success strategies of operations executives · said being an operations maven was easy. no position...

SUCCESS STRATEGIES OF OPERATIONS EXECUTIVES

4 Top Operations Executives Tell How to Manage Supply Chains, Ensure Quality and Reduce Costs

Laurence SampsonChief Operating OfficerSwan Valley Medical

Rachel YabutSupply Chain Risk ManagerPalo Alto Networks

Jim Van PattenVice President of OperationsRoost

David SangsterExecutive VP of OperationsNutanix

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2©2017 Arena Solutions, Inc. Arena and Arena Solutions are trademarks of Arena Solutions, Inc., Reg. U.S. Pat. & Tm. Off. All rights reserved. Other product and company names are the property of their respective holders.

Keep Operations Managers From Flying BlindNo one feels the pain of a distributed organizational structure more than operations managers.

A few years ago, Boeing’s Dreamliner suffered a mid-flight battery fire on a 787 out of Boston and then a smoldering battery on a flight to Japan. Turns out the cheap parts in the 787’s power distribution panels were coming from supply chain subcontractors working outside the view of Boeing’s operations managers.

Who does the FAA blame for this dangerous aviation disaster? Not Boeing’s tier-one or tier-two contractors, but Boeing and its operations managers. In essence — when it came to managing suppliers — Boeing’s operations managers were flying blind. No one said being an operations maven was easy. No position at a product development company has more potential impact on the success of a product.

Arena understands the huge responsibility of managing a globally dispersed supply chain team in an increasingly competitive market. And yes, operations managers are expected do it all: select contractors, approve vendor lists, evaluate proposals, orchestrate product ramp, and work closely with engineering to review and approve engineering change orders (ECOs). Managing so many tasks at once leaves operations execs feeling like acrobats spinning plates on sticks while riding unicycles; no wonder they ponder questions like these:

• Can I create and manage a flexible, secure supply chain which is external to the company spanning different time zones?

• How can I efficiently communicate product data to dispersed partners?

• What would facilitate valuable manufacturability feedback from suppliers?

• How can I better negotiate component prices?

• What product development solution will maximize business results, including quality compliance and product yield?

This whitepaper aims to provide insights, tips and confessions from today’s operations managers. We also included quotes from four ops executives who shared their experiences and what they did to achieve operation excellence. This whitepaper covers the following:

• Anatomy of an Operations Nightmare

• How Your Supply Chain Visibility Ranks

• The Need for Modern Product Development Platforms

• How Arena Helps Operations Managers Succeed

• Why 1,000 Operations Managers Can’t Be Wrong

Throughout this whitepaper, we’ll examine what went wrong with Boeing’s product development plan and how to make sure a similar supply chain nightmare doesn’t happen to you. Fasten your seatbelts.

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Anatomy of an Operations NightmareThe operations goal of cost effectively delivering quality products on time can be undermined anywhere in the product lifecycle — from prototype to pilot to production to end of life. The potential for something going wrong can be increased when outsourcing is involved.

Outsourcing has leveled the playing field in terms of commerce and streamlined processes; and of course, smart operations managers know that the economic benefits of outsourcing can be significant for large and small manufacturers alike. But outsourcing has also introduced a host of new vulnerabilities; for example, operations managers can lose visibility into the activities and quality of components and parts supplied by their extended supply chain team.

Aviation giant Boeing learned this lesson the hard way.

By outsourcing the design and manufacture of key systems, Boeing was initially able to reduce development costs — but that financial victory was short-lived. The 787 power distribution panels, which control the flow of electricity to the plane’s many systems, were discovered — after the in-flight mishaps — to be of “Radio Shack-like quality” with parts termed “cheap, plastic and prone to failure.” Think of a plane built with inferior components next time you hop on a flight.

Boeing executives admitted to poor oversight while engineers claimed problems were “slow to be addressed by senior officials who often didn’t want to hear bad news.” Further disruptions came from complications and spec changes that weren’t quickly and accurately communicated between Boeing and its suppliers and partners. A culture of blame and mistrust quickly took hold. Had the operations managers of Boeing had greater control with better ability to manage their suppliers’ suppliers, this problem could have been averted.

