Below
we summarize some of the key stories or lessons
picked up from the Manugistics event in late October.
Supply
Chain Transformation
Several
companies relayed how they had fundamentally
changed business
models and/or
supply chain strategies
to drive new
levels
of performance.
The
Scott Company:
Perhaps
most impressive was The Scott Company (the lawn
care Scott's), which has seen dramatic revenue
growth over the past decade, driven in part
by
several major acquisitions (e.g. Miracle Gro).
But at first, the resulting
supply chain was a mess.
Scott's has changed from running five separate
supply chains to one centralized supply chain,
under the leadership of Executive Vice President
Michael Kelty. A key observation: at first,
Scott's tried to ignore the powerful consolidation
trends
in its retail channel base. The dramatic change
in Scott's has occurred in part because it
decided to take advantage of this dynamic, rather
than
be a victim of it.
It
struggled at first with its results of an SAP
implementation. But it really needed SAP to operate
as a single organization, driving substantially
improved results when it got its cross-SBU business
processes right, developed one centralized supply
chain organization, and deployed demand planning/fulfillment
and other solutions from Manugistics. The Scott
Company has moved to POS-based replenishment
models,
and rapid delivery though a series of full service
line mixing centers. It is on full "co-managed" inventory
status with many of its key retail customers,
including Wal-Mart.
On
the people side, one key was changing compensation.
Execs across the business are now bonused based
on overall company return on invested capital,
customer service and cash flow - all key metrics
for evaluating supply chain performance. The results
are apparent - in addition to significantly improved
financial results (stock price, profits, return
on capital), Scott's was named supplier of the
year by Wal-Mart and Home Depot.
I
came away thinking I am going to take a look
at Scott's stock!
Cingular
Wireless:
Cingular,
a combination of the wireless businesses of SBC
and Bell South, had a different sort of problem.
After the company was formed, despite large and
rapidly growing sales, the company really had
no formal supply chain organization.
The
presentation focused on the network equipment
side, not the handset business. But given the
huge amount of inventory required just to build
and maintain its wireless network, Cingular
had enormous opportunities to take costs out
of the
system and maintain demanding service levels
through
improved demand/supply planning. The company
also has the interesting situation that when
part of
the network is down, in addition to customer
satisfaction issues, it is also literally losing
revenue from
calls not made.
A
formal forecasting process, a version of sorts
of "sales and operations" planning (more like
network needs and operations planning), has improved
forecasting and substantially cut inventory levels
of these network parts. A few key takeaways:
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Change management,
which was substantial here, is a lot more
than "training." It takes substantial communication
and efforts to get buy-in. |
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Success was in part the result
of actively engaging field technicians, both
getting into the field to better understand
their jobs as well as to participate in defining
and deploying the new processes and tools. |
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Understand your supplier's
supplier chain. Cingular made a lot of improvements
when it spent time with suppliers to understand
why they do things the way they do. |
Bacou-Dalloz:
A
story in progress is Bacou-Dalloz, a recently
formed entity resulting from a combination of
several companies, but already about $2 billion
in sales of a variety of personal and industrial
safety/hygiene products.
VP
of Supply Chain Peter Moore has had to really
create a formal supply chain organization and
corresponding set of processes. This includes
formal sales and operations planning, which didn't
exist before. A former consultant at Cap Gemini
Ernst & Young, Moore has several excellent
observations that he has put into practice at
Bacou:
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Follow these steps
for a new initiative: learn, certify [validate],
and then automate. |
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Don't reinvent the wheel - there
are several good models for Sales and Operations
Planning - S&OP - (SCOR, APICS). Pick
one and go. |
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Forecasting, even under a
S&OP umbrella, can't be a "black box" exercise
that some central group of planners manages. "Send
us your data and we'll send you back a plan." |
Moore
is rolling out a S&OP process across divisions
that puts ownership of the forecast in the
business
units, even if it is powered and facilitated
by centralized supply chain technology and
forecasting
talent. Planning meetings involve a financial
officer, a planner, marketing or business manager,
and customer service managers. B-D uses web-based
tools to roll-up various forecasts into the
demand
planning system, which it combines with actual
sales data and history.
