It can be difficult for a U.S.-based company to improve parts quality and on-time performance from far-flung locations such as India and China, but that is the challenge being met by the Flow Control Division (FCD) of Flowserve. “It used to be if you had a factory in the U.S., most of their supply chain would be in the U.S.,” recalls Bob Bruning, vice president of supply chain for the Flow Control Division. “Now, 30 to 40 percent of the parts and components are from low-cost regions. That extends the supply chain, makes it more risky and takes some time to develop suppliers to meet our stringent quality controls. And due to the risk with lead times and on-time delivery with an extended supply chain, you sometimes have to increase the amount of inventory you’re holding.”
Nevertheless, that challenge is being met by Flowserve’s supply base stabilization program. “At the same time, we can get the materials at the cost we’re looking for, but also get the service and quality that we’re looking for,” Bruning maintains. The Flow Control Division’s stabilization efforts have improved on-time delivery from India from 81 percent in 2011 to 86 percent this year. In China, on-time delivery has been improved from 66 percent last year to 82 percent this year.
The elements of the stabilization program are order management, capacity planning, quality improvement and performance measurement. “Overall, in terms of quality improvement, the way we track that right now is by the number of non-conformance reports,” Bruning says. “Last year, in India and China we had over 200, and our goal this year is to cut it down to 100. So far, we’re on track to hit that number.”
The Flow Control Division overall has achieved significant reductions in direct material costs with low-cost-region sourcing, which Bruning is working to continue. “It equates into a pretty big number when you look at it across all the sites and purchasing that we have,” he points out. “I think that we’re doing very well right now, and we’re trying to get a little more aggressive next year to get more cost reductions.”
Around the World
The Flow Control Division of Flowserve produces mostly valves, actuators and controls used in a variety of processes for the power, oil, gas, chemical and other industries worldwide. Other divisions of the company provide pumps, seals and related services to those same industries.
Approximately half of FCD’s sites worldwide manufacture products, and the other half are service centers, Bruning estimates. He has a supply chain manager at each of those locations. In India and China, Flowserve has approximately 50 employees that interface with and manage the local supply bases for all divisions. These regional supply chain organizations have embraced the stabilization efforts and have led the way in making substantial improvements over the course of 2012.
Bruning is responsible for the end-to-end supply chain for the Flow Control Division. “We have accountability for planning the supply chain, materials management, purchasing all direct and indirect materials for the sites and getting the product out to the customer,” he lists.
The Flow Control Division has greatly improved the process for sharing forecasted material demand with suppliers in 2012. “What we’re doing is asking the manufacturing sites on a monthly basis to forecast out for 12 months what they think their demand is going to be,” Bruning explains. The forecasts are aggregated and then communicated to the company’s low-cost supply chain groups in India and China. This enables the suppliers to better plan their operations and provide better service to Flowserve sites.
The company also utilizes what it calls its supplier information warehouse. “We pull and gather the purchasing spend information from all our different sites into one database so we can aggregate it and analyze it,” Bruning explains. “We have another system called the vendor management system, where we collect knowledge and information about our key suppliers around the world.” This enables the division to consolidate purchasing spending for like commodities from multiple locations and drive savings opportunities.
Of course, the best-laid plans of materials forecasters sometimes cannot predict a customer’s sudden order with insufficient lead time. “Customers are always going to need something quickly – that’s just the nature of the world,” Bruning concedes. “Then what we try to do is build stocking programs with our key suppliers – where we have semi-finished parts or components that they could then customize when they get the orders – and ship them quickly, so we can get them to our manufacturing sites.”
One of the biggest challenges to the stabilization efforts has been communications among the various stakeholders. These are the suppliers and Flowserve’s supply chain resources from the sites, the regions and the division. One aspect to making this work has been assigning single points of contact for suppliers and for sites. FCD has had to set up routine meetings among all parties to monitor progress, resolve issues and make decisions.
Another challenge is buying in aggregate and managing the supply chain as the company builds manufacturing and service centers closer to customers on a global basis, which is part of its strategic localization program. The key is balancing a local supply chain that is built for speed with a global supply chain that leverages buying and reduces costs.
“We’re adding more and more sites in different countries around the world,” Bruning observes. “We have to find the right balance between leveraging our spending and sourcing from a single supplier in one area of the world, and buying stuff locally, because [with the latter] you can get it faster and quicker, and in some cases with customer-specific local content.
“But on the other side of that, you can imagine if we had 50 sites around the world, and if we could aggregate our spending and leverage that, we might gain some advantages from buying from one supplier in one part of the world,” Bruning points out. “To better manage and stabilize a supply chain that has been greatly extended globally is the single biggest thing we’ve been focused on in 2012.”