Supply Chain Management

The Endpoint Model
November 3, 2011

Presented by: Ahsan Khawar Fahd Iqtidar Mir Nabeel Siraj Umair Babar Chishti 12020378 12020367 12020325 12020157

Question 1: Purpose of the Endpoint Model: The endpoint model implemented at DSM was aimed at virtual integration of a multi-plant manufacturing system internally as well as externally, with customers and vendors through networking. Internally, it was aimed at tracking and routing timely information to different functions of purchasing, manufacturing, design and manufacturing. It was also meant to reduce manufacturing times through automation of manufacturing and material handling processes. At the same time, this model looked to increase the velocity of information exchange with customers and vendors. How it was supposed to work: The endpoint model sought integration between four elements, system information, management control, physical manufacturing processes and programs such as customer/vendor partnerships & training programs. The model divided these programs into two types, plant level and group level programs. The plant level programs were aimed at reducing product-in-process time while the group level programs tried to reduced overall lead time by creating partnerships with suppliers and customers. Evaluation: Since the endpoint model was initiated by implementation of the MRP II model, we will first have to analyze the MRP II model and its implementation to evaluate the overall success of the endpoint model. The main purpose of MRP II was to reduce product-in-process time, but at the same time, it also was supposed to help in reducing reliance on informal measures of growth and reward such as production expediting. MRP II served this cause by increasing accountability of individual functions across the organization. Previously, demand fluctuations were dealt with by expediting the production through informal processes. This made accountability very difficult. As a result of MRP freezing 13 weeks before production, such informal processes were eliminated. This helped to bring about the realization that there was a huge cost attached to the traumas that production system faced due to demand fluctuations. Hence it can be concluded that in this regard, the endpoint model proved successful. Seeking integration between the four elements of the endpoint plan, better software such as MAXCIM, was installed to integrate all the different areas such as forecasting, marketing and production etc. Digital already had the relevant hardware in place to support this software. The performance in the plant rose 15% after its implementation. Apart from achieving integration, the software was also used to accurately forecast sales. Previously, DSM used to receive orders at the very last moment and was expected to deliver the orders on time, which resulted in high inventory levels as buffers. The sales forecast had vastly improved after implementing this software. However on the flip side the installation of this software wasn’t very smooth and it did have some drawbacks. First, the case discusses employee trainings that were held for the software change. Although 68000 hours of training was received by employees, the case also mentions that people didn’t take the training to heart and it was difficult getting them to see the importance of new software. This training and change management could have been more effective which would definitely have resulted in better output from the software. Furthermore, although MAXCIM was able to give different functional areas a common tool for planning and scheduling, it wasn’t able to collect data such as direct labor hours or machine output on a real time basis. Although that wasn’t required for MRP II, it would have been necessary for implementation of a just in time setup. Apart from this, DSM had also formulated 13 very stringent performance metrics to gauge the success of its plan. These included metrics for all aspects of the Endpoint Plan, such as plant performance, information accuracy and execution. In 1986, DSM achieved a 90% average, resulting in a class A rating for MRPII implementation. This meant that both the physical

processes and information flow in the factory had improved and, hence, the lead time. Overall, this whole process was meant to reduce the lead times down to 15 days. Although a very considerable improvement, in our opinion it could’ve been reduced to a greater extent. For instance, out of these 15 days, 10 days are required to build the product in plant. Out of these 10 days only 2 days are spent work in process. This basically means that there is still a lot of idle time involved in the manufacturing process and there seems to be a need for better material handling and channeling. Why MRP II over JIT: DSM began with MRP instead of JIT, because a strong and reliable MRP II planning system is a prerequisite for the JIT production system to work. JIT is a very risky and sophisticated mechanism of production, where you improve your production processes, forecasts, inventory, vendors and shipments in order to reduce inventory and keep cycle times to a minimum. To achieve this, each and every member of the supply chain should be integrated with each other in order to reduce time. The whole philosophy of JIT is the pull approach, where the customer orders a particular item, and the supply chain members coordinate with each other to deliver that item in a short time keeping inventory to a minimum. DSM initially had little integration between its three production plants and other functions of the group. This lack of integration meant that implementing a JIT was impossible. Hence, DSM began with MRPII, to integrate its supply chain to a certain extent. MRPII is a sophisticated integration plan, where sales, marketing, finance, production, vendors are all linked together to improve production. Since DSM was not employing JIT, it had to first switch to an intermediate level of integration such as MRPII in order to prepare its employees, vendors and production processes to deal with the efficiency required by a JIT system. This gave DSM time to make any improvements to the overall system and change the whole business philosophy of the firm, in which employees were used to working without JIT. Hence MRPII preceded JIT. Also, MRPII has very clear performance indicators. These can be used to gauge the efficiency of an integration program. DSM had set 13 performance metrics to gauge its performance. By redefining these metrics and increasing the required level of performance, DSM would eventually reach the JIT model and focus on areas that were contributing to excessive cycle times. Thus MRPII was used as a stepping stone to achieve JIT in the long run.
Question2: There were many lessons that DSM can learn from the implementation of MRP. First, a vision is extremely important for firm’s operations. They should be clear of the goal that they want to achieve and how MRP fits in that. MRP II is an integral step in achieving the goal of implementing “EndPoint” model. Then the involvement of top management is “mission critical” for the implementation on MRP. They involved the Plant managers in this which helped in the implementation, they got support from them and performance was now gauged on the basis of collective measures. But a support from further up the hierarchy and board would have been even more helpful. Each department has its own planning and was operating independently and they never cared about the other department, so this culture needs to be changed for which the support of the top management was critical. If this mindset of the employees was not changed they will be taking MRP II implementation as an added burden. Although DSM tried to educate its team, but they were not part of the development program. They should have been with the program from the start and not after it is implemented. As the employees who would actually be using the MRP II, they should not just be educated, but to improve their motivation they should have been sent to the MAXCIM and there input in the construction of the whole system should have been taken. Even if it was standardized software, it could be slightly customized to cater to the needs of DSM. In this way the competitive advantage of DSM would not have been lost and also employees would have been more motivated. They also saw that customers faced problems once the implementation was done. This could have been avoided had they developed relationships with customers and educated them about what they

