In an integrated world between Product Development & Engineering (PD&E) and Supply Chain, the main interface is the BOM, the Bill of Materials. Now is it, as Robin Saitz points out, a bomb?
Actually, we first have to define what BOM we are talking about, as there is the e-BOM, or engineering BOM, typically maintained in the PLM environment and describing how the product is developed. Second we have the m-BOM, also known as the manufacturing bill of materials, mainly focused on the components or ingredients. The m-BOM is maintained in the ERP system and is a critical part of Master Data Management. Third we have the s-BOM, focused on support of the product in the field. All three contain a common base, but each has specific information related to the functions performed.
The question is obviously which of the three is the master. Well as long as the product is not released, this should not be an issue. It obviously makes sense the e-BOM leads the way. But what happens after NPI (New Product Introduction)? At NPI, the other two BOM's are updated. From that point onwards they should stay synchronized.
However, here we come to another question. When an engineering change is initiated, is this done by PD&E, or is there a separate team within production that takes care of the engineering of products, once they are in production. Obviously, if the change is initiated by PD&E, the e-BOM will be updated and this information should cascade again to the m-BOM and the s-BOM. In the second scenario things are trickier. Indeed, will the engineers allow those production people to access their PLM environment, or do they want to keep that to themselves? In that case, the engineering changes will be entered in the m-BOM and s-BOM directly, but that builds discrepancies between the three BOM's.
The closer the BOM's can be, the easier it is to maintain consistency. Design for Manufacturability (DfM)/Design for Supply Chain (DfSC) and Design for Serviceability (DfS) allow the teams to work together in the development and roll-out of the new product, do not only foster relationships between engineering, manufacturing and services, but often result in higher quality products that can be manufactured and serviced at a lower cost, as Tom Shoemaker points out in a blog entry titled BOMs and better development.
DfS is probably the most obscure of the above acronyms. And my "google meter" shows there is not a lot written on the subject. It's all about thinking, during product design, at how the product will be maintained once in operations. You may ask yourself why this is important. Well, facilitating the work of service engineers reduces the cost of warranty and improves customer service. There is another reason these days, and it has to do with the increased trend for "pay per use". The other day I ran into an aerospace company telling me they have started selling (or renting might be a better term) their motors per flying hour. Now, every hour the motor is kept on the ground reduces revenues. The manufacturing company is now responsible for keeping the motor flying and suddenly serviceability becomes a hot topic. The electronics industry has been looking at this for a while, hence the reason they approached us to understand what we do in that space.
Joe Barkai from IDC-Manufacturing Insight points out that the small upfront investment of thinking about serviceability while designing the product is largely off-set by cost reductions in the field. This has been our experience too. But he also makes the point that design engineers neglect long-term, life-cycle costs. Measurement and reward systems may have to be adapted to ensure the appropriate behavior gets engrained in the engineering culture.
DfM/DfSC is already gotten somewhat more in the culture, as we have been at it for quite a while now. I remember hearing about it in the late 80's. However, there are still companies with a large gap between engineering and manufacturing. Demonstrating the importance of the synchronization between the e-BOM and the m-BOM can surely help bridge the gap. People, processes and systems are not three independent components of the organization. They interact extensively and by improving one, we may hope that the other ones improve also. Your thoughts on the subject?
There is one process we know very well after one year of recession, and that's cost reduction. Most companies have scrutinized their costs and tried to take every waste out of the system. Many were quick to point out that, although the sustainability agenda was still on the radar screen, it has been taking a back seat for quite a while now. I cannot judge whether it has or not, but would like to argue it should not have. Becoming greener is an excellent way to reduce cost if you look at it in the right way. In this entry, I want to take a minute to explain you what I mean.
