Executive Briefings

Solectron Uses Supply Chain Simulation to Improve Customer Response Time

A conversation with Cesar Gonzalez, worldwide director of program management at Solectron, Milpitas, Calif.

With 57,000 employees in 52 locations spanning 25 countries, Solectron is a leading global provider of electronics manufacturing and integrated supply chain services to a wide array of technology customers, including such industry giants as Cisco and Nortel. Solectron's customers demand high flexibility and responsiveness to the unpredictable demand patterns they experience in their markets. To meet these expectations, Solectron needed a solution that could identify supply chain problems early in the process and enable it to quickly collaborate with customers on a solution, all while driving lean processes and integrating seamlessly with a mix of ERP systems. After a thorough evaluation, Solectron decided on the RapidResponse solution from Kinaxis.

Q: How long have you been involved in supply chain management at Solectron?
Gonzalez: I came to Solectron through an acquisition of the manufacturing assets of NCR. That was back in 1998 when EMS [electronic manufacturing services] companies were acquisition-happy. At the time I was in manufacturing engineering at NCR on a rotation from design. I had my choice of which company to go with and I chose to go with Solectron. Since then I have held positions in customer program management, which within Solectron is the organization that owns the business with the customer at the customer's site. Then I moved into materials and I later led the cost management organization for Solectron. We built a cost management organization to standardize how we negotiate with suppliers and drive cost reduction activities for customers. After that, I became supply chain manager for one of our global accounts and then moved back to program management at the global level. For almost two years I have been director of worldwide program management, where I am responsible for driving what we call the demand chain. This really involves implementing Six Sigma Lean with our customers, primarily in the demand management area. As part of that, we look at how to improve end customer service levels--not just service for the OEMs but for their customers--by redesigning the supply chain, eliminating waste from all the processes that we share with them and with suppliers, and creating an overall and complete view of the supply chain. We identify service level and cost goals, which are driven by the end customer, and then analyze how to redesign the supply chain with the appropriate processes and tools to achieve those goals.

Q: Other than manufacturing, what types of services do you provide?
Gonzalez: Of course our core business is electronics contract manufacturing, but in doing that we also provide design services and logistics services, though not every customer will use all of the services we offer. Because of the various service ranges and because of the variety in the types of products we build, the supply chain can look significantly different from one customer to the next. We build anything from cell phones or just board assemblies all the way up to the large telecom, highly configurable systems that we ship directly to the end customer. And many of these products involve global sourcing and/or global assembly and testing, so the complexity of the supply chain varies significantly by customer.

Q: How many facilities does Solectron have?
Gonzalez: We have about 35 manufacturing facilities and another 20 or so service facilities, mostly in Asia. More than half of our revenue comes from operations in Asia.

Q: What were the specific pain points you were experiencing that led you to initiate the project with Kinaxis?
Gonzalez: We needed to establish better collaboration with our customers. Something that you often see within contract manufacturing is a concept we call 'load and chase.' This is where the customer gives you a download and you just go execute without knowing the repercussions or whether that fulfillment could be optimized to better serve the customer. You just don't have enough information to make the best decision in collaboration with your customer.

For example, in the past we would get demand forecasts from the customer, and we just go ahead and run MRP and then start executing without really knowing what issues we were going to face--this is a classic load-and-chase scenario. So when it finally did become apparent and we were able to go back to the customer and say, 'here is what is achievable,' a lot of time had passed. When it comes to customer service, the problem is not so much your ability to do it, but your ability to communicate fast enough what it is you can or cannot do. That is where we were having the biggest issue. It could take us up to a couple of weeks to get back to the customer with an idea of what we could achieve. We had to run MRP and launch the purchase order to be able to find that out.

Q: How does the Kinaxis RapidResponse solution help with that?
Gonzalez: It gives us a way to simulate the initial demand against our current capabilities along with certain assumptions we are able to make, so we can see where the issues reside. Then we can work with the customer in a truly collaborative way to make changes to that demand. Now we are able to be on the phone with an OEM customer very quickly and say, 'you know, if you move this order out and pull this one in, we can achieve this higher priority order that you have.' And we get that understanding in a simulated environment that doesn't affect our actual execution until we reach agreement with the customer.

