cmpm a00267ppmmjun93b- 1 - amp, inc.: order entry and fulfillment background business process...

cmpm A00267ppmmJun93B - 1 -

AMP, Inc.: Order Entry and Fulfillment

• Background

• Business Process Redesign: Process, IT

• Key Performance Indicators

• Implications: Process, IT


AMP Is a Leading Global Supplier of Connection Devices to Many Complex Electric/Electronic Markets

AMP:

• Has $3 billion in annual sales of electric/electronic connectors

• Owns an 18% share in an $18 billion market:- Very complex product offering with more than 100,000 SKUs

• It is very profitable: 1991 gross income of 33% of sales

• Organized into 19 units that serve very diverse end-use markets through direct and distributor channels:

- Aerospace/military - Computers/office equipment - Government systems

- Industrial/commercial - Consumer good - Government systems

- Communications - Transportation/electrical - Advanced cables/interconnection

• Each unit owns from one to five plants, totaling 85 plants in U.S. alone

AMP: BACKGROUND


AMP Has Experienced Sustained Sales and Income Growth

• AMP has grown faster (CAGR revenues = 14%) than the connection device industry (12%)

• AMP is considered one of the best-in-class U.S. producers that holds Far East and European producers at bay

AMP, Inc.

Revenues Net Income

1000

1500

2000

2500

3000

3500

’82 ’83 ’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92

0

50

100

150

200

250

300

350

’82 ’83 ’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92

AMP: BACKGROUND

($ million)($ million)


AMP Faces a Very Challenging Business Environment

AMP’s vision is to provide customers with products and services so outstanding that it will become the “Supplier of Choice.”

AMP’s vision is to provide customers with products and services so outstanding that it will become the “Supplier of Choice.”

• Concentration of suppliers• Threat of forward

integration(e.g., DuPont, 3M)

• Concentration of suppliers• Threat of forward

integration(e.g., DuPont, 3M)

AMP Inc.AMP Inc.

• Over 6,000 customers with more than 100,000 SKUs in over 235 product families

• Slowing end-user growth• End-user supplier

rationalization efforts• “Commoditization” of

product in some markets• Growing emphasis on price

and product availability• Growing power of

distributors over products

• Over 6,000 customers with more than 100,000 SKUs in over 235 product families

• Slowing end-user growth• End-user supplier

rationalization efforts• “Commoditization” of

product in some markets• Growing emphasis on price

and product availability• Growing power of

distributors over products

• Extreme price competition:-Eight aggressive players, including DuPont, 3M, and ITT

• Competitor initiatives to improve product quality,delivery time and service

• Extreme price competition:-Eight aggressive players, including DuPont, 3M, and ITT

• Competitor initiatives to improve product quality,delivery time and service

AMP: BACKGROUND

Suppliers

Product/Customers

Competitors


AMP Historical Order Entry and Fulfillment Processes Suffered from Key Weaknesses

Order Entry:

• No real prioritization of customer requests

• High percentage of customer calls blocked (busy) and abandoned

• Different procedures across businesses

• Inconsistent policies regarding product returns

• People scattered across businesses and warehouses—few economies of scale

• Paper-intensive process:

- For products not available in their warehouse, CSRs took customers’ requests down and called them back later

Order fulfillment:

• Low productivity

• Product obsolescence and error rates

• Need to adjust finished goods to reflect physical inventories

AMP: BUSINESS PROCESS


The “Plan for Excellence” Program Involved a Redesign of AMP’s Business Processes

• The program built on a dozen independent initiatives conducted in the 1980s:

- Productivity improvement

- Total quality improvement

• It became part of AMP’s vision and enjoyed top management support

• Emphasized leadership, communications, training, and improvement:

- Introduced objectives measurement systems

• Looked for aggressive implementation

• The program built on a dozen independent initiatives conducted in the 1980s:

- Productivity improvement

- Total quality improvement

• It became part of AMP’s vision and enjoyed top management support

• Emphasized leadership, communications, training, and improvement:

- Introduced objectives measurement systems

• Looked for aggressive implementation

• How do we provide superior customer service?

• How can we provide superior product delivery and availability?

• How can we improve our cost base?

• How can order entry and fulfillment improve quality?

• How do we provide superior customer service?

• How can we provide superior product delivery and availability?

• How can we improve our cost base?

• How can order entry and fulfillment improve quality?

