Chapter 14 – Page 2 – The OM Blog by Heizer, Render, & Munson

OM in the News: Reinventing Federal-Mogul’s Supply Chain

Federal-Mogul handles more than 400 million auto parts annually

For more than a century, Federal-Mogul has handled the gritty task of producing hundreds of thousands of auto parts, sticking them in boxes and shipping them to warehouses or stores across the country. Now—aggravated by how much time is lost in the process—the company is spending $100 million to upgrade its supply chain from end to end. Improvements range from an online parts catalog with 360-degree views of products to “picking robots” in its warehouses to help ensure that parts are delivered to customers on time. The $7 billion company produces everything from pistons and engine bearings to windshield wipers and exhaust gaskets.

Over the years, Federal-Mogul has become a patchwork of IT systems adopted from the companies it acquired, writes The Wall Street Journal (Oct. 14, 2015). The push under the new plan is to move the entire company onto SAP enterprise software. “We are facing a proliferation of parts,” says the supply chain chief. “Cars are staying on road longer, so you need to keep those parts, and meanwhile, auto makers are adding more models.”

So Federal-Mogul has opened additional warehouses that feature robotics systems that allow the company to consolidate storage space and offer all of the parts the company makes under one roof. (Using robotics is a page right out of Amazon’s playbook, which has used robots to speed the picking of individual pieces of merchandise for shipping). Radio-controlled, battery-operated robots run across the grid picking up requested containers when orders are received and put them onto a conveyor that will take them to the sorting area–a much more efficient system than at the older warehouses. “You have hundreds of people walking miles every day within the warehouses to get these parts, and that takes time,” says the head of logistics. “There is also the chance that parts get mixed up or broken. Now we have the parts come to the employees.”

Classroom discussion questions:

Why does the firm need the SAP system, and what will the new software do?
What is the advantage to using robots in the warehouses?

OM in the News: 3 Rules of Thumb for ERP Implementation

In our discussion of ERP in Chapter 14, we write: “ERP systems are expensive, full of hidden issues, and time-consuming to install.” Adds Apptricity (Sept. 16, 2013): “ERP implementations too often turn into their own little hellish experiences for companies large and small.” Getting all of a company’s various data systems to talk to each other efficiently, accurately and instantly share data makes great sense. But many companies still don’t have effective and efficient ERP systems in place. So what can a firm that do to successfully implement an ERP system?

Apptricity provides these 3 old adages:

Look Before Your Leap. ERP systems are complex, touching on every department, worker, business activity, form, and data set. That means that every need, contingency, possibility, and potential barrier must be addressed in the planning process. Failure to do that invariably leads to frustrating and expensive delays.
Too Many Cooks Spoil the Broth. Managing an ERP implementation presents similar challenges. If there are too many chefs involved in development of the ERP system, the end result is likely to be system that can do lots of things only moderately well – and often at a much higher cost than anticipated. But if the planning doesn’t include the CEO, CFO, and CIO, the result is likely to be a system with gaping holes. It is critical that these execs properly define the scope and budget of an implementation and then assemble a team that includes the right workers.
Be careful what you ask for. Many companies choose a vendor to design and install a system based on the dual promise that what it is being bought is a proven, bolt-on system that can still be customized to meet the company’s needs. The problem is that instead of bolting on a proven system and customizing only 15-20% of it, what typically happens is that 50-85% of the bolt-on ERP system ends up being customized. That dramatically inflates the cost of the project and creates lengthy delays.

It all goes back to the planning process. Once a company determines what its scope and budget for an ERP system should be, management should firmly commit the company to staying within that scope and budget.

Classroom discussion questions:

1. Why are ERP systems important?

2. Why are the systems hard to implement, and why do they fail to deliver so often?

OM in the News: Air Force Battles to Overhaul its ERP Systems

As we write in Chapter 14 (MRP and ERP): “ERP systems are expensive, full of hidden issues, and time-consuming to install.” The U.S. Air Force provides a perfect case study for your class. After a failed $1 billion effort to modernize its aging IT infrastructure, the Air Force is working on a new Enterprise Resource Planning system. Part of the effort, says The Wall Street Journal/CIO Journal (Feb. 5,2013), will require finding deficiencies buried within its patchwork network of computer systems, some of which are decades old.

In 2005, the Air Force attempted to replace aging systems with new hardware and new ERP software from Oracle. The Air Force signed a $627 million contract with Computer Sciences Corporation to integrate the system, but 7 years and $1 billion later, it realized that it would cost another $1 billion just to implement only 25% of the planned capabilities. The Air Force’s main mistakes were failing to define its business requirements while trying to upgrade its disparate systems.

The new project, whose costs the Air Force declined to reveal, calls for a new software system that offers a complete view of the Air Force’s business operations, including its supply chain, sales and operations, maintenance repair and engineering data. But to meet the 2017 deadline, the team must comb through thousands of deficiencies across 19 legacy systems. For example, the current system does not allow the deletion of vehicle ID numbers, which means the Air Force cannot properly track and take inventory of existing vehicles.