The
results aren't completely in yet, but Bacou has
clearly got its arms around how to manage the
sales and operations planning process on a global
basis.
Use
of the Web for Information Sharing/Collaboration
is (Quietly) Growing
As
noted in First Thoughts, I was impressed with
the progress companies are really starting to
make in use of the web to share supply chain information,
several years past the first wave of hype about
all of this. Many companies gave presentations
that showed how use of web-based collaboration
tools (sometimes totally from Manugistics, sometimes
embedding Manu tools in homegrown web apps) was
significantly increasing performance. These examples
include:
Harley-Davidson
runs a $600 million parts and accessories business,
with some 60,000 SKUs. As overall business
and SKU counts have grown, it has led to inventory
bloat. In general, runs a low inventory turn
business - has set goals to reduce inventory
by 40% by 2010 (get to 15 turns/year) with
stretch goals
of another 30% (20 turns).
Need
to dramatically reduce inventories at stores.
At current SKU growth rates, dealers would
either
have to physically expand, or cut back on what
products they stock. Better alterative: reduce
quantity of each SKU through better forecasting
and faster replenishment.
H-D
is trying to synchronize its supply chain, or
operate as "one logical enterprise" by moving
to a more "virtual inventory model," utilizing
more direct ship to dealers from suppliers, high
velocity DC cross dock models, and more flexible
product movements (e.g., moving parts from Europe
to Japan, rather than normal flows from central
US DCs).
H-D
has developed web portals for both suppliers
and customers, both for transactions (purchase
orders,
dealer orders) and to share information (production
schedules, forecasts). H-D is recommending replenishment/order
quantities for some 130 dealers currently.
One
key insight was H-D's strong focus on reducing
variability, which it found was a significant
driver of inventory buffers. Recognizing there
was little it could do about customer demand
variability,
they are focused on reducing supply variability:
lead times (both length and consistency), quality,
flex capacity.
This
Canadian retailer (443 stores, 1700 suppliers)
was really one of the first to begin actively
collaborating with key suppliers using a CPFR-like
process. In 1998, it began to share order level
forecasts (levels 6-9 of the formal CPFR model).
It seems so simple, it's amazing more aren't
doing
it: C-T created a demand plan, updated its planned
orders, shared those with suppliers, and reconciled
any important discrepancies between the plans
on each side.
C-T
is now performing the full CPFR model (steps
1-5, plus what they were already doing) with
about
30 key suppliers. It's finding a lot of benefit
especially in the early first steps - joint business
plans and strategies with its suppliers. Each
party benefits a lot from learning the other's
supply chain. The presentation was missing any
clear metrics showing success, but from a business
process perspective C-T is clearly on the leading
edge.
Sun
has a complex supply chain, with the usual high
tech challenges: short product lifecycles, outsourced
production, multi-tiered supply and distribution
channels, complex product configurations, etc.
Sun
is using web-based collaboration tools and
demand planning functionality to manage the process.
It drives a formal sales and operations planning
process that produces a rolling six-quarter forecast,
and a detailed weekly plan for execution. Feeding
this are web-based tools used by channel partners,
its own sales force, and suppliers.
As
is typically the case, the real key for Sun has
been using the technology to power a process.
But as important as the process change has been,
Sun said with its scale it simply could not manage
its forecasting process without the process automation.
One interesting thing Sun added was that they
had been unsuccessful in getting customers (end
customers of Sun's servers) to collaborate on
purchasing plans, at least at the detail level
that would be needed to really benefit.
Your
Thoughts?
There
was a lot more, but I think this provides a
good feel for the way companies are improving
their
supply chains. Any surprises or disagreements? Let
us know your thoughts.
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