Executive Briefings

National Instruments Faced Supply Challenges With Global Expansion

A conversation with Rob Porterfield, director of supply-chain management and international operations at National Instruments.

National Instruments is a pioneer and leader in measurement and automation technology. From testing DVD recorders to researching advanced medicines, customers around the world use NI software and hardware to help get products to market faster and with lower costs. In 2003, the Austin, Texas-based firm introduced a record number of new products and posted its highest ever revenue, while delivering to more than 25,000 companies in 90-plus countries. NI has standardized its business on the Oracle 11i enterprise system and is now managing all supply-chain information from a single repository, resulting in improved product quality, supplier performance and product serviceability.

Q: You have a very global supply chain. Give us a picture of its scope.

Porterfield: We have about 2,800 to 3,000 sellable products and direct sales offices in about 40 countries. We sell to over 25,000 companies in close to 100 countries and have multiple customers within those companies. On the inbound side we use 25,000 to 30,000 different raw materials. We do all of our own production at three sites, one in the U.S., one in Hungary and one in Ireland. Last year we did about 900m units in volume.

We are very much a high-mix, low-volume operation. Because of that, our plants produce certain products for the entire world, so we do a tremendous amount of importing and exporting æ rotating stock and inventory around on both the raw materials side and the finished goods side. We also manage the reverse logistics.

Half of our sales are outside the U.S. and with 85 percent or more of our products, our customers expect delivery within 24 to 48 hours. That means we have a lot of balls in the air, a lot of stock moving from production sites to logistics hubs, to customers, all over the world, every day.

Q: Is there a big service-parts component as well?

Porterfield: Yes. That is what I meant when I mentioned reverse logistics. This is a big issue for us in terms of international operations. If a product should fail in India, for example, we don't want that to be an inconvenience for the customer in India. For the Indian customer it should simply be a return to the local Indian sales office. We have to figure out how to get the product back to a depot and repair it. In some regions we have localized repair opportunities, but some of the products have to come back to the point of manufacture because of the capital involved and the tests required. Sometimes we repair, other times we replace, depending on the customer's needs.

Q: What are the biggest challenges of managing a supply chain that extends around the world?

Porterfield: One of our problems pre-Oracle was that we were just a series of islands, spread across the U.S., Europe, and Asia. We had no central visibility to what was on the shelf anywhere. As a result, I couldn't give accurate promise times or delivery dates to my customers. I had too much inventory, and it tended to be in the wrong locations.

We first implemented an Oracle system in the U.S. and quickly saw improvements in our ability to provide accurate delivery dates. Then, over a period of time, we consolidated all of our operations in the EU and were able to centralize inventory into one single location. That allowed us to tie all the ordering processes across Europe into one system, which meant we were able to give our customers more accurate, real-time delivery commitments and we were able to greatly reduce the amount of inventory in the EU. We went from 13-plus inventory locations to one central location.

After Europe, we did the same thing in Japan. All these changes occurred from 1994 to 2000. That's just a broad swath of some of the challenge we have faced historically and some of the things we have been able to do over time.

Q: What about more recently?

Porterfield: Our biggest challenge in the last couple of years had to do with setting up our production site in Hungary. That site has been up for two years and it now accounts for over 50 percent of all our production hours æ and that's without any reduction of our output in Austin. Our Irish facility, which was set up in 2000, handles all our software, software kitting and driver software so it is a slightly different process there.

As we started up production in Hungary, one of the things we learned early on is that a lot of our global suppliers were not really global, but international. As we continued to ramp up our production in Hungary we found that our supply chain was having a hard time keeping up with us. When we moved production to Hungary we found that, even with advance notice to our suppliers, we often had to continue sourcing from our existing U.S. channel for four, five or six months æ until the supply chain could adapt to our change in direction and provide the same delivery and service levels we enjoyed in the U.S. So one of the headaches we have had in the last couple of years is just trying to get our supply network to match the internal speed with which we can move our production capabilities around the world.

Q: Can you further explain your distinction between companies that are international vs. global?

Porterfield: For example, let's say I am buying components from a supplier that says it is global and I have a great relationship with this company in the U.S. and great service. When I move a segment of production to Hungary, even though I am sourcing from the same company, I am suddenly dealing with a different entity locally. All the stocking, delivery, quality, and services agreements we had all have to be re-established. If I have a VMI program to minimize delivery in the U.S., even if all the use of that material moves to my European production site, my supplier is challenged with their internal systems to move the VMI inventory to their distribution center that supports Europe. In my mind æ and National Instruments faces the same challenges æ if I have a customer that moves their requirements from Europe to Asia, as a global company, the sourcing of that material should be transparent to the customer. The delivery expectations and service agreements previously established in Europe, transfer to the customer's Asian operation automatically.

