Copyright Cahners Business Information, a division of
Reed Elsevier, Inc. Jun 6, 2002
[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.
[Photograph] |
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.
|
|
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.
[Photograph] |
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.