Conference heron::euro_swas_ai

339.0. "Bob Palmer on Mfg direction" by ULYSSE::ROACH (TANSTAAFL !) Thu Jun 13 1991 15:28

 

                  I N T E R O F F I C E   M E M O R A N D U M

                                        Date:     13-Jun-1991 12:46pm CET
                                        From:     ORCIUCH
                                                  ORCIUCH@YIPPEE@MRGATE@HUGHI
                                        Dept:      
                                        Tel No:    

TO:  PAT ROACH@VBO


Subject: Bob Palmer on Mfg direction

From:	STEPS1::LANZA "FRANK LANZA LMO2-H1 296-5121  12-Jun-1991 1526" 12-JUN-1991 21:29:36.67
To:	@IST,@AITC
CC:	
Subj:	An excellent article on Mfg Direction by Bob Palmer.




    NEW DIRECTIONS IN DIGITAL MANUFACTURING 
    by Bob Palmer, vice president, Manufacturing
    
    This article discusses some of the issues, challenges and 
    opportunities facing us today and describes some objectives and 
    strategies we are pursuing to deal with them.
    
    The most important issue in Digital Manufacturing today is that 
    we simply are not competitive with respect to costs.  We have 
    benchmarked ourselves with respect to the best competitors in our 
    industry and have determined that we must significantly reduce 
    the costs associated with manufacturing and delivery of our 
    products and services if we are to achieve the leadership 
    position that we owe to our customers, shareholders, employees 
    and suppliers.  The Manufacturing Management Team has estimated 
    that we need to reduce our total spending in Manufacturing by 
    approximately $1 billion (!) to be truly world-class in 
    delivering our current level of products and services.
    
    Therefore, as a Management Team, we have established three 
    primary objectives for the Manufacturing organization: 1) to get 
    competitive, 2) to stay competitive and 3) to preserve our most 
    important core values in doing so.
    
    Before we discuss our strategies for accomplishing these 
    objectives, it might be worthwhile to consider some of the 
    factors that led to our current lack of competitiveness.  Part of 
    the problem is the fact that our installed capacity significantly 
    exceeds the requirements of our business.  This is partly the 
    result of the outstanding success that Digital enjoyed until 
    about 1988.  For the previous ten years, the company had an 
    average revenue growth of more than 20% per year.  Management 
    anticipated that this growth rate would continue and put in place 
    facilities and resources to support the forecasted growth. 
    Unfortunately, the computer industry has suffered from a general 
    slowdown and we have not grown at the expected rate.  In 
    addition, rapid advances in semiconductor technology have had an 
    enormous impact on how computers are manufactured, displacing 
    many of the traditional manufacturing operations and much of the 
    capacity.  Additionally, the establishment of standards in many 
    areas of computing, i.e., the emergence of "Open Systems 
    Computing," has placed significant pressure on profit margins and 
    made any unnecessary costs unaffordable.  The large number of 
    facilities that we have results in too many interfaces, too much 
    complexity, and too many overhead people to manage it. This 
    unnecessary complexity represents a significant part of our cost 
    problem and must be addressed if we are to become truly 
    competitive in costs, time to market, quality and customer 
    satisfaction.
    
    How will we achieve our objectives?  We will utilize the New 
    Management System framework to help us identify the activities we 
    currently have that do not provide adequate value-added for our 
    customers.  The New Management System will help us to understand 
    our costs more accurately as well as our contributions.
    
    We have established five basic strategies to date to accomplish 
    our objectives:
    o  Simplify our business management processes and organizations.
    o  Reduce or eliminate redundancies and duplications.
    o  Design for manufacturing and quality.
    o  Purchase our materials more effectively.
    o  Utilize our assets more effectively. 
    Organizations with a clear sense of purpose and involved 
    empowered employees are key enablers of these strategies.  We 
    will work hard to create an environment, within Manufacturing, 
    that encourages participation by empowered employees, because 
    employees know best how to rationalize the processes and 
    eliminate the redundancies of the work they are involved in on a 
    daily basis. The rapid rate of change in our industry today 
    requires timely decision making.  It is important that management 
    hears all points of view, but ultimately it is management's 
    responsibility to make decisions and the Manufacturing Management 
    Committee has committed to make necessary decisions even when 
    these are difficult at times and unanimity cannot be achieved.
    
