Lean ERP seeds automotive supply chain successes

Magal Engineering’s approach to its multi-site lean manufacturing, ERP and supply chain communication regime is big-company but low-budget stuff. Brian Tinham gets advice on how others can similarly prosper
“Our ERP systems cost less than £50,000 each, including licences, the infrastructure, implementation and 15 days of consultancy… And they’re underpinning our lean manufacturing and inventory reduction concepts.”

So says Martin Blackburn, group IT manager at automotive supplier Magal Engineering Group, originally the product of a management buyout (MBO) from Dura in 2002, then an acquisition spree early last year.
He adds: “That’s with all the modules, from financials to sales order processing, MRP, lean supply chain management, inventory management... We’d come from a company that had spent £4.5m on a big league AS/400 system that wasn’t giving much more, was complex and took for ever to implement. We got incredible value for money.” What’s more, his systems went in quickly and smoothly, and are now supporting ongoing development with web-based supply chain initiatives, EDI and the like that will be the envy of many.

Magal now comprises four UK subsidiaries: the original Adwest Engineering; engine thermostats manufacturer Western Thomson Controls, also in Reading; after-market cable maker Adwest Cables in Stourport; and car jack and tow hook producer Metallifacture in Nottingham, which also has a design and test centre in Stourport. A further two French-based engineering and production facilities and one in India complete the picture. Customers are most of the vehicle OEMs, distributors and stockists and the Tier One and Tier Two automotive suppliers, so that’s several hundred. It’s a significant operation.

Lean thinking and IT

Across the companies, it’s a mix of low and high volume (hundreds of steering racks, but 100,000 thermostats a week), mostly repetitive manufacturing, with a common theme of standard products having limited variants, apart obviously from the cables operation. Lean thinking has been one of the guiding principles from the start, to get costs down yet retain flexibility, and indeed Western Thomson Controls, for example, reckons it’s saved around £1 million in inventory over the last 18 months from its lean manufacturing initiatives.

“We’re getting towards make-to-order across all the subsidiaries, mostly by holding two days of finished stock, but also by moving to a true, pull-based model,” comments Blackburn. On the system side, supporting that initially meant finding something to underpin lean replenishment, both internally and in to the supply chain, but also that offered flexibility, order traceability, and manufacturing-focused functionality –and from a company that could keep it simple and affordable, and get it in fast.
This is a remarkable story, not so much for its huge savings – although they are here and they are big –but for Magal’s work on lean thinking with its ERP, and for its choice of a system for SMEs that’s scaled successfully into a bigger league. Because while the firm started life owning £12m Reading-based steering rack producer Adwest Engineering in July 2002, and selected a WinMan ERP system from SSL accordingly, nine months later it had acquired five more companies – three in the UK and two in France – taking revenues up to £80m, yet its systems coped well.

Says Blackburn: “The scope changed massively but the system scaled fine, and we’ve implemented it in all but the French operations: we’d implement it there too, but there isn’t a French version.” And that’s with one machine in Reading running two companies together turning over £22m, while separate systems look after the other sites. Blackburn insists that with appropriate comms, it could all be run from one centre as one instance.

Kevin Lowen, Magal chief financial officer, adds that like many, he was wary of business systems in the wake of Y2k, and of “the long pilot programmes that some solutions providers recommend… We were not going to be a Class A MRP user and had no intention of rocking the world with sophistication.” So by the summer of 2002, Blackburn and his team were well into short listing SMEERP systems. “Then at the eleventh hour we saw WinMan advertised in MCS, and it looked like an ideal system, so we put them in the mix – and they won,” he says.

Right IT, right people

In the end, it was a classic head-to-head competition –two ERP software vendors, one in the morning, one in the afternoon, and a decision one hour later. Says Blackburn: “We chose WinMan for a number of reasons, like they listened to our business intentions and understood our requirements, and matched them. Also, they were the only company that could meet our lean manufacturing and virtual kanban requirements. All the others, big and small guys, could only work to minimum order concepts.”
Magal placed its first ERP order for Adwest Engineering in August 2002, and the system went live on 1 October. Lowen: “We had a limited timescale to get WinMan implemented and up and running and our confidence was such that we didn’t see the necessity for a long and costly pilot. And so far as training was concerned, all that most of our users needed to know was what fields to fill in and how this would affect their colleagues.”

