3 July 2009

When Continental, one of the world’s largest automotive suppliers, embarked on a lean manufacturing initiative, it chose Xterprise to develop a solution that would boost productivity and save money at one of its major plants. Jacqui Griffiths found out more.

When it comes to automotive manufacturing, the sheer size of the industry and the number of parts involved can be quite breathtaking. In addition, where cars are involved, both safety and performance depend on precisely manufactured parts, rigorously tested every step of the way. In this business, companies need to monitor and manage every part of the manufacturing process, from supply chain to inventory, to reining in costs.

Global automotive supplier Continental AG is well aware of these issues. Continental’s Automotive Group prides itself on uncompromising attention to quality, specialising in the development of innovative technologies for vehicle safety applications, enhancing fuel efficiency, reducing vehicle emissions and information management In fact, Continental has a 137-year history of developing and producing a wide variety of components.

Continental strives to live up to its motto, ‘forward thinking’, and continues to explore new aspects of automotive safety and performance. That’s no mean feat in today’s economic climate, but Continental’s project leader for logistics at its plant in Huntsville, Alabama in the USA, Gokhan Sarpkaya, is unfazed. “In the US especially, the economic downturn has brought upheaval to the automotive industry,” he says. “But these dynamic changes are also generating significant cost savings opportunities.”

Hence, the company instigated a ‘lean thinking’ initiative to identify where those cost savings could be made. “Lean thinking is not only about manufacturing,” explains Sarpkaya. “It’s about manufacturing logistics. It is a supporting function for logistics. At our manufacturing facility in Huntsville, we were more involved in the process side of the inbound raw material than in the use of it.”

“Huntsville is an approximately 850,000 square foot facility in the south-east US,” explains Sarpkaya. “This region is the new synergy centre for the automotive industry in the US, and we are located in very close proximity to many major automotive OEMs. Our facility has 15 assembly lines, supporting five Continental business units which manufacture all kinds of electronic parts for major automotive OEMs. That translates into a very complex logistics process. Every day, we receive eight to ten truckloads of shipments containing some 5,000 types of electronic and mechanical parts, from approximately 160 suppliers, and all these parts are followed into our facility through three on-campus third-party logistics providers.”

The logistics suppliers repackage the supplies using one or more of Continental’s 80,000 reusable containers or pallets, which are transported to the Continental facility. The personnel who receive the shipments have traditionally used barcode scanners to check the incoming supplies against the shipping orders in the company’s SAP enterprise resource planning system, while forklift drivers hunt for available space to randomly store the supplies until they are needed. The containers and pallets are then moved to another on-campus, third-party firm that processes the empty containers and returns them to the logistics suppliers.

“Our goods received process was manually intensive, and our cycle times were longer than desired,” says Sarpkaya. “This was resulting in time-consuming delays and sometimes inaccuracies in our inventory. We use over 80,000 returnable containers, which is also a significant amount of investment.”

Because this solution is based on the Microsoft application platform, especially BizTalk Server, it was faster and less costly to deploy than any other RFID solution we considered

Gokhan Sarpkaya, Continental Shrinkage was one result of errors made because the locations of parts were noted manually. Time-consuming delays occurred if the advance-shipping notice sent by the logistics suppliers did not match the parts that were actually received by Continental – or if the advance-shipping notices failed to arrive on time for the company to compare them to the shipments.

Compounding these issues, it was too easy to damage barcodes on the shipments, which prevented accurate reading by scanners. The manual scanning of barcodes and manual comparison of shipping notices with the orders in Continental’s SAP ERP system were time-consuming, non-productive and expensive processes that were very much at odds with the idea of lean manufacturing.

In support of its lean initiatives, Continental’s Huntsville plant identified these areas as an opportunity to save costs. “We looked at various different technologies and chose radio frequency identification (RFID) because it provided a way of killing two birds with one stone,” says Sarpkaya. “It would enable us to streamline our receiving processes and track our returnable containers inventory in real time. These are important areas to focus on, and the savings are significant, especially in the tough economic times everyone is experiencing today.”

Once the technology had been decided on, Sarpkaya and his team began a meticulous selection process to find the right partner. “I contacted more than 30 systems integrators,” he says. “The request for proposals was about 100 pages and our criteria were mainly focused on the system integrator. It was crucial that the vendor was experience with SAP, especially remote function codes. We also needed ruggedised, reliable hardware conforming with EPC global standards and we were looking for some tags that could survive in a harsh environment. After researching for about six months, we were able to find all those.”

Continental decided to adopt a receiving solution from Xterprise, a Microsoft Gold Certified Partner. The solution is based on the Microsoft BizTalk RFID technology platform, along with Xterprise application software and Motorola hardware. Continental chose Xterprise based on its track record with RFID, SAP integration and reusable pallets, as well as its expertise on the Microsoft application platform.

“We were already a Microsoft shop, so the choice of a Microsoft-based solution was the fastest, easiest and most cost-effective way to deploy and maintain a solution in our environment,” says Sarpkaya. “We have coordinated and managed the project with Xterprise, and the implementation took just six months. In fact, it took only a year overall, from generating the whole idea and putting the project to work. We were expecting it to take longer because it was a brand new technology. Two more Continental plants had implemented it in Europe, but because of frequency differences the whole philosophy for our project had to change, from text selection to hardware selection to system selection. So we were expecting a longer implementation time but it took us shorter to finish the project.”

