Interview: Sun's Eugene McCabe

Interview: Sun's Eugene McCabe

'Simplicity is very complicated,' according to Sun's executive vice president for worldwide operations

An essential point of a good supply chain is to help the company make money. All other considerations need to be placed within this context.

Where one company sees a distribution center as an advantage, another sees it as a cost. Where one company sees the need for intervention between supplier and customer, another removes this activity and goes direct. Each decision has ramifications that can reverberate globally.

Sun Microsystems operates its business with bold competitors such as Dell and IBM looming large. Simple answers are hard to come by. Sun features what it calls a "One Touch" supply chain. Over the last six quarters this process has reduced Sun’s logistics costs by 20%.

"Simplicity is very complicated," says Eugene McCabe, Sun's executive vice president for Worldwide Operations. talked with McCabe about Sun's supply chain developments. Can you briefly explain Sun’s "One Touch" supply chain?

McCabe: Sun's "One Touch" [system] spans all aspects of the fulfillment supply chain, from order entry through customer acceptance. The overall architecture is based on process automation, replacing physical inventory with digital information to foster closer collaboration between partners. The process is designed to maximize direct shipments from supplier to customer. By implementing the One Touch supply chain, Sun has been able to increase the predictability of its shipments and shorten the lead time for providing products to customers.

How does Sun deal with its suppliers worldwide?

When Sun receives an order, the systems decide which vendor can fulfill the order, and they send the information directly to that vendor [with] a purchase order plus other details. Suppliers have online access to Sun's systems on their premises, so they can run transactions as if they were a Sun facility. When they are finished with the products and [they are] ready to ship, they run a transaction that generates shipping information for the third-party logistics providers and the customer's invoice on site.

Tell us about Sun's shutting down distribution centers and the aftermath of that decision. Also, please tell us about Sun's role in setting up the system for a direct delivery from supplier to customer.

Sun previously had three regional distribution centers in the U.S., Europe and Asia and the Pacific. These distribution centers purchased inventory ahead of customer demand and then fulfilled customer orders as they were received. This process did not have the capability to provide customers with anything other than a fixed configuration of the product. The predictability of delivery was only as good as the ability to forecast.

When Sun deployed the new supply chain model, it introduced the ability to ship a product directly from the vendor of the product, eliminating the need to plan and hold stock in a distribution center. This greatly increased the predictability of a shipment since the vendor could now build a product based on a real live customer order versus a forecast.

The ability to direct-ship also facilitated the capability to configure-to-order, allowing the vendor to supply exactly what the customer wanted rather than work with pre-stocked fixed configurations. This new method greatly improves customer satisfaction levels.

How did you go about reducing your number of suppliers?

Since Sun manages a virtual supply chain, our suppliers are critical to our success. Certain key factors played into the decision to reduce the number of suppliers for the new One Touch model.

Since some of our competitors are much larger than we are and can leverage their spending to get lower prices, we countered that by consolidating our supply base so that we had bigger [accounts] with a smaller number of suppliers.

We have a long-term strategic relationship with all of our suppliers, and we carefully select them based on a combination of their technology, process, IT and cost capabilities. Each of our strategic suppliers also must operate in a global capacity.

Please give a brief explanation of customer-ready systems for delivering Sun products.

Sun introduced a new capability in its factories, as well as in a select number of vendor locations, where we could fully integrate and configure customers' systems, load the software and ship it to the customer in a ready-to-use configuration. As a result, the types of system configurations and software configurations normally completed at the installation site are now completed in a factory environment. This results in a much more repeatable system set-up and a higher-quality product.

In some cases, customers access the system remotely on the factory floor and do their acceptance tests. There are many examples where systems from this process are deployed and in use by customers 24 hours after receipt, versus weeks with the "kits" received from our competitors.

Key benefits to customers include easy implementation, reliable deployment, faster time-to-market and customized options and services.

How does the no-pre-build policy work for your suppliers?

Pre-building is very difficult to get right. The ability to forecast accurately is just not possible. By giving the suppliers actual customer orders, they only build exactly what is needed. This reduces (or eliminates) slow-moving stock, returns and re-configurations, [making] the supply chain much more efficient.

By giving the supply chain the ability to see real customer demand, we reduce the planning "bullwhip" effect, where the planning and forecasting error gets amplified as it passes up the supply chain, and the correction is then amplified in the other direction. The result is that the end of the supply chain sees massively bigger changes than the front.