers
he precipitous drop in consumer spending that has been cited as a major cause of the ongoing economic recession now has manufacturers scrambling to adjust supply chain management strategies. In fact, lower consumer spending took the top position on the list of supply chain risks in a recent survey conducted by Boston-based AMR Research. “As retailers cut inventories in the face of softening demand, this risk is cascading up consumer and industrial supply chains,” Noha Tohamy, an AMR Research VP said in a report summarizing the survey’s findings. “Companies like Cisco and Procter & Gamble are grappling with tactical questions, like where to cut and position inventory, and strategic initiatives, like where to source and how to rationalize their supplier bases to remain healthy during the downturn and be well-positioned for the next recovery cycle.” Tohamy said AMR conducts this risk assessment survey on a quarterly basis, and it’s clear from the results of the most recent canvass—covering the first quarter of 2009—that the economic downturn is dominating
the thinking of supply chain executives. “Lower consumer demand is dominating the list of risks this quarter, with 37 percent of respondents identifying it as No. 1,” Tohamy said. “Additionally, only 15 percent expect this risk to decrease by next year.” Product quality failures placed second on risk list, with 35 percent of respondents identifying it as their second top concern. Volatile energy and commodity prices— which consistently took first and second place honors last year—placed third and sixth, respectively, on the most recent list. The potential of having intellectual property stolen was fourth-highest risk factor cited in the latest survey. This fear—coupled with concern over product quality—appears to be causing manufacturers to rethink outsourcing and offshoring strategies. For instance, Tohamy said, China—which continues to be plagued by both recall and IP protection problems—is now getting more competition from India as a manufacturing center, and more U.S.-based manufacturers are looking at nearshoring.
24-hour product development
With collaboration tools, global design teams never sleep
By Hope Neal, contributing editor
hile scenarios for sharing design data may invoke grandiose thoughts of enhanced collaboration or disparate design center interactions, sometimes all a company really needs to do is make it easier for two engineers sitting in the same office to work together on a project.
Just ask Black Diamond Equipment, a Salt Lake City-based manufacturer of climbing and skiing equipment. Many of its products require input from both industrial designers and mechanical engineers, and up until a few years ago, the company used several different CAD systems to develop its products.
Joshua Dees, Black Diamond VP of MIS
Dave Mellon, Black Diamond VP of products
Manufacturing Business Technology
“Some would serve this purpose well and some would serve that purpose well,” says Joshua Dees, VP of MIS for Black Diamond, referring to the CAD systems. “None of them served all of our purposes well. As you can imagine, it created nightmares [when] translating this file to that file.” As Dave Mellon, Black Diamond’s VP of products, explains, when you move files to different CAD systems, “you’re going to lose a lot of the history about a part and how it was built. Being able to contain all that and see the entire history—how someone built the part
marketing, Siemens PLM Software, says its tools for styling, mechanical design, manufacturing, and analysis are available through a single system, “making it easier for [Black Diamond] to share data and get the data through the whole process.” Having successfully addressed its engi-
“None of [the CAD systems] served all of our purposes
well. As you can imagine, it created nightmares [when] translating this file to that file.
—Joshua Dees, VP of MIS for Black Diamond
over the last eight to 10 hours—as you open it up is helpful.” From many to one To retain its product design history, Black Diamond decided to make the switch to a more powerful CAD system that would support all of its engineering needs. It chose NX from Siemens PLM Software. Describing NX as a unified solution, Paul Brown, senior director of NX product
neering collaboration problem, Black Diamond had other data-sharing capabilities it wanted to look at next. Along with engineers working on products at Black Diamond’s home office, the company has product and marketing managers working in other parts of Salt Lake City, as well as in Reinach, Switzerland, and Zhuhai, China. Being able to effectively share data about products in all locations is critical to Black Diamond’s success.
With enhanced design data sharing facilitated by Siemens Teamcenter and NX solutions, Black Diamond engineers in China and the U.S. are able to quickly develop ski boot product lines because they are in essence working 24 hours a day across time zones.
“Without the NX platform
and without the ability to work around the clock, there’s no way we would have been able to pull off a launch of a product line like boots in the time period that we did,” says Mellon.
