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Going Forward, A New Respect for Supply Chain Excellence

Members of the H&S Manufacturing team proudly display the Supplier of the Year Award that the company received from National Instruments in recognition of its superior global customer service, on-time delivery, cost savings, and consistent performance beyond expectations.
Photo courtesy of H&S Manufacturing

The importance of the supply chain function is growing as companies increasingly see it as a driver of revenue growth and competitive advantage.

Mark Shortt
Editorial Director
Design-2-Part Magazine

The days of expecting your supply chain to provide little more than operating cost reductions appear to be giving way to a new era--one that promises opportunities for not just saving money, but creating value through strong and collaborative relationships with suppliers that are responsive, flexible, and reliable.

Companies are increasingly viewing their supply chain as a driver of revenue growth and competitive advantage, rather than just operational excellence, according to the latest Chief Supply Chain Officer Report, an annual global survey of nearly 1,400 executives conducted by SCM World and sponsored by E2open. Although operating cost reduction is still seen as the foundation of supply chain excellence, with nearly two thirds of those surveyed calling it "very important," fifty percent also said that increasing sales revenue and differentiating customer service from that of their competitors was also "very important."

Supply chain excellence supports value creation and competitive advantage in many ways, according to survey participants, especially by its ability to enhance customer service, a strong driver of customer loyalty and repeat purchases. It also boosts companies' top-line growth by helping to launch new products on schedule, ramp up production quickly, and expand business in new and existing markets. Strong supplier relationships can also help companies receive priority treatment from suppliers during periods when key materials and components are in short supply.

Rich Becks, E2open's general manager of its high technology segment, says that the most important take away from the Chief Supply Chain Officer Report is that supplier performance is no longer just about cost reduction.

"Operational cost reduction is important, of course, and it does create a competitive advantage," he said in an interview. "You want to be the lowest cost producer if you can, but there are other things that have become more important now, and that is to be responsive and flexible to customers and reliable, in order to improve customer service and loyalty. Because what we're finding is that there are choices everywhere, and that customers really don't have the time to evaluate. They make their decisions based on how well they are being served. I was in manufacturing myself--and one of our goals was to really be on the speed dial of my customer. If my customer needed more supply, I wanted them to not bother to even look at my competitors; I wanted them to know that we were so flexible and reliable and responsive, that they would call me first. And that speed dial effect is what a lot of companies are starting to realize: that it's their supply chain that is really making them differentiated in the eyes of their customer."

Today, suppliers play an important role in maintaining the brand of their customers, something that Becks traces to the "major shift" that manufacturers have experienced in becoming global companies. In many cases, their responsibilities have evolved to the point that they are now expected to create value for their customers. He said that prior to becoming global entities, companies were more likely to have good intimacy with their customers and suppliers, as well as excellent visibility over processes and assets, when serving their entire market. But as companies started to serve more markets, their supply chains began to stretch across the globe, forcing them to rely on partners more and more. Partners, as a result, took on a very important role in maintaining their customer's brand.

"That role not only is to supply the needed elements in order to manufacture products, but sometimes it was to service the customer as well," he said. "So they became an extension, really, of the business. The role of trading partners today, really, is to help create value on behalf of their customers, and then maintain the brand."

A technician installs a test board to run a functional test.
Photo courtesy of H&S Manufacturing

Becks was asked why people are becoming more aware of the supply chain's role in creating value. Many factors are contributing to this growing awareness, he said, including some painful examples of what can happen when companies don't have a close, collaborative relationship with a strong supplier base.

"Over the years, we've seen companies launch great products but not be able to bring them to market," he said. "And it really opened the opportunity for their competitors to capture market share. We've seen that many times, where even some of the best product design companies in the world weren't able to capitalize on the demand that they created because they were unable to respond to it."

The results can be entirely different when people are "able to get closer to the customer and have a more intimate relationship," he said. "That relationship always starts with what matters to the customer. That is, how well are they being serviced? How well do you listen to their needs and help them be successful? And it's becoming more and more obvious that supply chain is more than just about cost reductions. It's really about customer retention and customer service." For more on E2open, see Cloud-based Platform Helps Product Manufacturers Maximize Supply Chain Advantage.

As companies increasingly recognize the potential competitive advantages within their supply chains, their respect for the importance of the supply chain function is growing. Six out of ten respondents agreed that "supply chain is understood as an equally important part of business success as sales and marketing or R&D/product development," compared with just ten percent who believed it was still seen as a cost center or service function.