Boeing’s operations managers now take direct control of key partners with “Insourcing” of future work rumored. To address organizational deficiencies, the airline manufacturer has even hired a consulting firm to improve culture and communication. The goal of this, presumably, is for senior management to be better able to receive “bad news” and respond more quickly to any disruptions in development or manufacturing.

You wouldn’t put a blindfold on an air traffic controller nor should a company put them on their company’s operations manager and expect one to go on missions in inclement weather conditions with limited visibility.

Boeing’s story is a reminder that outsourcing needs to be viewed as an ongoing process, not just something that can be started and then forgotten. The benefits of outsourcing can only be realized if there exists solid information, fluid lines of communication, active management of relationships, recognition of the complexities involved and a willingness to work at making the partnership succeed.

Unfortunately, Boeing is far from being an isolated case of supply chain failure. The good news is there are innovative solutions that allow operations managers to see the whole picture. But first, let’s hear what some of the top operations managers say about the power of visibility to ensure operational success.

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How Your Supply Chain Visibility RanksWhether you’re the hardware engineer at a startup, the manager or director of operations at an SMB, or the VP or COO of an enterprise, achieving operations excellence is your number one responsibility. But as we discussed earlier, a flatter manufacturing world with dispersed supply chain teams has made ensuring operations challenging.

Nutanix’s Senior Vice President of Operations David Sangster is heralded as one of the top operations managers in Silicon Valley; he outsources all the company’s manufacturing needs. “We use over 50 active suppliers including contract manufacturers, distributors and key technology partners,” said Sangster. “We also use a platform approach to product design and a CTO process to reduce SKU proliferation and the need for additional engineering.”

Sangster admits that early efforts to manage Nutanix’s suppliers were not as easy; the number and frequency of product development changes and complications of big data sharing among globally dispersed partners had become problematic. A big part of the problem was that his dispersed team was stuck relying on Excel spreadsheets and email to address complicated manufacturing issues. “It’s embarrassing to admit, but we had several instances where the suppliers built the wrong version of the product,” said Sangster. It was ‘rev A’ all right, but the wrong rev A.”

Nutanix’s inability to effectively manage its expanded supply chain team resulted in costly rework with extra procurement, build, and test cycles that caused shipping delays. Sangster found this to be “totally unacceptable.”

Like Sangster, Roost’s Vice President of Operations Jim Van Patten has teams distributed globally. He’s constantly asking “what-if” questions like ”What are the pros and cons of packaging the product here versus China or Europe? And what would be the cost? Or what would happen if I created a partial product, kitted it in China, and then packaged it and shipped somewhere else?”

Van Patten has learned to be fastidiously careful as to how he manages his contract manufacturers and supply chain. “If I put all my suppliers and sub-suppliers in China what does that mean if there’s some kind of geopolitical event that closes the borders for a week or if China decides to move most of its manufacturing to the interior, which it’s sort of in the process of doing now, or if I find my Chinese supplier actually has a silent partner that decides they’re going to take over most of their capacity and I have to wait to see what happens,” he says. “How do I mitigate that risk? Again, it’s an ongoing decision. It’s the stuff that keeps me up at night.”

Source: SCM World

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Even smaller companies like Swan Valley Medical has suppliers and contract manufacturers around the globe. Swan Valley’s Chief Operating Officer Laurence Sampson has design and manufacturing operations in Denver but has suppliers all over the country, including one overseas in Taiwan. Sampson began to realize that the company desperately needed a better way to manage product information to facilitate synchronization across a globally dispersed supply chain.

“It had become difficult to disseminate the information to both internal employees and suppliers,” explained Sampson. “When using a paper system to record quality process data, it is increasingly difficult, in a timely manner, to accurately recall the correction evidence in the context of an external audit,” said Sampson. “At some point in time it became necessary to get better structure and organization around the documentation.”