What we found with some of our global partners is that if they ran out of product in Europe, we had to wait for them to get it from the manufacturer in Europe again. Even if I had a ready supply of product at my U.S. production site and I could obtain two-day delivery from my supplier's U.S. division, my lead-time in Europe might still be eight weeks. So what we had to do, until we could get their European division up to speed, was to manage a lot of our own logistics for raw materials and pump all that through our own facilities. Our factory in the U.S. would buy the components and we would have to ship to ourselves in Hungary to get our production lines on the schedule we wanted.

So the distinction to me is a global company is one where they see themselves as global and they are doing this work. They recognize that when they are out of a material in Germany but have it sitting on the shelves in Asia or the U.S, they handle their internal logistics to minimize the delivery time to our docks in Hungary. It should be transparent to us if they have to source it out of the U.S. until they could build up their supply chain into that facility in Germany.

Q: Is this a matter of education or a real cultural difference?

Porterfield: I think it is a little of both. One of the very positive benefits of this experience has been that it caused us to integrate a lot closer with our suppliers and to share more of our plans for product migration, and to better understand their operational systems. We still have work to do æ the supply chain is not yet where either party recognizes it should be, but we have gotten a lot faster at migrating products around the world. That was one of the larger challenges we had the last 2 years.

The other challenge was just improving the visibility of lead times and commit dates to all our customers. Historically, our sourcing was very U.S. centric because all of our production was in the U.S. As we started expanding globally, end products for our customers might now be produced in 3 or more locations. This made our supply chain internally a little more complex and presented a bigger challenge in getting accurate dates to our customers. We have actually had good success here. Last year alone, we were able to improve on-time delivery dates by more than 7 percent to where our performance is now in the mid to upper 90s.

Q: How did you accomplish that?

Porterfield: A lot of the reason is that, in the Americas, Europe, and Japan, we are now set up on the same Oracle platform. That gives us visibility to all the demand coming into our offices in these regions. We have set up systems to quickly share that information, not only regionally but also across the whole company. We've also automated the sharing of our demand to our major suppliers to give them a heads-up about delivery requirements. Everything is automatically updated in the system so the data is a lot more accurate. And with better, real-time information, we can more accurately predict what we need to have on the shelves in what locations.

That is a very broad answer, but basically, by connecting the three systems around the world and improving visibility to all the elements of the supply chain within those three organizations, we are able to predict what delivery times will be and to better anticipate demand. We can also see where the inventory is located and shuffle it back and forth really quickly between all the sites.

Q: Does the "i" part of Oracle 11i have a lot to do with enabling global visibility?

Porterfield: Somewhat, and it is definitely an area that over the next year, we want to concentrate on leveraging. We currently are not on 11i in Europe, but when we went live with it in the U.S. and Japan, one of the advantages we realized was integrated and consolidated order lists so that customers and our distribution centers receive a single manifest for all their different orders.

On the inbound side, we are using Oracle's mobile supply chain component, which gives us a lot more flexibility and speed in terms of receiving products. It also gives us a lot more flexibility in how we use staff, where we store inventory and how fast we turn it.

Another advantage related to 11i æ and a big savings æ is that we are able to create and integrate a purchasing metric dashboard. Our dashboard is setup so the commodity managers can quickly determine what action, if any, is needed on material lead times, inventory levels, shortages, prices, or quality. We were able to reduce our overall lead times from suppliers by about 15 percent last year and cut our material costs by 12.5 percent.

One of the things we have targeted for this year is to leverage the i-Supplier Portal from Oracle, which will allow us to share forecasts and other information with those mid-tier suppliers that might not have EDI capabilities. Right now we are dealing with them via fax, email, etc. The portal will allow us to automate a lot more information that will go out to the Web and give our suppliers visibility to things that we are not now providing them as consistently as we would like. This way, we can automate it so the information goes out on a weekly basis to the portal and this information is available to them at any time.

Moving all that out to a portal that suppliers can access also will take a lot of the burden off my procurement department and free those people up to do other things. That should increase the efficiency of that organization, which is another of the things we have targeted for this year.

Q: Do you use any bolt-ons in the area of supply-chain management?

Porterfield: We have standardized on the Oracle ebusiness suite as an application platform, but we do have an APS system from i2 Technologies and a trade compliance system from NextLinx. We are in the process of evaluating some EDI gateways and things like that.

Q: What are other benefits you have realized or lessons learned from this project?

