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First Thoughts
  By Dan Gilmore

December 16, 2004

The North Pole’s Turbo Supply Chain  

This is our last issue for 2004 – thanks for another great year. As in 2003, this year’s final SCDigest features a “best of” review – three of our most popular “News and Views” items from 2004, along with nearly a dozen of the best “Feedback” responses we received from readers. There are some great ones – please take a look. We also received dozens of letters on last week’s “Blah, blah, blah” column – will print a selection when we get back.

You’ll also see nearby information on two RFID-related web seminars we’re running in late January and early Feb 2005. There’s a small charge for each, but if you want real insight, and detailed, practical information you can really use to make better RFID decisions, you’ll want to attend. Both will have information we just don’t think is being provided anywhere else.

Finally, we recently took a trip to the North Pole, and found a supply chain that really rocks. Case study below:

Santa’s Supply Chain

It was a long, cold journey to the North Pole, but we think we’ve finally found the world’s greatest supply chain at Santa Industries Inc.

It starts with the integrated supply chain organization Santa has developed. The Chief Supply Chain Officer has end-to-end responsibility for total supply chain performance. Created as North Pole Distribution Services (NPDS), the group serves each of Santa Industry’s major divisions (child-direct, OEM, and reseller channels).

NPDS meets quarterly with Santa and the division heads to ensure its supply chain strategies and execution are well-aligned with overall corporate goals. That corporate direction is then linked to NPDS-specific strategies and objectives that optimize total cost and service performance across the total supply chain – individual functional heads (manufacturing, procurement, distribution, etc.) then have individual objectives that are totally consistent with these larger objectives. For example, while the toy manufacturing group used to be measured on yield and cost per toy, frequently leading to production of toys for which there was insufficient demand but which drove down units costs, now production is totally driven by demand and supply chain cost.

Integrated Sales and Operations Planning is a key element of that transformation. The business unit heads and NPDS managers meet monthly and agree on a consensus, rolling 15-month forecast. The S&OP process is owned by the businesses. There is active participation from sales, generated though a combination of clear management direction, incentives, and the recent release of a new a sales force automation system for entering customer forecast data that the elf account manager can easily use and actually don’t despise. Reports, reviewed each month by Santa himself, measure whether each major contributor to the forecast is improving or degrading the result, based on accuracy and impact on the plan.

The great news, of course is that end consumer demand forecast, in terms of letters to Santa, is easily obtained.

Santa Industries has taken supplier collaboration seriously. The SSN (Santa Supplier Network) is a web-based portal that provides a variety of information and functionality to suppliers. The SSN allows suppliers to receive and acknowledge purchase orders on-line, view Santa Industries’ production schedules and component and raw material inventory requirements, and actually see all the way through to end user demand. Suppliers update their own inventories for Santa buyers to see, and generate bar coded shipments with carton level ASNs for all shipments. When a supplier shipment is about ready, the supplier uses the SSN to request inbound transportation information, and within four hours receives routing details. The system enables NPDS to use multi-stop truckload and inbound pools, dramatically reducing inbound freight costs.

The entire RFQ and sourcing process has also been put on-line, and Santa Industries regularly meets to decide which goods can be sourced using on-line auctions and which should be sourced more collaboratively. For the later items, Santa Industry engineers, manufacturing personnel and buyers meet regularly with suppliers to design products and components collaboratively, with a focus on lowest total supply chain costs, not just lowest component costs. Amazingly, Santa Industries has found that suppliers often have good ideas.

The supply chain itself is optimized on a continual basis. NPDS purchased a network optimizer tool several years ago, and consistently uses it as a guide whenever an important new supply chain decision needs to made.

Of course, even Santa Industries has had to go offshore for some of its components. A global total landed cost engine helps NPDS buyers to accurately assess total cost of various offshore alternatives, including transportation, duties, tariffs and other costs. Last year, a new supply chain visibility and event management system was installed, allowing NPDS to be alerted to any inbound exceptions, and actually compare those exceptions to real supply chain needs (e.g. will a delayed shipment actually impact production schedules)?

Of course, production itself has gone “lean.” The VP of Manufacturing has adopted a hybrid strategy, going make-to-order for most goods, and make-to-forecast for a few high volume products with relatively stable demand (such as Barbie and Slinky). Widespread use of postponement strategies have reduced finished goods inventories and increased flexibility, and key suppliers deliver “just-in-time” from the SSLC (Santa’s Supplier Logistics Center) nearby the main plant. With much effort, supplier variability in terms of lead-time, fill rates and quality has been reduced to almost zero.

Santa’s main distribution center is a sight to behold. At 4 million square feet, it’s one of the world’s largest facilities. A real-time warehouse management system is of course required to run such a complex. The facility makes extensive use of task interleaving, literally combining dozens of DC activities (putaway, replenishing, order picking, sleigh loading, cycle counting) in a dynamic queue. The wave planning system enables managers to easily see the total impact on various order picking areas and balance the workload across those areas before work is released to the floor. The DC elves have been on engineered standards and incentives for three years, leading to a 12% gain in productivity. Slotting optimization tools and disciplines have also been deployed – and NPDS has actually been able to make them work. The WMS automatically re-configures itself to optimize performance based on the workload profile for each day/shift.

The WMS and transportation system are fully integrated, allowing NPDS to make optimal decisions that balance transportation and order picking and other DC costs. Unbeknownst to many, Santa actually has to use many sleighs and fake Santa drivers to get the job done Christmas Eve, and the TMS optimally builds thousands of consolidated sacks that maximize cube utilization and minimize total air miles.

Lastly, each key NPDS exec and manager runs a real-time dashboard, where they get real-time and historical information about supply chain performance, see their alerts and important notices from the event management system, and access other key functions. “Performance to plan” has never been higher. Part of that is certainly due to the fact that NPDS makes a significant investment in time and dollars to employee training, from executives to the elves on the floor.

Finally, of course, in 2005 NPDS has plans for a massive RFID roll-out.

Have a great holiday!


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