Sampson, Sangster and Van Patten echo the concern that every operations professional has when it comes to managing global supply chains, which is lacking the visibility necessary to forecast pitfalls that could lead to shipping delays, costly failures and brand damage.

For Palo Alto Networks’ Supply Chain Risk and Operations Manager Rachel Yabut, having visibility isn’t everything... it’s the only thing. Palo Alto Networks is leading a new era in cybersecurity by protecting thousands of enterprise, government, and service provider networks from cyber threats. A big part of the company’s success is because Yabut is a recognized expert at knowing the best practices needed to support successful end-to-end global supply chain management through development and execution of strategic planning.

“Visibility is a big issue. It’s been on my roadmap for Supply Chain development for quite a while now,” she says. “Visibility impacts a few different areas. Companies like ours that are 100% outsourced put procurement and many supply chain issues in the hands of their CMs and can lose visibility as a result. You don’t know what the CM has in the current pipeline, on order, inventory on hand, what channel the CM is buying through or what is being bought direct or through sub-tiers of vendors/distributors.”

She continues, “You lose visibility from a cost perspective. While we establish standard costs with our CMs, they negotiate pricing based on aggregated demand of all their customers — not just what we need. We don’t know the CM’s actual purchase cost vs. standard cost (or what we pay the CM). As such, you can lose visibility and control into costs and savings.”

Like Boeing, more and more companies are outsourcing and relying on globally dispersed teams to save costs and accelerate time to market. But unless well managed systems and processes are in place, the promise of outsourcing can quickly turn into a costly problem if an operations manager does not have visibility across the supply chain.

Source: SCM World

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The Need For Modern Product Development PlatformsArena defines a modern all-in-one product development platform as having quality management solutions (QMS), application management solution (ALM) and supply chain collaboration functionality embedded into the product lifecycle management (PLM) design environment. A modern product development platform not only benefits internal processes but streamlines supply chain efficiencies as well.

Because operations managers must oversee contract manufacturers and distributors, ensure build packages are accurate, and cross check pricing with procurement, you would think they would be able to easily sell value of a modern product development platform to maximize business results to the executive team, right?

Unfortunately, a recent report by Ernst and Young discovered all too often “too many manufacturing executives disregard supply chain optimization and its immediate and lasting impact on growth and profitability.”

A modern product development platform enhances supplier relations, supply chain collaboration and operational excellence. It enables buyers to make informed purchasing decisions to comparatively shop for quotes on parts and find alternatives to expensive components with long delivery times (see sidebar). In addition, PLM empowers operations managers with greater visibility into their company’s key performance indicators and identify potential risks that may impact their supply chain and, ultimately, their company’s finances.

In fact, paybacks in internal operational efficiency improvements are among the easiest for managers to measure using ROI analysis. The ability to monitor processes against milestones, including reduced engineering change order (ECO) and new product development (NPD) cycle times, accelerated time to market (TTM) and performance goals can be calculated by operations managers with precision.

These process efficiency improvements are all tangible, demonstrable proof points that can be analyzed as true “financial benefits.” Here we examine a cross section of some industry-specific internal efficiency ROIs with a modern product development platform in place.

Industries Internal Efficiency ROIs

Consumer Electronics ECO cycle time reduced from 33 days to 5 days

Personal ComputersECO cycle time reduced by 50% ECO admin expense reduced by 60%

Medical DevicesNPD cycle time reduced by 20% Quality efficiency increased by 40% FDA document cycle time accelerated by 90%

SemiconductorsTTM reduced by 5% Development costs reduced by 5%

Storage Engineering admin efficiency increased by 80%

New product introduction (NPI) and NPD require synchronization of efforts among operations, engineering and global supply chain teams, a nontrivial challenge considering the frequency of product design changes. A modern product development platform provides a collaborative environment for centralizing, controlling, and analyzing complex and constantly changing product information.

