Off-Shoring, On- Shoring - SCM As A Core Competency Bob Forshay, VP Transformance Advisors Inc. APICS Terra Grande District Houston, TX March 1, 2012
Dec 26, 2015
Off-Shoring, On-Shoring -SCM As A Core Competency
Bob Forshay, VPTransformance Advisors Inc.
Bob Forshay, VPTransformance Advisors Inc.
APICS Terra Grande District Houston, TX
March 1, 2012
APICS Terra Grande District Houston, TX
March 1, 2012
Agenda
Learn
Evaluate – Debate
Apply
Why We Do This?
Group Exercise
Impacts, + or –Examples
What If?
Call To Action
Summary
Off Shore Impacts?
Pros
Lower Labor CostsBusiness IncentivesLower Materials CostsVolume Buy Price
Low Unit Cost?Low Unit Cost?
Partial HistoryLaptop Batteries - Fires
Pet Food Contaminated - Deaths
Lead Paint on Toys - Deaths
Drywall Contaminated – Sickness
Business Lost to Pirating - Revenue
Embedded Security Risks – Security
How do you proactively manage the risks?
What is the real cost?
Business Impacts?Cons
Lead time Risk - Greater Inventory Risk?Information Risk - Communication? - Quality Processes? - Quality Reporting? - Quality Management? - Change Management?Management Risk - Sourcing Integrity? - IP stolen w/i 6 months Transportation Risk - Logistics Controls? - Import/Export Costs?
Cons
Capacity Risk - Uncertain Commitment? - Volume to Justify? - Cost of Change?Service & Repair Cost? - LT to Service? - Separate Facility/Skills?Disruption Risk - Triage & Recovery - Relocating key personnel?Economy (foreign) RiskExchange Rate RiskCustomer Confidence RiskMarket Risk
Social Impacts?Subpar Labor Practices
Low compliance to work standards Fraudulent audits Child labor est. 4-5% 10-20% turnover/month 12-18 hour shifts Union worker complaints = reason to fire Suicides increased - higher than average Epidemic of chemical poisoning incidence
US Worker Earning Potential – Standard of Living down
Environmental Impacts?
Substandard air quality
Water supplies cannot sustain natural life
Climate change
n –hexane exposure
Teams Compete
RobotRick Enterprise
Control PCBA Outsourced to China
Foreign labor cost 50% of US labor
$50 per ea. from China
$59 per ea. from US
10,000 unit monthly volume
Evaluate Supply Chain Alternatives
What Is The True Cost?
What doesn’t flow to the Purchase Order Price but is still a cost we are paying?
Supply Chain Digest News
Total Landed Cost CalculationKey to Supply Chain OptimizationStill Immature Practice, 2010 3PL Study FindsOnly 45% Report Extensive Use; 41% report Somewhat Use;Data Capture Challenges - Primary Obstacle
Oct 2010
Poll – 2010 15th Annual 3rd Party
Logistics StudyA. Data Not available
B. Do Not Have Right Tools
C. Insufficient Time for Analysis
D. Not Sure how to calculate TLC
Least Total Cost the total cost of a landed shipment including purchase price, freight, insurance, and other costs up to the port of destination. In some instances, it may also include the customs duties and other taxes levied on the shipment.
BUT – Is there more to know?
Total Landed Cost ExampleMalaysia USA
Quoted price per board 50.00 59.00 Export packaging 1.00 - Ocean freight 2.20 - Marine insurance 0.26 - Supplier price 53.46 59.00
(CIF Los Angeles) FOB OriginPort of entry handling 0.80 - Customs duties 2.14 - Customs brokerage fee 0.25 - Inland ground transportation 1.25 0.80 Inventory 3.12 0.86
(8 weeks) (2 weeks)Communications 0.16 - Travel 0.63 0Administrative 0.60 - Additional cost 8.95 1.66 Total Landed Cost 62.41 60.66
Example – Circuit Cards
Circuit Cards Risk
10,000 units produced per quarter,
75% in transit – Boat
25% already arrived
$110 each! $1M
Immediate Engineering Change Implemented, Rework = 100%
Circuit Cards Risk
Required assy’s to ship product
Takes too long to return
Non Standard Labor
Reassigning allocated skills, stopped other important work
Allocate limited supply of new parts, Rework in US and New Build in China, costly expediting
Example – Forged steel Parts
Forged steel Parts
Volume Low - weekly demand
Quality Requirement is very high
Lead Time from US = 2-4 weeks
Lead Time from China = 8-16 weeks
Inventory at risk increased 4x
Forged steel Parts
Over half of items outsourced ultimately cost MORE.
