Previously, he worked in operations and supply chain capacities with Honeywell Engines and Systems, Allied Systems, and Lockheed Martin Defense Systems. Q: How is operating a supply chain different when the Department of Defense is your major customer? Answering: We need to adapt to the changing customer first. The focus within DOD has shifted from products to capabilities. And, second, they have raised the awareness of mission assurance within the defense business generally and the missile defense business, in particular.
Within Raytheon, Bill Swanson, our CEO, has said we are going to take mission assurance to the next bevel across all our businesses. Putting that together, the challenge we have is: How do you make our supply base aware of our new expectations; and, what do mission assurance and our new business strategy mean to us? That change forces us to look at the historical supply chain in a different set of paradigms. Q: What was the shift of objectives? Answering: We went from operating traditional purchasing and supply chain organizations to what we today call an integrated supply chain.
With that, we intend to link our engineering groups and our performance excellence groups with our applier base as early as we can in the process when building relationships with our suppliers. We need our suppliers to be an extension of ourselves. The old routine, when dealing with our suppliers was focused on costs, quality, and schedule. Lack of performance in these categories generally provided a stressful exchange. That has changed. Now, it’s going to be more collaborative. We’ll be working together so that we’re building the right stuff on time, correct the first time. There can’t be three iterations before we get it out the door.
Q: How do you do that? What is the task? Answering: One key thing: We used to be a very tactically oriented organization; we’re now shifting to become more strategic. For example, we are organizing more supplier conferences at which we can establish expectations with our supply base. This past June, we had 67 of our key suppliers participating in a supplier forum. The theme of the event, “Performance Matters,” focused on how mission assurance is a key element. We are communicating what mission assurance means to us and to our supplier base, to make sure that their behaviors, our behaviors, and our relationships all improve over time.
Q: Ideally, what would you like to get from your suppliers? Answering: When I look at my integrated supply chain of the future, I’m going to use a phrase: a netted integrated supply chain. What does that mean? As Raytheon IDS works to become a Joint Battleships Integrator, we will have expertise over multiple domains. The challenge for our supply chain organization, then, is to take the suppliers who are expert in certain domains and knit them together to allow us to create solutions to satisfy our customers’ needs and support our business vision.
Q: Does this mean that suppliers will be working with other suppliers? Answering: In some cases, absolutely. Then the question is: How do we broker them to partner with each other to bring us the best result? Q: With this new business focus, what sort of measures do you use to determine your success? Answering: Previously, the majority of our metrics were internally focused on the supply chain. While we still have some metrics that are internally focused, we now have an organizational perspective that measures the value we provide to the business.
These metrics are in the area of effectiveness, efficiency, capability, and capacity. We’ve also now established metrics hat are linked directly to our business performance and to our customer’s expectations. The key focus is: How do we create value for our customers and our business? Q: Now, what are those new metrics? Answering: One of them is cash-to-cash cycle-?how quickly do we collect cash from our customers? Another one is on-time performance to contract. Do we deliver our hardware the way we said we would, when we said we would, with mission assurance and quality levels that satisfy our customers?
And third-?we have a strategy within Raytheon IDS that is linked around asking: How do we improve our overall cycle time thin our business? Q: Why is that one crucial? Answering: If our customer is king, and if we need to Jump through hoops to come up with a satisfactory solution for that customer, then we need to be very agile, very flexible. We will need to take on challenges we’ve have never taken on before. To make that possible, flexibility within the supply chain becomes very key. Q: How would you characterize your supply chain effort?
Answering: As I said, we’ve Just reorganized our entire supply chain around the Raytheon IDS vision and our customer’s expectations. That supply chain has five major capabilities in it. One is what we call collaborative solutions. That is a group of very talented, top-notch supply chain experts who are engaged with our business development people early in the process. We have supply chain professionals who are engaged in that process, to help with the partnering suppliers, the supply selection process-?who do we want to partner with to win this proposal? So that’s one capability.
