By reorganizing and consolidating supply chain operations at its business units, Motorola is improving the three "Cs": cost, cash, and customer service. More benefits will accrue as the transformation continues.
Few people would ever think of comparing a supply chain to a butterfly, but the metamorphosis from caterpillar to a thing of beauty is an appropriate analogy for the evolution that's taking place at Motorola Inc.
The Fortune 100 telecommunications company, best known for its cellular phones, is transforming a collection of separate, independent operations into an integrated and cost-effective global supply chain. To lead that effort, Motorola tapped Stu Reed, a former IBM executive.
Reed, now executive vice president for the Integrated Supply Chain, joined the company in April of 2005. He was charged with leading Motorola through the process of linking supply chains strung across the globe to achieve efficiencies in logistics, manufacturing, procurement, and quality. "My job as the leader was to provide the vision," he says.
That vision was of a supply chain that would support growth and create value for Motorola, focusing on the three "Cs": cost, cash, and customer service. In Reed's view, the supply chain's support of these three areas is critical to the company's success. First, cost improvements enable Motorola to price its products to win business. Freeing up cash through efficiency improvements provides capital for business growth and acquisitions. And finally, customer service enables the company to retain existing customers and gain new ones.
It didn't take long for Motorola's supply chain transformation to begin paying big dividends. From 2005 to 2006, the company witnessed a 45percent increase in quarterly revenue per supply chain employee and an 82-percent increase in quarterly units shipped per supply chain employee. But that's just the beginning. The metamorphosis is not yet complete, and the company expects to see further, continuous improvements.
Growth challenges
The task facing Reed would be no small challenge: Motorola, based in the Chicago suburb of Schaumburg, Illinois, is truly global in its business scope. In 2006, the United States generated just 44 percent of Motorola's worldwide revenue. Europe accounted for another 15 percent and Asia (excluding China) 11 percent. China alone provided 11 percent of the company's global revenue; Latin America brought in 10 percent, and other markets accounted for the remaining 9 percent.
A booming market for mobile phones helped Motorola tally huge sales increases in the past few years. In 2006, the company's three major business units reported a total of nearly $43 billion in sales, a significant jump from the $35 billion reported the previous year. Motorola's Mobile Devices unit, which makes cellular phones and handsets, accounted for about $28 billion in sales last year. Its Connected Home Solutions business, which makes digital entertainment and communication products, generated $3.3 billion. The Networks & Enterprise division, meanwhile, generated $11.2 billion in annual sales of such products as mobile phone infrastructure and network equipment, radio frequency identification (RFID) technology, and two-way radios used by police officers and firefighters.
With so many different product categories, Motorola over time had developed a far-flung, multifaceted supply chain structure. As recently as 2004, the company was sourcing from 47 countries, and the six business units it had at the time rarely shared facilities or resources.
The telecom giant's worldwide growth spurt brought these and other supply chain issues to the fore. In 2004, the heads of the various business units' supply chains approached Chief Executive Officer Edward J. Zander and recommended that the multinational company streamline its supply chain. Zander agreed, and Motorola began consolidating its six business units into four (later pared down to the current three divisions). In need of a leader for that effort, the company went outside its own ranks and recruited Reed for the job. Reed had spent 20 years with IBM, capping his career there as vice president of worldwide manufacturing for IBM's integrated supply chain.
Six priorities
An integrated supply chain requires that product design, procurement, manufacturing, logistics, and customer service all work in sync. When he joined the company, Reed says, there was no integration to speak of because each business vertical was narrowly focused on its own objectives. "We weren't even speaking the same language," he recalls. "There wasn't clear agreement on key metrics and accountability."
Reed kicked off the integration initiative by identifying six priorities that the company would pursue simultaneously. One of those priorities was to bring the business units' various supply chain teams together and have them identify "best in class" processes that could be rapidly replicated throughout the organization. For example, after canvassing all of its factories, the manufacturing tools team identified a portfolio of 20 best practices. The team selected five highimpact practices that could be easily implemented, and then rolled them out at all of the sites. In another case, the work-in-process inventory management team identified five practices that had enabled one site to achieve benchmark levels of work-in-process parts. Those methods were later deployed at other company sites.