Porterfield: We reduced inventory days by about 12 percent last year and achieved material cost savings of around $10m . We also reduced our supply base from 4,400 down to about 3,200. I already mentioned that we cut our average material lead times by 15 percent and improved on-time delivery to our customers by about 7 percent.

One of the key lessons learned is probably pretty obvious æ that we have to be tied very closely with the IT community within our company. We also have found, as we expand globally, that we have to communicate and tie-in a lot closer with our suppliers. We have to share a lot more information than we used to, give them a lot more advance notice of what direction we are going, and come up with temporary work-arounds to hit the schedules we want to hit. One of the reasons we did consolidate our supply base is to leverage these relationships and build stronger partnerships with a smaller number of companies. I know 3,200 sounds like a large number, but that is direct and indirect. If I took it down to my primary suppliers, I am probably down to 15 or 20. And there is where I spend most of my time, most of my IT resource and most of my procurement resource, planning resource, logistics resource æ to come up with ways where together we can create a better supply chain network between ourselves, our suppliers and our customers.

Q: You have mentioned several goals for this year. Are there other initiatives you will be working on?

Porterfield: We will be navigating the entrance of Hungary into the EU and making sure that all of our suppliers are where they need to be. When a country joins the EU, companies have to already have qualified for an EU tax number and identification number to do business, even if it is Hungary to Hungary. If one of those elements is not there, we could all of a sudden find that the guy who does the finishing paint on one of our housing assemblies, for example, can't ship us product. So we are working through those little issues, trying to make sure we are in good shape and that our supply chain will be sound when Hungary joins the EU. As we continue to grow and ramp up production, we have to improve the speed with which we can migrate products over to our Hungarian manufacturing site. So that means further systems sharing and communication with our key suppliers.

We have been very happy with the systems we have now. They have allowed us a lot of flexibility to either build our own internal tools or leverage the new releases that Oracle is coming out with. One of key benefits of our long-term relationship with Oracle is that we are allowed to work with them on the development side. They give us their ear and we work together in a collaborative way on features in their products before they get released. So when the product comes out it has more of the feature set that we would like, or we at least know what the features are going to be in advance so we can be better prepared to use them.

Q: Are there any new features with supply-chain applications that you are working on now?

Porterfield: Depot repair of products or reverse logistics is an area we have spent a fair amount of time working with Oracle to streamline that tool to the needs of a high-tech company æ moving product between multiple depots, getting it repaired and back to the customer as quickly as possible.

National Instruments is a pioneer and leader in measurement and automation technology. From testing DVD recorders to researching advanced medicines, customers around the world use NI software and hardware to help get products to market faster and with lower costs. In 2003, the Austin, Texas-based firm introduced a record number of new products and posted its highest ever revenue, while delivering to more than 25,000 companies in 90-plus countries. NI has standardized its business on the Oracle 11i enterprise system and is now managing all supply-chain information from a single repository, resulting in improved product quality, supplier performance and product serviceability.

Q: You have a very global supply chain. Give us a picture of its scope.

Porterfield: We have about 2,800 to 3,000 sellable products and direct sales offices in about 40 countries. We sell to over 25,000 companies in close to 100 countries and have multiple customers within those companies. On the inbound side we use 25,000 to 30,000 different raw materials. We do all of our own production at three sites, one in the U.S., one in Hungary and one in Ireland. Last year we did about 900m units in volume.

We are very much a high-mix, low-volume operation. Because of that, our plants produce certain products for the entire world, so we do a tremendous amount of importing and exporting æ rotating stock and inventory around on both the raw materials side and the finished goods side. We also manage the reverse logistics.

Half of our sales are outside the U.S. and with 85 percent or more of our products, our customers expect delivery within 24 to 48 hours. That means we have a lot of balls in the air, a lot of stock moving from production sites to logistics hubs, to customers, all over the world, every day.

Q: Is there a big service-parts component as well?

Porterfield: Yes. That is what I meant when I mentioned reverse logistics. This is a big issue for us in terms of international operations. If a product should fail in India, for example, we don't want that to be an inconvenience for the customer in India. For the Indian customer it should simply be a return to the local Indian sales office. We have to figure out how to get the product back to a depot and repair it. In some regions we have localized repair opportunities, but some of the products have to come back to the point of manufacture because of the capital involved and the tests required. Sometimes we repair, other times we replace, depending on the customer's needs.

Q: What are the biggest challenges of managing a supply chain that extends around the world?

Porterfield: One of our problems pre-Oracle was that we were just a series of islands, spread across the U.S., Europe, and Asia. We had no central visibility to what was on the shelf anywhere. As a result, I couldn't give accurate promise times or delivery dates to my customers. I had too much inventory, and it tended to be in the wrong locations.

