Dive Brief:
- 3M is working to improve delivery reliability for its customers through better equipment utilization and by strengthening its demand forecasting, CEO Bill Brown said on an Oct. 22 Q3 earnings call.
- The chemical-making giant reached an on-time in-full rate of 89% in Q3, up 5 points since the beginning of the year. That brings it closer to Brown's goal of an above 90% OTIF rate.
- “I know we’ve lost business and have paid fines due to poor delivery performance, and I’m encouraged by the steady improvement we’re making,” Brown said.
Dive Insight:
Boosting delivery reliability is a tall order for 3M’s complex supply chain.
As Brown pointed out in July, a Command brand adhesive strip goes through five factories and two distribution centers before it reaches a store shelf. That multi-touch process ties up more goods in transit, extends cycle times and increases logistics and freight costs.
3M is chipping away at supply chain inefficiencies and operational shortcomings through various initiatives that Brown detailed in last week's call.
For example, 3M has implemented a metric tracking equipment utilization, known as operating equipment efficiency, for major machine assets in its 38 largest facilities. The utilization of these assets averages around 50%, well below the 80% or higher that “best-in-class” companies have for their machines, according to Brown.
“While we have closed facilities in the past and have a few more in flight today, gaining maturity in our [operating equipment efficiency] metric will allow us to take a fresh look at consolidation opportunities at both the site and the work cell level over time,” the CEO said.
3M is also implementing more rigorous standards for its suppliers and contract manufacturers, which currently have an on-time performance rate in the low 70s, according to Brown. He said 3M is in the early stages of redesigning its forecasting process to help improve that rating by using different analytical tools.
“If your forecast accuracy is not good, you cannot run your factory very well,” Brown said. “Your inventory will be high, your suppliers won’t perform, your logistics providers won’t be available. So, it has to run like a smooth running clock.”
The adjustments tie into 3M’s broader push to bolster its bottom line through improved operational performance and organic growth. In Q3, the company posted a 1% year-over-year increase in adjusted sales and an operating margin jump of 140 basis points.