plan to do and how they would go about it. Taking them into confidence would have resulted in a positive feedback from them and they would have been more accommodating when problems in supply occurred because of the MRP 2 implementation. Another problem faced was the compatibility with the old system. They could have taken help from the MAXCIM and a third party to help them decode the old data so that it is compatible and easily transferred to the new system. If this was not possible, then sufficient time should have been given, before ERP implementation so that data is transferred to the new system. Perhaps the most important lesson is about the attitude towards MRP 2. MRP 2 implementation is a difficult, tedious and expensive process. It can make or break a company and in the past companies have failed by not implementing MRP successfully. The last line of the case states that will MRP implementation divert attention from growth objectives or not? So the MRP plan implementation needs to be presented as a “need” and not as “just another” program from management to standardize and monitor things. So this problem would be been solved if they would have realized that MRP implementation is “Integral” to growth, it should be seen as part of the growth process. Also as we all know that they are in the computer industry which is a fast changing industry and MRP will make them more agile with quickly available information. So this needs to be communicated to the employees, and they should be motivated for the implementation, only then will the implementation will be successful else the employees might succumb to the pressure of the implementation. There are some more important factors that should be communicated to employees in their training. As the Digital equipment corporation was going successful, employees had this thought in their minds that why do we need an MRP 2 when we are doing fine? So this aspect should also be presented clearly that MRP 2 is part of a continuous improvement process which is important for the survival and growth of the company. Also it is mentioned that most of the process and planning was not formal. So this also needs to be explained that with MRP 2 things will be formalized. And now proper accountability will be done. So a dire need of MRP 2 needs to be presented to employees and they should be motivated to work hard in the short term implementation process and once it is done the benefits will be huge for both the employees and the company.

Question3: For the future, DSM should capitalize on the sophisticated processes like CIM, TQC and JIT. For this purpose, they should regularly review the performance measures set for the processes, vendors, customers and employees alike. Gradually, they need to tighten the performance expectation level. It will take them closer to their goal of just-in-time manufacturing and delivery. According to current estimation, the product cycle time is of 15 days. DSM’s first target, after achieving 15 days cycle time, should be to reduce the time spent in product-in-plant of which only 2 days are work in process. It can be achieved by increasing information exchange velocity, by automating the handling and recording of materials, and developing better relationships with its vendors and customers. It should be brought down to minimum number of days spend in product-in-plant. The processes introduced are complex in nature and require thorough understanding for operations. The company should arrange regular training programs for the employees to boost their morale, equip them with system handling skills and hold more frequent meetings with managers to get feedback from all levels of operations. DSM is operating in a competitive market as they are computer manufacturer and the industry is changing rapidly with big firms like IBM are entering the scene in two years time. DSM needs to diversify its product line along with focusing on reduced product cycle time. It should transfer some resources to analyze the changing market trends and focus on research and development (R&D) to be competitive in future. In MRP II system, DSM should install customer service module to get instant feedback on its products and to closely monitor customer behavior. This information is to be acquired from marketing and sales integrated modules. Agility and quick response to customer demands is the key, so if they can improve their supply chain by coordinating with their internal as well and external customers and vendors, they can become even more agile. For example quality control is done both at the vendor

level and at the factory level so they reduce it by giving the responsibility of inspection to just one part in the supply chain. This culture of trust will really help them reduce cost and reduce their lead times.

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