We first implemented an Oracle system in the U.S. and quickly saw improvements in our ability to provide accurate delivery dates. Then, over a period of time, we consolidated all of our operations in the EU and were able to centralize inventory into one single location. That allowed us to tie all the ordering processes across Europe into one system, which meant we were able to give our customers more accurate, real-time delivery commitments and we were able to greatly reduce the amount of inventory in the EU. We went from 13-plus inventory locations to one central location.

After Europe, we did the same thing in Japan. All these changes occurred from 1994 to 2000. That's just a broad swath of some of the challenge we have faced historically and some of the things we have been able to do over time.

Q: What about more recently?

Porterfield: Our biggest challenge in the last couple of years had to do with setting up our production site in Hungary. That site has been up for two years and it now accounts for over 50 percent of all our production hours æ and that's without any reduction of our output in Austin. Our Irish facility, which was set up in 2000, handles all our software, software kitting and driver software so it is a slightly different process there.

As we started up production in Hungary, one of the things we learned early on is that a lot of our global suppliers were not really global, but international. As we continued to ramp up our production in Hungary we found that our supply chain was having a hard time keeping up with us. When we moved production to Hungary we found that, even with advance notice to our suppliers, we often had to continue sourcing from our existing U.S. channel for four, five or six months æ until the supply chain could adapt to our change in direction and provide the same delivery and service levels we enjoyed in the U.S. So one of the headaches we have had in the last couple of years is just trying to get our supply network to match the internal speed with which we can move our production capabilities around the world.

Q: Can you further explain your distinction between companies that are international vs. global?

Porterfield: For example, let's say I am buying components from a supplier that says it is global and I have a great relationship with this company in the U.S. and great service. When I move a segment of production to Hungary, even though I am sourcing from the same company, I am suddenly dealing with a different entity locally. All the stocking, delivery, quality, and services agreements we had all have to be re-established. If I have a VMI program to minimize delivery in the U.S., even if all the use of that material moves to my European production site, my supplier is challenged with their internal systems to move the VMI inventory to their distribution center that supports Europe. In my mind æ and National Instruments faces the same challenges æ if I have a customer that moves their requirements from Europe to Asia, as a global company, the sourcing of that material should be transparent to the customer. The delivery expectations and service agreements previously established in Europe, transfer to the customer's Asian operation automatically.

What we found with some of our global partners is that if they ran out of product in Europe, we had to wait for them to get it from the manufacturer in Europe again. Even if I had a ready supply of product at my U.S. production site and I could obtain two-day delivery from my supplier's U.S. division, my lead-time in Europe might still be eight weeks. So what we had to do, until we could get their European division up to speed, was to manage a lot of our own logistics for raw materials and pump all that through our own facilities. Our factory in the U.S. would buy the components and we would have to ship to ourselves in Hungary to get our production lines on the schedule we wanted.

So the distinction to me is a global company is one where they see themselves as global and they are doing this work. They recognize that when they are out of a material in Germany but have it sitting on the shelves in Asia or the U.S, they handle their internal logistics to minimize the delivery time to our docks in Hungary. It should be transparent to us if they have to source it out of the U.S. until they could build up their supply chain into that facility in Germany.

Q: Is this a matter of education or a real cultural difference?

Porterfield: I think it is a little of both. One of the very positive benefits of this experience has been that it caused us to integrate a lot closer with our suppliers and to share more of our plans for product migration, and to better understand their operational systems. We still have work to do æ the supply chain is not yet where either party recognizes it should be, but we have gotten a lot faster at migrating products around the world. That was one of the larger challenges we had the last 2 years.

The other challenge was just improving the visibility of lead times and commit dates to all our customers. Historically, our sourcing was very U.S. centric because all of our production was in the U.S. As we started expanding globally, end products for our customers might now be produced in 3 or more locations. This made our supply chain internally a little more complex and presented a bigger challenge in getting accurate dates to our customers. We have actually had good success here. Last year alone, we were able to improve on-time delivery dates by more than 7 percent to where our performance is now in the mid to upper 90s.

Q: How did you accomplish that?

Porterfield: A lot of the reason is that, in the Americas, Europe, and Japan, we are now set up on the same Oracle platform. That gives us visibility to all the demand coming into our offices in these regions. We have set up systems to quickly share that information, not only regionally but also across the whole company. We've also automated the sharing of our demand to our major suppliers to give them a heads-up about delivery requirements. Everything is automatically updated in the system so the data is a lot more accurate. And with better, real-time information, we can more accurately predict what we need to have on the shelves in what locations.

