Leveraging 11i PLM and Manufacturing to Minimize Inventory Write-offs

1. Leveraging 11i PLM and Manufacturing to Minimize Inventory Write-offs

2. Engineering Changes • Innovation drives profits • Product Lifecycle Management • Prototyping and Pilots • NPI • Continuous Product Improvement • Defect management • Phase-out • ECOs - Carriers of design change information

3. 11i PLM • Manage product development through complete lifecycle • Engineering Change Management • Create and Submit • Route • Approve/Reject or Escalate • Release and Implement • Interface Production ECOs to manufacturing

4. Downstream Impact • Disconnect between Engineering and Materials • Component item phase-out leads to a downward spike in demand for the item • Inventory may be hedged to high levels • Open purchase orders for large quantities may not be canceled until after ECO implementation • High PO cancellation costs

5. A stitch in time saves nine - Ancient Proverb

6. Demand Excess Excess Use-up Use-up Demand ECO Implementation ECO Implementation Identifying the Niche On-hand + On order Demand Quantity

7. ECO Implementation Identifying the Niche On-hand + On order Quantity Excess Use-up

8. Business Issues Planner • When do I cut-in a given engineering change? • Which components to use-up vs. which ones to scrap? • How do I implement better transition planning for products with shorter lifecycle? Financial Analyst / CFO • How do I measure the total cost of material write-offs due to engineering changes? • How much money can be saved by putting in place a process to effectively implement ECOs

9. The Million Dollar Equation Mid-sized hi-tech manufacturing company Annual Revenue $500m Average inventory $200m Annual E&O write-off $15m Write-off attributed to ineffective $3m ECO implementation Savings through effective implementation $1m

10. Resolve to be a master of change rather than a victim of change- Brian Tracy

11. CCB Schedule Implement Approve Release ECO Create ECO Submit CCB CCB Manufacturing PLM • ECO Status • Item Information • Inventory Info • MRP Info • WIP Info • PO Info • Effectivity date • Disposition • Transition Plan • ECO Information • ECO Status Assess the Impact Study Scenarios Time vs Cost Refine Best Scenario Resolve Conflicts Generate Transition Plan Cost Analysis Business Process Overview

12. Step 1 – Identify ECOs • Not all ECOs may lead to excess or obsolete inventory • Eliminate NPIs, Documentation Changes, etc. • One of the following criteria should be met: • BOM redlines to remove or replace a component • Any other critical change in assembly rendering the older rev unshippable • Obsolete or inactivate an assembly or component

13. Step 2 – Identify Impacted Items • Non-backward compatible revised items • Outgoing components and subassemblies • Components of assemblies being obsoleted • Ignore low cost or unplanned items (C items in an ABC classification)

14. Step 3 – Gather Data • Demand Information • Gross Requirements from MRP • Planned orders of whereused • Supply Information • On-hand • WIP • On-order • At suppliers/subcontractors • Other (On Field, etc.) • Item Information – Unit Cost • Currency Conversion Rates

15. Step 4 – Create Scenarios • Study usage as a function of time and generate scenarios for various dates • Different liabilities for different categories • Inventory : 100% • On-order : depending on contracts and delivery date • WIP : depending on completion percentage • Focus on the scenario that offers an optimum balance of cost savings versus time delay

16. Total ECO Cost Carrying Cost Procurement Cost Opportunity Cost $ E&O Scrap Cost Time Choosing the right scenario

17. Step 5 – Refine Chosen Scenario • Find alternate uses for excess quantities • Spares • RTV • Negotiate better cancellation rates with suppliers • Convert open POs to orders for new components • Rework WIP • Use up at other manufacturing locations • Arrive at new lower cost

18. Step 6 – Prepare Transition Plan • An implementation blueprint for the ECO • Disposition Items • Disposition quantity in various supply categories • Disposition in each category (Scrap, Rework etc) • POs and Work Orders to be canceled/converted • Shortages to be fulfilled • Special instructions (transfer between orgs, etc.)

19. Follow-up Steps • Feedback effectivity dates to ECO • Communicate analysis results to CCB • ECO Release • Communicate disposition actions to planners, buyers, shop-floor control, subcontractors, etc. • Enforce dispositions • Monitor supply and demand situation until ECO is implemented – carry out corrective actions whenever necessary

20. Challenges • Extensive data gathering from multiple modules, sites and even companies • Highly iterative process • Manual procedure: • Human error • Clutter of reports and excel sheets • Limited iteration capability • Needs a software solution that can tap into PLM as well as Manufacturing

21. Show me the money - Cuba Gooding, Jr in Jerry Maguire

22. Case Study – Finisar Corp • Leading manufacturer of optical networking equipment • Annual revenue $167M • US-based design organizations • Outsourced manufacturing (Malaysia, China) • Running Oracle Applications 11i

23. Business Issues • Excess and obsolete inventory seen as an avoidable drain on the bottom-line • No visibility into the impact of ECOs on excess inventory – what you can’t measure, you can’t improve

24. Solutions Considered • Use-up date from ERP system • Considers only on-hand inventory • Cost impact is still not known • No provision to analyze (e.g. specify alternate dispositions) • Manual analysis of ECOs with evident large cost impact • Prone to human error • Does not consider ECOs in the low and medium cost impact range – costs add up • Iterative process – frustrating and inaccurate when done manually • No follow-up after ECO release • Clutter of loose documents (excel files, reports etc)

25. The Solution – ECO Lens

26. About ECO Lens • Highly configurable browser-based application • Deploys without production downtime • Adaptable to multiple PLM systems • Ability to import supply/demand data retrieved from other ERP systems or from subcontractors in text files • Supports multiple organizations

27. Never take hours or days to do what you can do in minutes - Common Sense

28. ECO Lens • Creates default optimization scenarios • Provision to create what-if scenarios and refine existing scenarios

29. Optimize material dispositions for minimum cost impact ECO Lens • Manipulate material disposition at a granular level

30. Total Cost Impact Follow-up Actions ECO Lens – Transition Plan

31. Fitting ECO Lens in Business Process • Identify owner of the analysis process • Identify criteria to filter ECOs to be analyzed • Require engineers to provide basic information (like forward compatibility, foreseen cost impact, etc.) • Provide placeholder for analysis results • Cost impact • Disposition instructions (inter-org transfer, etc.)

32. Deployment Timeline • Rapid deployment • Zero production downtime • Bottlenecks: process setup and rehearsal

33. Results • Instant visibility into thousands of dollars worth of inventory that would have otherwise been scrapped. Over 100% ROI in the very first quarter • Reduction in CCB cycle because of availability of impact analysis in a concise form • Slight reduction in the number of ECOs by enforcing a review at an early level • Streamlined and highly efficient post-release material disposition owing to Transition Plan

34. Moral of the Story • Impact of ECOs on materials should be appreciated and attended to • Comprehensive analysis must be carried out using the right tools • Discipline needed enterprise-wide for methodical material disposition • A few minutes spent in analysis can translate into millions of dollars in savings annually

35. Q & A