When American PC-maker Packard Bell joined with Japanese computer giant NEC Corporation in 1998, cultural differences were just one of the many problems facing the newlyweds. This marriage of convenience allowed Packard Bell to expand into the European PC market, while NEC saw it as an opportunity to extend its operations outside of Japan. For those on the operations side, the merger created a complex labyrinth of product and inventory cycles.
At the time, the industry was going undergoing significant changes. Demand for personal PCs was rising at a rate of 33% a year, causing shortages of key parts, retailers were becoming impatient with PC vendors with high response times, and the average selling price of PCs was dropping at a rate of 15% per year. On the home front, the company today known as NEC-Computers International (NEC-CI) was offering 10 different PC configurations in some 25 countries, bringing the number of configurations to roughly 300, while at the same time the value of a PC sitting in inventory was eroding by 1% per week. For Jérémie Bréchet, head of supply chain operations at NEC-CI, the only answer was a streamlined demand and supply balancing process.
In this recent case study, Kumar Neeraj, Research Associate and Luk N. Van Wassenhove, The Henry Ford Chaired Professor of Manufacturing, take us into this process, outlining the systems put into place to manage the complex demand and supply activities. Boiled down to its core, the process answers three basic questions: 1) what are the customer requirements or what items/parts are required, 2) when are they needed, and 3) how many are needed.
Central to the process is the demand and supply meeting, where senior departmental managers assess information on product life cycles, historical and future product requirements, and current and projected supply chain scenarios. It is here, during the weekly meetings, that managers negotiate demand and supply plans and commit to goals for the next 10 weeks. Given frequent unexpected changes, the process creates guidelines for managing the gaps between planned and actual performance.
The meetings, which Bréchet calls, the virtual engine of our supply chain, are by all accounts working. Since instituting them in 1997, obsolescence costs of raw materials have declined by 70%, even though total raw material purchases have increased year-after-year by 30%.
Moving beyond this success, Bréchet believes more can be done. The authors conclude the case by asking us to consider some of the issues facing him:
- Can inventory be reduced further? If so, could collaborative planning be an answer?
- How can forecast accuracy be improved or demand volatility reduced?
- How do we keep up with the constant reduction in Average Selling Price and the consequent need to reduce costs?
- How do we compress our lead times?
- How do we improve our cash-to-cash cycle?