One of the first accounts that we established on RapidResponse is in Penang [Malaysia]. We went from taking upwards of 10 days, and a minimum of five days, to get back to the customer to where we now are getting results to them the same day. Actually, we have a first view of our capability within 10 minutes, so we are talking orders of magnitude on improvement. This translates into a better relationship with the customer because we are providing better service and we're seen as a better business partner.

Q: Are the assumptions you use in the simulations based on the data you have or on domain knowledge?
Gonzalez: Both. First of all, we have all of our data from ERP and from Rapid Response, so rather than having to go through the MRP process to get the output, we are able to use the data to create a simulation. In addition to that, we rely on our own experience to know how to filter the data--I know this supplier has a certain amount of flexibility and so on. We use historical information in RapidResponse to look at what the historical pulls have been from the customer, so if a customer has been regularly overpulling or underpulling its forecast, we can work with them to establish new safety stock or buffer levels or change the way the forecast process is working.

Q: In addition to providing better information to the customer, does the simulation also drive better performance?
Gonzalez: Yes, because you make better decisions before you ever launch a PO to your supplier so you are better able to achieve what you have committed to. Second, you end up with less inventory because you know up front the impact that demand changes will have on inventory and you can get agreement with the customer before you launch the PO.
Another benefit of RapidResponse is that it enables Solectron to have standardized reports, so that no matter where I am building for this customer, the reports all look the same. As a company that was built on acquisitions, this is one of the challenges Solectron faced in the past.

Q: Do you run RapidResponse at one central location or is it distributed to individual facilities?
Gonzalez: Currently, we are deploying at each site. We already have it deployed in Malaysia, China, Mexico, Puerto Rico and we plan to deploy it at all sites. Long term, we view the capability of RapidResponse to do centralized planning as a benefit for our global customers. So, eventually, we will use it in both a centralized and dispersed way. There are some customers that have multiple divisions where each division is pretty much a stand-alone company--in those cases you gain nothing by centralizing planning. Other customers are totally centralized and send us a centralized forecast--in those cases, I could have a person co-located with the customer to run RapidResponse and provide the commit and the first view of our capability right there in real time.

Q: How far out do customers provide you their forecasted demand?
Gonzalez: It varies from three months to 12 months. The more reliable forecast is just three months out. When you get further out than that you see a lot of changes as you get closer to the three-month window.

Q: Can you describe the selection process that led to your partnership with Kinaxis?
Gonzalez: Since Solectron has grown by acquisition, we had several ERPs running, as well as different advance planning systems. At the time we initiated this project, we already were running RapidResponse at some of our facilities; we were running Baan Supply Chain Planner in Europe, where we also ran Baan ERP; we were running i2 at some American facilities and Manugistics at another U.S. site. We sent an RFQ to all of those vendors as well as to SAP, since Solectron had separately decided to replace all of its ERP systems, over time, with SAP. This gave us an overall capability picture so we could begin to see which would be the better fit. Then we did a series of super user meetings, where teams from Asia, Latin America, Europe and North America as well as members of my team sat down and drew up a list of about 45 items that we considered critical--things like rapid simulation capabilities, collaboration capabilities, a user-friendly interface and the ability to drive lean processes like kanban and a pull strategy. We then had face-to-face meetings with a final group of vendors, where we were given demonstrations and heard how each vendor thought it could meet our needs. After follow-up conference calls we rated each vendor from a business standpoint. After we narrowed the candidates down to three-SAP, Baan and Kinaxis--we did a technical analysis and a financial review and then went into negotiations. It was a pretty lengthy process. We started in August 2004 and signed the contract with Kinaxis at the end of December.

We had our first meeting with Kinaxis in the middle of January 2005 to share our requirements document and start putting it together as a team. It took a couple of months to just nail down the requirements, plus I had requested some customized reports that required some extensions to the software. Our first two sites, which are our two biggest facilities, went live at the end of July. Then we had four more sites go live in the fall and by July of this year we will be at 18 sites.

One of the things we really liked about Kinaxis that really set them apart from everyone else was the user interface. They have task flows that make it easy to align the process steps that need to be followed, so we can have a new planner up and running after one day of training. He just has to follow the task flows, which point to the reports to run, where to send it for approval, and so on. It walks you through all the way to the end, so we really liked that aspect. We also liked the fact that the screens look very much like Excel, which makes it very easy for people to pick it up.

