As a member of the Greater Phoenix Economic Business Council (GPEC), I am encouraged to see the investment in solar and other renewable energies in Arizona and across the Southwestern US. I recently read a great article by Alan Fisher, Sr. Writer for Tech News Arizona entitled " SOLON Corp. Expansion Reflects Success for Solar Power Partners ." This article outlined Solon's expansion strategy for its Tucson manufacturing facility. SOLON primarily builds Photovoltaic solar cells for the utility, municipal, solar fields, small business and residential markets. It was the manufacturing process outlined in the article that most intrigued me and formulated the question -- does the company have an integrated supply chain strategy to support long term profitability? I also had to ask myself, how would BDM Consulting complete a Supply Chain Lean Assessment for Solon to support such an integrated supply chain strategy? Like I have done with all my clients, I would first align with Solon's corporate strategies and analyze potential islands of pain in the manufacturing process to mitigate excessive cost and business interruption risk. All of the work BDM does highlights tangible opportunities for the client to return cash to its cash flow. This includes recovering the investment made in BDM for the consulting services.

Alignment to Corporate Strategies:

I always try to make sure I clearly understand a company's products, strategies and financial health as part of any Supply Chain Lean Assessment. I took a quick look at the financial information shared in the SOLON Q2 Conference Call published on their website.

• Sales are down -71% from 410.6M euros in 1H2008 to 119.4M euros in 1H2009; EBIT has declined from 31.5M euros in 1H2008 to -52.6M euros in 1H2009; and profit is down from 17.9M euros in 1H2008 to -110.1M euros in 1H2009.
• Ongoing price erosion reduced margins resulting in inventory write downs and sale of inventories below manufacturing costs

I recognized that these financials are for the holding company and I would need to break out these numbers relevant to the Tucson facility in order to effectively evaluate site performance. In its report, the company outlined several restructuring programs. These included focusing production and sales activities on core markets such as the US; increasing new business line Rooftops to service growing demand for large rooftop installations; reducing internal personnel costs and a general company wide cost cutting program. With the significant reduction in revenue between 1H2008 and 1H2009, I can not help but inquire on what was done to optimizing strategic sourcing and supplier management during this same period of margin erosion? How effective was Supplier Management during this financial downturn?

Manufacturing Process:

According to the Fisher article, the manufacturing process consists of the following major steps:

1. Iron tempered white glass is received, inspected and washed
2. Purchased solar cells are lasar soldered together in 6x6 long panels
3. Solar cells panels are encapsulated in white glass
4. Through the use of robotics. panels are framed to seal them
5. Junction boxes are added
6. Final assembly completed and panels are moved to testing and quality control

In an actual assessment, the client would receive a detailed value stream map of these main process along with the supporting processes. The value stream map refers to all of the activities a company must do to design, order, produce, and deliver its products or services to customers. It primarily focuses on the flow of materials from supplier receipt to customer delivery, the transformation of raw materials into finished goods and information flow. This tool allows me to visually "look" and the clients processes and "see" the potential gaps to drive continuous improvement. The Islands of Pain become very visible through this process.

Islands of Pain:

There are several islands of pain I would analyze if I were conducting a Supply Chain Lean Assessment. These observations are without physically doing the assessment and are based off of the read article and the company's supporting documentation on their website. Let me share a few of them in this blog to illustrate the value of the Supply Chain Lean Assessment process and the benefit to the client. Accept it as free consulting.

• I would want to know the suppliers of the core raw materials such as the tempered glass and solar cells. Is the tempered glass single sourced? What do the delivery logistics look like and are there on-time-delivery performance metrics? How are the contracts managed to insure suppliers are held to the contractual obligations.
• Was there a hedging strategy implemented and tied to contractual pricing as commodity prices began to decline was Solon able to take advantage of price reductions with their suppliers to maintain margins? It does not look like it according to their financials.
• I would review the providers of the solar cells given their sensitivity and criticality to the manufacturing process. What does the multi-source strategy look like for these suppliers and how far away from the manufacturing facility are they? Is there an opportunity to have vendor management inventory or consignment inventory for this raw material on sight, with the supplier, or with a 3PL provider?
• I would look at the asset demand for indirect/MRO materials that support the manufacturing equipment and to mitigate any business process risks. Is there an effective planning process? What systems are used to manage the materials and are the inventory order points set correctly to mitigate high capital investment in spares?
• Is the procurement organization focused on just buying (transactional purchases) or strategic sourcing as commodity managers?

The final step after analyzing the islands of pain would be to develop concrete recommendations and the BDM team can support the client in implementation. BDM is a team of practitioners including engineers and technologist who have grown their careers in manufacturing and have completed these types of lean assessment activities for a number of clients. We have helped our clients save millions by mitigating excessive cost risk in their manufacturing capabilities and optimized their inventory. As I continue to consult in the Oil & Gas, Utility, and Manufacturing sectors, I see that companies are very focused on the tactics of procurement rather than the higher value discipline of strategic sourcing and supplier management. This latter activity requires clear alignment with organizational objectives and deliverables for long term company success. More information on the BDM Supply Chain lean assessment can be found on the BDM Consulting Inc. web site. Again, as member of GPEC I am committed to driving effective supply chain strategies for the organization and our clients to develop a robust and sustainable solar supply chain ecosystem for long term economic development and success. Solon is pretty direct in their corporate motto of "Don't leave the planet to the stupid". I look forward to investing well tested intelligence into developing effective supply chain strategies for the Solar Industry and renewable energy.