Executive Briefings

An All-Out Effort at Supply Chain Transformation at Motorola

Hit by issues of quality, cost and customer service, Motorola takes on the job of harmonizing its processes through creation of an Integrated Supply Chain organization.

It might come as a surprise that Motorola Inc., pioneer of the rigorous Six Sigma quality process, was having quality issues with some of its products. But that problem was only one symptom of a larger crisis at the big maker of mobile communications technology.

Motorola was burdened by incompatible systems and business processes - not an unusual problem for a company with nearly $43bn in sales and 66,000 employees around the world. In essence, the organization had too many supply chains.

Or, to be more precise, too many separate processes that were trapped within six sealed-off business units. These various divisions were largely conducting their own affairs, leading to redundant resources. In many cases, supply chain managers from different units were dealing with the same suppliers, yet paying different prices. As a result, Motorola was not wielding the purchasing clout that a Fortune 100 company deserved.

The big transformation began in April 2005. In creating a new Integrated Supply Chain (ISC) organization, Motorola was following the playbook of IBM. Chief executive officer Ed Zander was quoted as saying that he wanted to build a Motorola that was "seamless inside." But the final form of that entity would have to fit the company's unique requirements.

With the appointment of 20-year IBM veteran Stu Reed to lead the new ISC, Motorola proceeded to shake things up from top to bottom. To make it all work, the company vowed to address the three main drivers of supply chain success: cost, cash and customer service. Together they provided the key to staying competitive in a fast-moving, style-conscious business.

The "to-do" list consisted of six top priorities: execution excellence, to make sure that Motorola would meet its numbers and commitments; a consistent, cross-business approach to dealing with suppliers; optimization of manufacturing and logistics; renewal of the company's vaunted quality principles; commonly deployed IT systems; and organizational efficiency. All were intended to lead to "best-in-class" performance on the part of a giant company that had found itself unable to keep pace with the marketplace. In a business where the useful life of products can be measured in months, that ability is essential.

In a hurry to get things moving, Motorola instituted a series of what it termed Rapid Transformation Programs (RTPs). Each was aimed at a specific business process related to supply chain performance. The idea to transform a vertically oriented company into a series of "horizontal" support teams, whose responsibilities cut across business units and who promote shared services in areas such as communications, finance and IT.

Flexibility was another keyword. Today, 11 out of 12 Motorola manufacturing sites can build any product, says Lonnie Bernardoni, executive vice president of new-product introduction with ISC. That capability has helped the company to react more swiftly to the unexpected. Last year, for example, in Motorola's fastest ramp-up ever, it shipped 1.1 million units of the CRZR mobile phone in the first 27 days of availability. There was only one problem: all of the phones were an iridescent blue, a color that wasn't popular in all parts of the world. So Motorola had to quickly expand the product's palette.

The supply chain overhaul yielded dramatic results within each of the six announced priorities. They included a rise of 56 percent in labor productivity and 22 percent in corporate revenues, even as the company was integrating 12 distinct acquisition supply chains. Motorola also saw improvements of 18 percent in inventory turns and 40 percent in material cost and supply chain overhead.

In the all-important area of quality, there was a two-times reduction in defective parts from suppliers, a 20-percent decline in factory-defective parts, and a big drop overall in costs associated with poor quality. A "live" management dashboard, available through an internet portal, helps executives to keep tabs on product shipments, quality and other key indicators.

Supplier relations, a major problem area under the old regime, were revamped. The supplier base was pared down, with the number of vendors in one category alone dropping from 170 to 10. Meanwhile, the top 150 suppliers saw a 91-percent increase in their share of Motorola's overall spending. Only the best in each category were left standing, as the company pushed for quality, cost, speed and flexibility. Motorola further solidified its vendor relationships with the launch of an annual supplier conference known as Delivermoto, through which it conveys "key strategic messages" about quality and reliability.

People are being handled differently as well. No longer does an individual remain in a single Motorola business unit for years. Talented employees are rotated through multiple disciplines for a more well-rounded (and less bored) workforce. In a program similar to that instituted by Jack Welch when he was chief executive officer of General Electric, workers are encouraged to strive for "outrageous" targets.

IT, a source of headaches for most global companies at one time or another, saw big improvements due to centralization and standardization. More than 80 percent of project expenditures are now focused on "leveraged" systems, which can be accessed by suppliers and customers.

Motorola was careful not to go too far. "Even today we have 18 different instances of Oracle," says Bernardoni, referring to the company's enterprise resource planning systems. The supply base is too large and varied to be consolidated into one IT framework, he adds.

In fact, Motorola showed caution throughout the transformation process. As Bernardoni puts it, "We took a middle-of-the-road approach." The company was concerned that a completely horizontal structure would allow the strongest product lines-in particular, mobile devices-to monopolize all of the resources.

