Manufacturing Gets a New Craze From Software : Speed
--Recent Applications Cut Supply-Line
Guesswork and Expand Capacity
By Amal Kumar Naj
08/13/1996
The Wall Street Journal
Page B4
(Copyright (c) 1996, Dow Jones & Company, Inc.)
The latest craze in manufacturing isn't some new way to make a product or a hot management philosophy: It is
software applications that take the guessing out of planning production and ordering raw materials and parts.
These new technologies are eliminating inventories companies maintained to handle bottlenecks all through their
supply chains. These programs are also snapping the entire manufacturing process, from order to delivery, into a
lock-step operation, vastly increasing production speed.
The greater speed is allowing Timken Steel Co., for instance, to get 15% more output from its current capacity
without investing in new plant and equipment. "In the steel industry, it means an awful lot," says Garry Fisher,
general manager of scheduling at the steel unit of Timken Co., of Canton, Ohio. And Herman Miller Inc., a furniture
maker, has reduced by 20% the time it takes to deliver a product from the moment it receives the order. "We are
accepting orders with delivery dates we wouldn't have before," says Mark Groulx, senior vice president of
operations at the Zeeland, Mich., company.
The clamor with which companies are pursuing the new technologies doesn't have a catchy name to it, the way
"quality circles" or "just-in-time delivery" and other efficiency-improving trends of the 1980s did. But it is resulting
in enormous cost savings as well as a new-found agility in American industry.
"It's the superhot area in corporate America now," says Arthur Mesher, a research director at Gartner Group, a
consulting firm. Such is the demand for the new technologies to manage supply chains that about fifty small
software companies have sprung up in the past few years, he says. He estimates that they generated $600 million in
revenue last year, and that the market is growing 100% annually.
Jerry Mills, the head of intellectual-property practice at the law firm Baker & Botts in Dallas, says "there is an
explosive growth in the number of patents being filed in this area. It's a totally new area in software applications." A
lot of small companies are going public, says Mr. Mills, who helped take i2 Technologies Inc. public recently.
Considered one of the successful public offerings this year, Dallas-based i2 Technologies has a market capitalization
of nearly a billion dollars.
Other major supply-chain software-makers include Manugistics Group Inc. of Rockville, Md., which recently
surprised investors by beating first-quarter earnings-growth estimates by 25%, and American Software Inc. in
Atlanta.
It isn't that manufacturers are discovering sophisticated software for the first time to set complex production
schedules. Indeed, such programs as "manufacturing resource planning" and "enterprise resource planning," known
widely in the industry as MRP and ERP, have been around for years. But these programs can't predict whether a
production schedule will encounter bottlenecks in the supply chain, or suggest ways a manufacturer might get
around supply problems in order to fill an order, companies say.
Typically, companies decide on a weekly or monthly production schedule based on their estimates of market
demand. Using the MRP or ERP software applications, the companies then order the materials and parts needed
from their suppliers. If a single part arrives late or isn't available because, say, the supplier plant producing it is
already running at capacity, it causes costly production delays.
"You didn't know you had a problem until you had a problem on the factory floor," says Mr. Groulx of Herman
Miller.
With the newest software programs, such as i2 Technologies' "Rhythm" supply-chain management system, Herman
Miller can plug an order into the planning system and almost instantly know whether the company can manufacture
and deliver the product in time. If the system says no, it would also point out what part of the process needs to be
tweaked to make the delivery possible.
"You know it up front, and it's a big deal," says Mr. Groulx.
The latest software programs, which cost several million dollars to install, make this possible by simulating the
actual production and supply process in detail, down to each operation's specific limitations. Sanjiv Sidhu, chairman
and founder of i2 Technologies, says computing power wasn't available inexpensively until recently to digitally
represent the complex flow of a production process and calculate the rippling effect of a single change in that flow.
"We can now simulate the global impact of a change anywhere in the supply system," says Mr. Sidhu, who
developed operational research techniques at the artificial-intelligence lab of Texas Instruments Inc. before founding
his company.
The new software technology has been a boon for Timken, the specialty steelmaker. Mr. Fisher, the Timken
executive, says last year and in the first half of this year the company had been "bumping up against its production
capacity" because of strong demand from the auto industry. "We were able to open up constraints in the process
paths and speed up production by 15% to 20%," he says. The company, which has four interdependent facilities,
also eliminated the 15% or so of its supplies it maintained in the past as inventories to handle bottlenecks.
Mr. Fisher says that if the company were to make investments in new equipment and facilities to increase output by
15%, it would have cost it between $20 million and $30 million, compared with a relatively small investment for the
software.
Few companies are under as much pressure to plan production accurately as Selectron Corp., which makes circuit
boards under contract from International Business Machines Corp. and Hewlett-Packard Co., among others. It
makes money by being more efficient than its customers. "Eighty percent of our assets are tied up in material," says
Jeffrey Lawrence, master scheduling manager of the Milpitas, Calif., company. He says that in the last three years,
the company has reduced by 20% to 25% the amount of time materials sit before they are turned into finished
products.
"It has cut our cost of capital, and made us financially more efficient," he says.
The company receives 10,000 individual orders a year. It used to take eight hours to figure out whether it could meet
a delivery schedule, says Mr. Lawrence. "And our customer didn't know whether our commitment was real or not,"
he says. "Now I can create a production plan in minutes and see if I have a hole in my supply chain, and instantly
tell my customer whether I can fulfill an order. This is phenomenal."
Armand Feigenbaum, president of General Systems, an engineering and consulting firm in Pittsfield, Mass., says
companies can reduce their production costs as much as 30% by simply getting rid of "disconnects" in the supplychain process. And Mr. Sidhu of i2 Technologies says there are other reasons for companies to adopt "intelligent"
software applications to manage their supply chains. Products are becoming obsolete much sooner than they did
before in a trend driven largely by the computer industry. Products are also proliferating because customers are
demanding more options and features.
"The speed of response has become the new competitive tool," he says.
--Accelerating Output
The Majors . . .
Major companies in supply-chain management, and their headquarters:
-- Manugistics Group, Rockville, Md.
-- i2 Technologies, Dallas
-- American Software, Atlanta, Ga.
-- Numetrix, Toronto, Canada*
-- Red Pepper Software, San Mateo, Calif.*
-- Think Systems, Parsippany, N.J.*
-- Chesapeake Decision Sciences, New Providence, N.J.*
* Private
Sources: The Gartner Group; company reports