In the past, the company used to store much of its product data—e.g., product concept records, product briefs, forecasts, and pricing information—in folders in Microsoft Windows file directories. But concerns about security and file versioning control—as well as the potential for misplaced or unintentionally deleted files—led Black Diamond to another Siemens product, called Teamcenter. Teamcenter lets Black Diamond centralize its product data so users from all locations can access it. The benefit is a much greater level of versioning control and security than seen with the folderbased system. Moreover, says Dees, the value of Teamcenter is it’s Web-based. “It’s a challenge to share Windows file systems around the globe,” he says. “It’s a lot easier to share applications if you can go into the Web application and download files from the database server.” This is particularly important for a company that relies heavily on being able to design around the clock to bring products to market faster. With better design-data sharing, Black 12
Diamond engineers in China and the U.S. can collaborate on, for example, a new line of ski boots, so that the company is in essence working 20 hours a day developing and delivering its products. “Without the NX platform and without the ability to work around the clock, there’s no way we would have been able to pull off a launch of a product line like boots in the time period that we did,” says Mellon. Interactive view While Black Diamond can speak to the value of Siemens products such as Teamcenter and NX, Siemens isn’t the only vendor offering data-sharing capabilities. Dassault Systèmes, for example, offers several solutions. One of these is called 3DLive. Unlike CAD viewers, which allow nonengineers to open CAD files without installing expensive CAD software on their computers, 3DLive offers “much more than a view-only look at the CAD model in of itself—it establishes a rich environment of information,” says Brian Chambers, a business strategy director for Dassault.
“You can set up collaborative review sessions based on the 3DLive view of the product model and do interactive sessions remotely via the Web with other engineers—and with other functional organizations—to view and mark up the data, and move portions of the CAD model from one user environment to another,” Chambers explains. “It can be quite interactive.” Interactivity is important because sharing design data and using it to collaborate often involves more than a one-way journey from the CAD system to members of the product development team or outside the organization to supply chain partners. As Hardeep Gulati, VP of product strategy for Oracle PLM, points out, the movement of product data should be bidirectional. Take the case of an engineer picking parts when designing a product. While it’s natural for the engineer to evaluate the technical attributes of a potential part, procurement concerns—such as pricing or availability—may not be considered if that information isn’t available to the engineer. And once the product is designed and sent to procurement, it can cause delays to learn at that point that a component is no longer available, or is too expensive. “When designers are picking the CAD part, you want some of that supply chain data to be visible to them while they’re making selections,” says Gulati. With the Oracle Agile PLM solution set, Gulati adds, “[designers] have all this supply chain information available during the parts-selection process in the CAD tool. They can annotate some of those attributes and supply chain information right into the CAD tool.” ■
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A new of wave prosperity: AT&T chairman sees mobile devices driving economic development
Sidney Hill, Jr., executive editor
he rise of mobile broadband technology will drive a new wave of productivity and economic development similar to that produced by the advent of the Internet. Randall Stephenson, chairman and CEO of AT&T, made that declaration during his keynote address at the annual conference for customers of Sterling Commerce, a supplier of B2B integration solutions, and an AT&T company. “New devices will come with 4G networks, and soon it will be difficult to find any electronic device that is not connected wirelessly,” Stephenson said. “We are just on the edge of this with the iPhone, which has an entire ecosystem created around it. There are now 35,000 applications available for the iPhone, and Apple recently reported that more than 1 billion people have downloaded those applications.” AT&T is the primary service provider for Apple’s wildly successful iPhone. Holding up one of the devices, Stephenson said AT&T’s vision is for users—including businesspeople—to be able to have the same experience on an iPhone or a BlackBerry that they have when accessing applications from desktop or laptop computers. When asked about the synergy between a telecommunications giant like AT&T and an e-commerce software provider like Sterling Commerce, Stephenson once again held up his iPhone and said, “All of the applications that Sterling Commerce provides should be available on this device.” Sterling Commerce offers two categories of solutions: • B2B integration solutions; and • Selling and fulfillment applications. At the user conference, held April 27 – 29 in San Antonio, Texas, Sterling introduced a new set of B2B integration solutions under the name, Sterling Business Integration Suite. “Fast data and video from any location is what we expect to provide,” Stephenson continued. “We spent $9 billion last year buying spectrum to accommodate that.” Noting that his weekly staff meetings are now held via video conference rather than face-to-face, Stephenson said,
“imagine having that capability” on a mobile phone. Once that happens, he predicted, there will be a new wave of productivity, commerce, and prosperity rivaling the one sparked by the emergence of the Internet.
