Industrial maintenance company ATS has adopted three transformational initiatives to advance supply chain visibility and optimization without excessive system investments.
All eyes are on supply chain digitalization these days as the answer to procurement agility and resilience. It is the natural extension of Manufacturing 4.0 (M4.0) initiatives already underway in industry.
But less widely understood is how an early phase of the long-term digitalization roadmap can circumvent large, upfront investment hurdles. ATS took this approach when pursuing indirect procurement optimization and not only avoided unnecessary costs and complexities, but also achieved higher ROI than originally conceived.
Compared to direct materials, which are built into the manufactured product, the processes and systems used to manage maintenance, repair, and operations (MRO) consumables tend to be far less mature. Most industrial organizations have quite sophisticated enterprise resource planning (ERP) systems supporting their production supply chain but lack comparable capabilities for their indirect materials, such as oil, adhesives, cleaning supplies, and disposable gloves. This seems counterintuitive considering the absence of such items can potentially put operations and maintenance continuity at risk.
ATS recognized this risk well before the pandemic made it worse, and in 2018 set out to correct it. Initially, it was assumed that a several-million-dollar system investment was the path forward to drive much-needed visibility and transparency into the indirect supply chain. But after some study, a simplified, three-pronged approach was chosen that enabled immediate improvements without any upfront capital investment.
“Widespread supplier product shortages, backlogged ports and freight terminals, and staffing shortages at all points in the supply chain have stretched procurement lead times to unprecedented levels”
This trio of early, low-risk initiatives can help any company starting the journey toward world-class digitization, while ensuring a linear ROI over the full scope of the roadmap. Accomplishing all three makes it possible to achieve a far greater degree of supply chain digitalization than expected, and potentially avoid large-scale system investments altogether.
Flying Blind is Costly
ATS focuses almost exclusively on indirect MRO spare parts and inventory to support our maintenance and storeroom services business and maximize customers’ operational continuity and output. The lessons learned four years ago, when we found ourselves challenged with the lack of visibility in the indirect MRO workflow, are applicable across a variety of industries.
At that time, we needed to better understand where critical replacement parts needed to support production were in the procure-to-pay workflow, how long it was taking them to be processed, and why. Due to the lack of basic visibility, traceability, and transparency of purchase requests in the indirect MRO supply space, after a requisition is entered, the requestor is often left in the dark about its status in the supply chain—including PO creation, supplier processing, shipping, and receipt at the dock. Without human intervention, that requestor won’t know if an item is out of stock, discontinued, on backorder, or if other delays or issues are affecting the workstream.
Lacking this insight makes it impossible to mitigate delays with timely workarounds, such as requesting alternative parts or authorizing expedited shipment strategies, and that absence of resilience can lengthen equipment downtime and hamper production goals. It also makes tracking indirect material purchases a people-dependent process instead of a systematic one when personal involvement is needed to monitor the status as the request works its way through the cycle.
Pandemic-induced global supply chain disruptions turned this challenge into a crisis. Widespread supplier product shortages, backlogged ports and freight terminals, and staffing shortages at all points in the supply chain have stretched procurement lead times to unprecedented levels, and laid bare the inherent risks of just-in-time inventory management and production practices.
“Everyone today expects an Amazon-type experience for order tracking and alerts, but building, customizing, or connecting systems to deliver that capability is unnecessarily complex and expensive.”
Today’s shop floor and maintenance personnel can find themselves unwittingly increasing demand on already overburdened suppliers and missing out on opportunities to adjust their plans accordingly. At the same time, the pressure for manual MRO purchase oversight is surging, resource availability is curtailed by sick leave, recruiting challenges, and increasing incidences of firefighting. Never has the need for supply chain resiliency been greater.
Simplified Digitalization Resolves Challenges
Everyone today expects an Amazon-type experience for order tracking and alerts, but building, customizing, or connecting systems to deliver that capability is unnecessarily complex and expensive. In fact, driving visibility and transparency into the supply chain to optimize procurement processes can be relatively uncomplicated.
We initially considered modifying our ERP system to drastically improve the procure-to-pay workflow to improve the customer experience, improve visibility, and improve reporting functionality. That investment alone would have cost roughly $1 million. But instead, we went through a rigorous exercise on the front end to understand the current state, what we wanted to build for the future, and set a strategy to make it as simple as possible to avoid the need for people to support the workflows.
It turned out the data and information we needed was already being captured in existing systems, so we simply needed to extract the data into a business analytics tool to provide the visibility to better manage each step of the process. Then, we embarked on the journey to digitalization, laying the groundwork with the following three key, low-risk initiatives to accelerate digitalization speed and efficiency and yield improved outcomes.
1 Leverage existing data and systems Though new systems are the conventional path forward when seeking to automate workflows and reduce the dependency on people, the best way to minimize the upfront investment is to maximize the usefulness of current data sources and infrastructure. Leveraging the core competencies of existing systems and applying standard application interface (API) connections to key data from each will quickly and efficiently deliver the desired end result of achieving supply chain visibility and transparency.