It all started about one year ago, when I heard a radio interview from Jean-Pascal van Ypersele Vice-Chair of the Intergovernmental Panel on Climate Change (IPCC). He pointed out something extremely simple: "The best energy is the energy that is not used". Just think about this. There is a lot of focus on using green energy, and I do not mean that to be wrong at all, but what he says is that before turning to green energy, take a hard look at the energy you consume and see how you can reduce your consumption. Whether green or not, consumed energy costs money, avoiding consuming it helps you reduce cost, isn't it?
Well, that is exactly the point I want to make. Let's now look at our Supply Chain. We consume energy in a variety of forms throughout the ecosystem. Electricity, gas, oil, petrol and you name it. How can we get a consistent view of the energy we consume? All above fuels have one thing in common: they generate CO2. You can argue that electricity may come from non-fossil sources and as such do not generate greenhouse gasses. Let's put that thought aside for a minute.
If I can develop a CO2 emission profile across my supply chain, I get to understand very quickly where energy is consumed. I can now focus on reducing the consumption at that step in the process. Doing this may imply I have to change the design of the product, use a new manufacturing approach or change something somewhere in the supply chain. It may happen that a slight increase in energy consumption in one place may result in large savings somewhere else. It is important to include design and engineering in the process to ensure we go back to the root cause of why so much energy is consumed. Root cause analysis is nothing new; we have been doing this for quite a while.
But how do we gain that CO2 view of our supply chain. Quite a while ago, I wrote an entry focused on two new acronyms, BOC and BOS. BOC, bill of carbon, gives the answer to our question here. What do we need to calculate the BOC? Fundamentally two things, first the complete bill of material of the end product, and second the amount of CO2 generated at each step in the manufacturing process for one unit of product/component/ingredient. The latter is mainly based on the full bill of process. Each partner in the supply chain should calculate all emissions related to the operations under his control. This includes manufacturing, transportation, warehousing etc. Whether those activities are performed by him or by a subcontractor, do not matter.
As stated elsewhere in this blog, gaining such information from suppliers requires the existing of a trust relationship between the partners. Once we have the information, we can start the review, leading to improving the energy consumption. However, to maintain the trust relationship, we should never forget to ensure the partner also benefits from the exercise, otherwise he will not be motivated to continue collaborate in the future.
Now, let me come back on the use of non-fossil energy. From a cost reduction perspective, there is no difference where the energy comes from, but from a sustainability perspective, there obviously is a huge difference. However, I would dare to argue that reducing the consumption all together, leaves the non-fossil energy for other companies, reducing the CO2 emissions in the same way.
Looking at CO2 is a great way to analyse the energy consumption throughout the supply chain, looking for wasted energy and related costs. It is an interesting way to reduce costs, improving the bottom line. What are we waiting for?
Around this time of the year, many companies are looking for the by now famous CDP (Carbon Disclosure Project) report. And the 2009 report is on-line. But that's not the only information available. For the first time CDP has also issued their first Supply Chain Report with as subtitle: "Managing climate change in the supply chain". In that report they are looking at scope 3 emission management amongst others and this is where things really become interesting.
Indeed, scope 1 (direct) and scope 2 (indirect, related to provisioning of energy) reporting is mandatory, but the unclear nature of what is included in scope 3 emissions makes their reporting optional.
However, from a Supply Chain perspective, analyzing the climate implications of outsourcing manufacturing and logistics, of buying components and intermediate products, and of managing the product flow from cradle to grave, is an interesting exercise. Not only should the environmental impact be assessed, but through understanding CO2 emissions, the actual amount of energy used can be assessed. Reducing CO2 emissions may have a direct impact in lowering the energy bill. Many companies forget this in their quest for carbon neutrality and the use of green energy.
Jean-Pascal van Ypersele, the Vice-Chair of the Intergovernmental Panel on Climate Change (IPCC), keeps pointing out the best energy is the one that is not used, not the one that is offset. In their quest of becoming green, companies should first look for energy reduction
To be able to do this, one needs to visualize the emissions across the supply chain, preferably on a product level. And here is where the problem is. Today no companies have the tools to identify the greenhouse gas emissions (GHG) at product level.