AT&T wants mobile devices to provide
Manufacturing Business Technology
How do we turn more ideas into successful products?
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Answers for Industry.
© 2009 Siemens Product Lifecycle Management Software Inc. All rights reserved. Siemens and the Siemens logo are registered trademarks of Siemens AG. All other logos, trademarks or service marks used herein are the property of their respective owners.
Virtual commerce: Serious gaming is becoming a real business tool
Sidney Hill, Jr., executive editor
A serious gaming solution from IBM allows companies to see in advance how various approaches to managing a supply chain crisis will impact key performance indicators such as customer satisfaction and profitability.
ideo game aficionados have become a powerful force in the computer industry, with chipmakers constantly striving to create products with the power to make the scenarios simulated in these games ever more realistic. Manufacturers have reaped side benefits from this, as faster, more powerful processors accommodate programs that allow for simulating stress tests on product designs or even seeing how well new production lines will operate before they go live. Now, serious gaming is working its way further into the enterprise. In May, IBM introduced Innov8 2.0, the second generation of its serious gaming application. The Web-based application presents users with real-world business scenarios and challenges them to come up with solutions that achieve bottom-line results. Current game scenarios include: • Managing customer call center problems; • Alleviating traffic congestion on urban roadways; and • Optimizing a manufacturing supply chain. Each of these scenarios was demonstrated at the IBM IMPACT Smart SOA conference, which took place in Las Vegas, the week of May 4.
Carter said roughly 1,100 schools are now using Innov8 1.0 as part of their curriculum and they have found that people experience anywhere from 80 percent to 108 percent better recall when learning through serious gaming as opposed to traditional teaching methods. She also said those numbers convinced a large number of IBM customers and business partners to get serious about gaming as well, and thus came Innov8 2.0, which is geared for customers and partners. The supply chain component of the application currently allows users to work on solutions for three situations: • Streamlining the process for bringing new suppliers onboard; • Altering product sourcing and delivery routes in response to an impending hurricane; and • Responding to a product recall.
Pilot project in place for training
Also at the conference, IBM announced that the University of Farmers Claims, a unit of Farmers Insurance Exchange, is piloting Innov8 2.0 as tool for giving its roughly 11,500 employees hands-on experience in processing insurance claims and handling and managing customer service calls. Sandy Carter, an IBM VP, said the idea for developing a serious application arose roughly two years ago when she was holding a case study seminar with a group of college students, and presented them with the problem of how to educate the market on business process management (BPM) and service-oriented architecture (SOA). “Every team recommended serious gaming,” she said. “So we developed Innov8 1.0 for universities to pilot.”
Scenarios, simulations; try it now
In the latter two scenarios, customers can lay out various approaches to solving the problem and then simulate the impact those approaches have on key performance indicators such as: customer satisfaction, environmental impact, and profitability. If those indicators are not to the company’s liking, a different set of choices can be made to achieve the desired outcome. Anyone wishing try the game can do so now at www.ibm. com/innov8.