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Smart, strategic-minded operations managers are making a more concerted effort to team up with their supply chain counterparts to maximize efficiencies. These new allies — despite having different roles and priorities — each share responsibility to beat the competition and make decisions that lead to increased market share and improved profitability. A list of these measurable supplier optimization benefits follows:

Industries Supply Chain Optimization ROI

ComputersReuse improved from less than 2% to 59% $500M savings over 3 years on direct materials

Consumer GoodsCosts for packaging reduced by 10%-20% Direct materials spend reduced by 5%-10%

Semiconductors Supplier access to CAD files reduced lead time in developing tooling by 80%

Industrial Products $640M in materials acquisition savings potential

Electronic Manufacturing Material cost reduced by approximately 2%-3%

But as we said before, even after an operations manager presents these compelling findings, executives may still be skeptical of a product development platform’s ROI; that is, until there is an explicit understanding of how PLM ensures streamlined internal process improvements across the enterprise cross-functionally.

Operations managers respond to this skepticism with three powerful words: “visibility,” “synchronization” and “collaboration.”

That’s why operations managers — frustrated with a lack of supply chain wide visibility — are the biggest influencers driving demand for more modern product development platforms. Operations managers have the most to gain (improved quality, reduced costs, lowered risk, collapsed time to market) and most to lose (product errors and rising costs).

With supply chain teams in different time zones, more operations managers require a centralized product development platform that securely supports superior collaboration and more efficiently handles build packages across suppliers’ suppliers.

Boeing discovered that without a product development platform in place, cross-functional cooperation and communication was opaque, exacerbating a culture of distrust and product error blame among operations, executives and engineering managers.

How Arena Helps Operations Managers Succeed Boeing’s lack of visibility into the outsourcing and delegation to multiple tiers of suppliers came back to haunt the jet program in a big way. The airline contracted with approximately 50 top tier suppliers, handing them absolute ownership of the design of their respective piece of the plane and management of its own subcontractors. Tardy attempts to rein in oversight of its suppliers was deemed to be dangerously too little, too late.

Arena’s all-in-one product development platform gives operations mangers at companies like Boeing greater visibility for collaboration with multiple users at different supplier levels throughout their global supply chain.

And while operations managers want efficient supply chain approval processes with dispersed team members, vendors and contractors, they don’t always want to give their primary supply chain contact’s second and third teams access to their product development platform’s IP.

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To address this challenge, in 2013, Arena developed Arena Exchange, a revolutionary functionality added to our platform that offers OEMs a secure, flexible and traceable environment for collaboration.

Now, instead of being able to afford but a few suppliers to engage with, a savvy global operations executive can cost effectively communicate with hundreds – even thousands. With Arena, more long distance stakeholders are brought in earlier, so changes and improvements are made earlier in the design process. Suppliers can review build package data, provide feedback through an integrated commenting stream, and approve/reject objects such as change orders.

Arena’s product development platform was designed to enable operations managers to collaborate with global supply chain partners on efforts like sharing product data for quick turn prototypes, determining the cost or schedule impact due to an engineering change order, proposing alternative solutions to a component shortage, and soliciting competitive quotes on new or existing releases.

Why 1,000 Operations Managers Can’t Be Wrong A survey of operations managers from over 1,000 Arena customers determined that a secure modern all-in-one product development platform could reduce ECO cycles, accelerate time to market and improve product quality by nearly 75%.With Arena, David Sangster of Nutanix realized a number of key benefits, including shortening the product concept to cash cycle on second-generation product by almost 50%. “This has had a positive, material impact to the business by reducing our burn rate and reliance on external cash,” he said.

For Nutanix, Arena reduced engineering change order cycle approvals from days to hours. “ECO reviews are now done by teams of impacted stakeholders using the same data,” said Sangster. “We get terrific feedback from the give and take of the review process. Partners have provided feedback that helped us avoid making unnecessary, confusing or costly changes.”

