This article attempts to capture some of the challenges faced by Industrial component manufacturers, which rely heavily on the OEM for their businesses. I refer to them as being at the bottom since rarely they get to interact directly with the end-product user; however, their value addition is imperative for the safe & fit usage of the end-product.
This write-up attempts to focus on the challenges faced by the Component Manufacturers to effectively execute the Manufacturing Planning & Control Process.
Following are the typical problems faced by a component manufacturer who is serving to the OEM manufacturer.
1. On the onset, these companies rarely fit into any of the manufacturing strategies like Make-to-Order or Assemble-To-Order. In most cases, they fall in between the Make-To-Order & Assemble-to-Order categories & in rare cases, handle orders which categorize them in Engineer-to-Order categories.
2. The Sales Forecast generated using statistical techniques may not be of much help. A collaborative input from customers would be imperative for such a manufacturer.
3. However, the customer input timelines may not be in line with the requisite lead time for production.
4. Hence, some risk taking capability is required. Failure may usually result in huge investment in obsolete inventory or loss of sales.
5. On the other hand, the available capacity also needs to be planned thoroughly to ensure maximum utilization to gain a higher ROI.
6. Excess capacity may result in a variable capacity utilization pattern & nonetheless, overall lower utilization.
7. A leveled production capacity may result in loss of opportunity when the demand for the customers’ product rises.
8. All of the above when the raw material supplier management within itself may cause lots of scheduling problems.
9. Further, any New Product Development or Product Re-Engineering efforts by the OEM may entail a huge capital investment for the component manufacturer; in some cases, the ROI on such an investment can be long enough to be recovered from sales of components. The latter is specifically true for the Hi-Tec manufacturing industry, where the product life-cycle is too short & engineering changes are frequent.
A solution to the above problems may be a tight linkage with the customer operations by involving with the OEM right from OEMs’ Sales & Operations Planning cycles. Such an arrangement works well in case of a captive supplier for the OEM.
Usually, the arrangement here calls for long term contracts which may not be fruitful for the supplier since the dependability of the business on a particular customer increases in such a case.
On the other hand, multiple customers servicing provides an advantage of being in the business continuously, but at the same time, it requires juggling with a lot of planning (& re-planning) parameters. In such cases, the component manufacturers follow a tightly managed production schedule which requires a robust & reliable feedback system, to keep the status of the orders released to the shop floor always current. However, a major disadvantage of multiple customers servicing set up is that the service levels cannot be maintained equal for all the customers. In such cases, methods to set the customer service level will have to be followed & the associated efforts to maximize the service level have to be implied.
In some cases, the component manufacturer may be additionally supplying directly to the market in form of spares or exchanges. The so called ‘Service Sector’, in most cases, has a direct correlation with the sales of the OEM product.
Consider the case of Tires used in Automobiles. While a tier manufacturer would have an exact number of tires to be supplied for the vehicles built by the auto-manufacturer, the number of tires required to be supplied in the open market would have a correlation to the number of vehicles sold in the past. Replenishing the Distribution Network for spare sales adds to the challenges faced by the component manufacturer.
Given the scenarios stated above, implementation of Lean Manufacturing (Products, as well as Processes) is almost impossible for such manufacturers. In spite of it being a partly Pull based system, but deploying a Pull based system may not work well in cases where the manufacturing lead time of the component is higher than the purchase lead time for the customer. However, some lean based manufacturing strategies like 5-s, Kaizen, Total Productive Maintenance & Kanban can work upto some extent, again dictated by the lead time & customer service level factors.
The metric which would help such a company to monitor its performance would be the Order Fulfillment Time. Lower the Order Fulfillment Time, higher the success. However, an average of this metric over all the customers may not be of much help. An aggregated average over the customers belonging to the certain service level may be of use to such an enterprise. Another effective operational metric could be the Overall Visibility of the Order, at any given point of time. This metric would be of help to the multiple customers servicing shops as well as shops with multiple manufacturing facility, that typically process more than 5-6 orders belonging to various customers at any given point of time.
Conclusion:
1. Industrial Component Manufacturers hover in between the Make-To-Order & assemble-To-Order Manufacturing Strategies.
2. A forecast based on collaborative inputs from the customers can help the components manufacturers to effectively manage the MPC.
3. Resource Utilization & Customer Service Levels are some of the factors on which the manufacturer can base its planning.
4. For a component manufacturer which caters to the service industry too, the sales of the original equipment can help to refine the forecast numbers.
5. Lean Manufacturing initiatives may work well only to some extent for the component manufacturer.
6. Order Fulfillment Time & Overall Visibility of the Order are the key metrics for measurement of the performance.
