Product = (Specification)²
Rudy Hageman on tomorrow's value chain
First, we tore down the walls between the departments in our company. Then, we expanded our horizon beyond our company’s borders. Many companies may have a brand new vision on their supply chain, the software tools they use, such as ERP, are somewhat dated. That is insufficient, states Rudy Hageman, CEO of Pearlchain.net. We need to evolve towards a real-time value chain. In order to do so, we need to approach our product from a different angle. No longer is it an item, it becomes a list of specifications. This approach requires an adapted form in information technology. PearlChain.net came up with a new concept where real time communication between different partners and their IT networks takes central stage.
Before we examine this concept, Rudy Hageman shares his vision on the real-time value chain. According to him, we need to let go of several principles. No longer does a customer buy a product, he purchases a list of specifications. All those parts are rarely delivered by a sole company. A final product’s quality is determined by the quality of each and every step in the value chain. His vision has already been developed and –sometimes partly- applied in the automotive and the textile sector.
Rudy Hageman, CEO Pearlchain.net: “For example, let’s look at a car. It takes about 200 companies working together, to create one single car. In the textile sector, we see the exact same thing. In clothing, the quality of the wool is just as important as that of the design and that of the distribution channel.”
Faster Chains
Waste is a problem many value chains face. Especially the warehouses contain an enormous amount of waste. Warehouses are in se already a huge waste of time and money, states Hageman. “Many companies plan their runtime from A to Z. This also means they cannot react quickly enough to any changes in the market. A company like Zara scores excellently, because it can respond to any changes immediately. Companies who lack that speed, lose many sales. Not only are they unable to deliver the goods the customers wants, the goods they do have, are the wrong ones.”
The concept Pearlchain.net has developed, shortens the process considerably. This way, it tackles the problems of lost sales and waste.
R. Hageman: “Many companies have fixed agreements with other companies, hoping to get things done faster. These agreements cause a loss of efficiency, not an advantage. They lose their flexibility and in time, they need to charge the costs to the next link in the chain.”
Leaving the trodden path
Real-time communication is a very important factor in speeding up this process. First and foremost, companies need to publish their data on the internet. Few IT-systems are able to do so. According to Hageman, the article numbers are the root cause.
R. Hageman: “ERP-packets start from article numbers, but that is a dated approach. A customer does not buy a product, but a combination of specifications. For a given car model, there are about 20,000 possbile combinations. Each demand is a specific combination of parts and labor. All these combinations cannot possibly be listed in one sole product. So far, the existing ERP-packets have not found a way to work around this issue. You need to find the balance between the correct parts and the right production capacity. That is why you need an IT infrastructure that can handle the demand and supply of capacity.”
The trade in capacity has wiped out the difference between a production step and a logistic step. Each production step has a logistic component and vice versa.
R. Hageman: “Even just to move your product, means creating extra value. You cannot plan the rest of your production until you solve, say, a transportation problem. An example from the textile sector. Let’s assume that when the thousandth pair of trousers are sold, a new set of sheep need to be shaven in order to have the new wool in time. Today, this is still not the case. The wool spends easily 12, even 24 months on the road. Far too many companies are into long term contracts, but they aren’t always the best solution. It may even be better to refuse an order from a large customer, in order to maintain your efficiency towards your other customers.”
Real-time reflexes
Real-time information supposedly enable companies to react a lot faster to changes in the market. “Another example from the automobile sector. Currently, constructors use their sales statistics to discern certain trends. By the time a colour’s popularity is confirmed that way, the trend has already evaporated. Yet, a colour’s success can be determined after just seven days”, Hageman knows.
Real-time cooperation will cause changes in another area, too, states Hageman.
R. Hageman: “Previously, all suppliers tried to position themselves as closely possible to the OEM (original equipment manufacturer). However, it’s better to have specialized suppliers anywhere in Europe. This allows them to deliver specific parts very efficiently. Suppliers whose strong suite is their ability to deliver make to order parts to the market can be a lot more valuable than suppliers in Eastern Europe.”
It is of the utmost importance to monitor all trucks on the road very closely. “Say a truck is on the road for three days and something happens. This timeframe allows for plenty of time to react, to compute erything anew and to reschedule your production plan. In the automotive sector, we can check every 53 seconds if our planning can still be carried out. By computing your planning again and again, you can plan over a longer period because the amount of interruptions becomes smaller over a longer period of time. Last minute changes will always happen, but if you have a fixed planning for seven days and you only mark the changes for those seven days, you have a much more stable planning than when you plan only four hours ahead, the way certain car manufacturers do”, Hageman continues.
All these calculations come with a whole new kind of IT integration. A manufacturer and his suppliers need to integrate their systems seamlessly. Not only must they monitor their trucks in real time, also the entire production apparatus, including all robots, needs to be coordinated in real time.
R. Hageman: “All this information enables the suppliers to either process these data manually, or integrate them into their IT systems. When following their customer’s production process in real time, they’ll see straight away which changes will influence their own production process.”