"Our research shows that more and more companies are using supply chain excellence as a means to create value and competitive advantage," said Dr. Hau Lee, Chairman of SCM World and Thoma Professor of Operations, Information, and Technology at Stanford University and co-author of the report, in a statement. "Those that still view supply chain management as a supporting function, or see it only as a way to reduce operating costs, have a lot of catching up to do. They are missing great opportunities."

To capitalize on these opportunities, Dr. Lee added, companies must closely align their supply chain activities with business objectives. "A value-creation view of supply chain management requires supply chain executives to work closely as an integrated part of the company's top executive team," he said. "The supply chain function is not in the background in driving the company's strategic performance; rather, it becomes part of the steering team in the executive suite."

Recognizing Supplier Excellence

Perhaps no company has heeded the call of these opportunities better than National Instruments (NI) (www.ni.com), the Austin, Texas-based maker of computer-based products known for its development of an integrated software and hardware platform that accelerates the design of test, measurement, and control systems. Founded in 1976, National Instruments reported revenues of $1.04 billion in 2011 and currently operates offices in more than 40 countries. Recognizing that its own success is supported by a strong supply base, the company seeks suppliers that share its commitment to integrity, continuous improvement, and world-class performance, and rewards those who consistently exceed expectations.

"We want to associate with suppliers who strive to be leaders in providing competitive solutions in the areas of cost, quality, and delivery," states NI President and Co-founder Dr. James Truchard in his "Message from the President" in the NI Supplier Handbook. "As we look to the future, we see a global landscape where superior supplier performance is a competitive advantage." Dr. Truchard calls on suppliers to "provide innovative technical and supply chain solutions to our business challenges," adding "In turn, we are committed to your success."

National Instruments recently honored 21 companies with its 2012 Global Supplier Awards, selecting recipients based on their performance in cost, quality, global support, delivery, technology, and innovation. At the top of the list was H&S Manufacturing Co., of Rowlett, Texas. The company, a global provider of precision sheet metal fabrication, machining, and mechanical assemblies, received NI's 2012 Supplier of the Year award for what NI deemed "superior global customer service, on-time delivery, cost savings, and consistent performance beyond expectations."

"We've known about the Supplier of the Year Award for a long time, and to be honest, we really thought it was out of our reach because it was usually really large companies that win it," said Drew Howard, vice president of H&S Manufacturing, in an interview. "National Instruments is a billion dollar a year company. Two years ago, it was FedEx that won it, and last year, Arrow Electronics won it. Arrow Electronics is a more than $20 billion a year company, and so for H&S, a $12 million a year company, to win this award, we were shocked. It was really something that we really didn't think we would ever be seriously considered for. National Instruments involves purchasing, they involve engineering, they involve manufacturing, they involve their executive level. A lot of people have a lot of input into who gets this award, so that's why it was really humbling to us to win this award."

National Instruments has an excellent track record of vendor relations, Howard said, adding that the company typically holds a supplier appreciation event every year. "When you're a supplier for National Instruments, you definitely feel like you're part of the team," he said.

"At National Instruments, the performance of our suppliers is critical in providing a sustainable competitive advantage in our industry," said Scott Christman, director of the global supply chain at National Instruments. "We recognize these award-winning suppliers because they consistently exceed our expectations, and we congratulate them for their outstanding performance." More information on the NI supplier program is available at www.ni.com/company/procurement.

Christman also said in an e-mail to Design-2-Part Magazine that National Instruments takes pride in maintaining long term relationships with its strategic suppliers. "We operate in a very competitive and complex marketplace, where the slightest advantage in leveraging a supplier's technology, superior quality, and overall lower total cost at the right time can mean the difference [between] winning or losing a growth opportunity," he said.

Responsiveness and Flexibility Are Key to Customer Service

A welded rack mounted chassis kit produced by H&S Manufacturing.
Photo courtesy of H&S Manufacturing

Drew Howard didn't hesitate when asked why H&S won National Instruments' 2012 Supplier of the Year award. "It's our customer service," he replied. "There are a lot of people that can buy the equipment, or buy a building like ours, but nobody else has our people or the ability to service our customers the way we do."

The key to servicing its customers, he said, is H&S's flexibility. "I think we listen well; we try to understand what their needs are, and then we're flexible enough to adjust whatever we need to adjust to meet those needs. I'm not saying that we do everything that everybody wants every time; we operate with an incredible amount of integrity around here. We do not agree to things that we're not pretty sure that we can do. But if you call H&S and you say you need some parts by a certain date and we'd agreed to it, you'll get that 99 percent of the time."

