Tecumseh Products Company unifies global business processes and forecasting while retaining regional strengths.
by Fred Sandsmark, August 2011
Tecumseh Products Company of Ann Arbor, Michigan, is a cool company. Literally. Tecumseh is a top global manufacturer of hermetic compressors—the sealed high-pressure pumps that power commercial refrigeration equipment, residential air conditioners, and household refrigerators. If you’ve been in a restaurant or convenience store anywhere in the world, there’s a good chance that the food and beverages there were chilled by a Tecumseh compressor.
Tecumseh’s compressors are sold in more than 120 countries on five continents, and the company has manufacturing operations in seven countries. Until recently, this sprawling business ran like a handful of independent operations, without centralized data, controls, planning, or processes. As a result, people in one part of Tecumseh sometimes competed with colleagues from another region. Intracompany purchasing wasn’t well coordinated, and global financial reports were tedious to prepare.
To address these challenges, leaders at Tecumseh moved the entire company to a single global Oracle enterprise resource planning (ERP) system starting in 2004, and then added Oracle’s Demantra applications in 2009. The results include globally consolidated financial and supply chain data, improved demand forecasting, and generally more-efficient end-to-end operations.
“There aren’t many systems outside of Oracle that we need to process and complete an order,” says Doug Yenor, who oversaw the implementation as Tecumseh’s CIO and currently serves the company as an IT advisor. “We can take an order all the way through supply chain planning, manufacturing, scheduling, and billing on Oracle.”
Centralized but Flexible
Before Tecumseh adopted Oracle E-Business Suite, each of its four regional divisions had distinct business processes. Each had unique nomenclature for parts, even if those parts were nearly identical to those produced in other regions. Business processes often were tied to a region’s operational strengths. For example, Tecumseh’s Brazilian plants are vertically integrated, producing commodity-type compressors by the thousands—whereas its French operation tends to receive orders for quantities of 20 pieces or fewer, and uses inventory and flexible manufacturing to respond to demand spikes.
The IT environment also varied from region to region. “We had a very decentralized and challenging infrastructure,” says Yenor. “Redundant IT organizations and IT systems existed all over the globe. That fit the model of what Tecumseh was at that time.”
But leadership at Tecumseh knew that the decentralized model was neither smart nor efficient. “Our idea, from an Oracle perspective, was to use the ERP system to bring all these various countries together on a single platform,” Yenor says. “Doing that would leverage not just the technical assets, but the business knowledge that comes from having a single source of truth.” This needed to be done without sacrificing the unique factors that made the regional divisions successful in their geographies.
Oracle E-Business Suite was chosen before Yenor arrived at Tecumseh in 2004, but he oversaw its global rollout. Deployment moved quickly; all countries except France were on the Oracle system by the end of 2006. “The whole idea was simple, common, global business processes,” Yenor says. “That’s why we waited a little bit for France: to give them time to learn, consult with other people around the world, and for us to better understand their needs.” Indeed, the ability to support centralized, companywide business processes while permitting regional flexibility is now seen as an Oracle strength.
“We are able to meet country-specific requirements—such as warehouse management or the way orders are processed—within the standard application,” Yenor says. “There are always going to be different reporting requirements and such, but those are natural extensions of the model. So when we moved into China and Mexico in 2011, we used a standard template we had developed. We just configured new work structures, trained the users, converted a little bit of data, and went live. It works pretty efficiently.”
Tecumseh’s IT staff is similarly efficient. Fewer than 50 full-time IT workers (considerably fewer than the pre-Oracle head count) support 8,500 employees. IT spending is less than 1.3 percent of revenue, compared with the 2 percent typical for global manufacturers. (Data Center operations are outsourced; see “ Oracle’s Sun Hardware: Built to Perform.”)
As Tecumseh adopted Oracle-based business processes, efficiencies rippled throughout the company. Purchasing was streamlined; inventory management and cost visibility improved; and order fulfillment rates increased. Perhaps most impressive, the time needed to close the books each month was cut by 18 days.
Yenor attributes the success of Tecumseh’s Oracle E-Business Suite rollout to his business-oriented IT team. “We have key people who specialize in business process,” he explains. “Think about the traditional Oracle business processes in a typical manufacturing company, like financials, procurement, supply chain, and manufacturing. People own those processes and work with business leaders around the world. They speak business language.” This business-first mindset also helps at budget time, he adds: “It’s not the IT guy asking for money to expand the footprint, it’s the business itself.”
All in the Tools
Because Tecumseh is a manufacturing company, Oracle Advanced Supply Chain Planning was central to this transformation. Wes Howe, Tecumseh’s global director of purchasing and supply chain management until mid-2011, was hired to oversee the Oracle Advanced Supply Chain Planning implementation in 2007, and he found a variety of unintegrated supply chain tools in use when he arrived. “We had to get people off of spreadsheets and other informal systems and into Oracle Advanced Supply Chain Planning,” Howe recalls. “We advised people, ‘The information is in the Oracle system; you just needed to harness it.’”
Howe admits that he needed some convincing himself. “I had been an SAP guy,” he recalls. “When I came here and started using Oracle Advanced Supply Chain Planning, I was relieved to learn that it, and the core Oracle apps, were broad enough to do discrete manufacturing, flow manufacturing, and warehouse management. The integration was there. The toolset contained the answers.”
That was good news, because there was clearly room for improvement. “With Oracle Advanced Supply Chain Planning, we were able to make quantum leaps in our order completion rates,” Howe says. “We ended 2010 at about 85 percent, and we’re approaching 90 percent now—all through better use of the toolset.”
