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"We founded QAD in 1979 with a vision to develop software exclusively for manufacturing companies. Today we are proud that our products are used by over
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Source : QAD
Streamlining for Success: the Lean Supply Chain
LEAN SUPPLY CHAIN is also known as :
Lean Supply Chain Management,
Goal of the Lean Supply Chain,
Developing Lean Supply Chains,
Supply Chain Edge,
Lean Thinking for the Supply Chain,
Supply Chain Visibility,
TBM Lean Manufacturing,
Top Lean ERP MRP Systems,
lean continuous improvement,
lean pull systems,
lean cycle time,
lean value stream mapping,
lean six sigma supply chain,
lean toyota production system,
Squaring lean supply with supply chain,
Understanding Lean Supply Chain,
Improving the Extended Value Stream,
Building the Lean Supply Chain,
Lean Supply Chain Manager,
Lean Supply Chain Benchmark Report,
Lean Supply Chain and Warehouse Management,
Lean Logistics Tools,
Lighting up the Lean Supply Chain,
Pick-to-Light in Manufacturing,
Lean Supply Chain Systems Engineering,
Strategies to Run a Lean Supply Chain,
How Principles of Lean,
Lean Supply Chain Resources.
- EXECUTIVE SUMMARY
- THE PRESSURES ON SUPPLIERS
- Streamlining to Stay in the Race
- STRATEGIES FOR SURVIVAL IN TOUGH TIMES
- Flexibility: A Requisite for Success
- Managing Cash Begins with Managing Inventory
- Reduce Inventory, Increase the Bottom Line
- Communication:The Key to a Responsive Supply Chain
- Aiming for World Class Performance
- LEAN MANUFACTURING: Streamlining for Success
- The Fundamentals of Lean
- How QAD Enables Lean Performance
- QAD's Vision: Six Weeks to Six Hours
- The Most Complete Solution Available
- QAD Solution Advantages
- Independent Research Confirms QAD Value
- WHAT CUSTOMERS SAY
- A: The QAD Lean Supply Chain: An Overview
- B: QAD Solution Inventory Replenishment Method Option
- C: A Lean Glossary
For automotive suppliers, these are extremely challenging times. The economy is
tight, globalization and consolidation are rapidly reshaping the automotive industry
as a whole, and their customers, the OEMs, are continuously pressing for more
services at less cost. In these tough times, the suppliers who survive and succeed will
be those who pay close attention to four fundamentals: flexibility, cash management,
inventory management and communication.
To stay successful in the face of rapid change and shifting customer demands,
organizational flexibility is essential. To withstand the pressures of a tight economy
and shrinking margins, maintaining and improving cash flow is a pressing need.
Typically, automotive suppliers have a significant amount of capital tied up in direct
material inventory. Increasing supply chain efficiency and reducing inventory levels
are essential to eliminating waste and improving cash flow. World-class
manufacturers typically maintain low inventory levels, and accomplish this through
the use of technology and a finely tuned inventory replenishment system.
Fast, effective communication, within the organization and with trading partners, is a
required complement to an efficient inventory replenishment system. Electronic
communication now makes near real-time connectivity possible at every level of the
When flexibility and speed are requisites for success, it?s the lean organizations that
lead the race. World-class manufacturing organizations know the value of staying
trim and focusing on the lean fundamentals: eliminating waste, simplifying processes,
and continuously improving. By pursuing lean strategies - optimizing inventory and
streamlining manufacturing processes - they are able to reduce inefficiencies and
costs in their production processes and improve customer responsiveness.
QAD has solutions to enable those lean strategies. The QAD Lean Supply Chain
Solution trims time and cost from every step of the replenishment process and
includes partner connectivity and financial settlement as part of its holistic approach
to supply chain management. By offering choices at every step, QAD makes it easy
to share information in ways that meet the needs and capabilities of a wide range of
customers and trading partners.
The convergence of QAD's solution and the fruition of industry interoperability
efforts will significantly reduce the time it takes to communicate information within
supply chains from the present six weeks to six hours. This will further enable
build-to-order and JIT manufacturing and allow changes in customer demand to be
quickly communicated through supply chains.
THE PRESSURES ON SUPPLIERS
Changes in the automotive industry are rapidly raising the competitive bar for
automotive suppliers. In a tightening economy, pressured by OEMs to reduce costs,
expand responsibilities and speed up operations, suppliers face tough challenges.
Despite the recent period of unprecedented volume expansion and the fact that
suppliers now provide more than half of the average vehicle value, few automotive
suppliers are prospering. In fact, most are getting by on razor-slim margins.
