October 1997, Volume 3, No. 10 Case Study: AP Lockheed Shifts Its Focus from Process to Market

UK-based AP Lockheed, a division of Automotive Products and a manufacturer of braking parts for cars and light commercial vehicles, has adopted a supply chain management software solution that has allowed it to cut lead times while increasing competitiveness. The company has 30 basic product families, ranging from braking components to water pumps, thermostats, and steering racks. These are made up of approximately 14,000 made-to-stock parts and an additional 5,000 made-to-order. AP Lockheed's customers range from original equipment users such as Rover, Land Rover and Leyland DAF Vehicles, to its national and international aftermarket distributors. In the past, the company has made significant investments in state-of-the-art transaction systems to support all aspects of its business. Two years ago, the company decided to build on this investment by focusing closely on an area that promised to deliver additional benefit - supply chain management. Traditionally the company's business processes had been manufacturing-driven. Over the last two years, however, AP Lockheed has effectively reengineered its operations to ensure that its core business processes are all market-driven, enabling it to respond more flexibly to changing market requirements. The company instigated the change by first defining its core business processes and making sure they had been identified correctly. Once the senior management team had agreed on the processes, AP Lockheed's Logistics Core Team selected Manugistics, an integrated set of supply chain management applications from Manugistics Inc. (Rockville, Md.; www.manugistics.com), as its software solution. According to Chris Pavitt, demand manager for AP Lockheed's Logistics Core Team, the team knew that basic statistical forecasts weren't enough to meet the company's needs. "We had to find a way of getting meaningful real-world forecasts into our planning. Our sales force doesn't know the details about our part numbers, but they do know, for example, how many petrol-engined, automatic Land Rover Discovery vehicles are scheduled to be built in the next 18 months. Our challenge was to take this information and use it in such a way so that we could generate real one-number forecasts." By working closely with Land Rover's logistics operation, the company was able to create a high-level Demand Forecasting Unit (DFU) for each vehicle. From this, a lower-level DFU was created for separate vehicle assemblies and part numbers, and a full set of parts for each vehicle was developed. "Using the one-number forecast, we can communicate customer and market requirements quickly and easily through all levels of the supply chain," Pavitt said. Benefits of the implementation exist at a number of different levels. Overall inventory for key products has been reduced by approximately 25% over the past six months - a cost savings that allowed the company to pay for the cost of the new system within two months. The implementation has provided other valuable benefits as well. "Our Materials Control department used to spend two hours a day at a part-number level checking to see if any exceptions had occurred requiring supplier action," Pavitt said. "With the supply chain management software, it now takes only 15 minutes to fully review generated daily exceptions. The supply chain solution has also allowed us to streamline parts delivery for customers such as Unipart. By changing from 'make-to-order' to 'finish-to-order' we've cut our lead times from 80 days to 28 days, and - with customer service ex-stock already up 20% on 6 months ago - we've significantly increased our competitiveness." Pavitt feels that one of the real benefits of supply chain management is not so much the measurable improvements, but the business options it has opened up. "The supply chain software has proved to be empowering - not de-skilling. Although we've successfully reduced our administrative burden, both in forecasting and by removing at least three stages from our 'finish-to-order' process, we've managed to convert these savings into real business benefits. Since we know that change is now the norm in our market, we will continue to evolve our business processes and increasingly use this solution to make sure our supply chain matches our changing process requirements."

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