Manufacturing Business Technology
A matter of commitment
Model-based advanced process control helps create energy efficient plants
Roberto Michel, senior contributing editor
powdered products. The coal-fired boilers that supply high-pressure steam to the f cost weren’t a factor, numerous techdriers were exhibiting unwanted variabilnologies could be tapped to create ity, so in 1997, the company deployed the most energy-efficient plant. The Pavilion’s Model Predictive Control APC latest furnaces, boilers, or co-genersolution to, as Hunter explains it, “run ation equipment could be installed. the boilers smarter.” The facility could have solar panels or More specifically, APC reduces variabilgeo-thermal heating. A new distributed ity and minimizes excess oxygen in the process control system (DCS) could be flue gas of the boilers, as well as reducing deployed. variability in the high pressure steam supBut that’s not today’s reality. ply. The project cut oxygen variability in The economic reality dictates that the boiler’s flue gas by up to 50 percent, manufacturers must be as energy-effiwhile high-pressure steam variability was cient as they can, largely with the assets reduced by at least 60 percent. What’s that exist. As John Nesi, VP of market more, the steadier operation brought development for Rockwell Automation, close to a 4-percent reduction in coal a vendor of plant automation systems, consumption. acknowledges, “We are in a phase of To work well, APC needs a solid control Draconian cutbacks in terms of capital foundation, Hunter warns. expense.” “Your existing control systems need to Still there are technologies that make be running well,” he says. “You need to existing assets more energy efficient, review the instrumentation, the calibration, and the tuning of the low-level When APC It’s a virtual plant that you can then optimize to achieve loops. to respondis running, the plant needs reliably to what the control moves are.” various goals—minimum cost, energy, or emissions. Over the years, Fonterra has estab—Mike Tay, Rockwell Automation lished an APC group of 10 people who says Nesi. These include advanced pro- Auckland, New Zealand-based dairy prod- deploy projects with help from Pavilion. cess control (APC), a class of software ucts manufacturer, has used APC for more With this expertise, says Hunter, projthat optimizes real-time plant-floor than a decade. ects can be better aligned with corporate processes; variable speed control, “We have a track record for APC projects goals, rather than focused on immediate which allows gears and motors to adjust where people in the business understand pain points. “We are now aligning more speed efficiently; and energy monitor- what it can do and what it can deliver with the strategy of our business, looking ing software. to the business,” says Tristan Hunter, where we are headed in the next two to According to Allen Avery, an analyst manager of Fonterra’s advanced process three years,” says Hunter. with Dedham, Mass.-based analyst firm control group. ARC Advisory Group, “Technology is an An early project was aimed at improved Beyond basic control enabler, but improved energy management boiler operation at Fonterra’s Waitoa At Yara Belle Plaine, a manufacturer of is mainly a matter of people, processes, plant in New Zealand. The site has sev- ammonia, granular urea, and urea ammoand organizational commitment.” eral spray driers that make a range of nium nitrate (UAN) products used in agriThe value of APC Advanced process control uses software to model how multiple variables interact during a process, and integrates with automation hardware such as programmable logic controllers (PLC) or DCSs to control the process optimally. APC projects historically have been aimed at throughput, but APC can also optimize energy use. To deploy APC, plant testing is typically used, whereby incremental inputs from the control layer are fed into the software to build a model. “We start by building models of how a process works,” says Mike Tay, manager of sales engineering with Pavilion, a Rockwell Automation division that offers APC. “It’s a virtual plant that you can then optimize to achieve various goals, such as minimum cost, energy, or emissions.” Fonterra Cooperative Group, an
Manufacturing Business Technology
Advanced process control (APC) technology is helping Yara Belle Plaine’s nitric acid plant in Western Canada run cleaner and more energy efficiently.
cultural products, APC is saving energy by achieving consistent, cleaner operations. Located near Belle Plaine, Saskatchewan, Canada, the company deployed Honeywell International’s Profit Controller APC solution for the nitric acid processing unit within the plant. The unit or “plant” feeds UAN production within the site. The APC solution optimally controls the amount of NOx emissions leaving the plant’s combustor while minimizing the consumption of the combustor’s fuel gases. Since deploying APC in November of 2007, combustor fuel consumption has dropped by up to 5 percent, NOx emissions have been held at 200 parts per million, and methane emissions dropped 25 percent. “The benefits have held up,” says Rob Harkness, controls supervisor for Yara Belle Plaine. “We’ve consistently kept the 3-percent to 5-percent improvements in fuel reduction.” Yara Belle Plaine is upgrading its DCS to Honeywell’s latest Experion PKS system, but APC goes a step beyond DCS in that it’s able to model and control multiple variables without operator intervention. The APC integrates with DCS, but runs on its own server. “APC technology can take a whole plant into consideration,” says Harkness. “It looks at all the critical elements, where typically with conventional control, you’d have one input, one controller, and one output—or possibly a cascade control
arrangement. But with APC, it takes in numerous measurements throughout the plant and works with all of them to optimize the entire process—not just one part of the process.” Why energy reduction is everyone’s business Attention surrounding the metric for energy intensity—i.e., energy consumed per unit of product produced—is espe-
visibility, the tools, and the authority to make a difference. Technology can clearly play a role in this.” Advanced process control, decision support, and real-time performance management software were the top three areas of technology investment among companies identified as energy-management leaders in the ARC survey. “In tough economic times like now, vendors should focus on helping custom-
“It’s important that you treat energy reduction as a continuous-improvement program.”
