Now the company has embraced lean principles throughout its manufacturing process as part of a major turnaround in its operations. And the results are as impressive as Ducati's track record of racing successes: production costs down by up to 25%, throughput time shortened by 50% and motorcycle build quality before delivery increased by 70%.

These results are the culmination of a three-year drive towards achieving a "lean enterprise" led by Giovanni Contino and Filippo Pellerey, joint managing directors of Ducati Consulting, which was set up to mastermind the project.

Founded in 1926 in Bologna, Northern Italy, as an industrial components manufacturer, Ducati produced its first motorcycle engine in 1946 and went on to build a great reputation for off-road bikes. The modern history of Ducati as a superbike maker began in 1972 when its newly introduced 750 V-twin took first and second places in the Imola 200 and gave birth to a legend.

Today, Ducati Motor Holding is one of the world's leading motorcycle manufacturers. It is listed on the New York and Milan Stock Exchanges and has a brand presence in 40 countries worldwide.

The move to lean manufacturing follows the acquisition of Ducati in 1996 by the Texas Pacific Group (TPG). The new parent began by changing the international subsidiary structure and revamping the dealer network, then instigated "Operation Turnaround" in 1999 to improve return on investment.

The new management wanted to fill its newly improved dealer network with motorcycles, so its first goal was to increase production volumes from 12,000 bikes a year to 40,000 within five years. This would have to be achieved in the existing factory space, and without increasing the number of employees.

Ducati's solution was to outsource as many non-core activities as possible and focus its own efforts on assembly and research and development. Pellerey, who headed a five-strong process improvement team, took up the challenge. "We wanted to eliminate all non-value-adding activity, eliminate waste and improve quality, all without any major new investment," he said. "We decided that outsourcing and embracing lean principles were the keys to achieving these targets.

"We started by adopting the Kaizen philosophy and Just-In-Time methodology, whereby you can achieve major change without big investments by taking it one step at a time. We conducted a careful analysis of our production processes, which revealed all of our problems. For example, in the machining shop the machines were laid out in such a way that components had to follow a long and tortuous path to get to the various operations.

"So we improved the material flow and the factory ergonomics and devised a Total Productive Maintenance approach to improve machine reliability. Some of the most significant results in that department included an increase of up to 12% in machine reliability and a reduction of 23% in hourly costs."

The Ducati team also changed the flow logic for the production lines, from "push logic" to "pull logic", using assembly kits carrying the materials needed for only one engine or one vehicle. The kits are made up in areas known as supermarkets that are themselves supplied via a kanban system. This has reduced inventory, obsolescence and error rates and improved flexibility. In combination, these changes have reduced defects by 70% over the past three years.

"As we worked through all these changes, we found that we could cut the cost of our product by 25%, which was a great start," Pellerey said. "Since only 8% of the cost of our product was produced internally, it was necessary to extend, develop and implement the Kaizen philosophy and the JIT methodology to the supply chain."

Since the greatest potential for improvement lay with the supply chain, the team was joined by Giovanni Contino, who at the time was Ducati's purchasing and logistics director. He started to export the company's new lean culture to its suppliers.

"We had 380 suppliers, and the lean philosophy was new to most of them," Contino said. "We had to select only those suppliers who could follow our new approach, and so we ended up cutting back from 380 to just 175. To get them on board, we introduced an integration programme that involved Ducati people and supplier staff working in teams.

"We considered our suppliers an extension of Ducati and so it has been necessary to connect them by the Web to exchange and accelerate the flow of information like production planning, parts price lists, invoices, quality reports and so on."

Sixty percent of Ducati's procurement comes from Italy, because of the rich automotive heritage in Northern Italy, 25% from other EU countries and the rest from Japan. At the moment the first 100 suppliers are directly connected to Ducati's IT network.

Ducati started this process before selecting the enterprise software that would make the lean approach universal, repeatable and scalable. "We wanted to test the lean approach first and then look for the software that could match our vision and make it happen," Contino explained.

IBM was engaged to help find the ideal software solution, as the old IT system based on an IBM AS/400 platform was not up to the task. Each department was consulted and asked to present their requirements for actual needs and future perspectives. The final recommendation, after a software selection process conducted among the major world software providers, was to implement the OracleÒ E-Business Suite.

"Today, it is possible to create the conditions to compete effectively in the market only with an IT system that is entirely Internet-enabled," said Enrico Pirrone, IT director. "The policy we have pursued involves a complex project that has ambitious implementation objectives, which could only be addressed with a technological partner that is reliable, competent and a market leader. That is why, after having assessed various solutions, we chose Oracle."

Ducati deployed the Oracle E-Business Suite in two phases. The first phase was implemented at Ducati North America in 2004 with the support of Oracle Consulting and is now about to be rolled out to the rest of the Ducati network. When the implementation is complete, more than 1,000 Ducati employees will be connected to the system.

The Oracle E-Business Suite is a suite of Internet business applications that automate critical business processes, offering customers choice and flexibility in implementing business applications. Its open architecture and single data model allow applications to be deployed as individual modules, business flows, or as an entire integrated suite. Its back-office systems and supply chain modules will play a critical role in helping Ducati reap the benefits of lean manufacturing principles.

"Oracle gives us the tools to make lean work," Contino said. "The system is extremely fast, it offers very good integration with our suppliers and delivers excellent business intelligence."

Marcelo Di Rosa, Vice President, Application Sales Business Unit, Oracle Southern Europe, is proud of the part Oracle is playing in Ducati's lean enterprise. "Ducati has a special place in motorcycling, with a rich heritage, and it has taken radical steps to ensure it retains its unique position," he said.

"We are delighted that it has chosen the Oracle E-Business Suite to help deliver a lean enterprise supply chain. In addition to the obvious benefits, lean also means shorter cycle times, allowing manufacturers to respond more quickly to market shifts, and greater flexibility. This is especially important in industries like motorcycles where product lifecycles are shrinking."

In the 10 years since TPG acquired the company, Ducati's worldwide sales have increased three-fold. The famous V-twins continue to notch up racing victories and the brand enjoys stronger-than-ever customer loyalty. Placing lean principles at the company's manufacturing heart has clearly paid dividends.

However, Pellerey points out that the lean enterprise is a journey rather than a destination. The next step on Ducati's journey is to move closer to the concept of a demand-driven supply network (DDSN). "Right now, that's something we know we want," he said. "We want anyone who desires a Ducati motorcycle to be able to walk into a dealer and get one in the shortest possible time, but that will require further development of the information process between our dealer network and the factory. We are working on that now."

Pellerey and Contino now run Ducati Consulting as a profit centre, helping manufacturers worldwide - inside and outside the automotive sector - benefit from their own experience in implementing lean principles. What started as an internal improvement drive in one motorcycle factory in Bologna has taken on a life of its own.

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