Introduction about the Company
Honeywell is one of the globally leading US-based conglomerates, with earning revenue of $23.65 billion, as per 2001 available figures. It has numerous products, used in multiple areas of different industry segments and production facilities in all corners of the world. Aerospace is Honeywell’s leading industry segment where its experience of the line benefits the customers all around the world. Otherwise, Honeywell’s technology product range is quite varied. It is a leader in the manufacturing of technology products. Customers around the globe depend on Honeywell for its aerospace control technologies used in towers, houses and industry; automotive products; power generation systems; specialty chemicals; electronic and sophisticated materials. Regarding SSEC, our targeted case study, this facility has been a leader in supplying specialized ICs for aerospace and military uses and a producer of sensors and electronics, to be used in a range of commercial applications, which is just one of the varied technology based product and application based solutions, provided by SSEC (Kumar & Krob, 2005).
Logistics Management Issues at SSEC
Logistics processes were not optimized at Honeywell, as it has been undergoing a rough time to optimize them. Problems were faced in the area of increasing performance levels in the service standards, in controlling lead-times, and building better communication standards with important suppliers for the services rendered by them. Suppliers also faced hardships with regard to the year 2000 (Y2K), cost and communication among partners of the supply chain (Kumar & Krob, 2005).
The diagram above depicts the supply chain of SSEC. It is the current supply chain for ICs, as depicted in the Figure3 above. SSEC designs the IC wafers and transports them to the supplier by the name of Alpha (imaginary name). This company does perform the assembly work for the ICs, packages and transports them back to SSEC. SSEC performs quality check by testing the packages and transports them to another supplier, Delta. Delta puts the packages onto tape and reel and transports them once again back to SSEC. From here, the product is once again finally transported to customers after packaging the ICs in tubes or reels (Kumar & Krob, 2005).
The existing supply chain, as depicted in figure3 was a result of incessant strides made by the SSEC management to optimize it by improving the communication level among all partners of the supply chain. Earlier supply chain of SSEC’s IC as shown in Figure1 above depicts some upstream and downstream processes, found to be obsolete by SSEC (Kumar & Krob, 2005).
Previously, SSEC used to produce the IC wafers and transport them to Alpha, the vendor-supplier. Likewise the current supply chain process, Alpha would assemble the ICs into packages and also perform quality testing, which was not the current part of the process. Transporting back the ICs to SSEC, the job of SSEC was to just take sample of the packages for checking quality of them and transport the packages back to another vendor by the name of Delta. Delta would put the packages over the tape and reel and return them back to SSEC. Incidentally, SSEC has in-house demand of these ICs as well as to external customers also with changes in packaging. Outside customers were transported ICs in tubes and over reel tapes, while internal packaging was done in tubes for its sophisticated consolidation in magnetic sensing product, like a compass (Kumar & Krob, 2005).
Let’s have a look at the diagram of various supply chain possibilities to help in understanding the various options available to SSEC and zero-in the best available strategic move to optimize the processes from logistics perspective, as shown in Figure2 below.
The Integrated Nature of the Supply Chain for Competitive Advantage
The leading aim of SSEC in changing the partners of upstream supply chain was to get maximum competitive advantage from the integrated nature of the processes. After selecting a new test vendor, SSEC rather than closing ties with Alpha, preferred to partner with Alpha for better services. Lack of communication was a big hurdle in achieving the desired competitive advantage. SSEC was delaying in providing the correct forecasting of demand. It resulted in delay in the delivery of products. Regular updating the vendor company of the product demand lead time is critical in managing the supply of the product to the customer. When it was pointed out by Alpha, SSEC worked on its weak areas, started communicating demand lead cycle-time to ensure timely and required delivery from Alpha (Kumar & Krob, 2005).
SSEC had earlier applied some quality controls to flows, which were later removed from the vendor company processes, as vendor employees disliked them. The result was that SSEC had to main the desired standards so that demand lead time could reduce. Vendor Company, Alpha employees no more gave least preference to SSEC work, as they started giving priority to complete SSEC workload on the standard materials. Because of the integrated type of SSEC supply chain, it could get competitive advantage by assigning some jobs to new vendors. It provided cost-cutting benefits to the Company (Kumar & Krob, 2005).
Once identifying the importance of standard materials, SSEC remained alert on this front to randomly check the materials quality, as it had come to its notice that Alpha was changing standard materials on its own, without revealing anything about it. Quality checks became recurrent practice at SSEC. As a result of these measures, SSEC was able to reduce the product cycle-time by 20%. When it started the testing work at its own location and outsourced these services to another vendor, not assigning them to Alpha, SSEC was able to reduce the per part cost for the testing, tape and reel jobs by 30% (Kumar & Krob, 2005).