Relentless cost reductions imposed by OEMs are now an industry given. Figures from
the Center for Automotive Research (CAR) indicate that average parts prices have
been declining for at least six years. Suppliers are hard-pressed to cope with their
increased responsibilities and respond to the OEMs? cost reduction demands while
still maintaining shareholder value. As the impact ripples down the supply chain
tiers, suppliers at every level are under pressure to continuously improve their
For the past decade, OEMs have been striving to shore up their own profit margins by
pressing suppliers for lower prices and broader services. As a part of this trend,
OEMs are increasingly outsourcing manufacturing and supply chain services to
STREAMLINING TO STAY IN THE RACE
With the current volatility in the automotive industry, surviving and prospering as a
supplier will be a formidable challenge. Those who want to stay in the race will need
to take fast action to drive down costs, streamline operations and reduce the variability
in their processes.
As OEMs outsource modular assembly and supply chain responsibility to integrators,
competitive pressures are dictating that automotive manufacturers adopt continuous
improvement initiatives such as lean manufacturing and Six Sigma.
In this harsh environment, suppliers who want to survive and succeed need solutions that
are flexible and tailored to their needs. They need solutions that will help them trim
waste from their operations, communicate effectively with their trading partners, respond
with agility to customer demands, and keep a step ahead of rapid industry change.
STRATEGIES FOR SURVIVAL IN TOUGH TIMES
The chairman and CEO of BBK, Ltd., B.N. Bahadur, suggests four fundamental
?Rules for Troubled Times.? Good advice for any company in today's economy, they
certainly resonate for suppliers trying to survive and succeed in the challenging
automotive industry. They are:
- Be Flexible. Have access to solutions that will allow you to respond
quickly to changes in the marketplace.
- Manage Cash. Cash conservation and management are critical.
- Manage Inventory. One of the easiest and fastest ways to increase cash flow
is to reduce inventory. Improving the system for tracking inventory and
responding to customer needs can significantly reduce inventory on hand and
free dollars tied up in direct material within the company and extended
- Communicate. A system for rapid communication with suppliers and
customers is key to responding to customer's changing needs while
maintaining low inventory.
The sum of success in these four critical areas is financial and operational
predictability, an invaluable asset in otherwise unpredictable times.
FLEXIBILITY: A REQUISITE FOR SUCCESS
In today's volatile, fast-evolving automotive industry, organizations that cannot adapt
quickly to changing demands will soon be forced out of the competitive race.
Flexibility is a requisite for success. Automotive manufacturers need to be able to
match communication methods to trading partner?s capabilities and choose the most
effective inventory management solution, depending on material type or business need.
MANAGING CASH BEGINS WITH MANAGING INVENTORY
For most automotive suppliers, direct material costs represent a significant investment
in inventory - typically 50 to 60 percent of their total costs. Reducing inventory is
one of the fastest ways to improve cash flow, and ultimately the bottom line.
Inventory reduction is possible only if changes in demand can be communicated rapidly
down the supply chain. Otherwise, inventory is simply displaced, rather than eliminated.
An AMR Research study of the automotive supply chain recently confirmed that:
- Inventory as a percentage of revenue is increasing.
- Inventory is increasing faster at the supplier level than at the OEM level.
- Successful suppliers win by using information technology tools and managing
The study indicated a clear correlation between low inventory and strong performance:
The firms the study judged to be weaker performers had up to 60 days of inventory
on hand, while the stronger performers held less than 10 days of inventory.
Stronger performers accomplished the cash-to-cash cycle ten times faster than their
The study also indicated that the strong performers, those with the shortest cash-tocash
cycle times, use 40% more packaged software applications and e-business
connections than their weaker competitors.
REDUCE INVENTORY, INCREASE THE BOTTOM LINE
For enterprises that succeed in reducing inventory levels, the potential cost saving is
enormous. AMR Research estimates excess inventory costs in the auto industry at
Respected automotive industry analyst Kevin Prouty says, "The hidden agenda for
manufacturers is inventory costs. The closer they get to build-to-order, the more they
can keep inventory costs down. And making inventory vanish can give a huge boost to
the bottom line."
COMMUNICATION: THE KEY TO A RESPONSIVE SUPPLY CHAIN
A major opportunity for improvement in the auto industry lies in shortening the
response time, throughout the supply chain, to customer changes in demand. In the
volatile, rapidly changing automotive industry, enhanced electronic communication and
a more responsive, integrated supply chain are essential.
To optimize supply chain performance, communication must reach beyond the
company to include the extended enterprise. When manufacturers in all tiers of the
supply chain have 100% partner connectivity, the automotive industry will be much
more responsive and agile.
Until recently, this goal has appeared to be out of reach. Traditional Electronic Data
Interchange (EDI) is typically most cost-effective for large manufacturers who need to
respond efficiently and integrate large volumes of customer and supplier data. It is
generally not either cost-effective or practical for smaller automotive manufacturers.
However, today's Web-based applications make it possible for automotive
manufacturers of all sizes to connect and communicate. Coupling EDI with Webbased
inventory applications makes 100% partner connectivity an attainable goal.
AIMING FOR WORLD-CLASS PERFORMANCE
IndustryWeek polled 3,006 manufacturing companies to find out what it takes to achieve
world-class manufacturing performance. Respondents said world-class manufacturers:
- Embrace lean practices that streamline their internal processes and
- Demonstrate a greater propensity to communicate electronically with their
supply chain partners.