Q: You mentioned subcontracting. Is there a piece for that? Answering: Yes, that’s the next capability. With our business shifting from a product- focused to capabilities-focused solutions, Subcontract Management is a key part of our supply chain activity. Our strategy here has been to add new skills, tools, and techniques to manage major subcontracts. Today, we have close to $2 billion in subcontracts that we are managing. Q: And finally? Answering: Finally, our Integrated Supply Chain organization continues to support the products foundation for our business.
Material Acquisition, Planning & Product Management, and Integrated Logistics are all key elements in supporting our manufacturing operations with the right material at the right place at the right time and cost. The focus in these areas is transformational change to increase the effectiveness and efficiency of operations. Examples include all elements of e- procurement, reduction in transactions, lean supply initiatives, and innovative materials handling and flow techniques. Q: That’s organizational. What about people?
How do the people you’re looking for today differ from five or ten years ago? Answering: Traditional supply chain professionals are still very critical to the success of our organization. But, if I had a wish list and all my wishes came true tomorrow, then I would want to hire professionals from this day forward who have multi- splendid experiences and expertise in program management, project management, engineering, operations, and supply chain. Integrating these key capabilities is critical to the success of our integrated supply chain. Q: How hard is it to find such people?
Answering: It’s very hard to find such people. I might want to hire the next five program managers that come my way, but a lot of other places also want to hire them. The Defense Department is trying to hire those same skills. Of course, if we see people with the skills we want available on the street, we scrounge them up. Q: If the people you want are at a premium, how do you meet your need? Answering: Within our new supply chain, we have created and communicated a career path for the future program managers of our business through the supply chain organization.
We have set up rotational assignments that move people from engineering to business development to performance excellence-?all through the supply chain organization so we create multi-dimensional people. We are sowing some of the seeds for tomorrow. At the same time, we are taking some of the veterans of these functional areas and convincing them to take a career path into integrated supply chain. Q: Does this change much affect your IT requirements? Answering: The key IT task is connectivity.
The most important question in my mind is how do I connect my programs, engineering, performance excellence, supply chain, and operations professionals to the best of my ability? How do I share information across the board as fast as I can? Then, how do I drive that connectivity into my supply base? That’s one thing that’s required if we are to engage suppliers early in the process. Q: Is it fair to say that the new standards you have from DOD will ripple back through your organization? Answering: In my mind it has to-?the DOD is our customer.
We have strong relationships with our DOD customers, built on our performance and superior solutions we provide. New standards are another aspect of the dynamics of this business. We know we need to listen and be responsive to our customer needs, and provide solutions at ramp speed. Q: A final question: How important to supply chain reengineering is support from top management? Answering: My boss, IDS president Dan Smith, will say at every meeting: If we can’t get our suppliers in line, and if we can’t change how we do business internally, then ere not going to get to where we need to be to.
Time is of the essence. It’s an absolute must happen. Source: Bernstein, M. , “Raytheon Goes From Traditional Purchasing to an Integrated Supply Chain,” World Trade, V. 18, No. 11, 2005, up. 36- 38. Used with permission. INTRODUCTION Unfortunately, in too many Journal and magazine articles, books, and television programs these days, supply chain process integration is dealt with solely in terms of information system applications-?in other words, simply connecting buyers and a suppliers via the latest software application results in successful supply chain recess integration.
Hopefully, readers of this text have begun to realize that the latest enterprise software applications increase access to information and can certainly add value to internal and external process integration, but they do not allow companies to replace or leapfrog the necessary people-oriented elements involved in supply chain management or process integration in general.
So, while Chapter 9 of the text, which dealt with information flows, and several other chapters of the text have discussed or mentioned the use of information systems when managing recesses, this chapter seeks to guide the reader towards a deeper understanding of successful supply chain process integration, and the necessary steps and tools to get there.
