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Cessna aims to drive SCM to its very core
James P Morgan. Purchasing. Boston: Jun 6, 2002. Vol. 131, Iss. 10; pg. 31, 5 pgs
Abstract (Summary)

When Michael R. Katzorke, vice president of supply management at Cessna Aircraft in Wichita, Kan., began working on the company's supply chain management system in 1998, Cessna was still a traditional aerospace firm. It had a functional orientation, was vertically integrated, had traditional processes and practices, and there was no provision for Total Quality Management or Six Sigma. To bring about the more fundamental and permanent changes they were seeking, Katzorke and his Cessna colleagues - both at the executive level and in supply management - have developed and deployed no fewer than twenty-one practices and tools aimed at: 1. driving the best possible supply-base rationalization decisions, 2. accelerating the supply-base rationalization process, 3. improving suppliers' performance, and 4. integrating key suppliers with Cessna's critical business, manufacturing, and design processes. Brief discussions of each of these steps are presented.

Full Text (3458  words)
Copyright Cahners Business Information, a division of Reed Elsevier, Inc. Jun 6, 2002

[Headnote]
MANAGEMENT

[Headnote]
Here are 21 steps and tools it's using to make this happen.

[Headnote]
The supply takeoff at Cessna

[Headnote]
Quality is up 86% since 1998
On-time delivery performance has risen 28%
Inventories are down 52% even though business is up 83%

When Michael R. Katzorke, vice president of supply management at Cessna Aircraft in Wichita, Kan., began working on the company's supply chain management system in 1998, Cessna was still a traditional aerospace firm. It had a functional orientation, was vertically integrated, had traditional processes and practices, and there was no provision for Total Quality Management (TQM) or Six Sigma.

Katzorke started with changes that could be done functionally with the existing supply base, for example, rationalizing, writing new agreements, renegotiating old ones. But, it soon became clear to him that making real improvements in Cessna's supply chain would require actions by the entire enterprise.

A real change for the better, he realized, would mean far more than "simply putting a few cheerleaders in charge of enthusiasm" or initiating programs that could not survive a change in management at Cessna. "Most of the supply chain programs I have seen up to here have been built on strength of personalities," he says. In Katzorke's view, "Changing that reality is the key to successful supply chain management."

To bring about the more fundamental and permanent changes they were seeking, Katzorke and his Cessna colleagues-both at the executive level and in supply management-have developed and deployed no fewer than twenty-one practices and tools aimed at driving the best possible supply-base rationalization decisions, accelerating the supply-base rationalization process, improving suppliers' performance, and integrating key suppliers with Cessna's critical business, manufacturing, and design processes

What follow are brief descriptions of each of these steps and/or tools:

Cessna 20/20. As the transformation process began to take shape at Cessna, some relatively vague thoughts about supply chain renewal were gradually fleA out at the enterprise level and turned into a set of goals called Cessna 20/20. This set of corporate-level goals was designed to align everything that occurs in the business with shareholders' and customers' lated as: total customer satisfaction, a world quality standard for aviation, breakthrough operational performance, erational performance, status as a Top 10 company to work for in the U.S., and superior financial performance.

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Michael R. Katzorke, VP of Supply Management, for Cessna Aircraft is determined to achieve a supply chain transformation that will transcend time and people changes.

Stretch goals. Specific goals that Cessna set for itself include: improve quality-reliability 10 fold in three years, improve annual productivity in terms of cost, not inflation, improve ontime delivery 10 fold in three years, and improve cycle time three fold.

Benchmarking Baldrige. As a point of departure, Katzorke turned to the Baldrige Award criteria to benchmark Cessna. He emphasized that the supply base needed to be integrated with Cessna's strategies, processes, and data as well as with its the five corporate objectives. Soon, Baldrige became a major tool for identifying the warts in the process and prioritizing the application of such tools of change as Six Sigma, lean manufacturing, and integrated supply chain. Baldrige criteria were also applied in assessing business leadership strategic planning effectiveness, customer market focus, information analysis, human resource focus, process management, and business results. As the assessment progressed, it became dear that Cessna was running its business in silos, and while functions were vertical, processes were horizontal.

* Business process model. An early result of the benchmarking was a new business process model (see graphic below) that was based around five core processes-customer management, product development, order acquisition, order fulfillment, and postdelivery support. Enabling processes are people management, financial management, quality assurance, and information management. Supply chain is the supplier-facing element of Cessna's process and customer relationship management is the company's customer-facing element. In the model, a senior VP owns and leads each of the core processes, and also serves on Cessna's senior leadership team with Katzorke, CEO Gary Hay, and President and COO, Charlie Johnson.