Most of the time, flexibility means adapting their schedule to meet a customer's needs. Other times, it might mean bringing in new equipment to meet customers' changing requirements, as H&S did when it added form-in-place (FIP) gasketing to better serve customers whose parts require EMI shielding. "Our customers had a need for that," Howard said. "They couldn't really find people who did form-in-place gasketing, so we purchased the equipment and learned how to do it, and it's giving us a lot of work right now."

When H&S first started working with National Instruments, in the late 1990s, NI's manufacturing facility was located in Austin, Texas. "They had sales and engineering facilities in other places, but for manufacturing, they were just in Austin," Howard recalls. "Now, they're in Hungary, so we ship a lot of product to Hungary, and they've just opened up a factory in Malaysia, and we're starting to ship product to Malaysia. And while it's presented its challenges, I think another reason we won the award is we've stepped up to the plate and done the things necessary to be able to continue to service them in those other facilities."

H&S Manufacturing (www.hsmfg.com) specializes in precision sheet metal fabrication, machining, mechanical assembly, and electro-mechanical assembly. The company manufactures individual piece parts, complex assemblies, and everything in between, from quick turn prototype projects to ongoing production. Parts and assemblies manufactured by H&S include enclosures, welded chassis, and piece part brackets, as well as face plates and covers that may be painted or silk screened. Besides servicing the test and measurement industry, H&S serves customers in the defense, telecommunications, computers, medical, and oil and gas industries.

"In all of those industries, virtually everything we do is tied to the electronics of that industry somehow," Howard said. "Most of what we do is either going to get a circuit board screwed to it, or it's going to be a cover for a computer or have a fan or a power supply bolted to it.

"We typically work with aluminum, steel, stainless steel, brass, copper, and some plastics," Howard continued. "Our sheet metal ranges from 0.015 inch to 0.187 inch thick, and individual part sizes generally are 3 feet x 3 feet x 3 feet; however, we can bend lengths to 10 inches. Our typical machining part envelope is 24 inches x 24 inches x12 inches for CNC machining on vertical and horizontal mills and two 5-axis mills."

Even though National Instruments has partnered with H&S Manufacturing for over a decade, NI's Scott Christman said that H&S continues to proactively strive to solve mutual problems. "Their integrity, expertise, and willingness to partner on projects where speed to market is a differentiator clearly stands out against their competitors," said Christman. "We look at H&S as an extension of our supply chain and drive close interactions between the two companies. H&S yearly invites new engineers to their facility to understand their processes and continually provides feedback on ways to drive cost out of our products."

Howard said that his company's commitment to excellence is evident in the partnership that H&S has developed with NI. "We genuinely care about their success, and I believe they genuinely care about our success. It's still a customer-vendor relationship. They ask for cost savings; they're pushing us all the time, but at the end of the day, I believe National Instruments wants H&S to be successful and to be in business to do business with them for years to come."

Modeling a Factory of the Future

RedEye On Demand's Eden Prairie, Minn., plant, a 45,000-sq-ft factory housing more than 100 industrial 3D printers, is reportedly the world's single largest additive manufacturing facility.
Photo courtesy of RedEye On Demand

A model for a factory of the future is emerging at RedEye on Demand (now Stratasys Direct Manufacturing), a rapid prototyping and direct digital manufacturing company determined to set the industry standard in the nascent field of additive manufacturing. At the core of that model is an old and powerful motivator: customer satisfaction. Recently, RedEye announced that it had achieved monthly Net Promoter® Scores (NPS) of 70 and greater--a best-in-class customer satisfaction rating achieved by companies such as Amazon, eBay, Dell, and Harley Davidson--for four consecutive months.

"Our customers rate our performance on four primary points--on-time delivery, quality, service, and price," said Jim Bartel, vice president at RedEye On Demand, in a press release announcing the achievement. "As a result, we have world-class programs and processes in place to live up to these customer expectations."

The company's ISO 9001:2008 and AS9100C certifications provide structure for a quality management system that strives for consistency, efficiency, and customer satisfaction. These programs, along with a closed-loop process for gathering and following up on customer feedback, were instrumental in RedEye's achieving a high NPS. But Bartel also credits dedication and hard work.

