18. Interview with Mr. Ron Robinson of LI-COR Biosciences
Introduction
This chapter consists of a series of questions and answers from an interview with a leading supply chain executive. The objective of this chapter is to provide a practitioner’s perspective on the subject of life cycle issues in supply chain management. Other related subjects are also discussed in the interview.
About the Interviewee
Mr. Ronald D. Robinson is the Director of Supply Chain Management for LI-COR Biosciences, with 15 years of experience in this field. In addition, he supported Brunswick Corporation’s aerospace and defense Division (later Lincoln Composites) as a Senior Contracts Administrator for over 12 years, with an additional 4 years in the position of production/material control specialist. He graduated from the University of Nebraska - Lincoln, with a Bachelor of Science degree in Business Administration, with additional education received through the American Graduate University - Marketing, Pricing, and Management, and Dale Carnegie Associates - Effective Speaking, and Human Relations. He is a current member of Institute for Supply Management - Nebraska (ISM–NE), and most recently served on their Board. He is also a member of the Midwest International Trade Association (MITA) and the Lincoln Employer’s Coalition. Other groups that he has previously had affiliation with include National Contracts Management Association (NCMA), American Production and Inventory Control Society (APICS), and Dream It, Do It.
“Working with engineers, manufacturing personnel, or scientists may require an individual to go well beyond the realms of business knowledge. Many individuals today entering the supply chain arena want to quickly attain high wages but don’t understand the progression of on-the-job learning needed to attain this.”
—Ron Robinson, 2011
About LI-COR
For more than 40 years, LI-COR has been in business in Lincoln, Nebraska. LI-COR designs, manufacturers, and markets instrument systems for plant biology, environmental, and biotechnology research. LI-COR has subsidiaries in Bad Homburg, Germany, and in Cambridge, United Kingdom. LI-COR instruments are used in more than 100 countries worldwide in studies ranging from global climate change to cancer research. It is a privately held company and is ISO certified. LI-COR has received awards in the United States and Germany for their contributions to business and science. In 2010, they received the Quantum Workplace’s Employee Voice Award for exceptional employee engagement.
Interview Questions and Answers
How would you characterize your organizational role in supply chain management?
Organizationally, I report to the Vice President of Business Operations Management. Our supply chain management team consists of expeditors, ISO specialists, internal auditing specialists, and other supply chain specialists. LI-COR is somewhat unique in that we do not have a formal quality-control department. As a result, our supply chain department has to perform quality-control functions and logistics functions and serves as the focal point for transportation for the organization. We work with all the transportation carriers and negotiate transportation rates. We also get involved with the disposition of products. Instead of having a quality-control manager and quality-control engineer, we work as a team. We work with manufacturing, production, engineering, and our supply chain partners to make decisions about products that might be discrepant or have a quality problem. We wear a lot of hats and make a lot of decisions, but it puts us closer to the product. Our organization is fairly flat. We don’t have a lot of layers. We also don’t have a lot of distinct departments that other organizations have. That permits everyone in the supply chain team to know what is happening, and the people who need to know have visibility to the information they need. It helps us to make quick decisions. To augment our decision making, we use SharePoint technology for communication purposes. (Microsoft SharePoint is software that aids people working together. It permits people to set up Web sites to share information with others, manage documents from start to finish, and publish reports to help make better decisions.)
With the team approach and the changes in the way the purchasing industry and organizations like the Institute of Supply Management (ISM) have gone, we reorganized job titles to permit a more updated representation of what we are now doing in terms of supply chain staff positions and their titles. We have gone away from designating junior or senior titles, like a junior buyer title. Yet people wanted to be recognized in their career advancement. To deal with this situation, we redesigned the staff position titles. We used to have a senior buyer level, but once you hit that, there was no place to go, except for a management position. Not everyone wants to be a manager, and not everyone is management material. We went to a more open-ended title designation where we can change their title with a number system (that is, supply chain specialist levels 1, 2, 3, and so on) that could go on forever.