Key Questions “Plan for Excellence” (kicked off in 1988/89)



AMP Redesigned Its Order Entry Process to Respond to Customer Calls Immediately and Completely

OrderEntry

BusinessProcessand IT

=

ConsolidatedCustomerService

Activities

ConsolidatedCustomerService

Activities

Focuson Key

CustomerNeeds

Focuson Key

CustomerNeeds

• Supported customer profiles and pricing• Migrated key customers to EDI• Provided early warning to key accounts• Installed a hotline for key customers

• Placed all order entry under a “logistics” organization

• Integrated a few independent businesses—each of which had its own approach—to use identical process and systems

• Consolidated most of the order entry in two locations, achieving very high productivity gains

• Implemented foolproof order entry protocols• Trained personnel extensively• Developed single return policies across divisions

+

+



AMP Redesigned Its Order Entry Process to Respond to Customer Calls Immediately and Completely (cont.)

OrderEntry

BusinessProcessand IT(cont.)

=

ImplementedManagementProcesses

ImplementedManagementProcesses

EnhancedInvoicingEnhancedInvoicing

• Linked offices to back up each other (e.g., Central to cover East Coast if overloaded)

• Linked offices and manufacturing sites through systems

• Instituted auditing procedures

• Expanded phone line and switching capacity• Greatly enhanced order entry:

-Provided on-line view of all warehouses and scheduled production runs-Enabled “reserved” material status

• Expanded EDI functionality

+


• Derived prices and conditions from customer files

• Use EDI for key client invoicing• Make invoice data available online

InstalledEnhanced

Technology

InstalledEnhanced

Technology

+


For Example, the Order Entry Process Allows Real-Time Responses to Key Customer Requests

CustomerCalls withProductRequest Frequent

Caller

NotFrequent

Caller

CallDistributor

Based on Industry and Product Code

CallDistributor

Based on Industry and Product Code

Productin any AMPwarehouse?

Productbeing released

from plant next week?

Productin production

schedule?(8 weeks)

Date acceptable

to customer?

Stock at AMP

distributor?(on linesearch)

Satisfactoryanswer fromscheduling?

Fulfill order; ship or

reserve product

Reserveproduct

Suggestdelivery

date

Discuss withplant schedulers

to expedite

Promisedelivery

Dialogue with oneof 200 production

schedulers throughE-mail: PF Key

Fill from distributorInventoriesReserve

Product

NO

NO

NO

YES

YES

YES

YES

YES

NO

NO

YES

Real Time Order EntryAssigned CSR Team(10 CSRs)

If Loaded,Backup


NO


Order Entry Business Process Placed New Demands on IT Connectivity

Growth of EDI (20% of all volume) and faxes also creates new demands.

Growth of EDI (20% of all volume) and faxes also creates new demands.

MRP II

Order Entry: CSR Manufacturing Plants Order Fulfillment Warehouse

DistributorWarehouse

Can AccessAMP Distributor

Inventories

Share FinishedGoods Inventories

AccessProductionSchedules

Share Finished Goods Inventories

An IT View of Order Entry



The Redesigned Order Entry Process Translates into Minimal Customer-Call Losses

Customer Service Phones

Percentage of Calls Blocked(Busy)

Percentage of Calls Abandoned After Pick-Up

(Hang-Ups)

1988 1989 1990 1991 1992

11%

2%

0% 0%

5%

1989 1990 1991 1992

8%

2%1%

3%



2.5

3.0

3.5

4.0

4.5

5.0

’88 ’89 ’90 ’91 ’92 ’93E

3.0

3.5

4.04.2

4.8

3.8

It Results in Fewer Order Entry Errors, Higher Staff Productivity, and Increased Customer Satisfaction

Cost of Clerical ErrorsPercentage of Key Customers

Satisfied on Initial Call

0

0.2

0.4

0.6

0.8

1

Bookings per Customer Service Staff

60%

65%

70%

75%

80%

85%

90%

Quarter /Year Quarter /Year

($ million)

($ million)


3/89 1/90 3/90 1/91 1/921/90 3/90 1/91 3/91 1/92 3/91 3/92


AMP’s New Order Fulfillment Process Seeks to Provide Superior Availability and Delivery of Orders

OrderFulfillmentBusinessProcessand IT

=Strengthened

StaffingStrengthened

Staffing

StrengthenedCore Finished

ProductProcedures

StrengthenedCore Finished

ProductProcedures

ConsolidatedWarehouse

Network

ConsolidatedWarehouse

Network

• Implemented a network of master and regional warehouses

-Closed regional warehouses and stocking points-Built an automated distribution center in Schaumburg

• Asked independent businesses to move to AMP warehouses

• Made warehouse staff more sensitive to customer needs• Developing interactive training programs (e.g., video

training)• Hired or trained logistics professionals to run operations• Rotated personnel throughout warehouse areas:

-Creating a career path in logistics

• Increased use of customer forecasts• Standardized inventory carrying cost formulas• Developed optimization algorithms• Defined inventory levels (e.g., minimum lot sizes) to

minimize cost of stockouts

+

+

+



AMP’s New Order Fulfillment Process Seeks to Provide Superior Availability and Delivery of Orders (cont.)