- Use technology to drive improvements, specifically using lean enabling
technology to streamline internal processes and help eliminate waste.
Of the world-class plants polled, 41.5% extensively implement new information
technologies to streamline production processes and reduce inventory levels. World-class
manufacturers know that the right technology can be a key competitive differentiator.
LEAN MANUFACTURING: STREAMLINING FOR SUCCESS
The concept of lean operations and Just-In-Time (JIT) production was introduced
to the automotive industry through the Toyota Production System. These interconnected
concepts describe a process in which waste is eliminated by reducing
inventory holding costs and continuously improving to maintain production quality.
Integrating and synchronizing the entire supply chain and manufacturing process
are key goals of lean manufacturing. This requires a more efficient use of logistics,
increased flexibility and reduced variability.
The automotive industry as a whole is progressing toward an even more efficient
model by striving to manufacture vehicles only when ordered by end consumers. The
motivation behind this effort is to increase customer satisfaction and make strides
toward a "leaner" business model over time. This goal will be most effectively achieved
if customer demand can be the signal that pulls product through the supply chain.
Today, many automotive suppliers are re-examining their manufacturing philosophies
in response to uncertainties in customer demand, more complex variations in product
mix, the high cost associated with carrying inventory, and growing variability in
customer order patterns.
THE FUNDAMENTALS OF LEAN:
Lean philosophy emphasizes eliminating waste, simplifying processes, and
continuous improvement. Lean is about doing more with less: less time, effort,
space and money.
Lean strategies allow manufacturers to systematically and continuously eliminate the
waste that results from inefficient processes, which can include inventory, over
production, waiting, transportation, motion, over processing, and defective products.
Optimizing inventory and streamlining manufacturing processes are two
commonly deployed lean manufacturing strategies because automotive
manufacturers realize that cumbersome business processes have added
inefficiencies, costs and weeks to the industry?s mass production business model.
Lean enablers are the tools that make the strategies work for lean planning and
execution, JIT sequencing, consignment inventory, Vendor-Managed Inventory
(VMI) , 100% partner connectivity and warehousing.
HOW QAD ENABLES LEAN PERFORMANCE
The QAD Lean Supply Chain Solution allows automotive manufacturers to take
advantage of more efficient techniques for streamlining manufacturing processes and
reducing waste within the enterprise and across the entire supply chain. This
complete, integrated lean supply chain system for the automotive industry provides
100% partner connectivity and enables key lean manufacturing strategies, including
optimizing inventory and streamlining manufacturing processes.
Because no single method is right for all manufacturing processes and material types,
QAD's flexible solution provides a full range of options for efficient management of
the entire replenishment process, from contract through financial settlement.
In addition to being able to process standard schedules and discrete purchase orders,
the QAD solution components are:
The QAD Lean Manufacturing module enables both lean planning and execution
processes. Efficient response to fluctuating customer demand requires real-time
analysis and the monitoring of lean parameters based on actual demand, future
requirements and the state of readiness of the extended supply chain. Lean
Manufacturing synchronizes manufacturing processes with the extended supply
chain and responds to changes in demand and supply, allowing automotive
manufacturers in real-time to monitor customer demand, alert, and adjust lean
manufacturing and supply chain parameters when changes occur.
Lean Manufacturing sends kanban signals within the plant or to suppliers via EDI
or through the Internet to downstream operations. Kanban signals and Internet
visualization facilitate lean by making accurate inventory replenishment
information immediately visible, thereby reducing information lead-time and
eliminating waste in the flow of material from suppliers to customers.
The QAD Lean Manufacturing module allows suppliers to manage fluctuating
customer demand and complex variation in product mix, facilitates supplier
collaboration, and minimizes inventory carrying costs.
The Just-In-Time Sequencing module allows for components and subsystems to
be produced and delivered in the exact sequence and time frame that products are
being manufactured on the assembly line. JIT Sequencing integrates the basic
planning processes of ERP with the demand from the customer. Planning
horizons used in MRP are measured in months, weeks and days, whereas planning
in a JIT environment is measured in hours or minutes. JIT Sequencing makes it
possible to schedule and manufacture unique product configurations on an itemby-
item basis, allowing manufacturers to meet customer specifications while
keeping production stocks to an absolute minimum.
QAD's consignment functionality allows inventory ownership to be recognized at
the point of consumption with suppliers or customers. This makes processing less
costly because inventory is received from suppliers as consigned goods, without
actual transfer of title. The supplier maintains the consigned goods as finished
goods inventory until a notice is generated that the inventory has been used.