Earlier, Alpha was doing both processes – assembly and testing. This integration of the supply chain happened by changing vendors and not depending on a single vendor for all SSEC processes. SSEC reassigned some job work of Alpha to itself and another company, offering reduced rates because of getting advantage from the core competency of vendor companies. Alpha had this core competency in assembly only while Delta, another vendor was the right choice for testing and reeling. It started communication with Alpha, developing voice-type relationship with this vendor to remove it’s complaining of lack of dialogue between these important supply chain partners. Thus, SSEC was able to get cost advantage, bulk delivery in-time to satisfy the needs of downstream customers (Kumar & Krob, 2005).
Importance of Customer Expectations
Customers in a seamless supply chain are the most important stakeholders of the chain, as they are the final consumers. Any supply chain path needs to be multiple-level and evolving as per the supply chain process needs. Kannegiesser et al. (2007) stress on the need of adhering to a three-level evolutionary path, to be devised by the stakeholder companies to add value to the logistics processes. Being itself an original equipment manufacturer (OEM), Honeywell fits in the category of first level of logistics for in-time supply of products at its location from the vendors. It is very important for SSEC to maintain its reputation with the end-users of its products that have high expectations regarding quality, cost, time and stock of the products. It is more important in the line of aerospace business. Definitely, customers of Honeywell have high expectations that parts supplied by SSEC are competitively priced and fulfil the quality criteria as well. The case study although does not throw any light on the expectations of Honeywell customers but it mentions how effective flow of logistics processes ensure timely delivery and if any hurdle comes in the path of smooth delivery due to inefficient handling of the transportation and location changes, it can go to any extreme in ensuring smooth transportation (Kumar & Krob, 2005).
SSEC did the same when it was about to select Alpha as the sole vendor for different services to be rendered by Alpha, when the holding company for Alpha stopped financial support to the facility, rendering various test, tape and reel services completion to SSEC. Half of the workforce working in that facility was retrenched. SSEC changed its mind to making Alpha the sole vendor and began searching for another vendor so that it was not forced to compromise on quality or service standards because the vendor company was operating from a small location. Incidentally, it found another vendor that was previously servicing SSEC for a newly launched product, as it was the best bet for the required technology. This vendor offered a quote that enabled SSEC huge cost cutting, as the new vendor offered to charge half price of the recurring price charged by Alpha (Kumar & Krob, 2005). We can say that in this regard, as SSEC itself was the indirect customer of its supplier, it took all precautions in ensuring cost-efficiency in transportation. Later, when SSEC realized that it could reduce cost further if it produced certain parts in its in-house facility, it relieved the sole vendor from accomplishing those processes and outsourced some processes to another vendor. Thus, being the customer of its automotive spare parts, it was successful in ensuring cost-cutting, quality control and timely delivery. Some parts were produced in bulk quantity. Had SSEC not taken action to change the vendor, the supplier Alpha would not have delivered the bulk assembly in required quantity from a small location with half strength of employees at its disposal.
As things were moving quickly in the SSEC, it planned to enter into its own supply chain management, which would remove all limitations of speedily supply, realizing cost-cutting and ensuring increased dependability (Kumar & Krob, 2005).
In the interest of the customer, cost cutting should happen through logistics operations. Research is either conducted on strategic logistics or reaching optimal logistics decisions. In this regard, Honeywell being a technology company, logistics processes belong not to the first type of strategic logistics but to the second type of logistics research, deriving optimized logistics conclusions, as derived from the insights made by Zeng (2002). SSEC had to take an optimal logistics decision to relinquish the services of Alpha or not and accept the quotations of another vendor for test services. Another factor, demand forecasting is equally important in the case of SSEC but more than predicting exact demand for a product, logistics policies play an important role.
According to Khan et al. (2010), supply chain policies can help in bettering the logistics performance through cost-cutting and effective management of the supply chain processes. The role of management decision-making is critical in formulating a procurement strategy. Generally a mixed purchase strategy is used, considering the concurrent market conditions and stock position. Customer demands in the global market are ever-changing, which is one of the major management issues.
As stated above by Zeng (2002), Honeywell’s modes of transport are not traditional in the sense that being a technology company, its aim is to realize optimal logistic decisions, not strategic logistics. Therefore, whether it is for a green cause or not, Honeywell never lags behind in fulfilling customer needs. Although SSEC is a small foundry but it has enough knowledge of SOI technology. Besides using its specialist deep domain knowledge, Honeywell’s distinct value lies in its eagerness to cooperate with customers, working side-by-side with customer needs even to the extent of changing foundry processes, resetting them to optimize a system to fulfil customers’ needs.