So, you are achieving both an integration and collaboration of functional departments?
Absolutely! That is what is happening today in supply chain management. Classic department functionality is being replaced. Blending the functions together has a positive impact on our supply chain partners. We are able to combine input from our internal functional areas and work out problems that might have taken countless meetings with the supplier. By our blending of functions into one group (that is, supply chain group), they can see we are going to bat for them in other areas within our organization. We are giving them an opportunity to have the benefit of all the internal discussions (concerning these other areas) before we come back to them with questions about a part or a problem. This saves everyone time and effort, and they appreciate it. As a result, this organizational approach has lead to having great relationships with our suppliers.
A part of the training for our supply chain specialists is to understand the entire supply chain role in our organization. While most of our supply chain people become specialists in several types of products (for example, electrical, mechanical, optics, computers, commodities, expediting, auditing), they have to understand the entire supply chain process more than just buying products. Getting the product here, transportation of the product, how the product flows through the manufacturing floor, and what the impact the product has in the supply chain and organization are all important components of what we do. They also are expected to understand the supplier side. One of the many expanding roles of supply chain management that is changing is that engineering expects the supply chain to provide them with the knowledge of who can make the parts needed for new products. Consequently, we must be able to identify which suppliers can best make the part. This results in much more interaction with engineering in the design of products today.
Given the expanded role of the supply chain, does your staff ever go out to inspect suppliers as a means of qualifying them to provide parts or work?
Oh, yes! We do a number of onsite visits. Supplier evaluation is a significant part of our supplier qualification process. Typically, we do a supplier evaluation and qualification process for all of our suppliers. We also must deal with a number of government guidelines, ISO requirements, and the Restriction of Hazardous Substances (RoHS) directive.
RoHS is a restriction on the use of certain hazardous substances that came into force across European Union member states on July 1, 2006. From that date, producers of eight categories of electrical and electronic equipment were not able to place on the market products that contain six banned substances (for example, including lead, mercury, hexavalent chromium, cadmium) unless specific exemptions apply.
A lot of our customers are international. We have to work closely with engineering to bring our knowledge of governmental guidelines and restrictions to bear on our product development efforts. We have to learn and train our staff on these regulations, particularly since businesses in the European Union, China, and South Korea are requiring more consideration of these kinds of governmental directives and regulations.
Do the government regulations impact your operations very much?
Yes. They add substantially to the cost of our products. For example, when RoHS was implemented, it required us to completely redesign all of our products that we intended to keep selling. RoHS requires a unique temperature when soldering electronic components to our equipment and PC boards. Changing the temperature meant reviewing every component in the bill of material and assessing the impact to the current design. In some cases, complete redesign was required. In addition, our manufacturing process also needed to be altered to allow both RoHS and non-RoHS products, because we had customers for both types of products. An added complication in dealing with this regulation was that some of the suppliers stopped making non-RoHS-certified parts because of dwindling demand. So, new suppliers had to be researched and found, with many of the new suppliers now charging exorbitant prices for parts based on limited supplies. All of this has added millions of dollars to our product costs.
How do you feel the role of supply chain management adds value to your organization?
Let me give you one small example. We had an engineer call me and say they needed a particular type of foam-rubber tubing and it had to be RoHS compliant. The engineer called a firm thinking they were the production source for the tubing, but they were really just a distributor, not the manufacturer. He was unable to get needed information for ordering the material and handed the assignment to me. I called the engineer back in 30 minutes after I talked with the same distributor so that they could provide the information to place the order. Why could I get the information but the engineer couldn’t? It’s the approach you go in with, how you explain to the people why you need it and why it has to be a certain way. If you treat a distributor like you just want to cut them out of the picture so as to cut costs, they won’t divulge their manufacturing sources. Sometimes you have to be able to reach down to the second-, third-, or fourth-tier suppliers on issues, and that is possible only if you have cooperation from first-tier suppliers. Sharing information and working with our suppliers as partners is our approach.