Quality problems increased
Significant incidents reduced OTD
Some product returned, added freight
Some reworked locally when possible, added labor
Example – Mechanical Steel Fab
Mechanical Steel Fab
Power Supply designed by US team, manufactured by CM in China
Assy at 2nd CM in China for Assy & Test
Quality Management System ignored
Defects set aside at Assy CM, piling up in informal “MRB” area.
Assy Contractor ran out of usable PS’s as defect rate from Contract Mfg grew.
Mechanical Steel Fab
“Escapes” found their way to customers.
Production Stopped.
Intransit inventories quarantined
Triage sort & ship process set up in Bonded Warehouse.
Return majority not usable
Weeks to recover AFTER quality defect root cause identified.
Poll – Results
A. Data Not available
B. Do Not Have Right Tools
C. Insufficient Time for Analysis
D. Not Sure how to calculate TLC
49%
48%
31%
27%
Too busy working ON the business to work IN the business!
Too busy driving to stop for gas!
What If?
Supply Chain Management is a core competency
Lean Supply Chains
SupplierRelationshipManagement
CustomerRelationshipManagement
LeanEnterprise
On Shoring Instead - 2011
GE Water Heaters Local collaboration saves cost, US 6% less
than China – 400 Jobs returned
Hydraulic Die Cutting process Custom Order Warranty Cost reduced 90%
Master Lock productivity increased 6x Returned mfg from overseas
China Labor Cost Rising
Boston Consulting Group Press Release from May 5th, 2011; “We should expect net labor costs for manufacturing in China and the US to converge by around 2015.”
Daily Supplier DashboardMinimize Risk, Minimize Variation!Manage the Leading IndicatorsFPY – First Pass YieldInbound Materials CertifiedDaily “MRB” resolution, no laggards!Track / Improve Response TimeDaily Quality Reporting by SN/itemCommon Data BaseTimely CARs, Corrective Action Reports
Promote EducationLean
Supply Chain
CurrentPosition
Specify Value
Identify Value Streams
Create Flow
Leverage Pull
Seek Perfection seven types
of wasteMovement
Motion
Waiting
Defects
Over production
Poor processing
Inventory
Supply Chain Management is a core competency
SupplierRelationshipManagement
CustomerRelationshipManagement
LeanEnterprise
Benefits?
The World Class Imperative
Supply Chain
Capabilities
Market Leadership
ProfitAdvantage
*Supply Chain Management Review, Survey of 110 companies in five sectors
Business Strategy
Total Supply Chain Management Cost
5.87.1 6.7 7.0
6.1 6.5
12.213.1
11.310.3
10.9 11.5
0.0
5.0
10.0
15.0
Computers I ndustrial Telecom Chemicals PackagedGoods
Overall
% R
even
ue
Best
Avg
75% Higher Profits
*
Call To ActionList Three Things To Do Next Week
What are you measuring?
TLC as The Metric?
Who Collaborates on data?
Balanced Scorecard & Daily Dashboard
Questions? Ideas?
Summary - Key Takeaways
Elements of lean supply chains must include Total Cost view.
Apply 5 principles of lean
Systematic lean leadership = Participation and Education
End of Presentation
How to Reach Us
Bob Forshay,CPIM, CIRM, CSCP, CSCA, CSCM, CLM
VP, Transformance Advisors Inc.
720-244-0579 c720-295-LEAN