The model itself provided an important step in driving supply chain management into Cessna's corporate culture. The need was to manage processes rather than functions, while at the same time maintaining the specialized expertise needed for leadership of the business and measurement of the processes. Complicating decision making in this area was the fact that because the number of suppliers in its industry is limited, Cessna needs to share many suppliers with its competitors. This, in turn, raises the urgency to integrate its entire supply chain better than its competitors-integrating suppliers in terms of objectives, strategies, processes, and data.

* Critical data. One of the most serious obstacles to setting up a lasting supply chain process is lack of good hard data. At Cessna, this became one of the first problems tackled by David L. Oppenheim, director of indirect materials and e-business. He started by setting up a commodity-coding project, using a hierarchical commodity-coding schema. This made it possible to organize decision support data according to the new strategies. Altogether, Oppenheim and his group developed part numbers for around 40,000 items and loaded them into a decision support tool called Mapper. The tool was also used to collect data from silos in such areas as purchasing, quality, and finance, which was then used to build a comprehensive decision support medium with data on all purchase orders, receipts, MRP schedules, bills of materials,and quality rejects.

* Full-time commodity teams. Opperheim's critical data work became part of the foundation for creating fulltime commodity teams whose jobs would be to rationalize the supply base, align business processes with suppliers, help suppliers improve, and integrate suppliers into Cessna's manufacturing processes. The very first thing the commodity teams did was to create strategic plans. These plans dealt with decision making in such areas as make/buy, sourcing strategies, plant improvement, trading, quality, and supplier mentoring.

* Rationalization plans. Before real headway could be made on Cessna's loftier supplier improvement and supply chain integration goals, more had to be accomplished in removing nonperforming suppliers from Cessna's supply chain, especially in the production area. If buyers were allowed to keep giving more production or design work to nonperforming suppliers, the problem would never be solved. What was really needed, says Tanvir Arfi, director of strategic sourcing airframe supply chain, was a plan-specifically one with names, faces, phase-out dates, and problem areas. On the production side of the house, Arfi helped develop plans for six production commodity teams-propulsion systems, electrical and avionic systems, major assemblies like braking and hydraulic systems, fabricated parts, raw materials, and electrical and mechanical hardware.

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Under Cessna's business process model, senior VPs own each of the core processes and serve on the senior leadership team with Katzorke, CEO Gary Hay and President and COO Charlie Johnson.

* STARS. To support its supply base rationalization efforts, Cessna created sTARs (Suppliers Tracking and Rating System), a database of historical and current behavior relative to quality, cost, delivery, service, inventory, technology. The data is now shared monthly with the CEO of each major supplier. Using a 1-5 rating scale, (1 being good, 5 being unacceptable), sTARS provides enterprise-wide data for all to see. Most important, STARS, combined with Baldrige award criteria, plays a major role in Cessna's supplier rationalization process. Each supplier does an annual assessment using Baldrige criteria and Cessna tracks progress of the scores involved.

* Sorting process. Using the same type of 1-5 scoring used in sTARS, Cessna commodity teams have gradually developed a rating system that is used to compare like suppliers based on evaluations by cross-functional teams on what suppliers are doing now and what they might be capable of in the future. In basic terms, supplier rationalization at Cessna involves a sorting process that ranks suppliers into one of three categories: (1) Growth: suppliers whose share of Cessna business will grow. (2) Provisional: suppliers whose future prospects as Cessna suppliers are cloudy based on past performance. And (3) Phase-out: suppliers whose business with Cessna is about to end. Phaseout plans are broken out into two categories. One grouping covers makers of such things as avionics systems and major assemblies where certification-- decertification issues can entail significant costs. While suppliers in this area need to be identified throughout the enterprise, not all receive immediate phase-out. Some may be put into a passive phase-out status. As such, they can keep the work they have, but cannot expect any new work from Cessna. The second category covers all items not affected by certification.

* Transformation center. Devoted to bringing about a complete change in the way Cessna does business, this physical center features graphic plans and demonstrations of how the supply chain process is being developed and applied in meeting Cessna's enterprise-wide strategic supply needs. It shows engineers, finance people, product designers, manufacturing and communications people how they fit into the plan. It shows suppliers what's expected of them and how they will be judged under it.

Posted on the walls in the transformation center are results of applied rationalization in each area. Also there is a list of growth suppliers (by team), a list of phase-out suppliers, and a narrative about how each team will handle its phase-out suppliers. Other programs at the center are used to explain the relationships of supply chain strategies and processes at many levels. So far, about 400 people (employees and suppliers) have received training at the center. And it will play an important role in Cessna's next step-aligning with key suppliers in determining Cessna's future supply base.

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David L. OppenheiM, director of indirect materials and ebusiness, helped prepare the ground for Cessna's supply chain transformation with a commodity-- coding project that would provide critical decision support capabilities.

