Last weekend our neighbors left their 4-year old son with us since both of them had something urgent at work. He came with his big bag of Lego blocks and assiduously started off on his next big project the moment he walked in. Throughout the day he would build, dismantle and build again. In most cases he would attempt something so big & complicated that invariably he would be disappointed to find a block or two short at the end – the first-aid box on the township's fire-truck, a door for one of the castles in an ancient kingdom and so on. His predicament and expressions reminded me of the centuries old proverb:
For want of a nail the shoe was lost,
for want of a shoe the horse was lost,
for want of a horse the knight was lost,
for want of a knight the battle was lost,
for want of a battle the kingdom was lost.
So a kingdom was lost—all for want of a nail.
Incidentally it is not just the little ones working on their big dreams who are struggling to complete their projects "for want of a nail." Industrial/ heavy equipment makers routinely find that critical parts go out-of-stock at the most inopportune hour. The missing spare holds up a component, which in turn holds up a sub-assembly, which in turn holds up an assembly, which in turn holds up the whole equipment resulting in heavy penalties. Sure, unlike my little neighbor or as in the proverb these companies are not losing townships & kingdoms. But penalties that sometimes run into millions of dollars aren't small change either. And we haven't even counted the mid-to-long term impact of customer loyalty!
In most cases manufacturers had responded by increasing their component inventory over the years. That means more carrying cost, but they hoped to recoup the expense from reduced penalties and lost sales. But alas, that was not to be. Most of them haven't seen any notable decrease in the incidence of such missing part induced delays. The problem lies in the complexity of the equipment that are manufactured. In many cases there will be customizations that increase the complexity further. Out of the hundreds of thousands of parts that go into the product there are too many that can stop the assembly line.
Most personnel on the floor will have a handle on the top 10-30% parts (by value). But the equipment cannot be shipped even if a part that is part of the "long tail" is missing. And that is where an operational intelligence system can help. Imagine a system that gives a tree view of the assemblies and clearly highlights the ones that are in danger of missing the timelines. It not only highlights the high-level assemblies that are in trouble but will also allow the user to drill-down to the components or parts that are the root-cause. 3PL delay, vendor shipping the wrong component, inventory getting scrapped or anything else – In real-time users are immediately alerted to anything that affects the production schedule or repair schedule of the equipment. So, how is that done? Fairly straight forward – data about the BOM, the production/project schedule, component inventory, related purchase requisitions and inbound shipments are acquired continuously, and analyzed in real-time. That is enough not just to highlight what is about to go wrong, but also to prescribe action to prevent the forecasted trouble... like working with customs to get a consignment cleared.
There are a host of other benefits that Operational Intelligence can provide heavy/ industrial equipment makers. For example, given the deep supply chain, risk-mitigation is not just about tracking tier-1 suppliers. Tracking even the 3rd tier becomes necessary. One company told me how they were procuring critical parts from 3 vendors to mitigate risk, but when there was a shortage they realized that all 3 vendors were outsourcing to the same tier-2 vendor! With an effective Operational Intelligence system this anomaly would have been detected long before things went south.
Track & trace of components, real-time view of spare-parts inventory versus failures on the field, maintenance contract & warranty related alerts etc. to name a few are additional benefits. I will defer the details of those for a later post. For now, I hope this inspires some managers to stop losing millions to the proverbial missing nail. After all, we have moved on from horses and knights. It is time enterprise systems also caught up :). It is time for Real-time Operational Intelligence!