The photo is of a factory worker, pulling an automobile tire from a mold. It dates back to the 1940s, but it could have been taken today. That's how little the basic process of manufacturing tires has changed over the decades.
Fittingly, The Cooper Tire & Rubber Co. is a "very conservative, traditional, heritage-rich manufacturing firm," said George H. McAfee, supply-chain management program manager. Based in Findlay, Ohio, Cooper is a leading supplier of replacement tires for the North American passenger and light-truck markets.
But don't assume that Cooper is equally conservative when it comes to managing its supply chain. That photo of the man on the assembly line was part of a presentation by McAfee at the recent Planet 2003 conference of i2 Technologies Inc. He was showing how Cooper has radically restructured its supply chain, in response to changing market conditions and growing deficiencies in its method of serving customers.
Up until 1998, Cooper was primarily a domestic operation, with 11 production facilities, including one in the United Kingdom. But like most modern companies, it began feeling pressure from investors and analysts to show a better return on invested capital. The path it chose was one of acquisition.
In 1999, Cooper purchased The Standard Products Co., a maker of systems for body sealing, fluid handling and noise, vibration and harshness (NVH) control. In its bid to become a Tier 1 supplier to auto manufacturers, Cooper created the Cooper-Standard Automotive business unit. Other recent acquisitions have included Siebe Automotive, a producer of heating, ventilation and fuel circulation systems; and the tire retreading operations of Oliver Rubber Co., Teknor Apex Co. and Hercules.
That flurry of deals brought radical change to Cooper. In less than two years, the company grew to encompass 61 production facilities worldwide. Annual sales today top $3.2bn, of which the tire group contributes $1.7bn.
Along with the expansion, however, came a whole slew of headaches. Suddenly, the tradition-bound Midwestern tire maker was saddled with overlapping supply networks; multiple and outdated information systems; departmental planning "silos"; excess inventories of raw materials, work in progress and finished goods; and excessive waste throughout the supply chain.
Cooper's planning efforts were severely outmoded. Forecasting error at the SKU level showed an aggregate error of 11.67 percent, with a mean monthly deviation of 52 percent. Under precepts laid out by quality guru W. Edwards Deming, that's bad enough to mandate shutting the whole system down, then rooting out the cause of the error. Said McAfee: "The process was out of control."
At the same time, the replacement-tire market was changing. Automakers were moving away from a reliance on safety stocks in favor of a just-in-time strategy for managing inventories. That meant smaller, more frequent orders, making it tougher for suppliers to time production and delivery. The tires themselves were getting bigger and better. And product lifecycles were shrinking, from an average of 10 years to as few as three. With its two-year time to market for new product, Cooper faced a big challenge in supplying customers.
Looking to Get Lean
The answer, said McAfee, lay in creation of a lean supply chain. And that meant paying close attention to the process for the first time. No longer were manufacturing and product development the sole drivers of sales. Cooper needed to embrace service as a means of setting itself apart from the competition. At the same time, with supply-chain expense rising faster than net sales, it had to cut costs drastically.
Cooper identified seven categories of waste: overproduction, excessive lead times, movement of redeployed product between distribution centers, inappropriate processing, unnecessary safety stocks without regard for regional needs, unnecessary movements between the loading dock and storage, and a rash of procedural defects, including misshipments, misallocations and backorders.
The quest for a lean supply chain generated four key questions: Were stocking and production locations in the right place? Did logistics processes result in the optimal movement of raw materials and finished goods? Was Cooper making the right products at the right time, and moving them to the right locations? Were data flowing in a closed-loop, real-time environment, in support of advanced supply-chain planning and execution? Too often, said McAfee, the answer to these questions was no.
Information technology would come to the rescue. A mishmash of legacy systems couldn't support the changes that needed to be made. "There was no way to achieve maximum performance without a technology infusion at some point," McAfee said.