How do you deal with the Introduction Stage of a product or product line requiring a supply chain?
It depends on the product. We are experiencing this type of situation presently with a new product. We had been planning to introduce a new product for about a year. Normally we plan to allocate one unit of a new product to each of our distributors for their use as a demonstrator. This product was designed to replace an older product, so we factored in the potential demand on the new product based partly on older product sales. The older product was a “bread and butter” product, which represented a considerable important sales base; so, to avoid a loss of customers, we had to keep producing the older product while we were launching the new product. What we did was to overlap the manufacturing of both the older and newer products. Given our policy of sharing information with our supply chain partners, we had notified them we would be discontinuing the older product. That cut off the pipeline of supplies needed for the older product more rapidly than expected, causing a need to find additional parts. In addition, it resulted in more sales on the new product as customers quickly shifted over from the older one. When we had a monthly sales analysis meeting, we found this unexpected spike in demand for this new product. These things happen all the time at the Introduction Stage of a new product.
In another situation for a really new product that was expected to have high volume due to the cost being considerably less than our competition, we ran into some marketing problems. The distributor’s sales force sells the items based their commission on sales price. They thought that they could make more money selling a more-expensive unit that performs essentially the same task versus selling a less-expensive unit. The sales force also felt the value of the new product was greater than the price being suggested and that it should be raised. We listened to them and pushed up the price. Now here is where the supply chain is impacted in this alteration of pricing. This product was designed to be sold at a higher volume, but the higher price pushed this product’s sales down. We had previously gone out to the supply chain partners and obtained pricing quotes from them for 1,000 to 2,500 of units of parts. Now the lower volume resulted in a demand of only 25, 50, or 100 units of parts. The suppliers who had previously given lower unit costs because of the higher volume of units now increased those bill of material costs by over 50%, resulting in profit margins and overhead structures changing. These are things that can happen when you are developing products for distribution within supply chains.
In situations where the expected market demand might exceed our projections, we establish buffer stocks. In situations where the marketing forecasts might be a little too optimistic, we work together with everyone to tamp down such forecasts. It is a part of our role to look at demand history and share our judgment on the viability of future demand requirements for supply chain needs. Unfortunately, we are not always accurate ourselves. When that occurs, we use contingency planning. For new products, we look at the lead times for parts and buffer those. Even during prototyping stages, many times we purchase the very long lead time components for development and initial production at the same time. We are finding that this helps improve our ability to introduce products more quickly to the market. Although there is some risk with this approach, the gains have certainly outweighed the losses.
In “ramp-up” situations for new products that don’t make it, the damage control efforts are difficult but an expected part of our job. We had a product that didn’t make it a couple of years ago. Everyone was ramped up, we had a lot of inventory, and it didn’t make it in the market. What could be done? It’s painful, but we just did what we could to unload the inventory. Also, we pushed back the delivery dates for incoming inventory. This way the inventory does not tie up a lot of capital or space in our facilities. We eventually consumed the remaining inventory.
How do you deal with the Growth Stage of a product or product line requiring a supply chain?
We buffer inventory on some items, usually the long lead time items to deal with unexpected demand growth. We also use outsourcing from qualified suppliers.
A part of our strategy is that we are right sized for our distribution channels with a level production approach to manufacturing. We don’t jump around a lot with demand or demand expectations. Our distributors know what to expect from us, and they value the consistency of our level production and distribution expectations. We produce to stock, not to order! This allows us to be very stable in our production efforts and in the supply chain that supports them. We seek to have a 30-to-60-day supply of all parts on hand. We are very careful in the selection of our distributors, and so we know their capacity. We might start out being a supplier’s largest customer, but over time we might become or end up a smaller customer. This happens! But, because our need for their capacity is so steady and consistent, they can count on us, and we find we can count on them regardless of the volume of the business.
How do you deal with the Maturity Stage of a product or product line requiring a supply chain?