—Allen Avery, analyst, ARC Advisory Group
cially high among process manufacturers, with Fortune 500 firms like DuPont and Dow Chemical elevating their energy programs to board-level importance. Avery, the ARC analyst, says, “The sheer amount of energy that process manufacturers use is startling . . . “For some it’s higher than that of many small countries, but the payoff when [an energy management] program is adopted top to bottom in an organization can be equally surprising.” Allen says a recent ARC study found that companies in the forefront of the energy management movement treat it like a continuous improvement program. “It requires involvement at all levels of the plant, with everyone aligned around it,” Allen says. “You have to give them
ers understand how these technologies can assist them in energy reduction,” Allen says. A comprehensive energy assessment of plant operations to determine where and how much energy is consumed is the starting point for any energy-management effort. ARC found that the vast majority of the companies it identified as leaders have performed an energy assessment. These companies also perform audits more regularly and at shorter intervals than their peers. Energy management is worthy of being a core tenet in managing the business, “as the potential payoff is huge,” Allen states. Underscoring the point, one process manufacturer ARC spoke with claimed energy savings of $7 billion over 12 years. ■
www.MBTmag.com MAY/JUNE, 2009
Supply chains at risk:
Companies tap new technology to enact smart contingency plans—inbound and outbound
Malcolm Wheatley, senior contributing editor
ast June, Cary, Ill.-based Sage Products asked for a voluntary recall of certain lots of a preoperative skin preparation product. For Sage, a manufacturer of personal care products sold to hospitals and medical practitioners, the measure was precautionary: A batch of chlorhexidine gluconate, bought from an outside supplier, had been found to contain the burkholderia cepacia bacterium. While the bacterium posed little medical risk to healthy people, the incident underscored the wisdom of an investment Sage had made in a rapid testing system from Celsis that enabled Sage to detect microbiological contamination far faster than was possible using conventional testing methods. Using the Celsis system, a test that once might have taken three
to seven days to conduct—while possible biological contaminants grew to detectable levels—can take place in under 24 hours. In the wake of high-profile product recall scares ranging from vegetables and peanut butter to children’s bath products and cribs, supply chain risk is center-stage. Businesses are under renewed pressure from customers to strip the risk from their outbound supply chains even as they acknowledge the vulnerability of their inbound supply chains. The result is a profound emphasis on technology as manufacturers rush to play catch-up in a world that is suddenly far riskier than many had realized. Many observers A recent IBM survey on “smarter supply chains,” based on interviews with 400 senior supply chain executives, found
that dealing with supply chain risk was the second-highest priority on their agendas, and “significantly” or “very significantly” affected 60 percent of businesses involved. The finding “was a huge surprise,” says Karen Butner, supply chain management lead at the IBM Institute of Business Value. “Not that it was on the agenda— but that it was supply chain executives’ second-biggest concern.” According to Butner, IBM is seeing heightened interest from companies in anything that has to do with risk identification and mitigation. Manufacturers are looking at their supply chains and putting contingency plans in place. “If there’s going to be a problem, they want to know in advance what they are going to do about it,” she says. The recession only exacerbates the risk of those problems arising. “With the economic recession in full
Industry Spotlight: Emerging markets
While doing business in emerging markets offers many rewards, it also poses risks. Manufacturing Business Technology recently spoke with Mike Novels, CEO of Preactor, a supplier of supply chain planning and scheduling solutions, about this trend.