"Phase zero," as he called it, began with the search for an IT provider. Three separate selection processes, spread over 12 months, yielded the same result: Dallas-based i2 Technologies. The vendor, which began selling factory-planning software, then branched out into various planning and execution applications, would be asked to dig deeply into its menu of products to fix Cooper's moribund supply chain.
The first phase called for rationalization of Cooper's production and distribution network. i2's Supply Chain Strategist was the applicable tool. With the help of network modeling and various "what-if" scenarios, the company closed eight facilities, consolidated two distribution centers and added two regional DCs. At the same time, said McAfee, it identified lanes for moving product directly from factory to the customer, reducing both freight costs and order cycle time. The same routine was performed for Cooper's Avon tire subsidiary in the United Kingdom.
A Bump in the Road
Supply Chain Strategist was implemented smoothly, says Doug Young, solutions consultant for i2's automotive and industrial business unit in Detroit. Not so with Production Scheduler, the next phase in Cooper's supply-chain makeover.
The tool was designed to schedule production in number of units. But Cooper's system was tied to "mold days," referring to the length of time a given mold is devoted to making a specific tire. Recoding the software for four plants and five production models (the last a "virtual plant" for multi-sourced SKUs) took nearly nine months. "There were quite a bit of changes we had to do," says Young.
It was worth the extra effort. Cooper had been planning production on its mainframe computer on a weekly basis. Schedulers would receive data in hard-copy format, then have to adjust for each of the company's facilities.
Plant constraints in the tire business "are monumental," says Young. What's more, critical information under the previous system had a tendency to get old fast. Cooper was forced to lock in its production plan two weeks in advance, making it impossible to react any sooner to sudden spikes in demand.
Demand for replacement tires fluctuates widely, notes Young, and not always in predictable patterns. Fall is typically the peak season for tire sales. In addition, customers might place large orders just before a price change. Then there are the truly unexpected events. The recent rash of Firestone tire failures caused a tsunami in the replacement market.
i2's Production Scheduler allowed Cooper to shrink its frozen-production period from 14 days to four. Other benefits, said McAfee, included a move from weekly to daily planning cycles, constraint-based optimization of the master "cure" schedule for individual plants, the ability to prioritize scheduling by customer and tire type, a more effective use of inventory, and better customer service.
Turning to TMS
Transportation was the next area to be tackled. Cooper drew on multiple modules of i2's Transportation Management System suite. They included applications for managing, optimizing and modeling the movement of product.
Cooper needed to adjust to more frequent orders and smaller shipment sizes. Complicating matters was the newly super-sized company's broad product offering--seven proprietary brands and a private-brand line that was nearly as large. No longer could it rely on manual systems, especially for handling freight bills. It processed 167,000 paper bills in 2001, McAfee said, and volumes were expected to keep on growing.
Using the i2 software, nine of Cooper's distribution centers migrated to an automated system for document handling, including automatic payment of carriers. The result was a 60-percent reduction in paper freight bills. Cooper also was able to take a more rational view of its carrier base, based on high-level modeling of strategic routes, especially those with multiple pickups and drops.
The period from "white-board" planning to live testing of TMS was just five months, McAfee said. Cooper recovered its investment in the tool in just 11 months, instead of a projected 18 months. That success, he said, "was used as leverage to secure future investment in supply-chain management technology."
In fact, i2's Supply Chain Management Suite represents phase four in Cooper's ongoing reengineering effort. The goal is nothing less than the optimization of business processes across the chain. Elements of the suite include Demand Planner, Demand Fulfillment and Supply Chain Planner.
Demand Planner gives Cooper the ability to do forecasting at the SKU and location level. The idea is to move from a "push" to a "pull" environment, with orders and shipments keyed to actual replenishment needs at its distribution centers. And that means less reliance on expensive safety stocks. Said McAfee: "We're basically trying to make today what we sold yesterday."