Two years ago, this kind of idea sharing was rare, but it's become a permanent part of Motorola's approach to doing business. "We've created a culture where we encourage the teams to 'steal shamelessly' from each other," Reed says with a smile.
A second priority in Motorola's supply chain transformation was rationalizing its supplier base and strengthening relationships with the remaining key suppliers.
Prior to Reed's arrival, each business unit independently solicited bids from suppliers—sometimes issuing bid requests to the same suppliers for different products. Their focus, moreover, was on cost alone.
"We weren't really doing the best we could, and I'm sure we weren't the best of partners," Reed says. "All we did was beat on [suppliers] for costs, but we didn't work collaboratively."
To regain its suppliers' trust, Motorola adopted an approach it dubbed the "Rapid Sourcing Initiative," or RSI, under which all business units would treat vendors in a consistent way. One of the principles of the RSI program is to help suppliers identify ways to reduce their costs—and pass on the savings to Motorola.
The company's business units, moreover, now work together to leverage their volume when soliciting and awarding bids. In fact, Motorola currently bestows 91 percent of its $26 billion procurement spend on approximately 150 suppliers.
But those suppliers had to earn the right to continue to do business with Motorola. A third element of the company's supply chain strategy was quality improvement. Motorola wanted to put an end to what it calls "spills," or quality problems (such as a misplaced label or a defective part) that "spill" out of its operations and directly affect its customers.
An investigation found that 51 percent of the quality problems reported in manufacturing or in the field could be traced back to the original suppliers. Motorola took action. Suppliers that wanted to continue doing business with Motorola were required to develop "quality renewal plans" to ensure craftsmanship. "We drew a line in the sand," says Reed. "To enter this game as a preferred supplier, you have to be a quality provider of the products you're bidding on."
Today Motorola awards contracts to suppliers that meet its tough quality requirements. The company also has instituted a performance scorecard system to measure compliance with its procurement standards. "We said to our suppliers, quality is number one," Reed explains. "We started to measure, and people lost business for not performing. People who didn't have quality products lost out as we consolidated our supply base."
The renewed emphasis on quality has paid off handsomely: To date, Motorola has achieved a 30-percent reduction in "spills" and has cut in half the number of suppliers' defects, as measured in parts per million.
Focus on commonality
Optimizing its manufacturing and logistics operations was another piece of Motorola's improvement plan. Over the years, the company had developed a sprawling supply chain where business units worked somewhat independently of each other. Even when they did share facilities, there was little coordination between them. For example, five different business units were using the same facility in Tianjin, China, yet all five were running different information technology (IT) systems and three had separate loading docks.
Reed recognized that Motorola could save money and increase efficiency by strategically consolidating plants and warehouses. "Simply put, you need mega-facilities that can build everything within the Motorola portfolio, and then you need facilities that can distribute into regions or markets," he says. "We developed our model, looked at each region, and then picked the best site if there was competition."
That exercise led to a number of facility closings that ultimately reduced the square footage of Motorola's manufacturing and distribution operations by 40 percent. Today the company operates 16 manufacturing and distribution facilities in 10 countries. The remaining factories often produce products for more than one business unit, and they engage in lean manufacturing practices. The distribution and manufacturing teams are encouraged to exchange ideas and share best practices. "Our objective is to have a common footprint and common approach across all facilities," Reed says.
The fifth component of the supply chain transformation involved leveraging the company's expenditures on IT. In the past, the business units had acted independently when buying software and other technology. That practice not only led to variations among the business units' systems but also meant that the quality of those systems was variable. Reed wanted to bring consistency to this area, too. "We knew we had enough tools that we could pick the best of the best," he says.
Motorola's supply chain chief told his direct reports that they could only conduct five IT projects a year— and they had to be projects that would drive commonality across the organization.
Thanks to that tough-minded and practical approach, 90 percent of Motorola's IT dollars are now being spent on commonly focused projects that help the various parts of the organization run in sync. The company is no longer spending money on one-time applications for a single business unit. "We've held our IT spending flat, and we've become more effective with it," says Reed. For example, Motorola is now developing a single engineering-data system for all of its business units. In another case, manufacturing is working on a centralized system for parts purchasing, and it has begun field-testing an advanced planning system in one business unit that will later be rolled out across the organization.
