AMP, Inc.: Order Entry and
Fulfillment
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•
Background
•
Business Process Redesign:
Process, IT
•
Key Performance Indicators
•
Implications: Process, IT
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AMP: BACKGROUND
AMP Is a Leading Global Supplier of Connection Devices to
Many Complex Electric/Electronic Markets
AMP:
• Has $3 billion in annual sales of electric/electronic connectors
• Owns an 18% share in an $18 billion market:
- Very complex product offering with more than 100,000 SKUs
• It is very profitable: 1991 gross income of 33% of sales
• Organized into 19 units that serve very diverse end-use markets through
direct and distributor channels:
- Aerospace/military
- Computers/office equipment
- Government systems
- Industrial/commercial
- Consumer good
- Government systems
- Communications
- Transportation/electrical
- Advanced cables/
interconnection
• Each unit owns from one to five plants, totaling 85 plants in U.S. alone
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AMP: BACKGROUND
AMP Has Experienced Sustained Sales and Income Growth
AMP, Inc.
Revenues
($ million)
35 00
30 00
Net Income
($ million)
350
300
250
25 00
20 00
200
150
100
15 00
10 00
’82 ’83 ’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92
50
0
’82 ’83 ’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92
• AMP has grown faster (CAGR revenues = 14%) than the connection device
industry (12%)
• AMP is considered one of the best-in-class U.S. producers that holds Far
East and European producers at bay
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AMP: BACKGROUND
AMP Faces a Very Challenging Business Environment
Product/Customers
Suppliers
• Concentration of suppliers
• Threat of forward
integration
(e.g., DuPont, 3M)
AMP Inc.
• Over 6,000 customers with
more than 100,000 SKUs in
over 235 product families
• Slowing end-user growth
• End-user supplier
rationalization efforts
• “Commoditization” of
product in some markets
• Growing emphasis on price
and product availability
• Growing power of
distributors over products
Competitors
• Extreme price competition:
-Eight aggressive players, including
DuPont, 3M, and ITT
• Competitor initiatives to improve
product quality,delivery time and
service
AMP’s vision is to provide customers with products and services so
outstanding that it will become the “Supplier of Choice.”
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AMP: BUSINESS PROCESS
AMP Historical Order Entry and Fulfillment Processes
Suffered from Key Weaknesses
Order Entry:
• No real prioritization of customer requests
• High percentage of customer calls blocked (busy) and abandoned
• Different procedures across businesses
• Inconsistent policies regarding product returns
• People scattered across businesses and warehouses—few economies of scale
• Paper-intensive process:
- For products not available in their warehouse, CSRs took customers’ requests down and called them back later
Order fulfillment:
• Low productivity
• Product obsolescence and error rates
• Need to adjust finished goods to reflect physical inventories
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AMP: BUSINESS PROCESS
The “Plan for Excellence” Program Involved a Redesign of
AMP’s Business Processes
Key Questions
• How do we provide superior
customer service?
• How can we provide superior
product delivery and availability?
• How can we improve our cost base?
• How can order entry and fulfillment
improve quality?
“Plan for Excellence” (kicked off in 1988/89)
• The program built on a dozen
independent initiatives conducted in
the 1980s:
- Productivity improvement
- Total quality improvement
• It became part of AMP’s vision and
enjoyed top management support
• Emphasized leadership,
communications, training, and
improvement:
- Introduced objectives measurement
systems
• Looked for aggressive
implementation
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AMP: BUSINESS PROCESS
AMP Redesigned Its Order Entry Process to Respond to
Customer Calls Immediately and Completely
Focus
on Key
Customer
Needs
Order
Entry
Business
Process
and IT
=
+
Consolidated
Customer
Service
Activities
+
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• Supported customer profiles and pricing
• Migrated key customers to EDI
• Provided early warning to key accounts
• Installed a hotline for key customers
• Placed all order entry under a “logistics”
organization
• Integrated a few independent businesses—
each of which had its own approach—to use
identical process and systems
• Consolidated most of the order entry in two
locations, achieving very high productivity
gains
• Implemented foolproof order entry protocols
• Trained personnel extensively
• Developed single return policies across
divisions
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AMP: BUSINESS PROCESS
AMP Redesigned Its Order Entry Process to Respond to
Customer Calls Immediately and Completely (cont.)
Implemented
Management
Processes
Order
Entry
Business
Process
and IT
(cont.)