Demand Fulfillment has three functions: forecast netting, showing how demand actually flows within a given time period; allocation planning; and order promising. Only the first has been implemented at Cooper so far. It's the initial step in the company's ability to prioritize demand based on plant constraints, Young says.
i2's Supply Chain Planner incorporates a number of processes, including planning for sales and operations, inventory, replenishment and manufacturing. In the case of the last, pull-based replenishment data and a manufacturing master plan are fed into the Production Scheduler tool, effectively closing the planning loop, Young says. The system takes into account seasonal peaks, helping to determine when the user needs to acquire additional storage capacity or manpower.
The planning tools also provide the foundation for order promising, a critical component of customer service today. Currently, Cooper lacks the capability to reserve product unless it's sitting inside a customer-facing D.C. With the new system in place, it will be able to extend such reservations all the way into its four-day production schedule.
In the world of business software, one project often leads to another. Not unlike remodeling a house, it's a phenomenon that pleases suppliers, while giving customers migraines. But Cooper was only too happy to use the i2 project as an excuse for migrating key systems off its mainframe, which is more than 30 years old and hails from the days of 80-column punch cards. The system simply can't handle the desired new planning capabilities, let alone the quest for a "pull" system of fulfillment, says Young.
Along with the mainframe's semi-retirement comes the fifth phase of the massive software implementation, i2's Distributed Inventory Management. Part of the vendor's Distribution Order Execution suite, it will give Cooper inventory visibility in a broad, distributed environment, versus a point-to-point view. Also included are a more accurate available-to-promise enabler, and advanced exception and alert management tools. With the system in place, Cooper will be able to allocate inventory back up the supply chain, including items in transit and work in progress.
Enter IBM Consulting
i2 had help from Boston-based IBM Business Consulting Services Inc., which entered the picture at the point Cooper was acquiring and implementing the vendor's transportation-management suite. Young suggests the company was looking for a smoother process of change than it had experienced with Production Scheduler.
IBM managed the transportation project, including the organizational changes needed within Cooper to make it work. i2 took care of the technical end. The success of that partnership promoted Cooper to involve IBM in i2's Strategic Opportunity Assessment, which so dramatically broadened the scope of the effort. IBM has been involved in each subsequent implementation.
Turf battles have been minimal to non-existent, the principals say. i2 already was a trusted alliance partner of IBM, Young notes. Cooper was helped along by an IBM team of specialists, many of whom had been part of the thriving i2 practice at PricewaterhouseCoopers, the consultant and systems integrator acquired by IBM last summer.
Also on Cooper's plate is a project to cut the time it takes to bring new products to market. With a lead-time of two years, it has struggled to keep pace with changes in the business. So it set out to cut that period to just six months.
Cooper began moving away from its UNIX server platform and mainframe systems to a suite of software applications from Microsoft. Relevant products from the Redmond, Wash.-based giant include Microsoft Visio, Project, SharePoint Portal Server and BizTalk Server, all running on a Windows 2000 Advanced Server. They handle such tasks as marketing development, collaborative product design and systems integration.
Coupled with the use of still-developing web services, the Microsoft tools are intended to help Cooper boost net revenues by $1.6m over three years. At the same time, the company is looking to cut its total cost of ownership by $1.3m. According to Microsoft, Cooper will spend 30 percent less on the vendor's products than on a separate product lifecycle management application.
Cooper's job is far from finished. Along with other replacement-tire makers, it has been struggling lately, hurt by persistently weak demand. The parent company's net income for the first quarter of 2003 was $15m, compared with $26m a year earlier. Tire operations alone showed an operating profit for the quarter of $16m, down from $43m.
Cooper's inventory-reduction strategy needs work, too. In May, the company announced it was shutting down production at three U.S. tire plants for a week, in order to cut excess inventories.
Management is hoping for improvements in the second half of this year. Raw-material prices should begin to fall, and sales should improve with the release of pent-up demand, company president and chief executive officer Thomas A. Dattilo said in a statement.
Meanwhile, Cooper's supply-chain project continues, as the company pursues the dual goal of plugging in new technology and revamping business processes to reflect market realities. Says IBM's Stefanis: "We're changing the rules of the game."
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