In 2006, Motorola was awarded for its efforts with its first-ever appearance on the AMR Research Inc. list of the top 25 supply chains. In 2007, it climbed to number 15. But the company says it won't rest until it gets to number one.

It might come as a surprise that Motorola Inc., pioneer of the rigorous Six Sigma quality process, was having quality issues with some of its products. But that problem was only one symptom of a larger crisis at the big maker of mobile communications technology.

Motorola was burdened by incompatible systems and business processes - not an unusual problem for a company with nearly $43bn in sales and 66,000 employees around the world. In essence, the organization had too many supply chains.

Or, to be more precise, too many separate processes that were trapped within six sealed-off business units. These various divisions were largely conducting their own affairs, leading to redundant resources. In many cases, supply chain managers from different units were dealing with the same suppliers, yet paying different prices. As a result, Motorola was not wielding the purchasing clout that a Fortune 100 company deserved.

The big transformation began in April 2005. In creating a new Integrated Supply Chain (ISC) organization, Motorola was following the playbook of IBM. Chief executive officer Ed Zander was quoted as saying that he wanted to build a Motorola that was "seamless inside." But the final form of that entity would have to fit the company's unique requirements.

With the appointment of 20-year IBM veteran Stu Reed to lead the new ISC, Motorola proceeded to shake things up from top to bottom. To make it all work, the company vowed to address the three main drivers of supply chain success: cost, cash and customer service. Together they provided the key to staying competitive in a fast-moving, style-conscious business.

The "to-do" list consisted of six top priorities: execution excellence, to make sure that Motorola would meet its numbers and commitments; a consistent, cross-business approach to dealing with suppliers; optimization of manufacturing and logistics; renewal of the company's vaunted quality principles; commonly deployed IT systems; and organizational efficiency. All were intended to lead to "best-in-class" performance on the part of a giant company that had found itself unable to keep pace with the marketplace. In a business where the useful life of products can be measured in months, that ability is essential.

In a hurry to get things moving, Motorola instituted a series of what it termed Rapid Transformation Programs (RTPs). Each was aimed at a specific business process related to supply chain performance. The idea to transform a vertically oriented company into a series of "horizontal" support teams, whose responsibilities cut across business units and who promote shared services in areas such as communications, finance and IT.

Flexibility was another keyword. Today, 11 out of 12 Motorola manufacturing sites can build any product, says Lonnie Bernardoni, executive vice president of new-product introduction with ISC. That capability has helped the company to react more swiftly to the unexpected. Last year, for example, in Motorola's fastest ramp-up ever, it shipped 1.1 million units of the CRZR mobile phone in the first 27 days of availability. There was only one problem: all of the phones were an iridescent blue, a color that wasn't popular in all parts of the world. So Motorola had to quickly expand the product's palette.

The supply chain overhaul yielded dramatic results within each of the six announced priorities. They included a rise of 56 percent in labor productivity and 22 percent in corporate revenues, even as the company was integrating 12 distinct acquisition supply chains. Motorola also saw improvements of 18 percent in inventory turns and 40 percent in material cost and supply chain overhead.

In the all-important area of quality, there was a two-times reduction in defective parts from suppliers, a 20-percent decline in factory-defective parts, and a big drop overall in costs associated with poor quality. A "live" management dashboard, available through an internet portal, helps executives to keep tabs on product shipments, quality and other key indicators.

Supplier relations, a major problem area under the old regime, were revamped. The supplier base was pared down, with the number of vendors in one category alone dropping from 170 to 10. Meanwhile, the top 150 suppliers saw a 91-percent increase in their share of Motorola's overall spending. Only the best in each category were left standing, as the company pushed for quality, cost, speed and flexibility. Motorola further solidified its vendor relationships with the launch of an annual supplier conference known as Delivermoto, through which it conveys "key strategic messages" about quality and reliability.

People are being handled differently as well. No longer does an individual remain in a single Motorola business unit for years. Talented employees are rotated through multiple disciplines for a more well-rounded (and less bored) workforce. In a program similar to that instituted by Jack Welch when he was chief executive officer of General Electric, workers are encouraged to strive for "outrageous" targets.

IT, a source of headaches for most global companies at one time or another, saw big improvements due to centralization and standardization. More than 80 percent of project expenditures are now focused on "leveraged" systems, which can be accessed by suppliers and customers.

Motorola was careful not to go too far. "Even today we have 18 different instances of Oracle," says Bernardoni, referring to the company's enterprise resource planning systems. The supply base is too large and varied to be consolidated into one IT framework, he adds.

In fact, Motorola showed caution throughout the transformation process. As Bernardoni puts it, "We took a middle-of-the-road approach." The company was concerned that a completely horizontal structure would allow the strongest product lines-in particular, mobile devices-to monopolize all of the resources.

In 2006, Motorola was awarded for its efforts with its first-ever appearance on the AMR Research Inc. list of the top 25 supply chains. In 2007, it climbed to number 15. But the company says it won't rest until it gets to number one.