MBT: Preactor has experienced success in the so-called BRIC countries (Brazil, Russia, India, China) in recent years—with nearly 200 customers in Brazil alone—what advice to you have for manufacturers wishing to increase their presence in emerging markets? Novels: The key working in these countries is working with local partners who understand the local language and local culture. MBT: In which emerging markets do you see the most demand for advanced planning and scheduling solutions like those Preactor offers? Novels: There has been a considerable level of adoption in Brazil, where we have more than 170 accounts. However we’ve had a very active partner there for 10 years—whereas we’ve only just penetrated the Russian and Chinese markets in the last two years. We’re also developing a healthy market in India. China has been the more difficult market to penetrate. Of our 30 accounts there, most are U.S. or European companies who have plants there. MBT: Planning and scheduling applications are generally considered more specialized solutions used by companies that already have established business processes supported by ERP systems. Have companies in emerging markets reached a level of maturity that allows them to fully take advantage of APS technology? Novels: That varies enormously from one market to the next. Companies in the Indian sub-continent—especially in Sri Lanka for example—are up to date with enterprise software such as ERP and they recognize like so many companies around the world that ERP does not offer detailed scheduling functionality. The same can be said of Brazil.
Manufacturing Business Technology
50 48% 40 41% 40% Methods used to mitigate risk Most sucessful method used to mitigate risk 38% 37%
32% 29% 27% 24% 21%
18% 14% 10% 10% 6% 4% 7% 5% 4% 9%
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swing, supply chain managers face a growing array of risks,” warns David SimchiLevi, professor of engineering systems at Cambridge, Mass.-based MIT, and chief scientist for supply chain optimization vendor ILOG, an IBM company. “Fluctuating transportation costs, high volatility in demand volume and mix, commodity price volatility, increased labor costs in developing countries, and the pressure to reduce inventories—these are just a few of the challenges companies are struggling to overcome today and will likely face throughout 2009,” Simchi-Levi adds. Greg Quinn, president of Quinn & Associates, a reseller for planning & scheduling solutions vendor Preactor in North America, says rising supply chain risks are forcing manufacturers to focus more the use of supply chain execution systems, which provide a greater ability to respond to immediate circumstances, as opposed to supply chain planning systems, which focus more on long-term time horizons. “We’re seeing a lot more interest in
execution systems,” Quinn says. “It’s like someone has flipped a switch.” The good news is, despite the common perceptions, eliminating risk needn’t always add cost. When St. Louis-based coatings manufacturer U.S. Paint deployed Preactor to minimize the risk of outbound supply chain disruption impacting the North American operations of Toyota, Subaru, and Kawasaki, costs went down and efficiencies went up. “As on-time delivery performance improved, they found that they could eliminate work-in-process and finished goods inventory without jeopardizing delivery reliability,” notes Quinn. “It became a virtuous circle.” New kind of crisis Supplier viability is another heightened risk factor in the present economy. New York-based advisory firm PricewaterhouseCoopers, for example, estimates 670,000 small companies have shuttered across China due to the global crisis—with many of them linked to Western supply chains.
But nearer home, transport provider viability is a growing concern, adds Mike Maris, senior director of the global transportation and logistics group at Schaumburg, Ill.-based Motorola. “There’s something of a crisis in the transport sector,” he notes. “In North America alone, up to a thousand transportation companies have gone out of business.” And when those transport companies are tied into enterprise networks through outsourced contract operations, disruption follows. Third-party logistics provider Ryder System, for instance, has been called upon to provide back-up service to a major office equipment manufacturer, supplying system-savvy logistics personnel familiar with its ERP system in the event of a depot’s local transport provider going out of business. Covering up to 50 service depots nationwide, the service has been invoked twice during the last few months, says Jim Moore, VP of supply chain solutions at Ryder. “We peel people off, put them on a plane, and fly them to wherever the ■ problem is,” he says.