    Our short-term goal is to be able to produce the same volume of 
    high-quality products while reducing annual Manufacturing 
    spending by $500 million (as measured from our December forecast 
    when we began these initiatives).  We hope to achieve this goal 
    in FY92, but it will require fundamental changes in all phases of 
    our Manufacturing operations to do it.  And, as noted earlier, 
    this is only an intermediate milestone on our journey to 
    Manufacturing excellence.
    
    As I previously noted, a major obstacle to achieving our 
    objectives is the overwhelming and unnecessary complexity of our 
    operations throughout our Manufacturing pipeline, from planning 
    our demand/supply to delivery of final products to customers.  To 
    deal with this problem, we are thoroughly analyzing and 
    completely redesigning the demand/supply process within 
    Manufacturing to make it more responsive to changing market 
    needs.  We will use Digital's software and networking tools more 
    extensively and eliminate unnecessary organizational interfaces 
    which add complexity, increase response time and require 
    additional resources. Our new demand/supply system will enable 
    all plants to have access to the information they need to perform 
    their function at essentially the same time for execution at the 
    plant level.
    
    Working closely with Engineering, we will identify the critical 
    technologies we need to maintain a leadership position in order 
    for the company to have leadership products. These are the 
    technologies in which we will invest and we will then reduce 
    investments in those technology areas that are not as critical 
    and are readily available elsewhere.  We are also striving to 
    work much more closely with Engineering, to make available, early 
    in the design process, the best possible information regarding 
    manufacturing costs and alternatives.  This is part of the job of 
    Larry Walker, our Manufacturing and Design Technology manager.  
    This is a particularly important role for Manufacturing in the 
    New Management System, which gives Business Unit managers a large 
    degree of entrepreneurial independence to achieve their business 
    goals. For example, if each Product Creation Unit selects a 
    different memory module design for its systems, we would have far 
    too many individual unique memory modules, moving at too low a 
    volume to be cost competitive.  We need to work more closely with 
    Engineering, up front, so that any variations in component design 
    from product to product add sufficient value, from the customer's 
    perspective. I believe that Digital's Engineering managers are 
    eager to work with Manufacturing in a mutually successful 
    partnership to achieve greater productivity and increased 
    profitability for Digital; but we need to provide them with good 
    input regarding the manufacturing cost implications of their 
    design decisions. While the business units strive to meet unique 
    customer product needs, we in Manufacturing need to strive for a 
    degree of standardization around the variety of subassemblies and 
    components that are used.  We can help the Engineering groups 
    coordinate their product designs to achieve significant cost 
    advantages for the corporation. 
    
    One major opportunity for Digital Manufacturing to lower its 
    costs is to bring in from the external vendor base many of the 
    components and subassemblies that we currently allow others to 
    manufacture for us.  In many cases, we could just as easily and 
    competitively build those parts inside, and thereby more fully 
    utilize our existing assets and people. In the past, local 
    Engineering managers have frequently decided to buy outside 
    rather than build internally because they believed they could 
    achieve lower cost that way; that appeared to be the right 
    decision for them at that time, and at the local level.  In 
    current competitive conditions, however, Engineering managers 
    need access to information that will enable them to more fully 
    assess the true cost to Digital of their decisions, including the 
    additional cost of underutilized people and physical assets that 
    the company owns.  
    
