Why We Did Something Different
Prior to its inception, Sonic recognized that the traditional ways of managing materials & supply chain activities did not work well for most EMS. With the existing tool set; data quality was low, reaction times were slow, lead times were long and surprise shortages would proliferate throughout the system. To counteract this, the industry would all too often take its lead from the trade press and jump from the last marginally implemented system to the next trendy one. Meetings, hotlists and PowerPoint Metrics supplanted technical innovation, process evolution and material control. Explaining today triumphed over radical improvements to tomorrow.
Supply Chain processes such as MRP, JIT and EDI had all been around since the 1970s and 1980s; and even the mighty internet and “globalization” have not been able to dislodge their sway on the industry. Instead of creating new leading-edge processes along the way, we transmitted old EDI over the new internet and call it “ecommerce”. Instead of reducing inventories, we renamed inventory “VMI” and often increased it— on the suppliers’ nickel of course. Not much of an improvement.
Add to these difficulties the further complication that “materials” was often looked upon as an add-on business to the “real job” of manufacturing. This lead to an oversimplification of materials management along with frustration at the results. OEMs consequently approached EMS with much trepidation; fearful that their work together would consist of an unending series of status meetings on shortages and late deliveries.
We believe that what was most lacking in the industry’s approach was a deep understanding of which tools were foundational to which business processes; and which of these capabilities needed to be “rock solid” before layering on new sophistication.
Sonic knows supply chain. It is core to our business. We strive hard, pushing the limits of what can be done. We regularly find new and better ways. We radically reinvent the tools of the trade to support responsiveness, accuracy and growth.
Read the snapshots below for an overview of key areas.
Receiving and MRB Processes
The receiving dock is cleared daily. But what if parts are discrepant? Are the parts definitely bad, or possibly bad? Does their presence show as “available” in the MRP; or should they to be removed from the MRP, generating replacement orders?
Sonic has processes to separate the known bad from the possibly good. Known bad material is dropped from the MRP and immediately replaced. Possibly usable material is routed for verification and considered available in the MRP until declared otherwise. There is no MRB committee to convene and no waiting on the committee to act. The number of parts in the MRB holding area is small and transitory.
Inventory must be accurate; but what does “accurate” mean? While most businesses follow the “95% Inventory Accuracy” guidelines published by APICS (circa 1970); Sonic recognized early on that this method was inappropriate for complex electronic assemblies consisting of 100 – 300 part numbers.
Think about it: If you pull kits north of 100 line-items with 95% of the parts available as planned; will the kits be complete or held for shortages? Sonic has developed a proprietary inventory accuracy program that raises the accuracy bar and reduces the allowed tolerance for errors.
Related to Inventory Accuracy is Transaction Timing. If you are planning, scheduling or counting; how can you be productive if you spend much of your day second guessing whether the data is correct or if transactions are still pending? Sonic has cutoffs for all transactions, two-party verification processes for material handoffs and a unique integration that prevents pending transactions from affecting inventory cycle counts. In short: our people trust our processes.
Manufacturing and Work in Process
Just as the job of a manufacturing organization is to deliver on-time to the customer, the job of a materials organization is to deliver complete sets of materials on-time to manufacturing. But how many companies have even considered “perfect orders to manufacturing” as a metric? Sonic has a proprietary spin on this; but the goal is the same. And where “perfect materials” is not available, “perfect status” is. Sonic, in its entire history, has never had a shortage meeting.
There is no need to meet when the information is timely, accurate and readily available to everyone. When there are escalations of shortages and customer requested expedites, they are handled as a normal course of business throughout the day. It’s our job, our process, our mission.
We hate attrition: If we were to buy extra parts; our profit margin would erode and E&O liabilities would increase. On the other hand, if we were to avoid having extra parts; we would miss our commitments to you and cause ourselves an expensive fire-drill of small-quantity next-day deliveries.
Instead, Sonic has figured out how to have more parts without having attrition. Sounds counter intuitive? It is. Simply stated, we manipulate the MRP core logic to account for this. No excess, no shortages. We like this a lot.
The majority of Sonics’ customers take delivery of finished assemblies upon completion. Why not have Sonic hold it? Because they need to sell it now. With our responsiveness inside of lead time, customers get what they want when they want it. There is little need to commit to large, static production runs months ahead of time and then argue over who should hold the unsold inventory. Instead, we dial in the numbers jointly all along the way.
Sonic is happy to structure kanban and direct fulfillment programs with you. We provide full serial number traceability and integration with most major carriers. Sonic knows how to perform to retail box store specifications and complete international shipment documentation requirements. We can even support your web shopping cart services including single-piece orders to residential addresses.
Pushed and Pulled
With tens of thousands of part numbers and multiple data elements for each part number, it is simply impossible for people to fix the data in an ERP system as fast as new data is added and existing data goes invalid and obsolete. So, rather than “typing faster”, we automated the process.
We use the computer to fix the computer. Various routines constantly watch over your data; correcting whatever is missing, outdated and incorrect. All purchasing elements are monitored, such as source of supply, responsible buyer, purchase price and lead time. In fact, the proverbial “zero lead time” problem of all MRP systems has never occurred at Sonic in its history. We don’t allow it. The system is rock-solid, unique in the industry and scales with Sonics’ growth.
While many EMS insist on ordering only large-quantity machine-loadable packages; Sonic will intelligently buy broken package quantities to support your proto, NPI and small lot production. We work with exact quantities all day, every day. Our buyers are not incentivized to generate PPVs that create excess inventory; and your right to intelligent money management trumps our own desire for an easy machine load. We see things your way.
Sonic has fast, efficient procurement processes that are highly automated and accurate. MRPs are run during business hours; with results just an hour away. Over 70% of our part requirements feed directly to our strategic suppliers via electronic integration. These requirements are auto-converted to purchase orders upon the supplier’s acceptance; often same-day/next-day.
We share your forecast and MRP requirements with our suppliers, allowing them to plan and pipeline inventory to your products. If your demand is recurring, we can frequently bond inventory on your behalf. Our success at meeting shifting end-customer demand is outstanding.
The world is rapidly approaching cost-parity on the vast majority of electronic components. Where this is not true; we buy from around the globe including through our International Procurement Office. We are highly competitive on material costs.
Every day, Sonic competes on a total cost basis with offshore manufacturing – and wins. While offshore manufacturers are quick to tell you about their lower labor rates, they neglect to mention that labor is perhaps 10% of the cost of a modern electronic assembly. Add back in that labor costs are rising along with fuel, freight and container fees; and the playing field is leveled. Pay for this with higher inventory and a declining dollar, and it’s not so appealing after all.
There are many offshore costs to consider: headcount & travel expenses for engineering, quality & supply chain, air freight for unexpected customer demand, in-transit inventory (4 weeks on the water), finished-goods inventories that compensate for longer replenishment cycles and associated forecast errors, RMA/reverse logistics costs; and lost sales & customer loyalty due to the lag time between customer-required and factory-delivered.
For many products and markets it is far more cost-effective and customer-responsive to build in the same region you are selling to. Increasing the number of part-miles on a product does not come free. Ultimately it is of no value-add to the end customer, and the cost born by the brand holder whether it is an overtly declared number or embedded in the cost structure of the supply chain.