Until a crystal ball comes along that lets companies forecast exactly what their customers will want so they can make it in advance, large corporations will continue to turn to just-in-time manufacturing.
This process lets manufacturers purchase and receive components just before they're needed on the assembly line. As a consequence, it relieves manufacturers of the cost and burden of housing and managing idle parts.
Although companies such as SAP AG offer enterprise resource planning software to coordinate supply chains so they can handle just-in-time processes, analysts say there's still a lot of room for improvement by using the Web.
Most observers point to automotive firms such as Torrance, Calif.-based Toyota Motor Sales USA Inc. as the earliest and highest-profile adopters of just-in-time processes. High-tech companies such as Round Rock, Texas-based Dell Computer Corp. and San Jose-based Cisco Systems Inc. have followed suit.
"The Toyota production system is famous for efficiency and coordination, but it has been a highly manual system with very low-level technology," says Tom Jones, a senior vice president at Miami-based Ryder System Inc., which outsources just-in-time supply-chain services.
But Toyota has been working to make its supply chain more flexible by moving it onto the Web, and other car companies such as Dearborn, Mich.-based Ford Motor Co. have been following in Toyota's treads, says Jones.
The Web allows the automakers to send requests for parts to their suppliers as the need arises, regardless of whether disparate computer platforms are involved. For instance, if a car company experiences a high demand for a certain color vehicle, it can notify its paint supplier and get the product delivered to its factory quickly and with a minimum amount of human intervention or paperwork.
Build to Order
In the high-tech area, companies are turning to a build-to-order process in which a product is customized and manufactured according to specific customer requests, making just-in-time manufacturing and delivery key, says Michael Burkett, a senior research analyst at AMR Research Inc in Boston.
At Dell, the process is called "pull to order," says company spokesman Venancio Figueroa. "It's a critical element of our build-to-order manufacturing process," he says. The model contributes to "increasing the accuracy of doing business, both from a customer and supplier standpoint."
Once the parts are delivered, the assembly-line process can begin prepping components. Dell then begins manufacturing the actual computer. Afterward, it tests and does custom integration work for the finished product.
The build-to-order process is only one part of Dell's approach to efficiency - to further improve the manufacturing processes, the company also relies on special hydraulic tools, conveyor belts and tracks, reducing the need for human intervention by half. This means better overall quality, says Figueroa.
Dell is able to achieve a four-hour production cycle time using an Internet-based supply-chain management system, Figueroa says. After getting an order, Dell notifies its suppliers about what components are needed, and they're delivered within an hour and a half.
"With our pull-to-order system, we've been able to eliminate warehouses in our factories and have improved factory output by double by adding production lines where warehouses used to be," says Figueroa.
Dell plans to save $15 million in the first six months with its build-to-order process; within three years, that figure should be $150 million, says Figueroa.
Dell generally fulfills customer demands within five days, and the firm plans to reduce that time by relying on more extensive Web-based collaborative technologies, he says.
In addition to the manufacturing efficiencies, there are other reasons why build-to-order is appealing. For instance, it helps prevent manufacturers from being stuck with inventory that may become obsolete as it sits gathering dust in a warehouse, says Burkett. Or if there's a design change to a manufactured product, a company can be stuck with useless inventory that it has to dispose of at a loss.
Pros and Cons
There's a flip side, however. The just-in-time method demands a very disciplined assembly-line process, says David Dobrin, an analyst at Surgency Inc. in Cambridge, Mass. The entire factory has to be in sync to successfully exploit its methods. Manufacturers can afford fewer errors in the delivery of the supplier's component; if a part isn't there, the assembly line stops, and that can result in the loss of manpower and cash.
Moreover, just-in-time manufacturing doesn't necessarily mean a company is saving money on its supply chain - often, companies just have a distributor or supplier maintain a warehouse, either on-site or nearby, says Dobrin.
This is an area where the Internet could improve existing processes, say analysts. Like Dell, other companies are trying to establish faster, more efficient communications with their suppliers by using the Web, says Dobrin, and the older form of communication - electronic data interchange - is being phased out.
The Web permits very intimate contact between supplier and manufacturer. For instance, Cisco shares its manufacturing schedules with suppliers so they'll know how much inventory they need to have on hand.
There can be obstacles to getting these Web processes for just-in-time manufacturing up and running. Cincinnati-based Procter & Gamble Co., for instance, is struggling with variations in data-formatting methods among its suppliers, according to CIO Steve David. Human intervention is required to do the data translation, which slows the process.
In the near term, Procter & Gamble plans to get 50% of its orders to the Web next year, taking two days off the order cycle time.
For the long run, David says, he hopes to have a just-in-time-based supply chain that's accessible to everyone, from the retailer to Procter & Gamble's suppliers to the suppliers' suppliers. However, for that to happen, "we need to have data visibility across all of the supply-chain partners," he says.