The sixth and final item on Motorola's supply chain agenda was to create a business culture that prized taking action to drive organizational efficiency. "We said that a strategy that was 80-percent accurate and deployed rapidly was a better approach than a 100percent accurate strategy," Reed says. "By the time you figure out the 100 percent, the world has changed, and you'd have to start over. We shifted the orientation from talking to doing. Judging from the results, we think it's working."
C-level success
Motorola's supply chain transformation is still in progress, but results to date have already allowed the company to meet the goals it set in regard to the three "Cs." Customer service levels have markedly improved, in part because Motorola has cut number of defective parts per million supplied parts, and reduced the halved the number of defects in its total "spills" by 30 percent, units in factories by 20 percent. In addition to boosting product quality, the company has also improved delivery times for shipments to its customers. Some business units have made great strides, moving from a 30-percent on-time delivery rate to the mid-80-percent or low 90-percent range.
In terms of cost, Motorola's Integrated Supply Chain initiative produced a 40-percent improvement in material expenses, product quality, and manufacturing efficiency from 2004 to year-end 2006. Moreover, because its supply chain now operates more efficiently, the company holds less inventory, which has freed up cash. In fact, Motorola saw an 18-percent improvement in inventory turns from 2004 through 2006.
It all adds up to some impressive numbers. Supply chain productivity has risen by 71 percent without adding staff, Reed notes. This improvement is even more impressive given the growth in Motorola's annual sales. "We have achieved more with fewer people, with better quality and at a lower cost," Reed says.
But Reed has no intention of slowing the pace of change under Motorola's Integrated Supply Chain initiative. He has made a commitment to the company's chairman that supply chain activities will achieve a 36-percent improvement in productivity in 2007. He expects those gains will come through a continued focus on key metrics, such as inventory turns, productivity per employee, and further reductions in manufacturing and logistics costs as a percentage of sales. "Great supply chains are maniacally focused on a few set of metrics, where there is a great transparency to those metrics and full accountability for those metrics," he asserts.
It's safe to say that at Motorola these days, the value of having a great supply chain is recognized at the very highest levels. "The best-kept secret over the past several years," CEO Zander recently told financial analysts, "is the phenomenal work Stu (Reed) has done in Motorola's Integrated Supply Chain."
Six Elements of Supply Chain Excellent
The following steps, implemented simultaneously, form the foundation of Motorola's strategy for creating an integrated supply chain encompassing product design, procurement, manufacturing, logistics, and customer service:
Identify "best in class" processes that can be rapidly replicated throughout the organization.
Rationalize the supplier base and strengthen relationships with the remaining key suppliers.
Set quality expectations for suppliers and institute a performance-scorecard system to measure compliance with standards.
Optimize manufacturing and logistics operations.
Focus information technology spending on projects benefiting all business units.
Create a culture of action in order to drive organizational efficiency.
Business software vendor Cleo has acquired DataTrans Solutions, a cloud-based procurement automation and EDI solutions provider, saying the move enhances Cleo’s supply chain orchestration with new procurement automation capabilities.
According to Chicago-based Cleo, the acquisition comes as companies increasingly look to digitalize their procurement processes, instead of relying on inefficient and expensive manual approaches.
By buying Texas-based DataTrans, Cleo said it will gain an expanded ability to help businesses streamline procurement, optimize working capital, and strengthen supplier relationships. Specifically, by integrating DTS’s procurement automation capabilities, Cleo will be able to provide businesses with solutions including: a supplier EDI & testing portal; web EDI & PDF digitization; and supplier scorecarding & performance tracking.
“Cleo’s vision is to deliver true supply chain orchestration by bridging the gap between planning and execution,” Cleo President and CEO Mahesh Rajasekharan said in a release. “With DTS’s technology embedded into CIC, we’re empowering procurement teams to reduce costs, improve efficiency, and minimize supply chain risks—all through automation.”
And many of them will have a budget to do it, since 51% of supply chain professionals with existing innovation budgets saw an increase earmarked for 2025, suggesting an even greater emphasis on investing in new technologies to meet rising demand, Kenco said in its “2025 Supply Chain Innovation” survey.
