Editor’s note: Peter H. Clonts, CPIM, and James W. (Jim) Tilton, CPIM, recently presented the educational session “The Supply Chain in Reverse—Component Remanufacturing at Rolls-Royce” at APICS 2013 in Orlando, Florida, USA. Here, APICS magazine managing editor Elizabeth Rennie speaks with them to learn more about their company's reverse logistics and sustainability practices.
Rennie: Logistics professionals have dedicated a great deal of time to squeezing margins, managing rising transportation costs, and mitigating risk and shifting demand patterns. Now, they also are responsible for helping to create more sustainable supply networks. With this growing focus on sustainability, what are the new important roles of today’s logistics professionals?
Clonts: I can’t really say there are new roles, per se, but the same old roles are having to shift or expand focus. The logistics manager, master scheduler, material requirements planner, warehouse manager, forecaster, and planner all have to take what they’ve learned in the traditional forward supply chain and prepare for the added levels of complexity inherent in sustainability and remanufacturing efforts.
As we’ve learned from the APICS operations management body of knowledge, operations are operations are operations—until they’re not. In other words, we all take the body of knowledge and apply it to our specific industry, company, customer base, business model, [enterprise resources planning] system, products, and people. Logistics professionals guard the same gates they always have, but what is behind those gates is changing.
Recycling and remanufacture—to me, they are just the next step in the evolution of business; and, therefore, the evolution of the logistics professional. So, the short answer is, roles aren’t changing, just the focus. Today, we are focusing on product return from the customer base; engineering and production capability for medium-to-small-volume repairs, as well as runners and repeaters; product usage data and traceability; the science of varying yield rates management; intimate knowledge of forecasting, with particular ability to recognize that historical consumption of new parts becomes your leading indicator for the core raw material availability; and commodity recycling.
Tilton: Sustainability can be defined as the capacity to endure, so another important role or skill required of today’s logistics professionals would be the ability and aptitude to recognize, deal with, and withstand the increasingly complex and evolving demands that are put upon today’s supply chain to not erode its performance and affect customer satisfaction levels.
Years ago, to become more competitive, manufacturers invested in higher-technology equipment—replacing multiple single-capability machines with fewer multi-capability and computer-guided machines. This required fewer high-skilled workers and [less] outsourcing. Then, we started to cut costs by cutting inventory. We started squeezing our suppliers for more and more cost reductions. Now, for about the last decade or so, our attention has been turned to supply chain and logistics costs to find the hidden savings to be realized in competitiveness and profitability.
To meet the challenges of today and tomorrow, logistics professionals must keep looking forward to stay ahead of the game. Challenge the status quo. Be proactive. (To learn about Tilton’s specific strategies for success, read the October 2013 APICS Extra by Rennie.)
Rennie: Typical responsibilities for today’s logistics professionals also include regulatory compliance and environmental concerns. Do both of these sustainable supply chain forces affect your specific roles at Rolls-Royce?
Clonts: Absolutely. Every decision we make must consider the impacts to all of the appropriate governing bodies. It’s in our DNA … The most visible body is the [Federal Aviation Administration] here in the United States. There is also [the European Aviation Safety Agency], not to mention the governmental requirements for supplying engines to the military.
Tilton: Additionally, Rolls-Royce is International Environmental Management System Standard ISO 14001-
certified … And we have a global recycle/revert program whereby our scrap metals are reintroduced into the raw materials supply chain for both Rolls-Royce and our supply base.
Clonts: The other thing I’ll add is that being so highly regulated can put constraints on what suppliers, recyclers, and [third-party logistics providers] we can use—which is a good thing. Often, they have to meet the same requirements we do, so it simplifies the search.
Rennie: What are the major goals of Rolls-Royce’s remanufacturing practices? Please give our readers a brief explanation of what the process entails.
Tilton: In Indianapolis, the remanufacturing part of our business is managed by Global Repair Services: Americas (GRSA). GRSA is made up of repair engineering; program management; aftermarket supply chain; scheduling; logistics; quality; and, of course, finance. The reason and mission of GRSA is to reduce the cost per flight hour of [aircraft engines], develop and oversee component repair suppliers, create additional revenue opportunities for Rolls-Royce, offer customers a one-stop shop for repaired serviceable components, and provide a mechanism to turn technology into revenue.
Clonts: We also strive to reduce engine overhaul turn times by having a pool of repaired inventory available and reduce our carbon footprint through reuse and repair parts, as much as possible, and recycling those parts that cannot be repaired or reused by reverting to original billet form.
From my perspective as master scheduler, the planning aspect is much more complex than the standard forward supply chain. While we have to understand overall demand, we additionally have to understand the constantly moving target of the expected split between new and repaired components. In one sense, it can be viewed simply as balancing a requirement between two different suppliers. However, when the rate at which your core items—raw material input into your remanufacturing supply chain—become available, the condition of that core, which historical configuration of that core arrives, and which repair scenarios can be applied all vary greatly. Suddenly, it can feel like you’re trying to hit a moving target at 300 yards with a Wiffle Ball while blindfolded.
Rennie: What are some other noteworthy challenges Rolls-Royce has faced along the way to building an effective remanufacturing program?