* Transition kits. All of the sourcing switching at Cessna has resulted in the need for a progress transition process. In orchestrating a "robust transition," they have identified three main issues affecting supplier rationalization plans. First is the act of pulling business from phaseout suppliers and giving it to growth suppliers. Second involves new products and can even involve entirely new technologies. Third comes out of make/buy discussions and could be affected by corporate capital spending plans.

For transitions to work, says Katzorke, the company uses a resource kit, a set of forms that walk users through the logic and actions to be followed. The resource kit says, "This process is not owned solely by us, but was created in conjunction with manufacturing, quality, and the other parts of the organization. They all own it and have responsibility for it," Katzorke says.

The transition document is an effort to ensure that the pros is not sidetracked by conflicting ideas about what is expected. As explained by Tanvir Arfi, it provides a map of what the transition team needs ,to be doing at the planning, strategy, and transition phases.

* Electronic auctions. Cessna uses SourceNet, an electronic auction tool provided by its parent company, Textron Inc., to accelerate the transfer of business from phase-out to growth suppliers, says Katzorke. For example, only growth suppliers are allowed to bid in Cessna auctions. Growth suppliers also are given opportunities to bid on business that was formerly with phase-out suppliers. Cessna posts a group of parts it wants to buy and potential suppliers are invited to bid. Prior to the'-bidding, suppliers are given an opportunity to review drawings, parts, specs, requirements, and demand. All bidding is conducted online in real time and all competitors get to see what their rivals are bidding. If pricing drops unrealistically, Cessna usually reviews other factors before awarding a contract. (Since only growth suppliers are allowed to bid, it's well understood that they are capable of meeting Cessna's requirements.) A decision process that formerly consumed six months or more is completed at the end of an hour or so.

* Parts fair. An oldie but a goodie, this tool provides enterprise-wide engagement for materials, process, manufacturing, and quality people, who tend to feel more comfortable in conference rooms where they can talk to live supplier personnel about the intricacies of the parts, how they will be built, etc.

* Enterprise e-procurement application. In Cessna's case, the application is Ariba. In addition to being an important paper workflow cutter, Ariba is being used to shrink cycle time. It offers, for instance, a number of features that improve and reduce workflow costs by controlling choices. It deals with delays in decision signoffs by limiting the time a document can remain in limbo. If no action on a document occurs within a set time, it automatically gets sent to a higher level for approval and/or signature. Ariba also is being used to control misuse of catalog choices and purchasing cards.

* ESIS. This third-party e-commerce tool has eliminated much of the hassle involved in communicating electronically with suppliers in many transactions. Thus, despite the fact that Cessna still makes extensive use of an electronic data interchange (EDI) system, the fact is virtually transparent to suppliers. Depending on supplier needs-from use of a traditional hardcopy PO to information exchange via a comprehensive EDI system-Cessna provides information to suppliers the way they want and need it at virtually no charge.

ESIS gives even suppliers without EDI an integrated look at every aspect pf their Cessna business from future schedule requirements, to elimination of POs and direct forecasting of when each plane goes out the door. Essentially, notes Katzorke, this approach gives suppliers all,the information Cessna has about what it plans to make over the next 36 months. It tells suppliers every day what they need to do and handles all the administrative information Cessna needs to know about orders and payments. And the process is hundreds of times faster because it is all electronic and directory-linked to the business.

* CSRM. Component and Supplier Relationship Management is another enabling tool that links the technical and marketplace information that drives design and sourcing activities. It is a Web-based decision support system that enables the merging of distributed project management, workflow, and databases into a comprehensive environment throughout the parts selection and sourcing processes. It also provides the foundation for future strategic enablement, says Brent Edmisten, propulsion commodity team leader for Cessna. Among its important attributes, saM enables users to launch into a database of parts and suppliers, allowing complex searches across technical and business attributes. It provides views across plant, division, and segment, encourages design reuse by determining if an existing suitable part already exists, provides obsolescence management for designers, provides tools needed to thoroughly analyze supplier performance, and facilitates parametric searches to determine critical design features.

* Supplier advisory board. The idea behind creation of this enabling tool is to improve communication between critical suppliers, Cessna's senior leadership team and customers. A major role played,by the 10-member supplier advisory board is preparation of a blind survey on supplier satisfaction. Theme of the survey: How well do suppliers perceive Cessna's execution of its strategic plan? The main goal of both the board of suppliers and the blind survey is to unearth gaps in the strategy and solicit suggestions on how to, improve.

* Maturity Path Development Process (MPD). This is a "sit down" held with each supplier. Instead of laying out what's wanted over the whole business, Cessna says, "Here, Mr. Supplier, is where you stand in terms of quality, cost, delivery, service, inventory, etc., and here's where you stand On all the Baldrige benchmarks. Based on that we want to make a very specific plan that you're willing to commit to for this year," according to Katzorke. The twopage document covers production, engineering, and other issues that have become systemic and must be cleaned over the next 12 months.