• Linked offices to back up each other
(e.g., Central to cover East Coast if overloaded)
• Linked offices and manufacturing sites
through systems
• Instituted auditing procedures
+
=
Enhanced
Invoicing
• Derived prices and conditions from customer
files
• Use EDI for key client invoicing
• Make invoice data available online
+
Installed
Enhanced
Technology
• Expanded phone line and switching capacity
• Greatly enhanced order entry:
-Provided on-line view of all warehouses and
scheduled production runs
-Enabled “reserved” material status
• Expanded EDI functionality
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AMP: BUSINESS PROCESS
For Example, the Order Entry Process Allows Real-Time
Responses to Key Customer Requests
Real Time Order Entry
Assigned CSR Team
(10 CSRs)
Customer
Calls with
Product
Request
Product
in any AMP
warehouse?
Frequent
Caller
Not
Frequent
Caller
YES
Fulfill order;
ship or
reserve product
Discuss with
plant schedulers
to expedite
NO
NO
If Loaded,
Backup
Product
being released
from plant
next week?
YES
Reserve
product
Satisfactory
answer from
scheduling?
Suggest
delivery
date
Dialogue with one
of 200 production
schedulers through
E-mail: PF Key
YES
Promise
delivery
NO
Call
Distributor
Based on Industry
and Product Code
Product
in production
schedule?
(8 weeks)
YES
NO
NO
Reserve
Product
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Date
acceptable
to customer?
NO
Stock at
AMP
distributor?
(on line
search)
YES
Fill from
distributor
Inventories
YES
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AMP: BUSINESS PROCESS
Order Entry Business Process Placed New Demands on
IT Connectivity
An IT View of Order Entry
Order Entry: CSR
Manufacturing Plants
Access
Production
Schedules
Order Fulfillment Warehouse
Share Finished
Goods Inventories
MRP II
Share Finished Goods Inventories
Distributor
Warehouse
Can Access
AMP Distributor
Inventories
Growth of EDI (20% of all volume) and faxes also creates new
demands.
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AMP: BUSINESS PROCESS
The Redesigned Order Entry Process Translates into
Minimal Customer-Call Losses
Customer Service Phones
Percentage of Calls Blocked
(Busy)
Percentage of Calls
Abandoned After Pick-Up
(Hang-Ups)
1 1%
8%
5%
3%
2%
2%
1%
1 98 8
1 98 9
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1 99 0
0%
0%
1 99 1
1 99 2
1 98 9
1 99 0
1 99 1
1 99 2
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AMP: BUSINESS PROCESS
It Results in Fewer Order Entry Errors, Higher Staff
Productivity, and Increased Customer Satisfaction
Percentage of Key Customers
Satisfied on Initial Call
Cost of Clerical Errors
($ million)
90 %
1
85 %
0 .8
80 %
0 .6
75 %
0 .4
70 %
0 .2
65 %
0
60 %
1/90
3/90
1/91
3/91
1/92
3/89
1/90
Quarter /Year
3/90
1/91
3/91
1/92
3/92
Quarter /Year
Bookings per Customer Service Staff
($ million)
4 .8
5 .0
4 .5
3 .8
4 .0
3 .5
4 .0
4 .2
3 .5
3 .0
3 .0
2 .5
’88
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’89
’90
’91
’92
’93 E
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AMP: BUSINESS PROCESS
AMP’s New Order Fulfillment Process Seeks to Provide
Superior Availability and Delivery of Orders
• Implemented a network of master and regional
warehouses
Consolidated
-Closed regional warehouses and stocking points
Warehouse
-Built an automated distribution center in Schaumburg
Network
• Asked independent businesses to move to AMP
warehouses
+
Order
Fulfillment
Business
Process
and IT
=
• Made warehouse staff more sensitive to customer needs
• Developing interactive training programs (e.g., video
Strengthened
training)
Staffing
• Hired or trained logistics professionals to run operations
• Rotated personnel throughout warehouse areas:
-Creating a career path in logistics
+
• Increased use of customer forecasts
Strengthened
• Standardized inventory carrying cost formulas
Core Finished
• Developed optimization algorithms
Product
• Defined inventory levels (e.g., minimum lot sizes) to
Procedures
minimize cost of stockouts
+
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AMP: BUSINESS PROCESS
AMP’s New Order Fulfillment Process Seeks to Provide
Superior Availability and Delivery of Orders (cont.)