This allows us to have different levels of planners--master planners as well as people who are newer to the position. Master planners are the ones who will go in and make assumptions as to improvements we can make in the supply base. They are the ones who have the authority to go in and modify a plan or change the filters. For example, we get feedback from our commodity mangers as to what commodities are readily available in the broker market. So if we are short this part but we know it is readily available in the broker market, we can make that assumption. As part of the information that is shared with the customer, we note what these assumptions are so the customer won't be surprised if there are higher costs involved in buying from a broker. It goes back to information sharing--putting all the information in front of the customer ahead of time.

One of the interesting things about RapidResponse is that I can create as many private plans as I want, so if the customer wants to look at something 20 different ways, I can create 20 different personal plans that show each of these results. And I can then compare them using a live scorecarding tool, so I can show the customer which scenarios are better from an on-time delivery perspective, or a revenue perspective or a cost perspective. This allows us to really bring more value to the customer in helping them make the best decision.

Q: Have you quantified any benefits?
Gonzalez: As we ramp up, we expect a 5 percent reduction in inventory and a growth in revenue that will come just because of the improvement in service levels. With some of our accounts that are early adopters, we know that inventory turns have doubled, though that is attributed to the process as well as the tool. It has to do with collaborating with the customer, which the tool facilitates, and making better decisions as a result. And to the extent that I build that relationship with the customer, I am better equipped to drive expectations that are achievable. We also have better control and are better able to drive lean activities throughout our supply chain, which results in things like reduced lead times and a shorter demand management process. I see the Kinaxis tool as being a key contributor to facilitating all of these things.

Q: Are there any lessons leaned you would like to share with our readers?
Gonzalez: The key thing in a project of this magnitude is to make your processes as consistent as possible across all sites at the beginning. Driving process commonality and installing a new software tool at the same time is very difficult. That is where we faced most of our challenges. The two sites that went live in July we had hoped to have live at the end of May, and it wasn't a matter of the tool not being ready. It was a matter of the processes at the site not being aligned with the processes that we were driving at a corporate level.

With 57,000 employees in 52 locations spanning 25 countries, Solectron is a leading global provider of electronics manufacturing and integrated supply chain services to a wide array of technology customers, including such industry giants as Cisco and Nortel. Solectron's customers demand high flexibility and responsiveness to the unpredictable demand patterns they experience in their markets. To meet these expectations, Solectron needed a solution that could identify supply chain problems early in the process and enable it to quickly collaborate with customers on a solution, all while driving lean processes and integrating seamlessly with a mix of ERP systems. After a thorough evaluation, Solectron decided on the RapidResponse solution from Kinaxis.

Q: How long have you been involved in supply chain management at Solectron?
Gonzalez: I came to Solectron through an acquisition of the manufacturing assets of NCR. That was back in 1998 when EMS [electronic manufacturing services] companies were acquisition-happy. At the time I was in manufacturing engineering at NCR on a rotation from design. I had my choice of which company to go with and I chose to go with Solectron. Since then I have held positions in customer program management, which within Solectron is the organization that owns the business with the customer at the customer's site. Then I moved into materials and I later led the cost management organization for Solectron. We built a cost management organization to standardize how we negotiate with suppliers and drive cost reduction activities for customers. After that, I became supply chain manager for one of our global accounts and then moved back to program management at the global level. For almost two years I have been director of worldwide program management, where I am responsible for driving what we call the demand chain. This really involves implementing Six Sigma Lean with our customers, primarily in the demand management area. As part of that, we look at how to improve end customer service levels--not just service for the OEMs but for their customers--by redesigning the supply chain, eliminating waste from all the processes that we share with them and with suppliers, and creating an overall and complete view of the supply chain. We identify service level and cost goals, which are driven by the end customer, and then analyze how to redesign the supply chain with the appropriate processes and tools to achieve those goals.

