When the Texas Pacific Group acquired Ducati in 1996, the first order of business was to increase production volumes within the existing factory space, without increasing the number of employees and without major new investment. Analysis revealed extensive internal process problems. Outsourcing and embracing Lean principles were clearly going to be the keys to success, according to Filippo Pellerey, a managing director of Ducati Consulting. Ducati sought an enterprise software solution that was universal, repeatable and scalable. They wanted a technology partner that was stable, competent, and a market leader. They selected Oracle. Learn how Oracle E-Business Suite, implemented in two phases, in North America first and then to the rest of the Ducati network worldwide, has not only resulted in shorter cycle times, greater flexibility and faster response to market demands, it has also improved quality by 70 percent.

As Published In November 2005

Ducati Rides Lean
By Peter Rae

Italy's legendary motorcycle maker drives Lean benefits throughout the supply chain.

The principle of "Lean" has always dominated thinking at Ducati. While other motorcycle brands were busy adding power and weight to their machines, the legendary Italian manufacturer has always believed in keeping weight to a minimum. That has helped deliver Ducati's trademark stability while the bike is leaning hard over into a fast, sweeping bend.

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 are down by as much as 25 percent, throughput time has been shortened by 50 percent, and motorcycle build quality before delivery increased by 70 percent.

These results are the culmination of a three-year drive toward 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 reputation for off-road bikes. The modern history of Ducati as a superbike maker began in 1972, when its 750 V-twin took first and second place in the Imola 200. 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). TPG began by changing the international subsidiary structure and revamping the dealer network and then instigated "Operation Turnaround" in 1999 to improve the 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 noncore activities as possible and focus its efforts on assembly and on research and development. Pellerey, who headed a five-person 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 says. "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 [JIT] methodology, whereby you can achieve major change without big investments by taking it a 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 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 percent in machine reliability and a reduction of 23 percent 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 in areas, known as "supermarkets," that are themselves supplied via a Kanban system. This has reduced inventory, obsolescence, and error rates and has improved flexibility. These changes have reduced defects by 70 percent 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 percent, which was a great start," Pellerey says. "Because only 8 percent 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."

Snapshot Ducati www.ducati.com Location: Bologna, Italy Number of employees: More than 1,000 Annual revenue: €382 million (2004) Oracle products and services: Oracle Database; Oracle E-Business Suite, including Financials, Inventory Optimization, Purchasing, Order Management, Supply Chain Management; Oracle Consulting

Because the greatest potential for improvement lay within the supply chain, Giovanni Contino, who at the time was Ducati's purchasing and logistics director, joined the team. He began the challenging task of exporting the company's new Lean manufacturing culture to its suppliers.

"We had 380 suppliers, and the Lean philosophy was new to most of them," Contino says. "We had to select only those suppliers that could follow our new approach, so we ended up cutting back from 380 to 175. To get them on board, we introduced an integration program that involved Ducati people and supplier staff working in teams. We considered our suppliers an extension of Ducati, so it has been necessary to connect them via the Web to exchange and accelerate the flow of information such as production planning, parts price lists, invoices, and quality reports."

Sixty percent of Ducati's procurement comes from Italy, because of the rich automotive heritage of Northern Italy. Twenty-five percent comes from other European Union countries and the rest from Japan. Right now, 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 explains. IBM was engaged to help find the ideal software solution, because 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 its requirements for actual needs and future perspectives. The final recommendation, after a software selection process among all the major software providers, was to implement Oracle 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," says Enrico Pirrone, IT director. "The policy we have pursued involves a complex project that has ambitious implementation objectives, which could be addressed only with a technological partner that is reliable, competent, and a market leader. That is why, after assessing various solutions, we chose Oracle."

Ducati deployed Oracle E-Business Suite in two phases. The first phase was implemented at Cupertino, California-based Ducati North America in 2004, with the support of Oracle Consulting, and is 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.

Oracle E-Business Suite is a suite of internet-based business applications that automate critical business processes, offering customers choice and flexibility in implementing applications. Its back-office systems and supply chain modules will play a critical role in helping Ducati reap the benefits of Lean manufacturing.

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

For More Information LEARN about Oracle's Lean Solutions

Marcelo Di Rosa, vice president of the Application Sales business unit for 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 that it retains its unique position," he says. "We are delighted that it has chosen Oracle E-Business Suite to help deliver a Lean enterprise supply chain. In addition to the obvious benefits, Lean manufacturing also means shorter cycle times, allowing manufacturers to respond more quickly to market shifts, and greater flexibility. This is especially important in industries, such as the motorcycle industry, in which product lifecycles are shrinking."

In the 10 years since TPG acquired the company, Ducati's worldwide sales have tripled. The remarkable V-twin motorcycles continue to achieve 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 says. "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 are able to run Ducati Consulting as a profit center, 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 become a remarkable success story on its own terms.

---

How Excellent Is Your Company? Rate your company in the areas of process improvement, innovation, and external responsibility according to this matrix, developed by the Association for Manufacturing Excellence's Robert W. Hall, which classifies the capability level that people in an organization have attained. The matrix assumes that the people in the organization aspire to process improvement and rapid innovation—so even the most basic level describes a company that is on the path to excellence.
Organization Class	Process Improvement	Innovation	External Responsibility
A. Enduring Change-resilient	Mastery of process improvement eliminates waste from all new processes very quickly	Capable of transforming its industry; able to adopt new business models	Unifying social mission serves all stakeholders, including general public; aggressively adapts to rapid changes
B. Vigorous Habitually learning	Autonomous improvement and process learning embedded in working culture	Innovates by rigorously learning all base technology; everyone involved in new product development	"Outside-in" focus on customer needs; very attentive to external environment; balances all stakeholders' needs
Working-Culture Gap
C. Proficient Structured flow operations	Core operations integrated; improvement is directed; still coaching on improvement techniques	New product or service development is project-structured; cross-functional collaboration on projects	Good basic service to customers; good cost/quality/delivery; good "corporate citizen"
Enduring (A class) is the rare company that has proven its resilience by surviving a life-threatening cataclysm. Congratulations on being the "cream" of excellence. Vigorous (B class) is a culturally integrated operating business unit. No easy feat. You have bridged the gap between C and B, which represents the biggest transformation in working culture. Such a sea-level change does not occur quickly, because it involves learning how to think and work differently. Proficient (C class) is the first learning stage of a tightly integrated, highly effective operating organization. Most Lean implementations stop at C. But keep up the momentum, or you will never extend yourself to become an "enduring" organization. Sources: Robert W. Hall, "Building a Vigorous Working Culture," Target, vol. 21, no. 3; "Leading the Working Culture Revolution," Target, vol. 21, no. 1.