MPD teams operate in each of Cessna's commodity areas. On each of the commodity teams there's a design engineer, a manufacturing engineer, quality engineer, a finance person, etc. It's their job to poll the functional organization on all the things they feel are important for suppliers to improve for the year. Result is a composite of what every piece of the business thinks the supplier needs to do in the coming year. Suppliers do the same. Then the two negotiate a commitment on what they feel can realistically be accomplished. On a monthly basis, a rolling action item list is used. This is a program management action chart that says, "Here's where we are at. Here are the actions to which the parties have agreed. Here's the Cessna individual. Here's the plant individual. Here are the actions they will take." Plans for provisional suppliers are more descriptive, but not necessarily final. Within one year suppliers are expectedto.tca move up to growth supplier status or be phased out. If it can be shown that a good faith effort has been made, the supplier may be given more time.

* GRIP. The tool Cessna uses for measuring smaller suppliers is called measuring sma ler su i rs Gap Reporting & Improvement Plan (GRIP). It's especially important for Cessna because many of its parts are made by smaller businesses with billings in the $243 million range and often they require prescriptive help. In fashioning an appropriate help tool, Katzorke went to the Baldrige Award criteria and followed its seven categories to create a Baldrige-like measurement tool for small suppliers showing them where they needed to improve.

* Alignment of measurement systems. Two years ago Cessna declared its intention to use Baldrige metrics for assessing all its internal processes. At the same time it announced its intention to apply Baldrige criteria to all its growth suppliers. Cessna and its growth suppliers would be judged against the same Baldrige criteria-same process, same ruler, and same sets of expectations. In short, Cessna said it would be asking suppliers to do no more than it was willing to do. Only growth suppliers and provisional suppliers that are doing well on their improvement efforts are invited to participate in the improvement plan.

* Skills, incentives and resources. This is where Cessna focuses on the people doing its work. "The process we use," says Tanvir Arfi, "is to look at core competencies that individuals require at each level and define exactly what each competency means. At the end of the process, there should be a good understanding on an enterprise level of the competencies needed, where the organization is, where it needs to be, and how it will get there."

When he first arrived at Cessna, Katzorke says "There was no way of tying business objectives to process objectives." So, he and his staff spent a lot of time linking performance objectives with development reviews so that people designated as managers understood that something more was expected of them than taking reqs and making POs out of them.

"We had to give them the skills to perform at the higher level. For instance, "rather than telling them they needed to improve negotiation skills, we showed them what better is, how to get better, and then equipped them."

Katzorke turned to certification programs (such as those offered by ISM and APICS) as sources of fundamental training. He also developed relationships with local colleges and Arizona State Univ. in an effort to raise competencies at all levels. Once the purpose of the training (to help current employees qualify to perform higher-level, higherpaying jobs) sank in, employee enthusiasm took off. For example, more than 70 persons have taken advantage of the company's training program to get degrees, and more than 100 persons have taken CPM and/or APICS training.

In addition to upgrading job competency from within, Katzorke also did some strategic recruiting. For example he recruited eight persons from outside to teach people processes, measurement systems, and to raise the overall way work is done. This was followed by moving from a transaction base to a strategic focus, which involved dividing up work among strategic, tactical, and new product elements. What made this work was the close attention paid to linkages. Now Katzorke et al are at that part of the change process where they need to start undoing some of what was put in to place. Up to here they were busy centralizing the supply chain process, pulling it together in terms of getting the strategic emphasis done. Now they are working to make the supply chain process more seamless.

Early results

Cessna is beginning to chalk up some encouraging performance improvements (see box on page 31). But, Katzorke is both optimistic and wary of the future. A challenge, he suggests, will be to keep corporate leaders focused on reducing the company's cost of goods sold rather than its direct labor costs. "The profit on a dollar's worth of sales is lucky to net a dime whereas the net on a dollar's worth of savings is still a dollar," he says.

Indexing (document details)
Subjects: Turnaround management,  Supply chains,  Quality standards,  Benchmarks,  Aerospace industry,  Case studies
Classification Codes 9110 Company specific,  9190 United States,  8680 Transportation equipment industry,  5120 Purchasing,  5320 Quality control
Locations: United States,  US
Companies: Cessna Aircraft Co (NAICS: 336411 333911 Duns:00-723-3596 )
Author(s): James P Morgan
Document types: Feature
Publication title: Purchasing. Boston: Jun 6, 2002. Vol. 131, Iss. 10;  pg. 31, 5 pgs
Source type: Periodical
ISSN: 00334448
ProQuest document ID: 124587991
Text Word Count 3458
Document URL:

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