Chapter 1 described the general idea behind business process integration, namely the sharing of ideas and information, coordination of process activities, and collaboration on process design and implementation between supply chain members, such that products and services are provided at the desired levels of quality, speed, and cost along the supply chain-?from raw material suppliers to end- product consumers.
Business research over the past 10 or 15 years has, for the most part, found a positive relationship between process integration and firm performance. 3 In general terms, successfully integrating key business processes among supply chain trading partners is the essence of supply chain management, and remains one of the biggest hurdles for all companies implementing supply chain management practices. However, as described in the two statements on the opening page of this chapter, there is much to be gained through process integration.
This text has been divided along the lines of the eight key processes involved in supply Hahn management-?customer relationship management, customer service management, demand management, order fulfillment, manufacturing flow management, supplier relationship management, product development and centralization, and returns management. Successfully managing supply chains requires the firm to first become internally integrated in the relevant key business process areas, and then look to integrate these processes with important trading partners.
This requires breaking down barriers to integration inside the firm, followed by establishing a high level of trust and working experience with the firm’s raiding partners, and involves the use of appropriate technologies and performance measures to improve internal and external integration capabilities. Process integration is thus something that evolves over time within a firm’s workforce and its supply chains. Successful process integration is also something that can be difficult for firms to benchmark; rather, each firm must develop its own unique set of integration capabilities.
Different firms have different employees, cultures, processes, products, suppliers, customers, and technical capabilities; therefore their means to successful integration and supply chain management may vary from their competitors, or other firms like Texas-based computer manufacturer Dell and mega- retailer Wall-Mart who have created reputations for possessing superior supply chain management capabilities. In short, there is no “silver bullet” set of detailed practices that will guarantee process integration or supply chain management success.
Managers must define and uncover the appropriate supply chain strategies for their firms, align their own business strategies to those of their supply chains, and then design operations practices that support the strategies. In a multi-year study first launched in 2005 by Mitt’s Center for Transportation and Logistics, a number of successful companies are being studied with the intention of identifying general attributes critical to successful supply chain management.
So far, they have found that companies need to adopt a “competitively principled” strategic supply chain management framework, or in other words, develop a set of tailored practices for their company that lead to success, based on their unique resources and the required supply chain strategies. 4 Because successful internal and external process integration also requires the passage of time, most firms and their supply chain trading partners are still heavily involved in their process integration efforts.
This is exacerbated by the seemingly continuous entry of new competitors, new suppliers, new customers and customer requirements, and new information and communication technologies to the marketplace. Consequently, there are many new trends in process management and process integration impacting supply chain management. Some of these trends and developments will also be discussed in the final section of this chapter. ACHIEVING INTERNAL PROCESS INTEGRATION
As a reminder, the term process integration means coordinating and sharing information and resources to Jointly manage a process. Integration can occur both internally or externally with respect to the firm, and reflects how harmoniously employees or businesses work together to accomplish tasks. Developing communication, information sharing, and collaboration capabilities among employees in different units within an organization can be quite difficult, particularly when departments are busy protecting turf and fighting for their share of tight budgets and other firm resources.
But this type of behavior, along with other internal aeries, must change in organizations serious about process integration. In some industries, process integration is the norm and has become necessary for survival-? take the automobile industry, for example. As described in Chapter 10, Japanese auto manufacturer Toyota had become quite proficient at lean principles by the asses, in part by creating opportunities for its employees to integrate their efforts when designing and building new automobiles, and when solving manufacturing and quality problems.
As a result, Toyota has been able to provide higher quality automobiles with shorter new model cycle times when compared to most of their interiors. Consequently, Ford, MM, Demolisher’s, and other auto manufacturers have been forced to follow suit to stay competitive. As of mid-2006, Toyota was trailing only GM as the world’s largest automaker and was easily the world’s biggest in terms of profitability (approximately $20 billion per year). In fact by 2001, most North American automakers reported that they were practicing internal integration of key processes, and working hard at forming fully-integrated supply chains. 6 To achieve internal process integration, firms must first lay the groundwork necessary to egging process integration efforts. This includes breaking down internal barriers to collaboration, connecting departmental and unit information systems, and developing performance measures that encourage teamwork and collaboration.