OrderFulfillmentBusinessProcessand IT

=

EnhancedOrder

FulfillmentActivities

EnhancedOrder

FulfillmentActivities

• Developed a real-time system to track materials across warehouses

• Implemented effective shipping routines:-For regular orders-For emergencies

• Revised policy and procedures for return of goods• Implemented auditing and control procedures

• Redesigned packaging:-Developed standard color scheme-Introduced bar-coded labels displaying quantity and part number on all carrying units

+

+


StrengthenedIT Supportto Process

StrengthenedIT Supportto Process

• Developed interfaces between computer systems (e.g., tied order entry to plants’ MRP II)

• Computerized warehouses-Invested in portable bar-code readers

EnhancedPackaging

and Labeling

EnhancedPackaging

and Labeling


AMP Has Strengthened the Training of Its Staff

Jan ’89 Jan ’90 Jan ’91 Jan ’92

22

5558

49


Number of People That Are Certified by APICS


The Redesigned Order Fulfillment Process Exhibits Greater Efficiency

’87 ’88 ’89 ’90 ’91 ’92

2.73.0

3.53.9

4.3

3.4

Warehouse Productivity

50

60

70

80

90

100

’87 ’88 ’89 ’90 ’91 ’92 ’93

Inventory Turns per Year

’90 ’91 ’92

Shipping Errors Expenses

$300,000

$120,000

HighRange

LowRange


(Lbs./Man Year)


AMP Now Provides Best-in-Class Order Fulfillment

AMP T&B Burndy R-N ITT

91%85%85%

80%75% 75%75%

70%65%65%

DuPont 3M Augat Molex LPL

Independent Survey of Competitors’ On-Time Delivery Rates

(1991)

aPercentage of Orders Shipped by

Customer Request Dates

1988 1989 1990 1991 1992 1993

76%78%

87% 88% 88%

79%

a. Bishop and Associates, December 1991.


When measured against its own promised dates, AMP has achieved a 95% on time delivery.

When measured against its own promised dates, AMP has achieved a 95% on time delivery.


InventoryTurns

Percentage ofOn-Time

Shipments(to Customer

Request)

Percentage ofOn-Time

Shipments(to AMP

Schedule)

AMP Has Implemented Comprehensive Metrics to Measure Progress

Order Entry

Order Fulfillment

Percentage ofTransactions“Real Time”

Percentage ofCustomersSatisfied on

First Call

ClericalErrors

($)

SpillagePercentage

ShippingErrors

($)PercentageRepackaged

Pounds/Person

Year

Number of Customer Disputes

BookingsPer

CSR ($)

Percentage ofTransactions

CorrectlyEntered

AMP: PERFORMANCE INDICATORS

Percentage ofCalls

Blocked

Percentage ofCalls

Abandoned


Successful Implementation Has Won AMP High Marketplace Satisfaction

AMP Customers’ Overall Satisfaction Level(Percentage That Rated AMP’s Service Excellent or Very Good)

1989 1991

At the same time that it increased customer satisfaction, AMP increased order entry and distribution center productivity by 25% to 50%.

At the same time that it increased customer satisfaction, AMP increased order entry and distribution center productivity by 25% to 50%.

78% 91%

AMP: PERFORMANCE INDICATORS


AMP Learned Some Critical Lessons from their Business Process Redesign

• One organization should ultimately be responsible for all order entry and fulfillment activities:

- “We put 1,100 people together in a new logistics organization and one person accountable for it”

• Need to introduce tracking system

• It’s a complex change management project:- “The complexity is overpowering: we had a 35 feet by 20 feet PERT chart”

• There is a gut-wrenching organizational and systems change

• It requires “out of the box” thinking...- “Complex algorithms to optimize inventories with minimal costs”

• . . . And top management support:- “CEO and top managers need to go over numbers at least every month to see progress”

AMP: IMPLICATIONS


AMP Also Learned Some Information Technology Lessons

• New business process and IT support had to be implemented concurrently, not sequentially

• No “off-the-shelf” package offered the flexibility required by AMP to redesign its processes

- Three years of developing systems…and still going

• Technology investments were necessary at many levels:- Call management system at switchboards

- Interfaces and date exchange across several platforms and applications

- Bar-code readers and processors at warehouses

AMP spent over $75 million in systems; payback came in only two years.

AMP spent over $75 million in systems; payback came in only two years.

AMP: IMPLICATIONS

cmpm a00267ppmmjun93b- 1 - amp, inc.: order entry and fulfillment background business process...

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