Design for Supply Chain (DFSC) thinking for predictable delivery
Whether it is purchasing a new home, a car or a Mac, if you are witnessing delivery delays, you are not alone. Every industry across the globe is impacted by the unprecedented chaos created by COVID-19 pandemic. Reuters estimates just the automakers could lose $210 billion in revenue this year because of supply chain disruptions. With Ukraine tensions building, we are looking at a prolonged period of uncertainty in supply chain networks.
I witnessed the disruptions firsthand at nCorium. Prior to nCorium, I encountered similar, but transient, disruptions at Sanmina-SCI (Viking Technology), where we attempted using smart engineering to address supply chain challenges. At nCorium, the magnitude of COVID-19 disruption became apparent in summer of 2020. We quickly mainstreamed what were considered radical approaches. Supply chain considerations became an essential part of product design. We learnt many lessons and standardized new practices to achieve shipping readiness.
Talking to industry leaders, I noticed that 2 years into the pandemic, the industry continues to explore incremental and siloed solutions. In this series of blogs, I would like to share our learnings and start a broader conversation on how the industry will need to reorient itself to address these supply chain challenges.
Let’s first examine the key groups inside a company that make the magic happen: Engineering, Business and Operations
Engineering Group: Creates product
Engineering groups architect the product to requirements, design the product and provide specifications for any part, sub-assembly or housing that goes into the product. Engineering owns the design, builds the prototypes, accomplishes New Product Introduction (NPI) under controlled environment and establishes the procedures for large scale manufacture of the product.
Business Group: Generates and sustains demand
The business group has two key responsibilities. First, lead from the front, help the company maintain leadership position in the market and generate customer demand. Second, fulfill the demand and realize the revenue with healthy margins. The key metrics here are revenue, determined by pricing and volume of shipments, and gross margins, determined by the cost of making the product, including bill of materials (BoM). Considering the impact of revenue and gross margin on the company financials and by extension investor sentiment, business is often in the spotlight, no matter where the issue is.
Operations Group: Ensures product readiness to meet demand
Operations group ensures that the manufacturing lines keep churning out the product to meet customer demand. Operations spends considerable effort to make sure components and sub-assemblies required to manufacture the engineered product are available on time. Unavailability of even one component may cause re-routing of manufacturing workflows or worse, may halt the production lines. Any disruption here will result in drop in throughput and adversely impact revenue realization.
Product readiness — traditional way
Traditionally, the burden of meeting customer demand squarely fell on Operations. Operations team uses several strategies to balance on-hand inventory, supplier reliability, and supplier lead times. All strategies deployed involve managing downstream supply chain network. Operations team directly or indirectly works with suppliers, vendors, integrators, fabricators, and distributors. For example, vendor managed inventories (VMI) passes inventory management to supplier, second sourcing of parts ensures no supplier becomes a single point of failure, and buffer stock offers a cushion for limited emergencies.
The only upstream effort that contributes to securing the supply, even if indirectly, is smart forecasting by the business group. However, in the interest of securing and servicing future high potential sales opportunities, the forecasting process leans towards “higher projections, than lower projections”. So, a certain margin creeps in which imposes costs on operations. Inspite of such limitations, operations professionals had built a working supply chain solution with a reasonable security cover.
Unfortunately, the COVID-19 pandemic and subsequent disruptions blew through the supply chain security cover and exposed the systematic weaknesses in our current methods.
At nCorium, we built a patented 5U server that uses FPGAs, off-the-shelf chips, DRAM, Flash for high performance workloads involving video and large datasets. Following traditional methods, our first priority was to secure the supplies of high value components and sub-assemblies. These high value electronic components and sub-assemblies contributed to 93% of the BoM cost and had long lead times. We successfully secured the supplies and were trending towards a smooth delivery.
An unfortunate supply crunch hit, and we missed our shipping deadlines. To our surprise, the delay was not caused by high value components, but a “screw” with a tight engineering specification and a “ultra-thin heat spreader” again with tight engineering specification. These two components together contribute to 0.005% of the BoM and yet held up a shipment worth more than $100K.
This is just one instance in one company. In the aftermath of pandemic, Billions $ worth of shipments have been held up for similar reasons across the industries as conventional strategies failed to deliver. Newsweek reports that chip shortages have impacted every US automaker, bringing many manufacturing lines to a grinding halt.
At nCorium, root cause analysis of the supply crunch led us to a key weakness. Some design decisions were made without factoring broader considerations at play.
Our systems have a proprietary high density electronic board that generates lot of heat (25W+ design) and has a very narrow channel (3mm). Air flowing through this narrow channel carries the heat generated by board to the rear of the system. So, it was important that the airflow in narrow channel be clear of any obstructions. Engineering designed a metal heat sink that attaches to board. It maximizes surface area and enables smooth air flow. After exploring several mechanical fixtures for attaching heat sink to the board, it was determined that a simple “screw” works best. Engineering specified a screw with shallow head so it doesn’t protrude out of the heatsink. If it did, it would eat into the air channel and disrupt the critical air flow needed.
Among the 100’s of types of screws available, one screw met the tight parameters set by engineering team. Procurement approved it based on part availability research at that time. We later discovered that this specific screw is not necessarily stocked well all the time. Sure enough, it failed us in crucial time.
Is there a way engineering could have avoided this? Yes, it could have, if we had Design for Supply Chain (DFSC) thinking.
Design for Supply Chain (DFSC) — a techno functional effort
The pandemic teaches us that we are all in this together. Same with the organizations. Meeting the customer demand is too critical a task to be left on shoulders of one function, in this case operations. While operations continue to come up with creative inventory and vendor management strategies, a truly reliable product readiness will require active participation from Engineering and Business.
Closer home at nCorium, we put on the DFSC hat. The procurement team determined that screws with nominal head had better stocking history than the screws with shallow head. This was called out as “safe part”. However, the safe part would protrude into the air channel on existing heatsink as the screw hole was designed for shallow screw head. Engineering redesigned the heatsink so the safe part can comfortably fit into the heatsink in a flush manner. The design now became supply chain resilient while meeting the key air flow requirement.
It took a collaborative cross-functional effort between engineering and operations to craft a strategy for reliable product delivery.
Like engineering, business has an important role to play as well. Business has the ownership of the revenue and gross margin. However, in corporate structure, it has limited means to actively contribute to product readiness (for revenue realization) and cost engineering (for gross margins). In the interest of the protecting the two key metrics for financial performance, Business unit must have skin in the game and play its part in stabilizing the supply side. This will be further addressed in following blogs.
The thrust of the argument here is not that that DFSC is non-existent. You may find that some of the policies that can be considered part of DFSC thinking are already applied under isolated initiatives by operations. The assertion here is that all three key groups, Engineering, Business and Operations, need to proactively contribute to DFSC, not just operations.
In the post-pandemic world, the companies have to adapt to a range of uncertainties, from countries shutting borders to geopolitical tensions. To achieve resiliency in these challenging times, every company needs a dedicated DFSC effort with clear ownership to enable cross-functional collaboration and act as a bridge between Operations, Business and Engineering.