A major reengineering program at Micron Electronics Inc. has resulted in a better way of feeding parts to the high-tech assembly line.

In April of this year, Skyway Systems opened a material logistics center (MLC) near Micron's headquarters and main manufacturing site in Nampa, Idaho. The facility acts as a go-between for some 50 suppliers and the Micron plant, which turns out personal computers on a direct-sale, build-to-order basis.

The Micron business model follows that of industry pioneer Dell Computer. But it wasn't until a year ago that Micron's supply chain began to take full advantage of the concept.
Reengineering at Micron was spearheaded by newly appointed Chief Executive Officer Joel Kocher, who came to the company from Dell. For his new vice president of materials, he named a former employee in Austin, Lyle Jordan.

Jordan immediately set to work cutting costs and streamlining Micron's bloated supply chain. In a single year, he reduced parts inventory levels from $136m to $24m, and days sale of inventory (DSI) from 36 days to seven. At the same time, he increased inventory turns from 10 a year to 52.

Much of the improvement stemmed from working more closely with core suppliers. Jordan cut their numbers from 156 to 87, and crafted tight alliances with the remaining players. He stressed long-term relationships over spot buying.

Another big target for change was the way in which parts flowed into the plant. Micron had a third-party logistics provider set up shop right across the street to handle orders and replenishment. But Jordan vowed to take things further. He wanted suppliers to manage the schedule of materials, and retain ownership of inventory right up to the moment that parts were needed on the line. "We don't bring any value-added [benefits] by having a receiving and stockroom function," he said.

Micron's needs happened to dovetail with development of the MLC concept by Skyway. Significantly, Skyway's first successful MLC account was Dell. Jordan said Micron was further drawn to the provider by its extensive Internet capabilities, part of a menu of supply-chain services dubbed Concerto.

The MLC is a short-term staging point for raw materials, components and partially finished product destined for the assembly line on a just-in-time basis. Items remain in the center until they are called by Micron, either by telephone or via the Web link. Skyway then has between two and four hours to get them to the line.

Skyway manages the flow of information so that Micron and its suppliers can see at a glance how much inventory is on hand, on order, and en route to the MLC. They also can view the purchase order against which a particular item was shipped, and how much remains on it. Skyway will not pull more product than is allowed by a P.O., a rule that eliminates the need for suppliers to undertake costly reconciliations, said Louise Smith, vice president of marketing and supply-chain technology at Skyway's headquarters in Watsonville, Calif.

Suppliers further benefit because they receive immediate notification of shipment to the manufacturer, and can replenish inventories accordingly. Frequently they can invoice Micron directly off pull records, said Smith.

"We find it's a great way to keep the customer supplied and up and running," said Ed Tymick, OEM supply-chain manager of 3Com Corp., the Santa-Clara, Calif.-based maker of desktop modems and network-interface cards for personal computers. 3Com pushed Micron to choose Skyway for the Nampa MLC, having participated in Dell's facility in Austin, Tex.

By receiving fast and accurate data on the manufacturer's consumption patterns, 3Com can better plan its own factory output and cut down on excess inventory, Tymick said. Micron, too, is able to work with suppliers to determine the optimal level of inventories in the pipeline. Otherwise, said Jordan, "we're constantly either expediting material or slamming on the brakes."

Suppliers such as 3Com are as much customers of Skyway as the end manufacturer, and both pay Skyway for the use of the MLC. In return, Skyway furnishes detailed performance reports based on five key metrics: accuracy in receiving, inventory management and shipment, on-time delivery from hub to customer, and how well Skyway manages the small amount of safety stock that resides in the facility.

Micron appears well on the road to further reducing inventory levels, eliminating line-down situations, and shortening its cash-to-cash cycle. Jordan expects ultimately to be measuring inventory levels in terms of hours, not days. The company already receives payment from its customers between 18 and 21 days before it has to pay its suppliers. That, he said, is a record for the computer industry.

Micron's next step is to implement a third-party database that will allow its suppliers to see exactly what has been assembled, fulfilled and shipped out to the manufacturer's customers. He also expects to get a better hold on sales forecasts through volume purchase agreements with key customers. The provider of the new software, to be implemented over the next year, will likely be i2 Technologies.