That is a very broad answer, but basically, by connecting the three systems around the world and improving visibility to all the elements of the supply chain within those three organizations, we are able to predict what delivery times will be and to better anticipate demand. We can also see where the inventory is located and shuffle it back and forth really quickly between all the sites.

Q: Does the "i" part of Oracle 11i have a lot to do with enabling global visibility?

Porterfield: Somewhat, and it is definitely an area that over the next year, we want to concentrate on leveraging. We currently are not on 11i in Europe, but when we went live with it in the U.S. and Japan, one of the advantages we realized was integrated and consolidated order lists so that customers and our distribution centers receive a single manifest for all their different orders.

On the inbound side, we are using Oracle's mobile supply chain component, which gives us a lot more flexibility and speed in terms of receiving products. It also gives us a lot more flexibility in how we use staff, where we store inventory and how fast we turn it.

Another advantage related to 11i æ and a big savings æ is that we are able to create and integrate a purchasing metric dashboard. Our dashboard is setup so the commodity managers can quickly determine what action, if any, is needed on material lead times, inventory levels, shortages, prices, or quality. We were able to reduce our overall lead times from suppliers by about 15 percent last year and cut our material costs by 12.5 percent.

One of the things we have targeted for this year is to leverage the i-Supplier Portal from Oracle, which will allow us to share forecasts and other information with those mid-tier suppliers that might not have EDI capabilities. Right now we are dealing with them via fax, email, etc. The portal will allow us to automate a lot more information that will go out to the Web and give our suppliers visibility to things that we are not now providing them as consistently as we would like. This way, we can automate it so the information goes out on a weekly basis to the portal and this information is available to them at any time.

Moving all that out to a portal that suppliers can access also will take a lot of the burden off my procurement department and free those people up to do other things. That should increase the efficiency of that organization, which is another of the things we have targeted for this year.

Q: Do you use any bolt-ons in the area of supply-chain management?

Porterfield: We have standardized on the Oracle ebusiness suite as an application platform, but we do have an APS system from i2 Technologies and a trade compliance system from NextLinx. We are in the process of evaluating some EDI gateways and things like that.

Q: What are other benefits you have realized or lessons learned from this project?

Porterfield: We reduced inventory days by about 12 percent last year and achieved material cost savings of around $10m . We also reduced our supply base from 4,400 down to about 3,200. I already mentioned that we cut our average material lead times by 15 percent and improved on-time delivery to our customers by about 7 percent.

One of the key lessons learned is probably pretty obvious æ that we have to be tied very closely with the IT community within our company. We also have found, as we expand globally, that we have to communicate and tie-in a lot closer with our suppliers. We have to share a lot more information than we used to, give them a lot more advance notice of what direction we are going, and come up with temporary work-arounds to hit the schedules we want to hit. One of the reasons we did consolidate our supply base is to leverage these relationships and build stronger partnerships with a smaller number of companies. I know 3,200 sounds like a large number, but that is direct and indirect. If I took it down to my primary suppliers, I am probably down to 15 or 20. And there is where I spend most of my time, most of my IT resource and most of my procurement resource, planning resource, logistics resource æ to come up with ways where together we can create a better supply chain network between ourselves, our suppliers and our customers.

Q: You have mentioned several goals for this year. Are there other initiatives you will be working on?

Porterfield: We will be navigating the entrance of Hungary into the EU and making sure that all of our suppliers are where they need to be. When a country joins the EU, companies have to already have qualified for an EU tax number and identification number to do business, even if it is Hungary to Hungary. If one of those elements is not there, we could all of a sudden find that the guy who does the finishing paint on one of our housing assemblies, for example, can't ship us product. So we are working through those little issues, trying to make sure we are in good shape and that our supply chain will be sound when Hungary joins the EU. As we continue to grow and ramp up production, we have to improve the speed with which we can migrate products over to our Hungarian manufacturing site. So that means further systems sharing and communication with our key suppliers.

We have been very happy with the systems we have now. They have allowed us a lot of flexibility to either build our own internal tools or leverage the new releases that Oracle is coming out with. One of key benefits of our long-term relationship with Oracle is that we are allowed to work with them on the development side. They give us their ear and we work together in a collaborative way on features in their products before they get released. So when the product comes out it has more of the feature set that we would like, or we at least know what the features are going to be in advance so we can be better prepared to use them.

Q: Are there any new features with supply-chain applications that you are working on now?

Porterfield: Depot repair of products or reverse logistics is an area we have spent a fair amount of time working with Oracle to streamline that tool to the needs of a high-tech company æ moving product between multiple depots, getting it repaired and back to the customer as quickly as possible.