When a customer does not take title to material until it is actually used in
manufacturing, raw material and purchased parts inventories are, in effect,
eliminated. As a result, inventory turns increase and the use of capital assets is
Supplier Visualization (SV)
Supplier Visualization facilitates vendor-managed inventory (VMI) , a method
through which the supplier is responsible for maintaining agreed upon inventory
levels, by sending minimum/maximum inventory data via the Web. SV also
facilitates 100% partner connectivity by allowing suppliers to access inventory
information. Suppliers are able to track inventory from the customer's Web site as
in near real-time and can be automatically alerted by a page or e-mail when
inventory drops or rises beyond agreed upon levels. When the customer gives the
supplier access to more real-time information, administrative costs and inventory
levels can be reduced. When SV is used in conjunction with Consignment
Inventory, raw materials and purchased parts inventories are, in effect, eliminated.
The EDI ECommerce module enables 100% partner connectivity when used in
conjunction with SV. EDI ECommerce is a globally deployable solution that
streamlines the interpretation and integration of EDI documents between trading
partners. It imports and exports EDI and XML messages between customers and
suppliers and enables users to accept, analyze, condition, edit, audit and even
reprocess EDI- or XML-formatted documents quickly and efficiently. By speeding
the transfer of business information, EDI helps facilitate JIT manufacturing.
Warehousing is offered through QAD's AIM solution and supports increased
inventory visibility and accuracy with better space utilization. Advanced inventory
replenishment, put-away picking logic and radio-frequency (RF) scheduling of
warehouse staff is also included as a part of the AIM solution. Inventory
carrying costs are reduced through reductions to inventory levels and shipping
errors and higher space utilization.
QAD'S VISION: SIX WEEKS TO SIX HOURS
An Automotive Industry Action Group (AIAG) study determined it takes demand
information approximately one week to travel from each tier to the next in the supply
chain. So a six-tier supply chain would require roughly six weeks for information to
flow from the first tier to the last. In some cases, the practice of freezing schedules
lengthens this process even further. Because so much of the supply chain beyond Tier 1
still communicates information manually, the speed of information flowing through the
supply chain is slowed, and most suppliers are using information that is not up-to-date.
Over time, automotive manufacturers? lean initiatives will converge with industry
efforts such as AIAG?s current interoperability effort to provide open interoperability
standards and architecture for software providers in automating the supply chain. This
will benefit the automotive community by allowing suppliers to select one tool, the
tool of their choice, for communicating inventory information with all customers.
QAD initiated and is leading this effort at the AIAG. QAD's solution will adopt and
deliver AIAG standards.
The convergence of lean initiatives and interoperability efforts will significantly reduce
the time it takes to communicate information to trading partners. In just a few years,
interoperability and the latest lean supply chain solutions will cut the time it takes for
information to flow through the supply chain from six weeks to six hours. This will
further enable build-to-order and JIT manufacturing. Additionally, changes in customer
demand will be quickly communicated through the supply chain.
THE MOST COMPLETE SOLUTION AVAILABLE
The QAD Lean Supply Chain Solution supports the entire inventory management
process, eliminating waste and streamlining processes throughout the entire supply
chain. Each box in the diagram below represents a critical step in inventory and
supply chain management within the complete QAD solution. Purple boxes indicate
QAD solutions; gray boxes indicate third party products that complement the QAD
More detailed information about how these QAD solutions support each inventory
management process can be found in Appendix A. A description of the replenishment
method options supported by the QAD solution can be found in Appendix B.
QAD SOLUTION ADVANTAGES:
Alerts and simulation capability
To collaborate with the extended supply chain and respond effectively to changes
in demand, suppliers need a solution that can monitor customer demand, alert,
and adjust the lean manufacturing parameters in real-time when changes occur.
Fluctuating customer demand requires real-time analysis of different scenarios
based on actual demand, future requirements and the state of readiness of the
extended supply chain.
100% partner connectivity
To succeed in today's environment, organizations must be able to share
information at a revolutionary pace. The key is to eliminate the delays
inherent in traditional EDI, phone, fax or e-mail communications and make
information available to everyone simultaneously, enabling 100% partner
connectivity throughout the automotive supply chain. Coupling EDI with Webbased
inventory visibility applications can give manufacturers 100% electronic
connectivity with their trading partners and enable near real-time collaboration
and alerting with their supply chain.
Options that make collaboration easy
The QAD solution makes it possible to collaborate near real-time with all
suppliers, large and small, without any manual effort or paperwork. QAD
solutions support traditional EDI, XML, Web visualization and alerting for
The fully integrated QAD Lean Supply Chain solution includes all the options
necessary for inventory replenishment and partner connectivity and the critically
important financial settlement options required in the automotive industry.
Cost and time savings
In addition to providing a broader offering than other solutions, the QAD
integrated solution has time and cost advantages. Choosing an integrated
inventory replenishment solution eliminates the need to implement individual
solutions for specific processes and reduces the cost of upgrades. A unique
advantage of the QAD Lean Supply Chain Solution is that additions and
upgrades will always be integrated with QAD's base ERP solution, MFG/PRO.