www.MBTmag.com MAY/JUNE, 2009
Honeywell Process Solutions User Group Conference June 14 -18, Phoenix http://hpsweb.honeywell.com/Cultures/en-US/NewsEvents/ UsersGroupSymposia/Americas/default.htm East Pack/Automation Technology Expo (ATX Expo) June 9-11, New York City www.devicelink.com/expo/atxe09 Growth, Innovation and Leadership (GIL) 2009: NA A Frost & Sullivan Global Congress on Corporate Growth September 13-16, Phoenix www.frost.com/prod/servlet/summits-details. pag?eventid=144109086 Council of Supply Chain Management Professionals (CSCMP) Annual Global Conference September 20-23, Chicago http://cscmp.org/events/annual-global/index.asp National Manufacturing Week September 22-24, Rosemont, Ill. (Chicago) www.devicelink.com/expo/nmw08 Growth, Innovation and Leadership (GIL) 2009: Asia Pacific A Frost & Sullivan Global Congress on Corporate Growth October 12-15, Kuala Lumpur, Malaysia www.frost-gil.com Rockwell Automation Fair November 11-12, Anaheim, Calif. www.rockwellautomation.com/events/automationfair WonderWorld 2009 North America Conference November 3-5, 2009, Anaheim, Calif. http://pacwest.wonderware.com/web/News/NewsDetails. aspx?NewsThreadID=2&NewsID=202600 Editor’s note: If there’s a seminar, conference, or exhibition you’d like posted on MBT’s Web site, email the description to firstname.lastname@example.org.
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Managing Supplier Relationships: Beyond Strategic Sourcing
The supplier selection process can also be supported by buying sites such as GlobalSpec, PartMiner, and Mfg.com. Look for the ability to build up relationship data and scorecards over time, not just during selection. A private or public network can be a dynamic and low-infrastructure means to collaborate and manage suppliers effectively. While exchanges such as AxWay, ChemConnect, DemandTech, e2open, Exostar, Strategic sourcing is not sufficient . . . Once a supplier is and GXS started as EDI focused, these now provide deeper buyerselected, the ongoing work of monitoring and improving supplier services. There is one other angle of suptheir performance begins. plier relationship management that is not well known, and may As industry networks stretch beyond tradi- be a cornerstone to success in this volatile envitional regional boundaries and companies seek ronment: supplier risk management. This software can help predict whether and to limit travel, differences in communication styles and culture will only increase these risks. when a supplier will have a glitch—financial, Strategic sourcing is a critical start to a sup- quality, or delivery. Dun & Bradstreet has added plier relationship, but it is not nearly sufficient. this capability to its portfolio through acquisiOnce a supplier is selected, the ongoing work tion, and has some major customers reaping of monitoring and helping improve their per- extraordinary benefits. Companies must learn to work with suppliformance and practices begins. This involves rationalizing and consolidating ers as effectively as if they were part of their sourcing, managing parts and suppliers, control- own company. This requires a new level of ling contracts through their life-cycle, evaluating communication and collaboration to build and delivering supplier scorecards, and collabo- the trust and visibility that allows everyone rating with suppliers to better ensure mutual to truly create win-win situations. SRM can success. So why is it that we hear so little about contribute to: • lower risks of supply delays, quality probsupplier relationship management (SRM)? One reason may be that it’s now often a lems, and negative publicity; • improved ability for supplier management component part of larger software suites. For example, i2, Oracle, SAP, IBM and JDA, teams to focus on exceptions, relationships, all have acquired and subsequently built out and strategy; Julie Fraser • reduced cost of goods sold; and SRM capabilities as part of their supply chain Julie Fraser is Principal • greater supply chain effectiveness and capabilities. Industry Analyst for Cambashi PLM companies have also extended into flexibility. Inc., and has been an industry analyst, consultant, Perhaps this is the year—while volumes for certain areas of SRM. Siemens PLM has and marketer for more than Teamcenter for SRM with its services partner many products are relatively low—companies 20 years, specializing in CapGemini. Dassault works with i2. Most will re-focus on the supply base. SRM is not manufacturing value network processes and systems. of the PLM focus is on sourcing and supplier the answer to the questions, but it can reduce Julie can be reached through selection, but it can be extended across the the effort to help ensure that sound processes Manufacturing Business are in place and working reliably. life-cycle successfully. Technology, or email at Julie. igh profile news stories about tainted or unsafe toys, food, computers, and pharmaceuticals point to a problem every manufacturer faces: managing suppliers. Companies can suffer immeasurable brand damage when a supplier’s quality slips, not to mention the more concrete costs of recalls, customer alerts, and lawsuits.
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