Following the acquisitions, Magal’s next implementation was at Western Thomson starting on 7 March 2003 and going live on 1 April. AdWest Cables followed and was operational by the end of July, and Metallifacture went live at the beginning of October last year. Three ERP implementations in six months.

Touching on the IT itself, WinMan runs under NT4.0 with Windows Server 2000 in Reading, with the one system handling both of the separate company environments. It’s NT 4.0 and Service Pack 6 at the other sites. On the networking side, since the companies now trade independently, Blackburn took out earlier expensive frame relay systems and moved to ADSL and Internet connection for all comms –which he reckons “saved us a six digit figure.” He notes that the system could equally run under Terminal Services, and that is indeed how admin is managed from Reading.

It’s all working rather nicely. Looking at the manufacturing cycles, in all plants the policy is broadly the same. Each uses conventional visual kanbans, with consumption at the finished goods end pulling parts and materials through the factory, followed by back flushing at finished goods for reconciliation. No work in progress (WIP) tracking, no scheduling, only traceability for quality purposes and that’s about it.

As Dave Downing, logistics manager at Western Thomson, says: “We have manual kanbans and a defined number of batches for each OEM. Because we’re speaking to our customers every day we have a good idea of where we can adjust production, and that’s all we need for our schedules.”

Discipline and automation

In slightly more detail, Blackburn says: “We have two raw materials stores – standard items, like lower volume packaging, which are managed through MRP, and our kanbans, all of which are on visual triggers inside the factory. Then there’s the whole WIP area; There’s a quarantine area for test, subcontract work and similar; and finished goods stores. Validation is at the front and back end only.”

In fact everything, apart from safety-related items, is now simply backflushed. WinMan’s role is essentially one of providing discipline and process automation –like producing works orders and tracking them efficiently. Downing again: “WinMan helps us control our WIP in a more lean, effective way: it’s improved the controls by, for example, not letting us go negative so we can backflush with greater confidence.”

Meanwhile externally WinMan is key, managing the supply chain via its virtual kanban automation, which initiates pull signals, the frequency and nature of which are determined by site requirements. Barcodes provide the trigger mechanism: currently, materials are barcoded as they’re booked in ,although soon that will be pushed out largely to the suppliers using WinMan’s vendor barcoding and e-commerce functionality. Apart from providing the lot traceability, as the package seals are broken the barcode provides a low-cost and effective notification to WinMan of the need for supply chain replenishment.

Smartened up and lean

Interestingly, he points out that if MRP starts issuing purchase orders for kanban material because it’s found some that are getting short, purchasing gets an instant clue that it needs to look at kanban sizing. And that also helps make the system flexible enough to deal with order volatility. “Since our Takt time is very low and we have visibility of production rates through the kanbans, we can notify our supply chain immediately and get everything moving,” he says. Holding two days’ finished stock and most items in various pre-assembled stages is the rest of that jigsaw.

Says Blackburn: “In most cases the signal is electronic, either as an email, or auto-fax. We’re also talking to WinMan about a supplier portal as another way of presenting the information. We’d like to do that – give our suppliers real-time access to our systems, so that they can plan more efficiently and so we can move more to vendor managed inventory (VMI).” For clarity, he adds: “We do use MRP for long-term planning for us and for the supply chain, but most of the material demand is now handled through the kanban signals and ignored by MRP. It depends on the site, but it’s about 70—80% kanban and 20% MRP at Western; similar at Adwest, although Adwest Cables is mostly scheduled production.”

Next up is EDI, initially with customers. “We’ve just put EDI in and it’s being beta tested in Nottingham with a new back-end interface to WinMan. Initially, it will be for our customer interaction, but it will also be extended to suppliers to augment the other methods for our virtual kanban systems…Being able to manage thousands of order lines through EDI, and also control drawing and photo sharing etc with our customers, will give us a further edge in the marketplace.”

It’s all thoroughly impressive. Blackburn says that beyond choosing the right system, one key has been taking the project team largely from within production –and thinking more about manufacturing business than IT or accounts. “We wanted manufacturing to drive this system, not financials – they’re pretty common across most companies. Manufacturing functionality is where you can drive benefit.”

From Manufacturing & Computer Solutions - Jan 2004

For more information about Magal Engineering go to www.magal.co.uk