INDEPENDENT RESEARCH CONFIRMS QAD VALUE
In a study completed in January 2003, the META Group examined the value
propositions of the leading manufacturing software vendors based on information
gathered from more than 200 of the vendors? customer companies. Their results
confirmed that QAD provides:
- Lowest cost of ownership
- Fastest time to implement
- Highest value
To find out more about QAD Inc. and its automotive solutions visit www.qad.com or
WHAT CUSTOMERS SAY:
"We have received multiple benefits from the QAD product suite. It has helped streamline our
month-end reporting time from 15 days to 2-3 days. Our inventory control process improved
dramatically, with inventory turns increasing 47% from 33.6 to 49.5 and inventory accuracy
improving by about 25%. Between EDI ECommerce and Supply Visualization, we will achieve
100% connectivity with our trading partners.
"Our investment in QAD has more than paid off."
- Lowell Johannsen
"We significantly reduced raw material inventory, trimmed total annual inventory carrying costs
by more than $180,000, and cut down on parts outages and premium freight costs - since
implementing supply visualization software a year ago..."
- Mike Thibideau
Webasto - North America
APPENDIX A: THE QAD LEAN SUPPLY CHAIN: AN OVERVIEW
THE QAD LEAN SUPPLY CHAIN SOLUTION SUPPORTS:
- All inventory replenishment methods (discrete purchase orders, schedules,
VMI, kanban and JIT sequencing)
- Consignment inventory
- Warehouse management
- Shipping and receiving, scan and trace
- Customer and supplier performance monitoring
- Shop floor activity
- Process monitoring
- 100% partner connectivity
- Business intelligence
- Financial settlement
INVENTORY REPLENISHMENT OPTIONS FOR CUSTOMERS AND SUPPLIERS
With QAD solutions enabling interactive supply chain management, the enterprise has
fast, easy, direct access to customer requirements. Customer forecasts (releases) for
both repetitive and discrete requirements flow directly into production planning. The
enterprise can also receive a shipping schedule, broadcast, kanban, or an inventory
minimum/maximum signal. Shipping instructions can be received via traditional EDI,
XML or through a Web browser through B2B ecommerce.
QAD solutions adapt easily to customer requirements. Production sequence, kanban,
shipping and minimum/maximum and discrete purchase order information can be
received via EDI or the Web and processed into demand management, but customers
without electronic capability can still use manual methods such as paper and fax. EDI
and Web shipping information received through B2B ecommerce is passed to demand
management for processing and shipping, while material requirements are sent to
supply replenishment management.
Supplier forecasts (releases) are generated from production planning. The enterprise
may also send more detailed instructions to suppliers in the form of shipping
schedules and broadcast, kanban or inventory minimum/maximum signals. These
shipping execution instructions can be sent to suppliers electronically either via EDI
(through a file that is eventually integrated into the enterprise?s application) or visually,
through a Web browser and B2B ecommerce.
In general, production sequence, kanban, shipping schedules, and minimum/maximum
data are sent via traditional EDI, XML, or the Web and processed from supplier
management. Supplier management calculates the inventory required from vendors.
The enterprise can send shipping instructions to suppliers via paper, fax and email.
EDI and Web shipping information received from supply replenishment management
is sent through B2B ecommerce to suppliers. The data are then processed by the
supplier according to the agreed-upon inventory shipment method (i.e. sequence,
kanban, minimum/maximum, etc.), and material requirements are sent to supply
replenishment management to determine the impact on material requirements from
Shipping schedules and releases from customers are brought into demand
management. Customers typically provide 10 days of shipping requirements,
sending an updated version each day. Processing customer schedules is part of
Release Management in MFG/PRO.
Supplier shipping schedules and releases are generated in supply replenishment
management. Creating supplier schedules is a part of PROPLUS.
Vendor Managed Inventory (VMI) - Minimum/Maximum
Sending minimum/maximum inventory data via the Web facilitates what is known in
the industry as VMI, a system in which the supplier is responsible for maintaining
agreed-upon inventory levels. When the customer gives the supplier access to more
real time information, the supplier can reduce administrative costs, and possibly
inventory levels. Minimum/maximum inventory processing is done either on the
customer's inventory visibility application or via MFG/PRO.
Supplier minimum/maximum inventory information is sent to the Web. Inventory
information can be retrieved by suppliers via B2B ecommerce. Information can be
updated to B2B ecommerce in near real-time. Alerts in the form of a pages or
emails from the Web are sent to suppliers when inventory levels fall outside
minimum/maximum requirements. Minimum/maximum inventory is displayed on
Supply Visualization, which is part of MFGx.net.
Lean Manufacturing (Kanban and e-Kanban)
To support lean planning, inventory shipments are dynamically optimized to follow
the rhythm of customer demand. kanban, or pull signals received by a customer via
EDI or the Web, can be brought into lean planning and demand management so that
inventory is built as the customer needs product. Processing customer kanban signals
is a part of base MFG/PRO and Lean Manufacturing.