First, take stock of the multitude of information and technology systems already utilized throughout the enterprise that contain data of any relevance to the MRO supply chain. Then, use standard extract, transform, and load (ETL) processes to copy the data to a central host for integration and supply chain analytics. The data ETL mechanism may be as simple as an Excel export repository or a purpose-built tool such as Power BI for data visualization and reporting.
“This approach of connecting data from a multitude of existing systems is far more economical than implementing and connecting a new system.”
This approach of connecting data from a multitude of existing systems is far more economical than implementing and connecting a new system. ETL can piece together data in real time from the ERP system, customer relationship management (CRM) system, material requirements planning (MRP) system, master demand schedules (MDS), and so forth. This enables reporting on underperforming metrics without a system overhaul.
2. Optimize existing workflows Deep diving into existing process and technology functionality will reveal the true needs for supply chain management optimization. It helps to ensure investments are tailored to high-impact, low-effort functional areas and provide a quantifiable return on a short horizon.
Rather than merely replicating existing workflows, which may be overly complex, or configuring how they are integrated and managed through each system (since all system providers have their own way of doing things), the first step should be to break down the workflows and figure out how to simplify them. With very lean, efficient workflows built to accomplish long-term objectives, there will be less dependence on human intervention and fewer workarounds in the future.
This may include automating previously manual processes, such as supporting digital signatures for electronic documents instead of waiting for paper-based approvals, or generating automatic notifications when materials are delivered and accepted to avoid manual follow-up time.
Transparency into where purchase requests are in the process allows work to be planned accordingly, and triggers to be executed internally when decisions about expediting or revising orders are needed to fulfill the requirements on time, or early.
3. Apply the newfound knowledge Parallel to the above two initiatives, start making decisions on how to leverage the data to diversify the spend strategies. This walk-crawl-run initiative can occur well ahead of world class digitalization, because getting quick, early wins and reinvesting the benefits (e.g., cost savings, revenue growth, inventory/cash flow improvement) makes it possible to tackle many items on an IT roadmap without any capital outlay or added overhead.
Chances are that the existing system data already has the insights needed to enable adaptive strategies for demand planning, warehousing, and fulfillment in a highly volatile environment. It is also likely that this system data is underutilized. Understanding the data hierarchy, KPIs, and resulting actions that come from best practices can help ensure existing systems achieve the full extent of their usefulness.
First and foremost, think about what you want the data to tell you and the decisions you want to make based off that data—not just now, but 5-10 years from now. Do you want to know who the primary supplier is and their product price and lead time? Do you want the same for secondary and tertiary suppliers? Do you want to know more about their parts so you can build out part descriptions that can be better leveraged across the organization?
By amassing data like this and learning from it, users can set up different sources of supply that meet cost and production planning requirements, both domestically or globally, and adjust as needed based on real, accurate information. This improves the ability to respond to any crisis by automating workflows that alleviate the dependency on individuals with specific product expertise, while ensuring items are purchased efficiently and at the best cost.
“Proving that a clear ROI exists for optimizing existing data, systems, and workflows helps to build confidence in, and pay for, larger investments that make procurement processes even more systematic.”
Another example is mimicking direct purchase processing. Manufacturers know the sub-assemblies that comprise the end product, the components that go in those sub-assemblies, the suppliers of the components and their cost and lead time, and they have management-of-change (MOC) procedures in effect so that when the drawings change, a process exists to update the systems internally and also externally with their supply base.
On the indirect side, that line of thinking must be the way of the future, because the fact of the matter is being able to leverage this information internally and across the supply base facilitates decisions that support the long-term vision of resilience across the indirect supply chain.
Start Small and Think Big
Proving that a clear ROI exists for optimizing existing data, systems, and workflows helps to build confidence in, and pay for, larger investments that make procurement processes even more systematic. Based on our own experience with indirect materials, we would recommend the following steps:
- Identify industry standard KPIs you want to produce
- Identify the customized KPIs you want to produce
- Identify what metrics are currently available through out-of-the-box reporting mechanisms from existing systems
- Identify what process changes can be made to capture the data necessary with use of existing systems
- Evaluate the effort level required for each process change identified
- Identify what KPIs cannot be produced through existing systems, regardless of process, and their potential ROI
- Determine whether the potential ROI justifies the system investment
By formulating a deep understanding of what needs to be accomplished in this manner, leveraging available data, information, and systems, and streamlining relevant workflows, the ability to craft improved supply chain strategies comes naturally. Taking these foundational steps not only helps to increase supply network effectiveness and resiliency, but also helps accelerate further digitalization initiatives in a highly economical manner. M
About the author:
Mike Waltrip is Vice President of Operations at Advanced Technology Services, Inc.