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Software // Enterprise Applications
06:10 PM
Paul Travis
Paul Travis

Supply-Chain Engineering

Harris is taking a novel approach to its supply chain by upgrading IT at the start of the production process

Global competition has been putting the squeeze on Harris Corp. in recent years. Rivals around the world have been matching or beating some of the company's prices for the sophisticated radio and microwave communications systems it sells to government and commercial customers. Executives at the company knew they had to do something to compete more effectively. So Harris put the squeeze on its supply chain.

The $2.5 billion-a-year company could have opted to upgrade or add new pieces to its existing enterprise-resource-planning and supply-chain-management applications. But such systems wouldn't improve the way Harris engineers pick components for their products, the IT team concluded, nor would they generate the kind of savings the company was looking for. So instead, Harris is investing several years and nearly $10 million in what its IT group calls an engineering-centric supply-chain operating system, or data hub.

In this most engineering-intense company, the hub will provide systems designers with more-detailed information at the start of the development of a new product so they can make better decisions about the components they use.

Better decisions, in turn, should drive down the $1.5 billion Harris spends annually to make several thousand communications products. It also should help the company more effectively choose among the nearly 200,000 components it buys each year from more than 12,000 suppliers. Suppliers also will have access to the data hub--the first phase of which goes live in two weeks--to enter detailed data about their products.

Developing a single ERP system for diverse products sold to different markets is difficult, says Richard Plane, chief technologist at Harris.

Developing a single ERP system for diverse products sold to different markets is difficult, says Richard Plane, chief technologist at Harris.

Photo by Sacha Lecca
Harris did consider the ERP option. After all, its various units use Minxware, PeopleSoft, and QAD ERP and manufacturing-resource-planning software. But those applications focus on doing a good job of supplying or replenishing the parts and components that already are designed into products, a capability that works best for a company that has a fairly stable, high-volume product base. "If you make a lot of one thing, then you could do what we needed to do in an ERP system," says Richard Plane, chief technologist at Harris. "But we make a lot of different things a very few times. Developing a single ERP system for a diverse range of products that are sold to completely different markets segments is a difficult thing to do."

Harris showed guts by not relying on a packaged ERP or supply-chain-management application, says Navi Radjou, a VP at analyst firm Forrester Research. "Harris took a smart approach by focusing on the front end of the supply chain," Radjou says. "Even a little improvement will yield dramatic savings."

That's what Plane and other Harris executives are counting on. Plane's original goal was to cut the $1.5 billion in production expenses by 10%. But early results indicate the company might be able to cut those costs by more than 20%. "The early fruits have come from aggregating all data across the whole company on our spending patterns and then negotiating better contracts with our major suppliers," Plane says.

Though Harris has continued to boost its revenue in the last five years, from $1.7 billion in 2000 to $2.5 billion in 2004, it has had some bumpy years profitwise. Harris' net income in 2000 was $18 million, and it jumped to $82.6 million in 2002. But the next year it fell 28% to $59.5 million, and Harris cut about 230 positions to reduce overhead and stem losses in the commercial side of its business. It also eliminated several wireless and digital products and began rethinking its supply chain. In the fourth quarter of 2004, Harris cut 100 people from its microwave communications unit and transferred 140 jobs from Redwood Shores, Calif., to lower-cost operations in Research Triangle Park, N.C. Also that quarter, it cut 100 positions from its broadcast communications unit.

The company's fortunes have brightened in the last year, with net income up 123% in 2004 compared with the year before. In its most-recent earnings statement, late last month, Harris raised its fiscal year earnings guidance from a range of $1.43 to $1.48 to a range of $1.45 to $1.50 per share.

The top-down approach was key to the success of the supply-chain project, Lindsay says. Photo by Bob Goldberg

The top-down approach was key to the success of the supply-chain project, Lindsay says.

Photo by Bob Goldberg
But Harris isn't taking the turnaround for granted, and reworking its supply chain has moved beyond the thinking stage. "The engineers control our supply-chain destiny," says Janice Lindsay, director of supply-chain management. These independent-minded employees begin working on the design of a product as much as 18 months before it hits the market and pick a component or part they think will work best, often without factoring in availability, inventory levels, cheaper alternatives, supplier relationships, and other considerations. They may unknowingly pick a component that a supplier plans to discontinue in six months. And since each of Harris' four business units--government communications, broadcast communications, radio-frequency communications, and microwave communications--operate independently, there was little discussion between engineers in different parts of the company about part quality, supplier reliability, or pricing. "As a result, our engineers have limited visibility on who is a good supplier, what our experience is on item quality, what risks are associated with that part or that supplier, and how that part will affect costs," Lindsay says.

There were other issues the IT team needed to solve. New and emerging regulations in the United States and other countries require companies like Harris to better track components and finished products that contain hazardous materials. Harris also wanted to consolidate spending among fewer suppliers, developing closer relationships and gaining larger discounts. And it wanted to improve internal collaboration to promote faster knowledge transfer and reuse of intellectual property and product designs.

To help develop a strategy to deal with these issues, Harris last year hired Leon Shivamber as VP of supply-chain management and operations. Shivamber had spent nearly 20 years dealing with supply chains at management consulting firm McKinsey; Arrow Electronics, a $10 billion-a-year electronics distributor; and most recently as president of Vertisync, a supply-chain-management company.

The most important lesson he learned over those years, he says, is that "the vast majority of costs can get reduced if you can make the right decision up front. The benefits shrink if decisions or changes are made afterward."

Making the right decision up front reduces most costs, Shivamber says.

Making the right decision up front reduces most costs, Shivamber says.
Shivamber also has seen that different departments in a company can work at cross-purposes. "People in purchasing make decisions to optimize procurement metrics, while engineers make decisions based on engineering metrics," he says. "They frequently are opposed to each other."

Harris' plan of attack was developed during a meeting about 18 months ago with one of the company's technology partners, Agile Software Corp. A Harris business unit was using Agile's cost-management software to develop a sophisticated parts catalog. During a brainstorming session, senior managers from the two companies discovered that the software vendor's product-development plans mapped with the goals that Harris wanted to achieve across its supply chain.

"This was the most unique way that we've come to a solution in my 22 years in IT," Plane says. "We had the right people in the right room at the right time and were able to free-form enough to get to something that was of value to the supplier and of enormous value to the customer."

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