"We are very focused on garnering high NPSs by being able to fulfill customer needs in a timely manner and living up to their expectations of speed, quality, service, and price," Bartel said in an email response. "We've also seen a direct correlation between the NPS and our large capacity. With increased capacity comes increased customer satisfaction and NPS."

Aware that research had shown "a strong correlation" between Net Promoter results and revenue growth, RedEye implemented the Net Promoter program in the fall of 2011to get a handle on customer loyalty. The program involves asking customers, on an 11-point scale (0-10), how likely they are to recommend RedEye to a friend or colleague. A Net Promoter Score above 50 is considered excellent, and above 70, best in class.

RedEye on Demand's affiliation with its parent company--the 3D printer manufacturer Stratasys--gives the company access to information about market needs that are important to its R&D team's development of new offerings. It also enables RedEye to offer 3D printing capacity that the company says is unmatched. RedEye's Eden Prairie, Minn., plant, a 45,000-sq-ft factory housing more than 100 industrial 3D printers, is reportedly the world's single largest additive manufacturing facility, with "more than double the capacity" of its nearest competitor, according to Bartel. The company also operates more than 130 Fused Deposition Modeling (FDM) additive manufacturing systems globally.

"Anytime you have this level of capacity, you benefit from the experience, expertise, and efficiencies that come from the technology to operate a facility of this size," Bartel said. "We also have the luxury of using excess capacity for R&D purposes so that we can keep advancing the 3D printing industry."

A 3D printed saw handle produced by RedEye On Demand using Fused Deposition Modeling (FDM)
Photo courtesy of RedEye On Demand

RedEye on Demand (www.redeyeondemand.com) is a factory of the future, Bartel says, because its technology--an all-digital framework that it calls "factory physics"--provides visibility into every step of its operation, from quotes and orders to the Fused Deposition Modeling (FDM) machines that build complex parts layer by layer. This visibility brings predictability to what would otherwise be deemed "unpredictable" production methods by enabling RedEye to gauge factory loads. RedEye can, for example, automatically track and measure the volume and capacity of its 3D printers at any given moment. And with the aid of online quoting engines and CAD software that can easily compute a part's volume, the company can provide delivery dates in real time.

"Our 3D printers can read CAD files to know how long it will take to build a part and how much material is needed, before it's even on the machine," said Bartel. "This allows us to better plan capacity, give accurate delivery dates to customers, and schedule factory capacity by forecasting future needs without interruption." RedEye's ability to automate and manage factory loads using real time factory physics gives engineers a more efficient means of controlling pricing, Bartel said, because it mitigates the risk of unpredictable scheduling or fear of interruption to the supply chain.

According to Bartel, RedEye on Demand's ability to quickly produce low volumes of complex prototype and production parts using durable thermoplastic materials sets it apart from other companies. So does its ability to make large, 3D printed parts. The company's "factory of the future," he explains, gives companies in all industries and markets the ability to manufacture globally through the internet using additive manufacturing technologies.

"From digital 3D CAD files, RedEye quickly builds models and parts of any size and from anywhere in the world, with precision, speed and accuracy," he said. "This provides manufacturers and design engineers the freedom to design and innovate for multiple iterations throughout the product development process without penalties, supports green manufacturing, and increases the bottom line for customers by mitigating risk and saving time and costs to market. RedEye On Demand is able to achieve this by leveraging unique research and development (R&D) efforts with Stratasys and a global network to apply innovative ICT and real-time quoting."

RedEye recently expanded its offerings with the addition of cast urethane molding, a capability that complements its Fused Deposition Modeling (FDM) and PolyJet services and strengthens its ability to support its customers' rapid prototyping and manufacturing needs through the entire product development cycle. The addition is also part of the company's continuing efforts to reduce lead times and increase on-time delivery performance.

"Adding cast urethane gives our customers one source for conceptual 3D modeling, rapid prototyping, and short-run production needs," said Bartel. "This is a need we were seeing in the market, particularly in the automotive and heavy machinery industries, because of the pressure to decrease the time and costs associated with bringing a product to market. As a result, this increases demand for suppliers with full-service production capabilities."

SCM World (www.scmworld.com), a self-described global community and think tank for senior-level supply chain executives, offers webinars, live events, and research reports to enhance supply chain learning and development.

 

A full copy of The Chief Supply Chain Officer Report 2012 can be downloaded at www.e2open.com/csco2012.

Online recording of The Chief Supply Chain Officer Report 2012 webinar can be accessed at www.e2open.com/csco2012webinar.