Of course, any implementation of this size is not without its challenges, and the solution at Continental’s Huntsville plant had to meet several key criteria. In addition to integrating with the SAP system, it must also be able to transfer data between the Huntsville facility and the third-party logistics providers. “We had to work with three independent on-campus third-party logistics providers, all with their own systems,” says Sarpkaya. “Aligning every one of them was a big challenge, and a very serious coordination effort was needed.

“Then we needed to select between different methodologies of SAP integration, which is iDocs versus remote function codes. Again, our SAP team did an excellent job to perform the integration part of this project. Since we were planning to exchange a huge amount of data which was subject to strict information security requirements, we had to think seriously about the connectivity protocol for this project. After considering VPN and Soap, we decided on FTP as the optimum solution for our structure right now. So the network topology for the project was very complex.”

In addition, the company faced some wireless communication challenges, which impacted the frequency selection. “We use automated guided vehicles at the facility, and those communicate on SHF (microwave) frequency,” explains Sarpkaya. “We’re also very close to Huntsville International Airport and could detect their air search radar signal. So while we were making the frequency decision, we had to take all of these into account. That’s why we decided to use UHF tags, but because our containers were electrostatic discharge friendly, the tags had to be too. Otherwise the carbon fibre material of the containers would absorb the electronic energy and we wouldn’t be able to read the tags. However, Xterprise and the tag provider did an excellent job of tuning the tags and overcoming that problem.”

The solution has enabled Continental to reengineer and streamline its receiving processes. At Continental, Xterprise Clarity Reusable Transport Items (RTI) software automates the workflow associated with incoming shipping notification, using Microsoft SQL Server 2005 as its database. Microsoft BizTalk Server 2006 R2 acts as a bridge between Clarity RTI and the SAP ERP system, and forwards the Clarity RTI information to SAP. When Continental workers unload the incoming shipments, RFID scanners on the forklifts automatically read the tag numbers. Xterprise Clarity Automated Goods Receipt (AGR) software confirms that the received shipment matches the original request and forwards that information to the SAP system, which identifies a storage location for the shipment.

All information now residing in the ERP system is made available to the finance department to perform a three-way match of the purchase order, shipping notice, and received goods. Clarity AGR receives the storage information from SAP, through BizTalk Server, and transmits it to a screen on the forklift – then the driver moves the shipment to the identified location. Empty pallets and containers are sent to the third-party processing company, tracked by another RFID scanner, and forwarded to the logistics partners to be used again.

The solution’s foundation of Xterprise, Motorola and Microsoft technologies has delivered immediate reductions in time and costs, as well as increased productivity and more accurate performance due to the new receiving-cycle solution. “The receiving-cycle time has been cut in half, saving 20 minutes per incoming shipment,” says Sarpkaya. “The costs associated with that process have been slashed by 30 per cent.”

Given those reductions, Sarpkaya anticipates an annual return on investment of about 100 per cent. Some of those savings come from increased labour productivity. Before implementing the new system, incoming shipments were received by two workers – one who scanned the barcodes and logged shipments into the SAP system, and a forklift driver who looked for, and place the shipment in, a storage location. Now, automated scanning and logging of the shipment enables the forklift driver to manage the process without additional effort. Advance-shipping notices from the logistics partners no longer arrive late, eliminating the need for personnel to manually confirm that incoming shipments match the goods released by those partners.

“By adopting the RFID solution, we’ve done more than improve the receiving-cycle time and cost,” says Sarpkaya. “We’ve also freed personnel to work on other parts of our lean thinking initiative, multiplying the impact of the solution on Continental.”

The receiving cycle is not only faster and more cost-effective; it’s also more accurate and efficient. Errors due to manual data entry have been eliminated, boosting the accuracy of a variety of processes, from inventory control to accounts payable. “We now have greater visibility into our inventory and flow of materials,” says Sarpkaya. “That gives us the potential to reduce on-hand inventory and the costs associated with it. We envision inventory costs coming down significantly. We’re already seeing reductions in shrinkage, which means reductions in cost.”

Management of the company’s 80,000 reusable containers and pallets is also improved. For the first time, Continental now knows where its containers and pallets are at all times. In addition to the continuing savings resulting from more efficient operations, Continental saw immediate purchasing savings by choosing the Xterprise and Microsoft solution instead of a proprietary, UNIX-based solution. Sarpkaya estimates the one-time savings at about 50 per cent.

“Because this solution is based on the Microsoft application platform, especially BizTalk Server, it was faster and less costly to deploy than any other RFID solution we considered,” says Sarpkaya. “We used BizTalk Server to speed the integration of the solution with our SAP system, which could have been a fare more costly and time-consuming process otherwise.”

Continental’s employees were quick and enthusiastic in their acceptance of the solution, and have been quick to suggest additional ways that the RFID technology could be deployed – and Sarpkaya says that the use of the Microsoft application platform makes those extensions easy to contemplate. For example, the solution could be extended to track the company’s finished goods shipments to its customers, the major automotive manufacturers. The same solution infrastructure could be deployed on the shop floor to track components and monitor the manufacturing process. Sarpkaya also envisions enhancements to the already successful receiving application. “In this tough economy, we are moving with care, Sarpkaya concludes. “However, we’ve decided to analyse, explore and implement all feasible opportunities regarding the deployment of RFID technology. Otherwise we won’t be able to maintain our competitive advantage.”

This article first appeared in the Summer 2009 edition of Prime.

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