One of the biggest targets for innovation spending will artificial intelligence, as supply chain leaders look to use AI to automate time-consuming tasks. The survey showed that 41% are making AI a key part of their innovation strategy, with a third already leveraging it for data visibility, 29% for quality control, and 26% for labor optimization.
Still, lingering concerns around how to effectively and securely implement AI are leading some companies to sidestep the technology altogether. More than a third – 35% – said they’re largely prevented from using AI because of company policy, leaving an opportunity to streamline operations on the table.
“Avoiding AI entirely is no longer an option. Implementing it strategically can give supply chain-focused companies a serious competitive advantage,” Kristi Montgomery, Vice President, Innovation, Research & Development at Kenco, said in a release. “Now’s the time for organizations to explore and experiment with the tech, especially for automating data-heavy operations such as demand planning, shipping, and receiving to optimize your operations and unlock true efficiency.”
Among the survey’s other top findings:
there was essentially three-way tie for which physical automation tools professionals are looking to adopt in the coming year: robotics (43%), sensors and automatic identification (40%), and 3D printing (40%).
professionals tend to select a proven developer for providing supply chain innovation, but many also pick start-ups. Forty-five percent said they work with a mix of new and established developers, compared to 39% who work with established technologies only.
there’s room to grow in partnering with 3PLs for innovation: only 13% said their 3PL identified a need for innovation, and just 8% partnered with a 3PL to bring a technology to life.
Even as a last-minute deal today appeared to delay the tariff on Mexico, that deal is set to last only one month, and tariffs on the other two countries are still set to go into effect at midnight tonight.
Once new U.S. tariffs go into effect, those other countries are widely expected to respond with retaliatory tariffs of their own on U.S. exports, that would reduce demand for U.S. and manufacturing goods. In the context of that unpredictable business landscape, many U.S. business groups have been pressuring the White House to pull back from the new policy.
Here is a sampling of the reaction to the tariff plan by the U.S. business community:
American Association of Port Authorities (AAPA)
“Tariffs are taxes,” AAPA President and CEO Cary Davis said in a release. “Though the port industry supports President Trump’s efforts to combat the flow of illicit drugs, tariffs will slow down our supply chains, tax American businesses, and increase costs for hard-working citizens. Instead, we call on the Administration and Congress to thoughtfully pursue alternatives to achieving these policy goals and exempt items critical to national security from tariffs, including port equipment.”
Retail Industry Leaders Association (RILA)
“We understand the president is working toward an agreement. The leaders of all four nations should come together and work to reach a deal before Feb. 4 because enacting broad-based tariffs will be disruptive to the U.S. economy,” Michael Hanson, RILA’s Senior Executive Vice President of Public Affairs, said in a release. “The American people are counting on President Trump to grow the U.S. economy and lower inflation, and broad-based tariffs will put that at risk.”
National Association of Manufacturers (NAM)
“Manufacturers understand the need to deal with any sort of crisis that involves illicit drugs crossing our border, and we hope the three countries can come together quickly to confront this challenge,” NAM President and CEO Jay Timmons said in a release. “However, with essential tax reforms left on the cutting room floor by the last Congress and the Biden administration, manufacturers are already facing mounting cost pressures. A 25% tariff on Canada and Mexico threatens to upend the very supply chains that have made U.S. manufacturing more competitive globally. The ripple effects will be severe, particularly for small and medium-sized manufacturers that lack the flexibility and capital to rapidly find alternative suppliers or absorb skyrocketing energy costs. These businesses—employing millions of American workers—will face significant disruptions. Ultimately, manufacturers will bear the brunt of these tariffs, undermining our ability to sell our products at a competitive price and putting American jobs at risk.”
American Apparel & Footwear Association (AAFA)
“Widespread tariff actions on Mexico, Canada, and China announced this evening will inject massive costs into our inflation-weary economy while exposing us to a damaging tit-for-tat tariff war that will harm key export markets that U.S. farmers and manufacturers need,” Steve Lamar, AAFA’s president and CEO, said in a release. “We should be forging deeper collaboration with our free trade agreement partners, not taking actions that call into question the very foundation of that partnership."