We have a lot of products in this stage. The ordering process for materials when dealing with these types of products is very different from others. We sometimes have to buy an entire year’s supply of parts for these products just to make minimum cost objectives. Sometimes we even have to buy excessive amounts to hit the minimums for price discounts. We inventory these items longer because of reduced demand, and this adds cost. Also, we see an increase in materials cost because we (and others) are buying small quantities, resulting in increased cost per unit.
An interesting aspect to this product stage concerns competition. Some of our products in this stage become the only source for customers. That is, competitors start leaving a mature market to avoid the inevitable Decline Stage in product demand. Less competition helps maintain prices even if the costs go up.
How do you deal with the Decline Stage of a product or product line requiring a supply chain?
One of our strategies here is to do a lifetime buy. A lifetime buy is where we go out and determine how many more years we want to sell a particular product. We then purchase inventory equaling the total number parts needed to meet that lifetime demand. Once it is used up, that is the end of that product and its life cycle. It is common for some of our suppliers to contact us when they are going to discontinue a part we need and allow us one last purchase.
Many of the products that are in a Decline Stage are considered obsolete and discontinued. In some cases, they are completely retooled into a new or newer product. The interesting cost behavior of suppliers is completely opposite of the way you might think it should be in this situation. Most people think a discontinued item should be cheaper because suppliers want to rid themselves of inventory that will not be saleable in the future. So while we might expect the price to go down, the current trend is for them to be more expensive. For example, we have one environmental product that is not RoHS compliant, and we plan on phasing it out in June 2013. Unfortunately, one of our suppliers is phasing out their electronic part very soon. So, we looked around to find a replacement part. We think we have it, but the price to us is going from $400 per unit to over $600. What is happening is that some suppliers are buying up discontinued parts and becoming sole suppliers of these parts, increasing the price to their customers. Some very shrewd suppliers actually buy these items from production overruns for pennies on the dollar. Then they store it for future sales at very high prices. They only need to sell a few of these items to make a profit. For this reason, cost cutting in some areas is essential to keep our product prices as low as possible during a demand decline or phasing out of products.
Compliance with government regulations can also lead to the discontinuance of a product and its supply chain. One of the trends today is for supplier firms to really look at the bottom line on investments they make. For example, we have been doing business with a plating company for many years. When the RoHS directive became mandatory, we needed to have our suppliers become RoHS compliant. The plating company undertook a cost analysis and found it too expensive to change their operations to become RoHS compliant. So, that meant we not only stopped doing most of our business with them but also that we had to redo the supply chain by finding new suppliers at a greater distance, which increased the amount of transportation and costs. Also it meant increased production lead times from days to weeks because of the distance the parts had to travel.
Do you have any additional comments you might like to share about your experiences in supply chain management?
The field of supply chain management has been changing in the past few years to become much more contractual. Many more agreements are being written than in the past covering things like intellectual property rights and nondisclosure agreements. In the past, buyers were not expected to know a lot about these things, but today they are.
One of the major topics that is critical to supply chain management today is business-interruption planning. For most supply chain managers, it is second nature to use contingency planning in all areas of our supply chains to deal with interruptions. We can use safety stock as a buffer to address long lead times or risky suppliers. If we were to lose a major supplier, we plan to know where we will turn next. We actually have a business-interruption contingency program to deal with catastrophes like a natural disaster or pandemic flu. We know exactly what we will do if such disasters befall us. For example, we have plans for employees to work at home or at a distance. We also have backups in software to co-generate support as a contingency to system failure. Some of our planning is very detailed. We actually have plans if we lose power to our laptop computers, to have backup batteries so that we don’t miss a beat. We have crisis situations hitting our supply chains all the time. Part of our planning effort is to create zones in the United States with manufacturing capacity capabilities identified. What we did was to identify producers with redundant production capacity in these zones that we can geographically turn to if we need additional capacity due to an interruption of our business.
We have been in business for 40 years. Some of our supply chain relationships with suppliers have been that long. These kinds of relationships represent one of our strengths.