Q: Other than manufacturing, what types of services do you provide?
Gonzalez: Of course our core business is electronics contract manufacturing, but in doing that we also provide design services and logistics services, though not every customer will use all of the services we offer. Because of the various service ranges and because of the variety in the types of products we build, the supply chain can look significantly different from one customer to the next. We build anything from cell phones or just board assemblies all the way up to the large telecom, highly configurable systems that we ship directly to the end customer. And many of these products involve global sourcing and/or global assembly and testing, so the complexity of the supply chain varies significantly by customer.

Q: How many facilities does Solectron have?
Gonzalez: We have about 35 manufacturing facilities and another 20 or so service facilities, mostly in Asia. More than half of our revenue comes from operations in Asia.

Q: What were the specific pain points you were experiencing that led you to initiate the project with Kinaxis?
Gonzalez: We needed to establish better collaboration with our customers. Something that you often see within contract manufacturing is a concept we call 'load and chase.' This is where the customer gives you a download and you just go execute without knowing the repercussions or whether that fulfillment could be optimized to better serve the customer. You just don't have enough information to make the best decision in collaboration with your customer.

For example, in the past we would get demand forecasts from the customer, and we just go ahead and run MRP and then start executing without really knowing what issues we were going to face--this is a classic load-and-chase scenario. So when it finally did become apparent and we were able to go back to the customer and say, 'here is what is achievable,' a lot of time had passed. When it comes to customer service, the problem is not so much your ability to do it, but your ability to communicate fast enough what it is you can or cannot do. That is where we were having the biggest issue. It could take us up to a couple of weeks to get back to the customer with an idea of what we could achieve. We had to run MRP and launch the purchase order to be able to find that out.

Q: How does the Kinaxis RapidResponse solution help with that?
Gonzalez: It gives us a way to simulate the initial demand against our current capabilities along with certain assumptions we are able to make, so we can see where the issues reside. Then we can work with the customer in a truly collaborative way to make changes to that demand. Now we are able to be on the phone with an OEM customer very quickly and say, 'you know, if you move this order out and pull this one in, we can achieve this higher priority order that you have.' And we get that understanding in a simulated environment that doesn't affect our actual execution until we reach agreement with the customer.

One of the first accounts that we established on RapidResponse is in Penang [Malaysia]. We went from taking upwards of 10 days, and a minimum of five days, to get back to the customer to where we now are getting results to them the same day. Actually, we have a first view of our capability within 10 minutes, so we are talking orders of magnitude on improvement. This translates into a better relationship with the customer because we are providing better service and we're seen as a better business partner.

Q: Are the assumptions you use in the simulations based on the data you have or on domain knowledge?
Gonzalez: Both. First of all, we have all of our data from ERP and from Rapid Response, so rather than having to go through the MRP process to get the output, we are able to use the data to create a simulation. In addition to that, we rely on our own experience to know how to filter the data--I know this supplier has a certain amount of flexibility and so on. We use historical information in RapidResponse to look at what the historical pulls have been from the customer, so if a customer has been regularly overpulling or underpulling its forecast, we can work with them to establish new safety stock or buffer levels or change the way the forecast process is working.

Q: In addition to providing better information to the customer, does the simulation also drive better performance?
Gonzalez: Yes, because you make better decisions before you ever launch a PO to your supplier so you are better able to achieve what you have committed to. Second, you end up with less inventory because you know up front the impact that demand changes will have on inventory and you can get agreement with the customer before you launch the PO.
Another benefit of RapidResponse is that it enables Solectron to have standardized reports, so that no matter where I am building for this customer, the reports all look the same. As a company that was built on acquisitions, this is one of the challenges Solectron faced in the past.

Q: Do you run RapidResponse at one central location or is it distributed to individual facilities?
Gonzalez: Currently, we are deploying at each site. We already have it deployed in Malaysia, China, Mexico, Puerto Rico and we plan to deploy it at all sites. Long term, we view the capability of RapidResponse to do centralized planning as a benefit for our global customers. So, eventually, we will use it in both a centralized and dispersed way. There are some customers that have multiple divisions where each division is pretty much a stand-alone company--in those cases you gain nothing by centralizing planning. Other customers are totally centralized and send us a centralized forecast--in those cases, I could have a person co-located with the customer to run RapidResponse and provide the commit and the first view of our capability right there in real time.

