Here's a recipe for error: take a product with long lead times, making it impossible to tie the purchase of raw materials to actual orders. Then add customers who are demanding finished product faster than ever before. In such a situation, one's "best guess" about the right amount of inventory is rarely good enough.
It was a lesson that Inventec Corp. was quick to learn. Headquartered in Taipei, the company makes a variety of high- tech products, including servers, laptops, personal digital assistants and digital cameras. In 1998, it was manufacturing basic product at two plants in Taiwan. It also had facilities in Houston and Glasgow, Scotland, to perform final assembly and aftersales service for the North American and European markets.
Inventec was growing fast, but all was not well. It saw the need to respond more quickly to customer orders, while doing a better job of planning inventory levels. One step in that direction was the purchase of an enterprise resource planning (ERP) system from SAP. But that program lacked adequate planning tools, says Chin-Wen Lin, senior vice president of Inventec's e-business center.
Inventec's vendor of choice for planning software was Dallas-based i2 Technologies Inc. The company didn't acquire i2's products in the usual order, says Yu-Chang Su, delivery manager for i2 in Taipei. While most companies install a factory planning tool first, then one for supply-chain planning, Inventec did it the other way round.
Its most pressing need was for a system that could prevent both excesses and shortages of materials, Su explains. Although there was plenty of room for improvement on the factory floor, Inventec first wanted to establish better links to suppliers, via the internet.
Previously, says Lin, the company had struggled to gauge the right amount of inventory through manual procedures, and daily meetings with internal production and logistics personnel. But the process was time-consuming, and the data from various sources weren't always in synch. Meanwhile, Inventec was under pressure to step up its delivery cycle from three days to 48 hours.
Because of long lead times involved in materials purchasing, Inventec must keep inventory on hand at each factory, as well as its warehouses. Many parts are managed on-site by suppliers, who own them until the moment they're needed by the manufacturer. The setup, while advantageous to Inventec's balance sheet, makes it even tougher for the company to get a global view of its stocks.
The first stage of the project involved implementation of i2's Supply Chain Planner (SCP). Going live in April 2000, it gave Inventec visibility of all materials at the Taiwan, Houston and Scotland factories. Included in the package are twice-weekly reports, which form the basis of the company's planning efforts. SCP uses customers' sales forecasts to determine raw-materials requirements. Inventec then compares those findings to inventory on hand, and distributes its plan to suppliers over the internet. Finally, SCP relays the data back to customers.
In mid-July 2001, Inventec undertook a three-month program of enhancements to the SCP system. It hooked up to two more factories in Shanghai. And it built in greater flexibility, to allow for links to additional factories or a sudden surge in demand. A new interface permitted the transmission of updated orders.
At the same time, Inventec began installing i2's Factory Planner (FP) software. Su says i2 helped the company to smooth the flow of data between its ERP system and the plant floor. It also did a better job of balancing production and materials planning among the various factories. The FP system was fully in place by the end of 2001.
The new systems required big changes in Inventec's internal procedures. "People had to trust the solution, and input correct data," says Lin. "They needed to understand the importance of change." But the effort was worth it. Among the results were a reduction in the order cycle from five days to less than two. The time required for entering demand alterations into the system went from three days to one. Inventory costs were reduced by 30 to 40 percent, while Inventec's available-to-promise (ATP) rate increased by a similar amount.
Inventec followed up the new planning software with an online purchasing system, a step it believes will significantly cut purchasing costs. The new system will be integrated with SCP, so that orders received electronically can be sent directly to the planning system. Lin says Inventec is also considering the purchase of a demand fulfillment program, although it has no firm timetable to do so.
Also on Inventec's plate is the transfer of some base unit and finished goods production from Taiwan to Shanghai. That project is likely to delay the implementation of additional supply-chain software. But it will also speed the company's plans to go beyond pure manufacturing into collaborative design with customers, Lin says.
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