Supply chain physics

Scott Theune and Scott Brown of Plexus tell Martin Ashcroft about the unique supply chain design capabilities necessary to provide world class electronics manufacturing services. Plexus designs and manufactures electronic products, mainly for original equipment manufacturers in the medical, telecommunications, industrial, defense, security and aerospace markets. I am accustomed to think of this as contract manufacturing or more accurately electronics manufacturing services (EMS) but Plexus describes itself as ÔÇ£the product realization companyÔÇØ. ┬áIts customers include some giants in their field, such as Siemens Medical, General Electric and networking equipment supplier Juniper Networks.Headquartered in Neenah, Wisconsin, Plexus came into being in 1980 with the merger of an engineering group and an electronics manufacturing group and now has 13 manufacturing facilities in five countries. Heavily influenced by its customer GE, Plexus has been using six sigma for many years, and adapted that into ÔÇÿlean sigmaÔÇÖ in 2004, moving from an MRP based push system to a pull system based on customer demand. ItÔÇÖs a highly complex business, with something like 150 customers at any given time, each having a range of products that could involve anything from one assembly to a hundred or more. ÔÇ£The only commonality between different products,ÔÇØ says Scott Theune, vice president supply chain and operations, ÔÇ£is that they have some aspect of their construction thatÔÇÖs electronic in nature.ÔÇØManufacturing products under another companyÔÇÖs label adds a layer of complexity to the supply chain, especially when the OEM often wishes to specify which component suppliers Plexus must use. Although Plexus offers design services as well as manufacturing, it is not always involved in the productÔÇÖs design. If the product is designed with the business and manufacturing processes of the customerÔÇÖs preferred suppliers in mind, integrating these diverse processes with those of Plexus is a challenging task. ÔÇ£Supplier development becomes a huge factor because people bring us so many suppliers,ÔÇØ says Scott Brown, manager of supply chain analysis and design. ÔÇ£We have significantly more suppliers than we would have if we were just making our own product.ÔÇØ ÔÇ£We pride ourselves on being a product realization company,ÔÇØ says Theune. ÔÇ£We can provide a service offering from the concept all the way through the whole product lifecycle, the entire suite of services. Ideally, we would work with a customer from design all the way through support of the product, to the end consumer.ÔÇØ But each customer has its own different in-house capabilities, explains Brown, so they have to determine how much of PlexusÔÇÖ value added service offerings to utilize. ÔÇ£It is a huge advantage for us in getting to a lean and a pull environment if we can design in components with a supplier that we have a relationship with, and that meets our processes,ÔÇØ he continues. ÔÇ£The process works best when we have early involvement and are integrated into the design process.ÔÇØTo add to the complexity, a product could have several thousand parts, with sometimes hundreds of suppliers, some of whom Plexus may be dealing with for the first time. ÔÇ£We have to understand what capabilities the supplier has to work with us, on various supply chain models, like vendor managed inventory, for instance,ÔÇØ says Brown. Furthermore, with 13 manufacturing facilities around the world, itÔÇÖs a global supply base, too. ÔÇ£WeÔÇÖve had supply chain related trips all over the world,ÔÇØ says Theune. The Plexus approach to its complex supply chain was to create a capability that allowed it to do the supply chain design work up front, before accepting a contract. ÔÇ£We wanted to get ourselves into a position where we could look at the business before we took it on and understand the supply chain requirements,ÔÇØ says Theune, ÔÇ£so we could predict more accurately what it would take to run that business, how much inventory it would take, what the overall lead time profile looked like, and what kind of variability and flexibility we needed to provide. That would allow us to cost it accurately for our customers.ÔÇØThis has been achieved, he says, so now both Plexus and the customer can make the right choices and have the right expectations about margin and return on investment. ÔÇ£What we have learned about what I call supply chain physics has given us the ability to design a supply chain that delivers the results that everybody involved is looking for,ÔÇØ says Theune. ÔÇ£When we talk to a new customer we bring an analysis that tells them what weÔÇÖre going to do in very specific detail down to the part level; what the supply chain is going to look like and what are the costs. ThatÔÇÖs a big win for us to be able to do that.ÔÇØAnother benefit from this analysis capability has been the automation of much of the purchasing process. This has saved millions of dollars in inventory reduction and avoidance without compromising service level or on-time delivery, which are all important for customers. ÔÇ£Our velocity on the shop floor through our lean initiative has made us much more responsive,ÔÇØ says Theune. ÔÇ£Even though we donÔÇÖt do any consumer products, our customers are feeling the pressure to behave as if they were. ThereÔÇÖs an expectation to be just as responsive as if we were making consumer products, to be able to deliver on very short lead times, which is driving this need for fulfillment activity.ÔÇØPlexus has developed its own replenishment system in-house, to respond to actual demand for every part that goes into every product. ÔÇ£Our analysis system is pretty robust,ÔÇØ says Brown, ÔÇ£and it watches continuously the demand activity for every item. It automatically maintains and updates the replenishment parameters for parts so that they stay in sync with demand characteristics. ÔÇ£One of the big wins weÔÇÖve had is to eliminate MRP messages in the last couple of years,ÔÇØ he continues. ÔÇ£A lot of messages happen in MRP between the time you first recognize demand and you ultimately receive whatever it is youÔÇÖre buying. In a pull based environment those messages donÔÇÖt exist anymore, because thereÔÇÖs no activity until you hit the replenishment point, so there has been a tremendous reduction in the amount of message traffic.ÔÇØ Theune also points out that Plexus has made a strong commitment to standardize processes and that all its locations will be on the same ERP system by the end of this year. ÔÇ£This gives us a considerable advantage in being able to see available supply and putting in common metrics and tool sets.ÔÇØ But the supply chain is not all about suppliers. Customers come in all shapes and sizes, too, and dealing efficiently with them is as important as it is with suppliers. The capabilities of the customer have a huge effect on the solution, says Theune. ÔÇ£If theyÔÇÖre not thinking from a lean perspective it can add inventory, cost and uncertainty into the supply chain.ÔÇØ So part of the skill in managing the supply chain, he says, is getting the customer to understand the importance of connecting to the real source of demand, rather than sending a purchase order once a month. ÔÇ£When youÔÇÖre really synchronized with true demand it makes a huge difference. Unfortunately, thatÔÇÖs not very common when we first initiate with a new customer. ItÔÇÖs partly because of the way the industry has worked in the past, but weÔÇÖre trying to change that. WeÔÇÖre trying to get people to share that demand with us in as raw and relevant a state and as early as possible, so we can design the supply chain appropriate to that.