When the firm’s employees are comfortable working together and sharing ideas and information, then supply chain management efforts and external process integration with trading partners can begin to take place. Figure 16. 1 depicts this integration model, and a discussion of each of these topics follows. Figure 16. 1 The Supply Chain Process Integration Model The Preparation Phase To adequately prepare the organization for external integration and supply chain management efforts in general, managers must first create an internal environment where teamwork and information sharing are encouraged and rewarded.
To accomplish this, existing barriers to collaboration must be removed, information systems within the organization must be unified under one central database, and collaboration performance measures must be designed, implemented, and periodically reviewed. Breaking Down Internal Barriers to Collaboration Internal barriers to collaboration can be classified as technological (information yester software/hardware) barriers, structural (management hierarchy, goals, procedures) barriers, and cultural (employee values, norms, behavior) barriers.
Chapter 9 discussed a number of information system problems, including the purchasing of software applications at different times or purchasing best-of-breed software solutions from different vendors, both of which require integration middleware to tie the systems together, or the use of web services and web portals to create information sharing capabilities for the disparate applications. These could be considered technological barriers to collaboration.
A few years ago Washington- based fashion retailer Nordstrom online site, Nordstrom. Com, found itself unable to accept gift cards purchased by customers at Nordstrom stores (it lacked a linkage process to the Nordstrom banks mainframe required to validate and execute the transaction). The company adapted quickly by using XML web services to integrate its systems and create a standard data format that all of the company’s systems could understand. 7 XML web services are becoming the basic platform for application integration.
Applications are constructed using multiple XML web services from arioso sources that work together regardless of where they reside or how they were implemented. 1996 Ted Goff, http://www. Ted. Goff. Com Structural barriers to collaboration include the often slow, bureaucratic decision- making hierarchy in firms; poorly designed pay systems and incentives; and ineffective administrative procedures and policies. An incentive pay system that encourages groups of employees to work against one another is a structural problem, for example.
Steve Banker, senior supply chain analyst at the ARC Advisory Group in Massachusetts advises companies to establish compensation methods that reward teamwork. If you tell people to work as a team, to make it work, you need metrics that measure supply chain performance. Then you have to tie punishments and rewards to those metrics. “8 Structural change involves a top-down management approach, because the expertise and resources needed for administrative improvements requires the involvement of middle and upper management.
When problems such as a lack of communication and teamwork are acting as barriers to internal process integration, structural changes are needed, and this requires upper and middle management to take the initiative to propose and implement structural solutions. Structural change implementation tactics can include employee education, instituting cross-training and process teams, and manager/worker negotiations to achieve acceptance of the changes. During the early days of U. S. Repressions baseball, hiring a hearing-impaired player on one team initially caused a severe communication problem among the team’s players. The coach’s solution was to implement a structural change-?he taught the entire team a version of sign language to improve communication. This creative solution ultimately led to the widespread use of hand- signaling among baseball team coaches and players. More recently, when the U. S. Congress mandated the restructuring of the Internal Revenue Service (IRS), a number of structural changes were implemented to improve customer service and protect taxpayer rights.
For example the IRS Large and Mid-Size Business Division was created to administer taxes for businesses with over $10 million in assets. Lately, the IRS has adjusted managerial span of control to better balance the number of employees reporting to managers, eliminated management redundancy in some field offices, and adjusted the number of its core industry groups from seven to five. 0 Hospital Corporation of America (HOC), a leading healthcare services provider based in Tennessee, designed an organizational structure that groups everyone together to improve the organization’s effectiveness.