HP did calculate the total GHG emissions of its supply chain, and started reporting in 2008. Despite working closely with our tier one suppliers, the approach is still rather crude. Suppliers allocate HP's share of their energy consumption in proportion of the value of our business in their annual revenue.
This unfortunately does not allow taking key decisions related to which products require loads of energy to manufacture and which ones no. Balancing the portfolio from an environmental perspective is not possible with such approach.
Maybe we should take a completely different tag. For every product manufactured, we have a bill of materials (BOM) and a bill of process (BOP). If each partner in the Supply Chain could calculate the amount of GHG emitted to manufacture one unit of their product (component, sub-assembly, substance...), a "Bill of Carbon" (BOC) would be developed for each. I actually highlighted this concept in a blog entry last year, labeled BOS & BOC, new acronyms to get used to?
The question is obviously how this information could be consolidated to obtain a true picture of the environmental impact of the finished product. And here is where another concept I highlighted, called a community cloud, could help.
Indeed, if all participants would consolidate, using the BOC of all components included in the BOM of their end product, the amount of GHG emitted in the process, we would have a great view of the manufacturing impact. By adding the transportation piece that is found in the BOP, a reasonably complete picture could be established. Obviously, one can argue that averages may be used and, resulting from there, that the number is not absolutely correct. However, it would give a picture that is closer to reality and much more granulate than the current one.
Using a cloud approach, such community could be established without requiring one of the parties to implement a hosting infrastructure. No CAPEX investment would be required, making it easier for the parties to participate. A pay-per-use or subscription fee could be used to finance the service.
To take full advantage of this approach, it should be combined with standard metrics, such as the ones included in SCOR 9.0. Ultimately, this would allow companies not only to publish the carbon footprint of their products, but also to analyze the environmental impact of their product portfolio, allowing them to retire the most polluting ones, while promoting the others. Managing a portfolio from an environmental point of view prepares companies to benefit from upcoming legislation around carbon taxation and others, by understanding their impact at the product level.
Green, sustainability and SER, are terms that appear increasingly in our publications and conversations. They draw our attention on the fact our products interact with their environment and potentially harm it. That impact needs to be evaluated from the development of the product onwards, and obviously, diminished as much as possible. This is what is being called DfE, design for the environment.
But this is easier said than done. Indeed, in today's environment, suppliers do not have the information at hand for each of their components, ingredients or substances. Actually, as mentioned in my previous post, the way to calculate the impact is not standardized, so even if the values exist, what do they mean?
During the development of a product, a Bill of Materials (BOM) and Bill of Process (BOP) are created. These will be used at a later stage in the operational systems. I would like to argue that we need to add two new bills to the series. These are first, the Bill of Substances (BOS), which would contain all the substances contained in the product and their quantities, and second, the Bill of Carbon (BOC), containing the amount of carbon emissions for the product at all stages in the manufacturing. There should be a close link between the BOM and the BOS, and between the BOP and the BOC. Operational systems should include modules to report on those two bills.
But now, how do we get the data to populate them. Obviously, the base information related to the components, ingredients and substances needs to come from the suppliers and be augmented with the data associated with the company's operations. The easiest way to do this would be for each company to report both the BOC and BOS for their own products. For the BOS, the information should be the sum of the information of each of the components, ingredients and substances included in the product, potentially reduced by the substances subtracted during the process. For the BOC, we should start from the sum of the information coming from the suppliers and add the quantities generated during manufacturing and transportation.
For the Bill of Carbon, we should agree on a standard way of calculation to ensure the numbers are meaningful and reflect reality. Obviously averages may have to be used, as not all manufacturing facilities generate the same amount of CO2 to make the same product, and that transportation can depend on the warehouse/distribution center used, on the distance to the customer etc. Let's stay pragmatic. Gaining visibility of the amount of CO2 generated, even if it is an average, would already go a long way to focus the attention on reducing it.
So, are we ready to increase our usage of three letter acronyms?