PearlChain explained
The foundation of the PearlChain-concept is a so-called engineering database. In this database, all possible varieties and options of a product are clearly described. Such a database determines the configurations in which a certain product may be sold and how each combination of options influences the production process. As soon as you know the quantity you’ll produce of a certain combination, you can decide what needs to be delivered.
R. Hageman: “In the past, you planned one processes after the other. Each process had its own bill of material (BOM). As soon as one process was planned, you started planning the next one, and so on. Now, we make a bill of material for the entire product. This way, you know all the instructions for your suppliers. An ERP-system is still needed to control the process, but now we connect the processes with one another. This is a new approach. How this works exactly, depends on the agreement with the customer. We digitalize the products themselves, instead of the separate processes. This makes all the difference. We want to introduce the concept of an engineering database into different sectors.”
As soon as a planning is made, it is of the utmost importance to monitor it as closely as possible. At any given moment, it has to be clear what has already happened and what still needs to be done in order to complete the planning. In this context, quality control gets a whole new dimension. “Currently, if something goes wrong in the middle of the production process and a product can no longer maintain its quality level, the products are first finished and afterwards, companies decide what to do with them. We are going to tackle this issue from a completely different angle. If the quality suddenly drops a level during production, we will immediately look at the next order for the lower quality and afterwards, we will carry it out.”
The Pearlchain.net concept isn’t just for production companies, it works just as well for those in the service industry. “Suppose a telecom operator needs to have some work done on his network. Not only does he need the correct licenses, the weather has to be good enough to allow for the work to be done. If one of those conditions isn’t met, the works need to be rescheduled straight away”, Hageman explains.
Webservices for a collaborative value chain
The result of all that? Real real-time organizations, where the customers, the suppliers and the coworkers have access to the same data. Until now, the cooperation between companies is often fraught with problems because companies tend not to give out information to outsiders. Webservices enable them to share data, without risking unauthorized access to critical information. The partners ask a question and get access to the information they need. You could compare it to Google. No longer are data located at a central place, they now remain property of the individual companies.
R. Hageman: “When companies don’t just give real-time access to the relevant data, but also redefine their master data, so it no longer means the products being sold but the entire set of specifications the customer buys, it allows them respond with speed and agility to any changes in the market. This could make an enormous difference. When a car manufacturer decides to stop producing a model in a certain factory, it’s a heavy blow. This is why companies need to organize differently and ensure they can produce new models quickly and flexibly. IT wise, it isn’t a walk in the park, but the change management is even harder. The smallest change needs to be monitored closely. Assuming a change to one model affects fifty out of two hundred suppliers, they’ll have to make all the necessary changes for that very first car on which the changes apply.. That one car is the transition point and no longer the process.”
Digitalizing the products instead of the processes, affects the financial side of things as well.
R. Hageman: “More and more car manufacturer only pay their suppliers when the delivered parts have been installed in the car. This encourages their suppliers to deliver as late and as correctly as possible. And to have as little stock on the road as possible. As soon as a part is processed, a message is sent to SAP, allowing it to be invoiced. Those invoices are cumulated monthly, but the payment is done much faster than used to be the case.”
Without waste
Eliminating expensive phases ensures a large cost advantage. Currently, suppliers carry out their assemblage in sequence, close to their customer. An expensive phase Hageman claims is superfluous. “If all suppliers would deliver in sequence, the assemblage of all those parts could be done at the very end of the chain, instead of beforehand. All parts need to be delivered in time and efficiently, even in the truck all the pallets need to be in the correct order. The same goes for carpet producers. Their customers have to purchase per container. The production, however, is planned per loom instead of per container. The carpets for a certain customer are stored in a warehouse until all carpets are ready to be shipped. The warehouse space needed is immense. It would be so much better to plan per container and see where and when you have the needed capacity. Then, if something changes, you need to compute the planning for the entire container. In order to be able to do so, you need to get real-time information from all individual processes, so you can take that data into account in your calculations”, Hageman explains.
The engineering database and the scheduling part are offered by Pearlchain.net itself. To create the network infrastructure that enables those forms of communication needed for –among others- the tracking and tracing, Pearlchain.net works together with Telindus.
R. Hageman: “Just because it is not a closed environment, the availability and safety of the network become important. We offer a complete solution and for this part, we rely on the specialized service of Telindus. The main advantage being that Telindus has a complete range to offer we would otherwise have to gather from different smaller partners.”
At the moment it is unclear how long it will take companies to make the transition to a more dynamic chain. Hageman can only ascertain that countries in the Far East seem to be much more interested in the new method than the European countries.
R. Hageman: “After all, they have to bridge the gap of three weeks of sea transport. It greatly increases their interest in new concepts that enable them to work faster and more flexibly. I strongly believe that Chinese companies will choose Europe to manufacture their products. European companies already have the advantage of being close to their markets. Now, the realization has to dawn that they need to invest in flexibility – urgently.”
(After an interview of Barbara De Vos for the magazine Business Logistics)