The equipment people include nurses and lab technicians, and construction people include engineers and construction professionals, for instance. Thus, diverse groups of people at HOC are working together towards the same goals. Al At Iowa Health – Des Monies, consisting of three hospitals, a new staff position was introduced called “master of the environment,” here employees are cross-trained in all of the hospitality services, allowing them to better serve patients and permitting them to float between departments and hospitals where needed.
This has improved patient satisfaction as well as employee satisfaction. 12 The third set of barriers to internal process collaboration or integration can be much more difficult to overcome, namely the often deeply-rooted cultural barriers to collaboration within the firm, which can encourage employees to hoard information, hide operating problems, and shy away from working together as a team to develop optimal solutions for the organization. This is sometimes also referred to as the silo mentality, where workers act only in their own best interests, and managers act only in their departments’ best interests.
An overall lack of trust can permeate this type of organization. Cultural changes in the organization are required to reduce the silo mentality and improve trust, or how employees think about their coworkers and the organization. In these types of cases, the organization as a whole must undergo change. Training large blocks of employees is perhaps the most frequently used tool for changing an organization’s mindset, and the impetus or cultural change must come from top management.
Other activities used in managing cultural change include frequent communications with all employees; management behaviors that are consistent with desired values and beliefs; use of newsletters, intranets, kiosks, and videos; resolving cultural differences as quickly as possible; and the development of a cultural integration plan. Forest product company Weyerhaeuser, headquartered in Washington, uses an arsenal of educational tools to help its employees get comfortable working together under one company culture.
It sees an interactive game to convey the payoffs of aligning work styles, and has also created a DVD entitled “All in One” to explain the homebuilding industry and the firm’s collaboration strategies. 13 When mergers occur, cultural clashes can result in many problems for the newly formed company, requiring managers to be proactive in building a new vision and integrating cultures and values. When pharmaceutical companies Astral of Sweden and Seneca of the United Kingdom merged in 1999, a senior executive team approved a range of proposals to support the development of a new culture.
A key proposal was to create a global cross-functional leadership development program, initially for the top 200 people in the company. This successful program led to a more innovative learning environment and greater levels of trust in different parts of the firm. Within three years, about 900 managers had actually participated in the program. 14 When California-based switch maker Cisco formally took control of optical transport producer Current Corp.. , also of California, in 1999, the company embroiled a transition team to oversee every detail of Cerement’s assimilation.
As soon as Cisco took over, every new employee had a title, boss, bonus Lana, health plan, and a direct link to Coco’s internal website. Team members distributed basic information about the Cisco organization, its vacation policy, and its benefits to employees. The aim was to reduce uncertainty so employees could more quickly focus on their Jobs. 1 5 The Service Perspective feature describes the integration challenges posed by the merger of U. S. Retailers Smart and Sears.
SERVICE PERSPECTIVE-?sears Faces Massive supply Champ Integration Challenge With nearly 40 supply chain systems between them, Sears and Smart must decide which will best support the combined concern’s 3,500 stores. The enormous IT integration challenge will be even harder for the newly formed Sears Holding Corp.. Because, industry experts contend, neither firm’s supply chain has been a model of agility. “This is a huge endeavor they have to go through, and neither one is known for excellence in IT or supply chain [management],” says Noah OTTOMH, principal supply chain analyst with market researcher Forrester Research Inc. In Cambridge, Massachusetts. To realize the $500 million in operational efficiencies that Sears Holding executives promise, analysts believe the retailer needs coherent IT and supply chain operations. The recent Sears and Smart marriage, however, creates a protracted supply chain management chore. Streamlining the myriad applications is “a time-consuming and arduous process” that will take Sears Holding “several years,” says Kim Piccolo, a retail analyst with Mornings Inc. , an investment research company in Chicago.