“We think we can break this problem up into smaller subsets, field those subsets on a quicker cycle and at a lower cost, and with less risk,” says the general in charge. But the CEO of one IT consulting firm said that while he agreed that the Air Force’s approach of breaking up the project into smaller subsets is correct he wondered why this wasn’t done before the Air Force spent so much money on the previous project. “The most basic tenet of ERP implementation is know why you need the system and how you intend to make it work.”

Discussion questions:

1. Why are ERP (and other large programs) so difficult to implement?

2. What mistakes did the Air Force make in this project?

Teaching Tip: Using Real Data for Inventory

For lots of varied reasons many of us spend substantial class time on inventory. The Heizer / Render text covers inventory in Chapter 12 (managing inventory and inventory models), Chapter 14 (lot sizing), and Chapter 11 (measuring assets committed to inventory and inventory turnover).

One way to engage students in discussions of inventory, and perhaps understand its significance better, is to have them use real turnover data for companies or industries they know. We show how to do this in Chapter 11, Examples 5 and 6, where we use Home Depot and Pepsi data. Assignments where students compute and compare these ratios can be facilitated by the use of annual reports as most annual reports provide enough data for the calculations. Alternatively, data on an aggregate basis are available and down loadable from the U.S. Census Bureau.

Additionally, Quarterman Lee has just published some Wholesale Inventory Turn Data that you and your students might find interesting for developing industry comparisons. His raw data are from the U.S. Census Bureau, but he has organized it into 18 broad categories and more than 260 subcategories. He has a modest fee of $6 or $8 to access the down loadable data.

Teaching Tip: Inventory Simulation Game

Inventory Simulation Game

An excellent exercise for a hands-on understanding of the impact and cost of inventory policies was developed by Keith Willoughby (Bucknell University) and Ken Klassen (Brock University). The objective, not unexpectedly, is to maximize revenue against one of three normally distributed demand functions while driving ordering, shortage, and holding cost to a minimum.

The game, He Shoots, He Scores, is described in Chapter 12 of the Instructor’s Resource Manual. The Student Instructions handout is also there. These are also available in myomlab (see below). EOQ material is presented in the text in Chapter 12 and 14, while lot-for-lot and PPB are presented in Chapter 14. All are available in POM for Windows software as are Wagner-Whitin, Period Order Quantity, and a User Defined option.

The IRM and the Instructor Resources Section of myomlab suggest 30 to 40 minutes, but with any summary / analysis that is tight. I have run the game in a 50-minute period, but even then, I needed to keep an undergraduate class moving. Any introduction to inventory policies or software mechanics suggests a longer class.

To enliven the class, I give points for the team with the highest profit (say 10 points for the highest profit) and reduce the scores down to 1 point. With ten 3-person teams, a 30-student class is easily accommodated. I let the students be as creative as they want in selecting and implementing an inventory policy (EOQ, PPB, Wagner-Whitten, or something of their own creation, etc.) and use any software they want.

Another option is to assign various inventory policies to teams and then compare the results. This has the advantage of moving the class to a more structured discussion of inventory management…but it is less fun.

The instructions, student handout, and excel spreadsheet are available in myomlab under the ‘Instructor Resources’ button on the left hand navigation. Once on the ‘Instructors Resources’ page, look under the heading ‘Instructor Supplements’ for the bullet point, ‘See the Simulation Games.’ This shows three simulation exercises; click on the first one, the ‘Inventory Simulation Game;’ then click on ‘spreadsheet’ on the left top of the first page to get to the Excel spreadsheet.

My experience with the exercise is all positive … I recommend it.

Guest Post: Continuous Process Improvement Tools

We welcome this Guest Post from Kevin Watson, Asst. Prof. in the Dept. of Supply Chain and Info. Systems, at Iowa State U.

OM students are frequently reminded that data accuracy is a prerequisite to effective inventory management and operation of MRP systems- in fact Barry just blogged about this on November 4th. As professors, we often discuss the application of lean and quality improvement techniques; however, discussion tends to focus on manufacturing processes and students frequently miss that continuous improvement techniques can be applied to non-manufacturing activities. An article I just read, “Continuous Improvement Approach Reduces Errors in Records” , provides an example of continuous process improvement tools utilized to address paperwork errors.

The article discusses a holistic solution to address record errors in shop floor packets traveling with medical devices during manufacturing. MEDRAD, a 2003 Malcolm Baldrige National Quality Award recipient, experienced error rates as high as 20% in the paperwork necessary to track products through manufacturing ,resulting in compliance issues and causing unnecessary rework and delays. The company addressed this issue through the use of a quality improvement project utilizing technology, process, and people based solutions. The project resulted in a reduction of record inaccuracy to 2.2%, saving the company $40,000 and accruing significant non-financial benefits.

Addressing non-manufacturing errors while retaining the familiar touchstone of the manufacturing environment, it is an excellent means to expand student understanding of quality management tools applied to non-manufacturing processes and to begin the discussion of their application in the service/administrative environments. The article would be an excellent complement to the Quality Management chapters (Ch6/S6) and could be touched again during a discussion of inventory record accuracy in conjunction with Material Requirements Planning (Ch 14).