Kanban, or pull signals, are sent to the supplier via EDI or the Web. Lean planning
allows inventory shipments to be dynamically optimized to meet the rhythm of
demand. Kanban and e-Kanban is a part of Lean Manufacturing and Kanban
Based on a sequencing signal the customer sends via broadcast or EDI, parts can be
built and packed into a truck in the order required by the customer. This process is
referred to as In Line Vehicle Sequencing (ILVS). ILVS minimizes the amount of
finished stock a supplier is required to carry and permits the OEM to reduce its
purchased component and work-in-process inventories by delivering products in the
exact sequence and at the specific time required on the assembly line. While typical
planning horizons are measured in months, weeks and days, the planning performed in
a JIT environment is typically measured in hours and minutes.
In addition, the ability to schedule and manufacture unique product configurations on
an item-by-item basis allows OEMs to produce vehicles that meet customers? feature
and option demands and still keep production stocks to an absolute minimum.
Processing customer EDI sequence schedules is a part of PROPLUS; processing
broadcast signals is a part of JIT Sequencing.
Consigned inventory supports the management of consigned goods at customer
locations so that inventory can be shipped to customers without actual transfer of
title. The enterprise maintains the consigned goods as finished goods inventory until
the customer gives notice that the inventory has been used. Consumption triggers the
creation of an invoice for the customer and the finished goods inventory is relieved on
the enterprise?s books. OEMs have been using consigned inventory processes, also
referred to as "Pay on Production" or "Pay as Built," for many years. Processing
consigned inventory is an additional module of MFG/PRO.
Consigned inventory allows the enterprise to have the supplier maintain consigned goods
as finished goods inventory until a notice generated by the enterprise indicates that the
inventory has been used. A receipt is then generated, triggering the vouchering process
within accounts payable and enabling the use of ERS in financial settlement to
streamline payments processing. This notice can be generated based on either the
movement of the material from the consigned location to an "active" stock location or as
part of actual floor consumption. The inventory is noted as available, but is not
included on the balance sheet until it is transferred to an in-process stock location or
consumed. Consigned inventory for suppliers is an additional module of MFG/PRO.
Warehouse management supports increased inventory visibility and accuracy with
better space utilization. Advanced inventory replenishment, put-away picking logic
and radio-frequency (RF) scheduling of warehouse staff are also included in
warehouse management. Warehouse processing for customers and suppliers is part of
the QAD AIM solution.
SHIPPING AND RECEIVING, SCAN AND TRACE
Supporting the shipment process involves sending Advance Shipment Notices (ASN)
and scanning and tracing. ASNs can be sent to the customer via traditional EDI,
XML or entered via the Web. ASNs allow customers to view in-transit shipments.
If ASNs are sent via traditional EDI or XML, they are generated from a shipping
transaction. When ASNs are entered and sent electronically, they are passed through
B2B ecommerce to the customer for retrieval. Processing customer shipments /ASNs
is a part of base MFG/PRO.
ASNs can also be received from the supplier via traditional EDI, XML or via the Web.
ASNs allow customers to view in-transit shipments. If ASNs are sent via traditional EDI
or XML, they are generated from Supply Replenishment Management. When ASNs are
entered and sent electronically from the supplier, they are passed from B2B ecommerce to
the enterprise for retrieval. Supplier shipments are received in MFG/PRO.
Scan and trace generates and scans bar code shipping labels and traces inventory
transaction history, including how many parts were made, what day the parts were
made, etc. Scanning is a third party provided product and tracing is a part of
SHIPPING AND SUPPLIER PERFORMANCE
Shipping and Supplier performance enables users to monitor how well a shipping
department meets customer requested ship dates and quantities by comparing planned
to actual ship dates and quantities. Users can measure performance based on
whichever date best suits their business practices: line-item performance date, due date,
or required date. Shipping performance data can be collected for a wide variety of
shipment types, including discrete and scheduled sales orders, return material
authorizations, distribution orders and material orders. Adding reason codes to each
performance transaction record is also an option. For additional tracking, users can
specify categories for all shipment line items. Supplier performance allows a supplier?s
report card to be generated on request, weighing each supplier event against the
standards set. Shipping and supplier performance are a part of PROPLUS.
SHOP FLOOR ACTIVITY
Shop floor activity reports scrap, reject, rework, labor and materials. Shop floor
activity is part of MFG/PRO.
Process monitoring involves direct machine reading and monitoring and reporting
devices including Process Logic Controller (PLC), Poka Yoke, JIG, and testing
equipment. A third-party provider provides process monitoring capability.
B2B ECOMMERCE (100% PARTNER CONNECTIVITY)
Partner connectivity and trading partner data synchronization begins with B2B
ecommerce. The enterprise can connect and share information with partners (both
customers and suppliers) via traditional EDI, XML or the Web. Alerts that notify
partners of critical inventory levels and other key information are triggered from the
Web via QAD's inventory visibility application. B2B ecommerce provides for multiple
ways to connect all suppliers, regardless of size. B2B ecommerce partner connectivity
is performed through EDI ECommerce, MFGx.net (Supply and Kanban Visualization)
and Desktop2. An EDI translator is a third-party provided product and not included
in B2B ecommerce.