Amid headlines about cutting expenditures, brand names, and store locations, Sears Holding publicly eschews talk about such issues. Since shareholders finalized Smarty’s takeover of Sears on March 25, 2004, corporate officials have added little to their initial broad statements about improved efficiencies ND cost savings. “The organization is still taking shape,” says Chris Brattiest, a Sears Holding spokesperson in Hoffman Estates, Illinois. “l don’t think there’s any definitive description of [supply chain] strategy at this point. ” That hardly surprises Dean Lane, chief executive of Barstools Inc. A software vendor in Sunnyvale, California. “IT is almost always an afterthought [after a merger],” says Lane, a veteran of several companies’ merger and acquisition activities. When they announced the union, corporate officials pledged to generate $200 million in revenues through Ross-selling opportunities and by converting several Smart stores to the Sears name. Maximizing purchasing power from suppliers, enhancing supply chain and administrative efficiencies, and divesting real estate assets will help save another $300 million, the company stated in a press release announcing Smarty’s planned $12. Billion takeover of Sears. It’s unclear what supply chain strategy will help the company attain such lofty goals. “It’s too early to get into specifics,” says Brattiest. Sears Holding inherits both organizations’ 37 supply chain solutions from a host of vendors, including Numismatics Inc. 12 Technologies Inc. , and Manhattan Associates Inc. , says Lee Holman, product development vice president at ILL Consulting Group in Franklin, Tennessee. According to Holman, Smart operates three inventory management, three merchandise planning, and four logistics management systems.
Sears runs two inventory management, three logistics management, and four merchandise planning solutions. Despite some commonality, the companies use the solutions differently. Customers, says Holman, can find merchandise on Sears’ shelves, but “you can’t say that about Smart. ” Observers want to know which existing lotions the new retailer will adopt or Jettison, and if it will invest in new ones. OTTOMH believes Sears Holding halted an evaluation of new applications, such as in- store replenishment and merchandise optimization packages, while it assesses each company’s operations.
While such an undertaking is necessary, OTTOMH worries about the pace of review. “They have to clean house, move as fast as possible, and show how they will create additional flexibility and efficiencies in the supply chain,” she says. First, however, Sears Holding must determine its priorities, such as what ND why it is, who its customers are, how often they visit and how much they buy, and what it will sell, says Paula Rosenberg, retail research director with Aberdeen Group Inc. , a market research concern in Boston.
Then the company must assess its business processes, including how stores interact with suppliers and distribution centers. “They need to figure all that out before investing in an inventory- management application that costs $1 million that won’t provide any benefit because it has no clean data to work from,” says OTTOMH. Sears Holding must also determine owe to meld two different businesses, and if or to what degree to consolidate supply chain operations. “l don’t see Smart and Sears being able to work off the same strategy,” says Steve Banker, supply chain management service director with ARC Advisory Group Inc. A research concern in Deemed, Massachusetts. “One’s a department store and one’s a discount mass merchandiser. ” Banker recommends integrating resources for the biggest bang. Both sell apparel, for example, so Sears Holding could operate fewer warehouses and a set of common supply chain systems. “The company could standardize on [Smarty’s] Manhattan [application] or on Sears’ hired-party logistics providers,” Banker suggests. Conversely, Sears Holding may need separate strategies to support different priorities.
Sears, for example, may require higher service levels to stores, which would require warehouses to fill Sears’ orders faster. “That makes using a common warehouse-management system tougher,” Banker says. OTTOMH disagrees. “Managing two supply chains is a bad idea,” she says. “They want to exploit economies of scale, especially in purchasing and sourcing. ” Procurement, particularly from overseas suppliers, should be a corporate priority, affirms Rosenberg. The company must use its size “to design, develop, and source products,” she says. Neither one was all that great [at sourcing], and now they have to become great because all they are [since the merger] is bigger. ” Having the right product in stock at the right place seems “elementary,” Rosenberg adds. Long lead times, ever-increasing customer choices, and competing with operational leaders such as Wall-Mart Stores Inc. , however, complicate things. Indeed, Sears Holding must manage suppliers as Wall-Mart does, says John Melanesia Ill, executive vice president with Chicago-based retail consultancy Melanesia & Associates Inc.