Tilton: I think one of the challenges has been to keep pace with the growth of this program. GRSA started out as an idea to provide support for a set of programs limited to one business unit. As the business significance became evident, it was being applied across other business sectors.
Oftentimes, multiple business sectors can end up doing the exact same thing, but using totally different approaches. Standardization becomes paramount; mass customization is rarely ever cost effective.
Another big issue in a remanufacturing program and the reverse logistics that support it is relationship management. The relationship requires a bit of “role swapping,” if you will. In a program such as this, the customer becomes the supplier, and vice versa. The customer now supplies you with their core returns. This is where the ability to think and act collaboratively comes in full steam. The more complex and diversified the organizations involved are, the more challenging the relationship becomes to manage.
The same people aren’t always the ones controlling what comes in and goes out. Program coordination can be challenging without a solid understanding of the bigger picture.
Clonts: We also had to determine the best way to get used parts and components returned in a timely manner from the overhaul shops and aircraft operators. Eventually, we had to offer an incentive—a core credit—to encourage more timely part returns. Otherwise, some facilities would wait until they were overwhelmed with parts lying around and ship us months-worth of inventory. Those kinds of surges really interrupt continuous material flow.
Another issue we faced was knowing which parts to keep as core and which ones to revert directly. In the early days, we kept absolutely everything and ran out of storage space to the point of needing to make decisions on what we keep and what we revert directly. Eventually, we began setting maximum inventory levels on some of the cores that didn’t have an active repair.
Rennie: In your APICS 2013 presentation, you said that remanufactured products sometimes can surpass their original design specifications in terms of durability, life span, and performance thanks to the design and component improvement that occurred while the product was in service. Can you share more on this point?
Tilton: Sure. Here are a couple of examples: On a component exposed to extreme thermal conditions, a repair development allowed the part to better resist the rubbing wear created by the thermal expansion. This performance improvement doubled the life span of the part. On another component exposed to constant burning, the repair addition of a special coating extended the life of the part so that it no longer causes the teardown of the assembly. In both of these cases, the repair technology was so successful that it was incorporated into the [original equipment] design.
Rennie: Also in your presentation, you shared with attendees that “success starts at the front end of your returns management system.” Why do you believe this is true? Can you share some of the key front-end enablers and requirements for your remanufacturing and returns management systems?
Tilton: One thing about being associated with any processes involving warehouse storage space is that people will seek you out to “find a place to put their stuff,” as the late, great George Carlin used to say. A warehouse is not a place to just put your stuff; those places are called storage units. A warehouse is a storage and issuance facility. It is not unlike an efficient filing system. Items are received into predetermined locations and valuations. This facilitates proper and timely stockkeeping activities, reporting, issuances, et cetera.
Rennie: How does remanufacturing relate to risk management? Can an effective reverse flow help mitigate some potential hazards?
Tilton: Absolutely. Having a pool of parts on hand and knowing their status allows us to have an additional material supply other than the standard raw, work in process, finished goods. This “pool exchange program” enables Rolls-Royce to keep a set of serviceable parts on hand to be exchanged for incoming core to be repaired. You now have a supply of goods that can be reviewed for possible mitigation of a gap in the [original equipment manufacturer] supply side. It gives customers an alternative to other higher-priced, longer-lead-time options
Clonts: In fact, this was part of the impetus of developing repairs in the first place. Early in the life cycle of the engine program, the market demand for [a particular] engine grew much, much faster than originally anticipated. That created a strain on our supply chain and manufacturing ability, leaving very limited capacity to support the aftermarket engine repair and overhaul. So, what could we do? To stand up and get all of the appropriate approvals for a new manufacturer would have taken far too much time. To paraphrase Princess Leia, “Repair development, you’re our only hope.” And like any good Jedi, they delivered victory against the supply constraints.
Those early days haven’t been the only instances of mitigating supply risk. In fact, part of our current planning for repair includes determining what the sustainable repair rate can be. What can both the repair suppliers and [original equipment manufacturing] suppliers rely on as a predictable balance of demand? As I stated earlier, it’s a constantly moving target, but one that is critical to the business in order to meet our customer satisfaction requirements and inventory budget constraints.
Rennie: What specific benefits does Rolls-Royce enjoy as a result of its remanufacturing initiatives?
Tilton: Customer-facing business units are able to achieve 95 percent on-time parts delivery. Additionally, inventory that is managed to optimum levels in our pool exchange program provides reduced administration needs for expedited or one-off repairs, reduced supplier repair cost, optimized inventory levels through part exchange, better visibility, better management of potential supply chain shortages, more scrap kept out of landfills, reduced raw material costs, and cost-saving incentives for suppliers … In short, predictable parts delivery to the shops means that our customer business units and our engine build shops are able to achieve higher customer satisfaction levels.
Clonts: The benefits Jim speaks of are now coveted in other parts of the business. We developed and grew this remanufacturing/pool exchange model in Indianapolis. It has been recognized as a best practice in Rolls-Royce globally. We are currently adopting this mind-set and methodology for use worldwide, specifically in the [United Kingdom] and Germany. And, like any other process, we’re always driving improvement in and waste out—always keeping our people, partners, and planet at the forefront of it all.
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