Source: SCM World

Use of Supply Chain Capabilities

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Arena improved cost visibility, allowing Nutanix’s engineering team to take a critical look at BOM (bill of materials) cost tradeoffs. “This has almost by itself promoted part reuse and standardization in our platforms — a key to shorting time to market,” said Sangster. “Our suppliers now access the same BOM and revision, and we have had zero wrong BOMs built since the system was implemented. Configuration integrity is assured. Interface is intuitive, understandable and readily customizable. Common tasks like ECO creation and routing are quickly done. Our supply chain partners were up and using Arena in under five days. Finally, the benefit of increased visibility and trust that accrues from a single, correct, centralized, real time database cannot be over emphasized.”

How Top Operations Execs Manage Costs

The responsibility for managing costs starts with selecting and managing contract manufacturers and overseeing the approved vendor list, which can be chosen by purchasing. For operations managers, it’s a complex costing environment with purchasing teams often negotiating cost and cross checking this information in silos.

The contract manufacturers offer “turnkey” services, which includes purchasing the components for the OEM for 1.5% per month; this benefits both OEM and contract manufacturer (CM) because the CM gets a volume discount for components, either from distributors or direct from manufacturers. The problem is that over time, increasing discounts to the unchecked CM are not passed to OEM, therefore component costs creep beyond reason.

Arena provides innovative product companies with a fast, efficient way of looking across BOMs and product lines to understand total aggregate materials demand over time as well as updating the forecasting as products change. Arena also enables buyers to make informed purchasing decisions with the visibility needed to comparatively shop for quotes on parts and find alternatives to expensive components with long delivery times.

Now operations executives can find, track, roll-up, and count even the most inexpensive components, turning pennies into dollars – and in some volumes millions.

Van Patten’s challenges and concerns managing his suppliers’ suppliers is why he picked Arena as his product development platform of choice. The Operations VP needed a secure, low cost, flexible environment to initiate collaboration with multiple users, at all differing supplier levels, throughout their global supply chain.

“I use Arena as a way of communicating the latest BOM to our suppliers. All our suppliers have access. They can log in and get the information they need. Exchanging sensitive product information over email is deadly,” says Van Patten.

Sampson shares Van Patten’s perspective that a cloud-based solution and ease of use makes it the best choice for managing supply chain folks working in remote places around the world. “We chose Arena because it had such an intuitive web interface that allows us to touch everyone in our supply chain and always provides current updates of documents,” said Sampson. No matter how many thousand highly skilled and well paid designers, scientists and engineers an innovative product development company employs, their NPI processes will fail without the proper central coordination and integration of processes, people, systems and product data.

Sangster sums up best why a cloud-based product development platform is vital to managing contracts and vendors.

“In today’s product development environment, the one thing you can be sure of is that, sooner or later, you will be partnering with folks well outside your time zone,” said Sangster. “Make sure your tool supports this global reality.”

Had a company like Boeing had greater control on their supply chain with better ability to manage their suppliers’ suppliers, this problem could have been averted.

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About ArenaArena, the inventor of cloud PLM, provides an all-in-one product development platform that unites PLM, ALM, supply chain collaboration, and QMS for the design and manufacture of complex electronics. With Arena, electrical, mechanical, software and firmware engineers can collaborate with manufacturing and quality teams to manage their bill of materials, facilitate engineering change orders, and speed prototyping. As a result, Arena customers can better meet standards while they ensure regulatory compliance, improve training management, reduce costs, increase quality, and collapse time to market. Arena has been ranked a Top 10 PLM provider and won the coveted Design News Golden Mousetrap Award in 2016 & 2017. For more information, please visit http://www.arenasolutions.com.

ContactArena SolutionsFoster City, CA 94404P. 650.513.3500F. 650.513.3511

Author John Papageorge, the author of “Success Strategies of Operations Executives,” has worked with some of the biggest names in technology, including Oracle, IBM, Hewlett Packard, Cisco and Silicon Valley Bank, to analyze and communicate emerging business and technology trends.

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success strategies of operations executives · said being an operations maven was easy. no position...

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