Business intelligence is used for gathering, storing, analyzing, and accessing data to
help enterprise users make better business decisions.
ENTERPRISE FINANCIAL SETTLEMENT WITH CUSTOMERS AND SUPPLIERS
Evaluated Receipt Settlement (ERS)
ERS is used in accounts payables to create a vendor's voucher, on the receipt of a
purchase order, without receiving an invoice from the vendor. Financial processing
automatically records liabilities to the supplier based on quantities received. ERS
processing is part of standard MFG/PRO.
Accounts Receivable Self-Billing
Some suppliers either do not send invoices or have customers who disregard invoices
and send their own remittance advice documents, called self-bills. A self-billing
document, detailing shipments received and amounts due, reflects any deductions for
defective or damaged parts or other credits and includes purchase order numbers,
kanban numbers, release authorization numbers, and evaluated receipt settlement
payment references. Payment, reflecting the self-bill amount and any agreed-upon
corrections from previous self-bills, may accompany the self-bill or be remitted later.
Self-billing is a part of PROPLUS.
Retro-billing, common among automotive suppliers, is a practice that applies to many
commodity-driven markets where the cost of raw materials, not the process cost, causes
prices to fluctuate. The purpose of Retro-billing is to invoice a customer for price
changes on items that have already been shipped and invoiced at a different price. It
provides control and flexibility in changing the price of items already shipped, by
enabling price changes by individual line item in a scheduled order instead of by invoice.
This is required when contracts between customers and the enterprise permit price
changes in response to changes in the cost of a particular component that the
enterprise uses (e.g. circuit boards) or commodity (e.g. copper or precious metals). It
can also be required when there is a dispute about a purchase order price that, upon
resolution of the disagreement, needs to be re-invoiced with an agreed upon price.
Typically, a retro-bill is applied for a range of effective dates. The result of the retrobilling
effort is an invoice supported by a report detailing all shipments from effective
start date through end date, with both the detail and the cumulative amount for all the
shipments to which the incremental price difference applies. Retro-Billing is a part of
Release Management in MFG/PRO.
APPENDIX B: QAD SOLUTION INVENTORY REPLENISHMENT METHOD OPTIONS
Note on all methods:
1. Communicating inventory information either electronically or visually does not
compensate for poor MRP planning or production scheduling. Accurate production
schedules, bill of materials, scrap reporting, and inventory receiving are a must before
any inventory management procedure is selected. In addition, reporting inventory
levels on a frequent basis is required.
2. While providing inventory visualization via the Web is a fast way to begin
electronically connecting a supplier network, in the long term it is essential that
inventory data is sent electronically from the enterprise and automatically integrated
into the supplier?s back-office systems. Electronically connected supply chains will be
the most responsive.
3. Alerts supplied by inventory visualization solutions provide customers and suppliers
with a method to manage inventory by exception.
4. Visualization tools enable better customer/supplier collaboration.
APPENDIX C: A LEAN GLOSSARY
Build-To-Order: Building and delivering a product based on a customer-specific order.
Pull is an important concept of Build-To-Order.
Continuous Improvement: Continuous Improvement is striving for perfection by
continually removing successive layers of Waste, as they are discovered. It is generally
accepted that a complete transformation process from mass production to Lean
Manufacturing takes years. Perfection is zero waste, and progress can?t be
benchmarked against competitors? levels of waste, but requires striving for world-class
Every Part, Every Interval (EPEI): The concept of EPEI interval is key to lean
manufacturing. The EPEI is the time it takes to run through every regular part
produced in a process Knowing the EPEI helps determine the manufacturing lot size
and supermarket quantities for each part produced in a manufacturing process, as well
as the number of kanban cards in the replenishment loop.
Flow: After identifying the Value Stream for a product, the objective is to make the
product value creation flow without obstacles. Enabling flow without interruption,
detours, backflows, waiting and scrap is no easy matter and presents a constant
challenge. The focus is on avoiding batch and queue between different steps in the
process flow. There are many Lean Manufacturing methodologies and tools available
for creating Flow, such as Single Minute Exchange of Dies to reduce changeover time,
Poka-yoke and 5S. The end target is to enable Single-Piece Flow, meaning producing
and delivering only one product at a time, to reduce Work-In-Process materials.
Empirical studies show that creating Flow has the added benefits of improved quality
and responsiveness, reduced lead time, and reduced space requirements.
Just-In-Time (JIT): The concept of reducing inventories by working closely with
suppliers to coordinate delivery of the right materials, in the right quantity, just in
time for use in the next step in the manufacturing process/supply chain.
Kaizen: The Japanese word for Continuous Improvement.
Kanban: A method of JIT production that uses standard containers or lot sizes with a
single card attached to each. It is a Pull system in which work centers use a card to
signal that they wish to withdraw parts from feeding operations or suppliers. The
Japanese word kanban, loosely translated, means card, billboard or sign.