Q: How far out do customers provide you their forecasted demand?
Gonzalez: It varies from three months to 12 months. The more reliable forecast is just three months out. When you get further out than that you see a lot of changes as you get closer to the three-month window.

Q: Can you describe the selection process that led to your partnership with Kinaxis?
Gonzalez: Since Solectron has grown by acquisition, we had several ERPs running, as well as different advance planning systems. At the time we initiated this project, we already were running RapidResponse at some of our facilities; we were running Baan Supply Chain Planner in Europe, where we also ran Baan ERP; we were running i2 at some American facilities and Manugistics at another U.S. site. We sent an RFQ to all of those vendors as well as to SAP, since Solectron had separately decided to replace all of its ERP systems, over time, with SAP. This gave us an overall capability picture so we could begin to see which would be the better fit. Then we did a series of super user meetings, where teams from Asia, Latin America, Europe and North America as well as members of my team sat down and drew up a list of about 45 items that we considered critical--things like rapid simulation capabilities, collaboration capabilities, a user-friendly interface and the ability to drive lean processes like kanban and a pull strategy. We then had face-to-face meetings with a final group of vendors, where we were given demonstrations and heard how each vendor thought it could meet our needs. After follow-up conference calls we rated each vendor from a business standpoint. After we narrowed the candidates down to three-SAP, Baan and Kinaxis--we did a technical analysis and a financial review and then went into negotiations. It was a pretty lengthy process. We started in August 2004 and signed the contract with Kinaxis at the end of December.

We had our first meeting with Kinaxis in the middle of January 2005 to share our requirements document and start putting it together as a team. It took a couple of months to just nail down the requirements, plus I had requested some customized reports that required some extensions to the software. Our first two sites, which are our two biggest facilities, went live at the end of July. Then we had four more sites go live in the fall and by July of this year we will be at 18 sites.

One of the things we really liked about Kinaxis that really set them apart from everyone else was the user interface. They have task flows that make it easy to align the process steps that need to be followed, so we can have a new planner up and running after one day of training. He just has to follow the task flows, which point to the reports to run, where to send it for approval, and so on. It walks you through all the way to the end, so we really liked that aspect. We also liked the fact that the screens look very much like Excel, which makes it very easy for people to pick it up.

This allows us to have different levels of planners--master planners as well as people who are newer to the position. Master planners are the ones who will go in and make assumptions as to improvements we can make in the supply base. They are the ones who have the authority to go in and modify a plan or change the filters. For example, we get feedback from our commodity mangers as to what commodities are readily available in the broker market. So if we are short this part but we know it is readily available in the broker market, we can make that assumption. As part of the information that is shared with the customer, we note what these assumptions are so the customer won't be surprised if there are higher costs involved in buying from a broker. It goes back to information sharing--putting all the information in front of the customer ahead of time.

One of the interesting things about RapidResponse is that I can create as many private plans as I want, so if the customer wants to look at something 20 different ways, I can create 20 different personal plans that show each of these results. And I can then compare them using a live scorecarding tool, so I can show the customer which scenarios are better from an on-time delivery perspective, or a revenue perspective or a cost perspective. This allows us to really bring more value to the customer in helping them make the best decision.

Q: Have you quantified any benefits?
Gonzalez: As we ramp up, we expect a 5 percent reduction in inventory and a growth in revenue that will come just because of the improvement in service levels. With some of our accounts that are early adopters, we know that inventory turns have doubled, though that is attributed to the process as well as the tool. It has to do with collaborating with the customer, which the tool facilitates, and making better decisions as a result. And to the extent that I build that relationship with the customer, I am better equipped to drive expectations that are achievable. We also have better control and are better able to drive lean activities throughout our supply chain, which results in things like reduced lead times and a shorter demand management process. I see the Kinaxis tool as being a key contributor to facilitating all of these things.

Q: Are there any lessons leaned you would like to share with our readers?
Gonzalez: The key thing in a project of this magnitude is to make your processes as consistent as possible across all sites at the beginning. Driving process commonality and installing a new software tool at the same time is very difficult. That is where we faced most of our challenges. The two sites that went live in July we had hoped to have live at the end of May, and it wasn't a matter of the tool not being ready. It was a matter of the processes at the site not being aligned with the processes that we were driving at a corporate level.