Enhanced
Order
Fulfillment
Activities
+
Order
Fulfillment
Business
Process
and IT
=
Enhanced
Packaging
and
Labeling
• Developed a real-time system to track materials across
warehouses
• Implemented effective shipping routines:
-For regular orders
-For emergencies
• Revised policy and procedures for return of goods
• Implemented auditing and control procedures
• Redesigned packaging:
-Developed standard color scheme
-Introduced bar-coded labels displaying quantity
and part number on all carrying units
+
Strengthened
IT Support
to Process
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• Developed interfaces between computer systems (e.g.,
tied order entry to plants’ MRP II)
• Computerized warehouses
-Invested in portable bar-code readers
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AMP: BUSINESS PROCESS
AMP Has Strengthened the Training of Its Staff
Number of People
That Are Certified by APICS
58
55
49
22
Jan ’89
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Jan ’90
Jan ’91
Jan ’92
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AMP: BUSINESS PROCESS
The Redesigned Order Fulfillment Process Exhibits Greater
Efficiency
Warehouse Productivity
Inventory Turns per Year
(Lbs./Man Year)
10 0
90
2.7
80
3.0
3.4
3.5
’89
’90
3.9
4.3
70
60
50
’87 ’88 ’89 ’90 ’91 ’92 ’93
’87
’88
’91
’92
Shipping Errors Expenses
$300,000
High
Range
$120,000
Low
Range
’90
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’91
’92
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AMP: BUSINESS PROCESS
AMP Now Provides Best-in-Class Order Fulfillment
Percentage of Orders Shipped by
Customer Request Dates
Independent Survey of Competitors’
a
On-Time Delivery Rates
(1991)
9 1%
8 7%
7 6%
1 98 8
7 9%
7 8%
1 98 9
1 99 0
1 99 1
8 8%
1 99 2
8 5%8 5%
8 8%
1 99 3
AMP
T&B
DuPont
8 0%
7 5% 7 5%7 5%
Burndy
3M
7 0%
R-N
Augat
6 5%6 5%
ITT
Molex
LPL
When measured against its own promised dates, AMP has achieved a
95% on time delivery.
a. Bishop and Associates, December 1991.
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AMP: PERFORMANCE INDICATORS
AMP Has Implemented Comprehensive Metrics to Measure
Progress
Order Entry
Percentage of Percentage of
Percentage of Percentage of Percentage of Transactions
Customers
Calls
Calls
Correctly
Satisfied on
Transactions
Blocked
Abandoned “Real Time”
Entered
First Call
Clerical
Errors
($)
Bookings
Per
CSR ($)
Order Fulfillment
Percentage of Percentage of
On-Time
On-Time
Shipments
Shipments Number of
(to Customer
(to AMP
Customer
Request)
Schedule)
Disputes
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Inventory
Spillage
Turns
Percentage
Shipping
Errors Percentage
($)
Repackaged
Pounds/
Person
Year
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AMP: PERFORMANCE INDICATORS
Successful Implementation Has Won AMP High
Marketplace Satisfaction
AMP Customers’ Overall Satisfaction Level
(Percentage That Rated AMP’s Service Excellent or Very Good)
1989
78%
1991
91%
At the same time that it increased customer satisfaction, AMP increased
order entry and distribution center productivity by 25% to 50%.
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AMP: IMPLICATIONS
AMP Learned Some Critical Lessons from their Business
Process Redesign
• One organization should ultimately be responsible for all order entry and
fulfillment activities:
- “We put 1,100 people together in a new logistics organization and one person accountable
for it”
• Need to introduce tracking system
• It’s a complex change management project:
- “The complexity is overpowering: we had a 35 feet by 20 feet PERT chart”
• There is a gut-wrenching organizational and systems change
• It requires “out of the box” thinking...
- “Complex algorithms to optimize inventories with minimal costs”
• . . . And top management support:
- “CEO and top managers need to go over numbers at least every month to see progress”
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AMP: IMPLICATIONS
AMP Also Learned Some Information Technology Lessons
• New business process and IT support had to be implemented concurrently,
not sequentially
• No “off-the-shelf” package offered the flexibility required by AMP to redesign
its processes
- Three years of developing systems…and still going
• Technology investments were necessary at many levels:
- Call management system at switchboards
- Interfaces and date exchange across several platforms and applications
- Bar-code readers and processors at warehouses
AMP spent over $75 million in systems; payback came in only two
years.
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