    Basically, Digital Manufacturing can be competitive with external 
    vendors in almost any area we choose, provided that we have an 
    adequate volume of business and support and partnership with the 
    Engineering community. We have a very capable, well-trained 
    Manufacturing organization.  We have substantial physical assets 
    and we have most of the technologies needed.  We are globally 
    distributed. There is no fundamental reason why we cannot be 
    competitive with almost any external vendor once we simplify our 
    overhead structure and become more efficient in the way we manage 
    the business. Our challenge under the New Management System will 
    be to ensure that Engineering managers in the Product Creation 
    Business groups want to come to Digital Manufacturing first; 
    because we have the best quality, are the most responsive and 
    have competitive costs. 
    
    IBM and the large Japanese computer companies rely very heavily 
    on their internal manufacturing -- far more heavily that Digital 
    does.  It is not an accident that these companies, which are 
    extremely competitive, have chosen to focus on their 
    manufacturing core competencies.  I believe Digital Manufacturing 
    can provide the Corporation with a competitive advantage.  Our 
    suppliers clearly make significant profits on the products we buy 
    from them, and I'm far more interested in keeping Digital 
    employees working than keeping the employees of our various 
    suppliers working.
    
    We also are studying our strategies for purchasing materials.  It 
    seems there is an opportunity for substantial savings from 
    revamping the processes and techniques we use to purchase our $2 
    billion worth of materials annually.  For instance, we see the 
    opportunity to use our total purchasing power for maximum 
    leverage; and to reduce the number of redundancies that currently 
    exists in our Purchasing organization.  This opportunity is being 
    analyzed today and a new Material Acquisition Architecture for 
    Manufacturing will be proposed shortly.
    
    In addition to working with Digital Engineering groups to more 
    fully utilize our Manufacturing capabilities, we are also 
    considering other ideas to utilize our assets. Entire facilities 
    may need to be taken out of the Manufacturing function. Some of 
    those facilities might be rechartered to support Manufacturing 
    consulting work in direct Sales and E.I.S. organizations.  As 
    Digital moves toward more enterprise integration business, we 
    expect to see increasing demand on Manufacturing for helping 
    customers implement solutions using the technologies we use in 
    Manufacturing. 
    
    If we look at the activities for Manufacturing today and in the 
    future, we see two broad categories:  those that are directly 
    related to product cost and those Manufacturing Consulting 
    Services that add value that customers are willing to pay for.  
    We have a number of Manufacturing Consulting Services that we 
    provide to customers in such areas of expertise as factory 
    automation. To the extent that we provide high-quality services 
    that customers are willing to pay for, the Field will fully fund 
    our costs, because they will make a profit for Digital.  In 
    select cases, we may do manufacturing work for other companies 
    because our volumes are not adequate to provide competitive costs 
    in many of the technologies in which we have invested.  For 
    instance, the minimum cost for being in the storage or 
    semiconductor or high-performance interconnect business is so 
    great that to be cost competitive we have to spread that cost 
    over larger volumes than Digital can internally generate.  That 
    means we may need to sell some of these manufacturing services 
    selectively to external companies.  For example, the Storage 
    Group sells thin film heads and media to a limited external 
    customer base.  This will help us lower our overall costs in 
    Storage and provide us with valuable feedback from the 
    marketplace as to our real competitiveness.  This is the best way 
    to obtain benchmark data, because customers who pay for these 
    products and services will be quite expressive about our cost 
    competitiveness, quality and reliability. In other words, we need 
    to think innovatively to find ways to load our assets fully, and 
    to provide meaningful work and opportunities for employees 
    throughout Manufacturing.
    
    These are definitely challenging times for the computer industry 
    and change is occurring more rapidly than ever before.  The 
    increasing competitiveness in our industry will prove 
    devastating, in my opinion, to those companies that are too 
    inflexible to change themselves.  The future is bright, however, 
    
    for those companies, such as Digital, that are willing to embrace 
    the changes as opportunities for designing, manufacturing and 
    delivering superior products and services at competitive costs.  
    We have the talent and resources that we need to be successful.  
    Digital Manufacturing has the opportunity to become the best in 
    the world at what we do, and we are determined to seize this 
    opportunity.


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