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:
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
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
Finally, of course, in 2005 NPDS has plans for a massive RFID roll-out.
Have a great holiday!