Healthcare Distribution Alliance (HDA)
“We are concerned that placing tariffs on generic drug products produced outside the U.S. will put additional pressure on an industry that is already experiencing financial distress. Distributors and generic manufacturers and cannot absorb the rising costs of broad tariffs. It is worth noting that distributors operate on low profit margins — 0.3 percent. As a result, the U.S. will likely see new and worsened shortages of important medications and the costs will be passed down to payers and patients, including those in the Medicare and Medicaid programs,” the group said in a statement.
National Retail Federation (NRF)
“We support the Trump administration’s goal of strengthening trade relationships and creating fair and favorable terms for America,” NRF Executive Vice President of Government Relations David French said in a release. “But imposing steep tariffs on three of our closest trading partners is a serious step. We strongly encourage all parties to continue negotiating to find solutions that will strengthen trade relationships and avoid shifting the costs of shared policy failures onto the backs of American families, workers and small businesses.”
In a statement, DCA airport officials said they would open the facility again today for flights after planes were grounded for more than 12 hours. “Reagan National airport will resume flight operations at 11:00am. All airport roads and terminals are open. Some flights have been delayed or cancelled, so passengers are encouraged to check with their airline for specific flight information,” the facility said in a social media post.
An investigation into the cause of the crash is now underway, being led by the National Transportation Safety Board (NTSB) and assisted by the Federal Aviation Administration (FAA). Neither agency had released additional information yet today.
First responders say nearly 70 people may have died in the crash, including all 60 passengers and four crew on the American Airlines flight and three soldiers in the military helicopter after both aircraft appeared to explode upon impact and fall into the Potomac River.
Editor's note:This article was revised on February 3.
GE Vernova today said it plans to invest nearly $600 million in its U.S. factories and facilities over the next two years to support its energy businesses, which make equipment for generating electricity through gas power, grid, nuclear, and onshore wind.
The company was created just nine months ago as a spin-off from its parent corporation, General Electric, with a mission to meet surging global electricity demands. That move created a company with some 18,000 workers across 50 states in the U.S., with 18 U.S. manufacturing facilities and its global headquarters located in Massachusetts. GE Vernova’s technology helps produce approximately 25% of the world’s energy and is currently deployed in more than 140 countries.
The new investments – expected to create approximately 1,500 new U.S. jobs – will help drive U.S. energy affordability, national security, and competitiveness, and enable the American manufacturing footprint needed to support expanding global exports, the company said. They follow more than $167 million in funding in 2024 across a range of GE Vernova sites, helping create more than 1,120 jobs. And following a forecast that worldwide energy needs are on pace to double, GE Vernova is also planning a $9 billion cumulative global capex and R&D investment plan through 2028.
The new investments include:
almost $300 million in support of its Gas Power business and build-out of capacity to make heavy duty gas turbines, for facilities in Greenville, SC, Schenectady, NY, Parsippany, NJ, and Bangor, ME.
nearly $20 million to expand capacity at its Grid Solutions facilities in Charleroi, PA, which manufactures switchgear, and Clearwater, FL, which produces capacitors and instrument transformers.
more than $50 million to enhance safety, quality and productivity at its Wilmington, NC-based GE Hitachi nuclear business and to launch its next generation nuclear fuel design.
nearly $100 million in its manufacturing facilities at U.S. onshore wind factories in Pensacola, FL, Schenectady, NY and Grand Forks, ND, and its remanufacturing facilities in Amarillo, TX.
more than $10 million in its Pittsburgh, PA facility to expand capabilities across its Electrification segment, adding U.S. manufacturing capacity to support the U.S. grid, and demand for solar and energy storage
almost $100 million for its energy innovation research hub, the Advanced Research Center in Niskayuna, NY, to strengthen the center’s electrification and carbon efforts, enable continued recruitment of top-tier talent, and push forward innovative technologies, including $15 million for Generative Artificial Intelligence (AI) work.
“These investments represent our serious commitment and responsibility as the leading energy manufacturer in the United States to help meet America’s and the world’s accelerating energy demand,” Scott Strazik, CEO of GE Vernova, said in a release. “These strategic investments and the jobs they create aim to both help our customers meet the doubling of demand and accelerate American innovation and technology development to boost the country’s energy security and global competitiveness.”