The gains were greatest where Tecumseh needed them most. Customers that required large volumes of identical products—about half of Tecumseh’s business—already enjoyed high delivery percentages. But the rest of the business—the short runs, often of compressors used in commercial refrigeration applications—were harder to plan for and therefore lagged behind. But by using the Oracle system, management was able to dramatically improve a part of the business into which they previously had minimal visibility.
“Having all of the information in Oracle E-Business Suite including Oracle Advanced Supply Chain Planning helps us generate our safety stocks and material plans and provides better visibility into our supply chain,” Howe says. “It allows us to react to changes in demand much faster and with a lot more complexity, and that has really driven customer satisfaction.”
The improvements were made without enforcing cookie-cutter processes that would hamper the regional divisions. Oracle Advanced Supply Chain Planning is flexible enough to allow different parts of Tecumseh to adopt practices and operations that meet their specific needs, Howe says, while still conforming to the company’s global reference model. “The model we have in Oracle Advanced Supply Chain Planning for inventory optimization, for example, allows each plant to conform to about 80 percent of what we want,” he explains. “But it also gives them flexibility to make operations unique to their demographics, their inherent business practices, and the regions they supply.”
In spite of Oracle Advanced Supply Chain Planning’s strengths, the solution didn’t give Tecumseh a long view of customer needs and other market factors—what’s known as demand planning. “With demand planning, you push the discussion of what to manufacture toward the customer,” Howe explains. “The salespeople are interacting with customers every day. How do you factor in their knowledge and bring it into the operations and supply chain organizations? Oracle Advanced Supply Chain Planning couldn’t really identify trends and didn’t allow the salespeople to pass information to the operations team.”
But Oracle’s Demantra applications could, and Demantra’s ability to flexibly receive and present data proved a good match for Tecumseh’s global footprint. Howe explains that Oracle applications allow each person to speak his own language—and not just English, French, or Portuguese (although multilingual capability is built into the software). He means that salespeople, accountants, and supply chain and manufacturing people can all interact with the software in ways familiar to them. “They get to see their information the way they want to,” Howe says. “Demantra breaks down barriers inside the company. It allows the cross-functional communication that every company dreams about, without asking people to change the way they do business.”
That cross-functional communication is important for the success of a demand-planning initiative, according to Doug Thomas, associate professor of supply chain management at Penn State and an expert on demand and supply planning.
“Quite often, demand planning initiatives grow out of the manufacturing and inventory planning side of an organization,” Thomas explains. “These people say, ‘We’d really like to know more about what the sales force knows. How can we do that?’” Tools like Oracle’s Demantra, which are built on the concepts of demand planning and the related discipline of sales and operations planning (S&OP), were first created and have further evolved in manufacturing companies to enable that communication.
Before Demantra applications were implemented at Tecumseh, three different departments—sales, finance, and operations—calculated material forecasts approximately every quarter from their own numbers. Demantra applications enabled them all to generate monthly forecasts from a single source of data—what’s called one-number forecasting.
The benefits of one-number forecasting helped convince Tecumseh’s employees to use Demantra applications, according to Howe. This improved a host of business operations, including customer service, labor variances, material variances, and others. These improvements were borne out when Demantra applications were initially deployed in 2009; without any change in inputs, back-tested forecast quality improved by 20 to 30 percent.
As users realized that additional input further improved forecast quality, they responded accordingly. “Demantra has changed behaviors on the input side,” Howe explains. “Salespeople now think of new ways to engage with customers, so the input they give to Demantra is better. They’re thinking in terms of months rather than weeks.”
That long-term view can help a company like Tecumseh get the most value from its S&OP process, Thomas says. “The ideal S&OP process looks three or more months into the future,” he explains. By doing so, the focus extends beyond matching supply and demand in the short term; it expands to include anticipating disruptions, adjusting for changes in commodity prices, prioritizing markets and resources, and looking for ways to support emerging markets.
Taking a longer view also allows demand planning and S&OP to help with risk management, Thomas points out. “If you have a process in place where the stakeholders in an organization are engaged in a forward-looking process, you have the necessary elements to do scenario planning and continuity planning,” he says. “It provides the right forum to do the planning that lets you be better prepared for an event.”
The uptake of Oracle’s Demantra applications at Tecumseh has been widespread and enthusiastic. “The reason we had grassroots acceptance, and the willingness to change, was due to the shorter feedback loop,” Howe says. “Salespeople see that the forecast impacts their own department, but they also get to see how it impacts others. And the operations team is accountable to the manufacturing plan, just as the sales team is accountable to increase the forecast accuracy. That just didn’t happen before.”
While employees in each region of Tecumseh still organize their operations in different ways, the data they collect is consolidated on a corporate level. This enables company leaders to make decisions based on the big picture; it also improves intracompany cooperation. For example, Tecumseh’s French division buys parts from the company’s Brazilian division; in the past, employees in Brazil had to forecast France’s demand based on history, but now that demand is calculated based on French sales forecasts. “The S&OP process allows us to realize what the demand is across the whole company, to look at trends, and to devise a plan based on the best use of resources—capital, machinery, cash, or people—like we’ve never been able to do before,” Howe says. “It smooths out the whole value chain and creates a lot of efficiencies.”
Oracle’s Demantra applications have also piqued interest in some surprising corners of Tecumseh. The company’s finance and treasury departments are investigating ways to use it for financial and/or foreign-currency forecasting, and the purchasing department is exploring how Demantra applications can improve their ability to hedge copper, aluminum, and other metals purchases based on sales plans.
One of the regional human resources departments is even using Demantra applications to plan for its labor requirements. “My team didn’t push the HR aspect of Demantra,” Howe says. “Someone just saw the information in the tool and said, ‘I can use this.’”
“If you can measure the success of a system based on popularity, then Demantra far exceeded our expectations,” Yenor says. “We’ve got four or five times more users than we anticipated. Which, by any measure, is pretty cool.”