Lean Manufacturing: Lean Manufacturing, the most prevalent manufacturing strategy
in the automotive industry, provides a way to do more with less - less human effort,
less equipment, less time and less space - while coming closer and closer to providing
customers with exactly what they want.
Muda: The Japanese word for Waste.
Pacemaker Process: Any process along a value stream that sets the pace for the entire
Pitch: The time needed in a production area to make one container of products. For
example, if Takt Time equals 30 seconds and pack size is 20 pieces, pitch equals 10
Poka Yoke: Commonly referred to as Error-Proofing or Mistake-Proofing. The aim of
Poka Yoke is to design devices that prevent mistakes from becoming defects by giving
the earliest possible warning to enable response to abnormalities. Poka Yoke devices are
not control devices, like thermostats, that take action every time, but rather they sense
abnormalities and take action only when an abnormality is identified.
Pull: An essential part of any Build-To-Order strategy. Having set up the framework
for Flow, the next step is to only produce what the customer needs. Pull means that no
one upstream should produce goods or services until the customer downstream asks
Push:The production of items required by a given schedule planned in advance. Pushbased
manufacturing is associated with producing products for which there is no demand.
Repetitive Manufacturing: Building the same product over and over again. Repetitive
manufacturing, in contrast to Build-To-Order, does not involve building customerspecific
products. However, It can be implemented with Lean Manufacturing strategies
as well as Push-based manufacturing.
Specify Value:What does and does not create value is to be specified from the
customer's perspective, and not from the perspective of individual companies,
functions and departments.
Supermarket: In lean manufacturing terms, a supermarket is a tightly managed
amount of inventory within the value stream to allow for a pull system. Supermarkets,
often called inventory buffers, can contain either finished items or work-in-process.
They are used to handle finished goods inventories being replenished from a
continuous flow pacemaker process, between a continuous flow process and other
manufacturing processes that are shared by other value streams, and for incoming parts
and material being pulled from supplier locations.
Supply Chain Execution (SCE): A subset of Supply Chain Management, this is a
framework of execution-oriented applications that enable the efficient procurement
and supply of goods, services and information across enterprise boundaries to meet
customer-specific demand. In its broadest sense, Supply Chain Execution includes
manufacturing execution systems, warehouse management systems and other execution
systems within the enterprise, as well as throughout the supply chain.
Supply Chain Management (SCM): A business strategy to improve shareholder and
customer value by optimizing the flow of products, services and related information
from source to customer. Supply Chain Management encompasses the processes of
creating and fulfilling the market?s demand for goods and services, and involves a
trading partner community engaged in a common goal of satisfying the end customer.
Supply Chain Planning (SCP): A subset of Supply Chain Management, this is the
process of coordinating assets to optimize the delivery of goods, services and
information from supplier to customer, balancing supply and demand. A Supply
Chain Planning suite overlays a transactional system to provide planning, what-if
scenario analysis capabilities and real-time demand commitments.
Taiichi Ohno: Born in 1912, he developed the Toyota Production System using the
quintessence of Japanese reasoning. He was an excellent originator of new ideas in the
industrial world with a unique management style. His Japanese production system
made planning for the manufacture of automobiles the most modern process in the
Takt Time: Takt time, an important lean concept, represents the customer demand
rate and is used to synchronize the rate of production with the rate of sales.
Toyota Production System (TPS): The manufacturing strategy of Toyota, widely
regarded as the first implementation of Lean Manufacturing.
Value Stream: It requires identifying all steps necessary to design, order and produce
the product across the whole value stream, to highlight non-value adding waste. The
whole Value Stream covers processes from ordering raw materials to delivery of the
finished product to the final customer. When mapping, focus should be horizontal
across systems and departments, from order to delivery, not vertical in the
departmental silo. It is necessary to manage whole Value Streams for specific products.
In general, it is useful to divide activities into three categories:
- Value Adding Activity: Those activities that, in the eyes of the end customer,
make a product more valuable. A value adding activity is simple to define; it
results in something the customer would pay for.
- Non-Value Adding Activity: Those activities that, in the eyes of the end
customer, do not make a product more valuable and are not necessary, even
under present circumstances. These activities are clearly "Waste" and should
therefore be the target of immediate or short-term removal.
- Necessary Non-Value Adding Activity: Those activities that, in the eyes of
the end customer, do not make a product more valuable, but are necessary
unless the existing supply process is radically changed. This type of Waste is
more difficult to remove in the short term and should be a target for longerterm
Value Stream Mapping: Identifying all the specific activities occurring along a Value
Stream for a product or product family.
Waste: Lean Manufacturing is a continuous attack on Waste. The seven Wastes in Lean
Manufacturing are: overproduction, defects, unnecessary inventory, inappropriate
processing, excessive transportation, waiting and unnecessary motion.
Copyright ©2003 QAD Inc. All rights reserved. Item
QAD is a trademark of QAD Inc. All other product or company names appearing in
this publication are used for identification purposes only and may be trademarks of
their respective owners.
This white paper is for informational purposes only. QAD Inc. makes no warranties,
express or implied, in this document.
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