The SSEC provides a comprehensive and elastic suite of design, test and packaging services to the customers. Its design based supply chain processes -- design cell libraries offer maximum efficiency for the SOI/rad-hard business segment, which is an example of its optimal logistics insight. Going a step further, SSEC takes keen interest in helping out customer designers to comprehend the SOI horizon and benefits, to help them ideate immense possibilities offered through SOI. SSEC works along with customers for developing new products at the initial designing process. Going all out, it helps customers in making small verification experiments cost-efficient. SSEC does this by including a customer’s design into a routine reticle frame with other designs (Advanced Substrate News, 2006).
Green Issues
Although the present case study does not throw any light on green issues faced by SSEC and the response of the company in the context of environmental challenges, yet research establishes Honeywell to be the leader of its market segment when it comes to aerospace programs, as any high-flying object, whether it is a drone or commercial spacecraft, impacts our routine environment concerns. Being an electronics company, Honeywell uses SOI to solidify radiation for Radiation Hardened Electronics, one of the application specific integrated circuits (ASIC) solutions (Advanced Substrate News, 2006).
As we all know the dangers of radiation to the environment and the people across the globe, SSEC has done commendable job in the radiation hardening. The total impact of radiation, including radiation from confined protons, electrons, solar energy particles and armament-caused x-rays and y-rays—is approximated in tens, hundreds or even thousands of kilorads(Si). This degree of radiation can inflict total loss to most soft electronics. Being a technology company, Honeywell has devised ways to fight for green issues by designing Rad-hard technologies to counter this degree of radiation. The Rad-hard SOI technology offers extra benefits. Honeywell’s 150 nm rad-hard SOI IC technologies has given optimum level of production in 2007, which provides a glimpse of how much Honeywell is attached to the cause of green issues, by controlling the loss from harmful radiation (Advanced Substrate News, 2006).
Honeywell does it by cutting down the standard size of various transistors to 150 nm. It permits designers of the new sophisticated technology to set almost four times more transistors on an IC than Honeywell’s past generation technology, resulting in huge increase in data ciphering capability and speed. The 15 million gate IC technology works as an independent variable to increase speed and bandwidth robustness for processing and sending data in aerospace systems, such as space satellites and interconnected battlefield systems. It means when data is transmitted in huge volume and speed; it is the performance of the chips that matters for increasing its processing power (Advanced Substrate News, 2006).
Incidentally, all SSEC standard products of Honeywell, including among others the standard ICs, are designed on SOI. Similarly, its ASIC groups of products and applications are all designed on SOI CMOS, as are mixed signal SoCs. Honeywell has been into this line of SOI-based services since 2001, which includes a range of custom-made services for various electronics industry related products (Advanced Substrate News, 2006).
Enabling Technologies in General and at Honeywell
With the new class of RMS, It offers a contrast, offering adjustable design and customization of the part with the part family, enabling system-wide cost cutting. Relatively to the fixed system mechanism of the DML, the enabling technologies at RML are adjustable, customized for the whole part family, scalable, high in productivity, as can produce new parts in huge volume but changing to demand needs of customers (Koren, n.d.).
Assumptions over the Use of Enabling Technologies at Honeywell
SSEC offers a vast range of enabling technologies for the next generation. It can be assumed for all product categories, be it for specialized ICs for aerospace or any other product family. It’s SOI for rad-hard requires combining of design and processing. The possibility of Single Event Upset (SEU) gets reduced with SOI. It leads to the assumptions that Honeywell is making use of enabling technologies, such as SOI, CMOS, SoCs for its ASIC family range (Advanced Substrate News, July 11, 2006).
Recommendations
SSEC has been taking valuable logistics decisions that a technology company of its stature should take. It has been successful in getting a competitive edge cost-wise, as is derived from the Table 1, depicting test vendor decision matrix. The recurring test cost ratio for running test, tape and reel packaging at SSEC in-house and vendor Delta came to be 5 in comparison to 8 at Epsilon, and 9 at Alpha (Kumar & Krob, 2005). Figures reveal the possibility of huge cost saving. Considering the given ratios for recurring tape and reel cost, total recurring cost, and NRE cost, prospects for SSEC for indicating best case seem evident, although one can also see limitations of the data provided to the authors of the case study. Quality and cost-related factors forced SSEC to revise its decision to change vendors. In all markets, logistics decisions are based on ground realities, which change with the changing trends. In the case of SSEC also, later developments indicated another logistics decision shift that seemed to be necessitated, as Epsilon, an appealing alternative was acquired by another company that was in competition with Alpha. Things have turned once again in favour of Alpha for SSEC to not consider Epsilon from future business collaboration processes. Workload for SSEC has increased so much that Honeywell should opt for another comprehensive revision of its supply chain, taking bold U-turn decision by outsourcing its test, assembly and reel processes to Alpha again, as the new situation demands.
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