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May 10, 2007 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

It was Supply Chain or Die for Coats NA

There are all kinds of factors that lead to supply chain transformation strategies. Often, companies know they need to change, perhaps dramatically, but are constrained by the cultural forces of “the way things have always been done.” Or, they are daunted by the sheer cost and effort associated with transformation when big problems may lurk ahead, but aren’t quite here right now.

Suddenly, you look up and see that if you don’t transform your supply chain right now, the entire business is in jeopardy.

All these thoughts came to mind after hearing the interesting story of Coats North America last week, at the i2 user conference. The story is a microcosm of a number of supply chain trends and currents (loss of the U.S. manufacturing base, offshoring, demand-driven supply chains, and the role of supply chain technology). It’s also fun because so much supply chain news is driven off the largest and most recognized business names, and this is a great story of supply chain success from a company that may not be familiar to many of our readers.

Coats NA is a division of its UK-based parent company. Its business is primarily thread, and there’s a lot more of that business than you might know – currently, about $1.6 billion worth for all of Coats PLC. The retail consumer business is certainly part of that, but the bulk is actually B2B – thread for apparel, obviously, as well as a number of specialty uses, from airbags to backpacks. You are quite likely to be wearing a Coats product right now.

Through about the late 1990s, business was good, though the company was running its supply chain in much the same way as it had for years. Through much of the 1990s, there was still a large apparel manufacturing base in the U.S.

That changed rapidly, and according to Michael Shofer, VP of Supply Chain at Coats NA (and a very nice man, as I discovered – he’s also now CIO). Coats suddenly found that 70% of its production assets were in the US, while only 20% of its customers’ factories would soon be - a radical change. While many customers had gone to Asia, there was still a large base that had or was moving to Mexico, the Caribbean, and Central America.

“Our customer base and our asset base were significantly misaligned,” said Shofer.

That powerful realization was paralleled by a hard look in the supply chain mirror. Not only was Coats’ supply chain network in need of a dramatic redesign, so were its supply chain processes and technology.

According to Shofer, Coats used a traditional, weekly, MRP-based scheduling approach. Long runs were used to drive down unit costs, and in some cases were virtually required by existing production equipment. Most manufacturing was make-to-stock, and the small percentage of make-to-order business, mostly for custom items, took weeks to move through the schedule.

“We had high supply chain costs, were holding 70 days worth of inventory on average, with much of that obsolete, and we were an unresponsive, manufacturing-driven organization,” said Shofer.

Starting in 2000, Coats began a challenging but ultimately very successful supply chain transformation. It shuttered plants and distribution centers in the U.S. and set up factories where its customers had moved in Mexico and other low cost locations in the Americas. It was painful, but necessary for survival.

“In some ways, it was a trail of tears, but it had to be done,” said Shofer.

But Coats did a lot more than just move plants and machines. Shofer led an effort to transform the way the supply chain was designed beyond the physical network. New thread making equipment that supported smaller lots and faster cycle times were acquired. New demand planning and supply planning software from i2 was implemented to enable improved forecasting, and to drive a pull-based manufacturing strategy. Production schedules were now sent to plants daily, based on the latest data on SKU movement by location, and prioritized by customer.

“We’ve put our customer segmentation logic into our sequencing application,” Shofer told me.

As always, there was institutional resistance. On the first day of the new scheduling system, plant managers immediately objected that “it didn’t work.” It did, but in a whole new paradigm that had to be accepted. Monthly, detailed Sales & Operations Planning meetings were adopted – another major process change.

Even after all this, a few years into the transformation Shofer found Coats was hitting a wall in terms of continuous improvement. So, they adopted i2’s inventory optimization module to better plan multi-echelon inventories and safety stock levels, and drove another round of improved results (the company still maintains some make-to-stock inventory).

The results speak for themselves: Finished goods inventories are down 48%; slow moving and obsolete inventory, down 63%; average lot sizes, down 55%; lead time for make to order, down from 20 days to one week; solid financial results, while a major competitor that has not taken this type of transformation appears to be struggling.

What’s next? Shofer says a big focus now is further adopting Lean principles across supply chain operations.

The key takeways of this story for me: First, change today can come very quickly to any company or industry – is your supply chain and organization ready to react? Coats did some simulation as they saw their customer base changing, and quantified the likely impact for executives.

Second, at one level Coats knew it had to change well before it did, but the size of effort and investment in plant, equipment and systems seemed a big barrier. It wasn’t until it was clear disaster lurked around the corner that the organizational will for transformation was mustered. We need to work with CXOs to better understand both the risks and opportunities in the supply chain, and often today that means challenging conventional models.

Third, the move to being more demand-driven can be a rough and rocky road, but the barriers are most often ones we have built ourselves. As Shofer told me, customers embraced the new model very quickly – because it simply makes sense.

What is your take on the Coats story? Do too many companies have to be in very difficult circumstances to transform their supply chains? What are the barriers to this type of strategy, and how can they be overcome? Let us know your thoughts.

Let us know your thoughts.


Dan Gilmore


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This Week’s Supply Chain News Bites – Only from SCDigest

May 9, 2007
Global Logistics: Container Volumes Continue to Soar, but Congestion Should Stay Mild, Says Latest NRF Study

May 9, 2007
Will Continued Consolidation in the Metals Market Mean Still Higher Prices for Buyers?

May 7, 2007
Ties between Middle East Oil Producers, Rising Asian Economies Continue to Grow

May 7, 2007
UAW Preparing to Provide Revised Wage Proposal to Parts Maker Delphi to Stave off Showdown

May 3 , 2007
Supply Chain Stocks: Ex-Baseball Star Lenny Dykstra Says i2 Stock is Buy after Big Drop


There were a lot of big moves for the week in our Supply Chain and Logistics stock index. The big mover to the downside was software provider i2, which fell almost 30%, though baseball stat Lenny Dykstra now thinks its a screaming buy (see NewsBites). Logility continued its upwards climb as it rose another 6% for the week and now 30% for the past three months.   

See stock report.


Is Service-Oriented Architecture (SOA) Technology the Wave of the Future?

Will new approach to supply chain application development be a magic bullet, or is it just another overhyped technology? From the RetailWire.

RFID, Used Right, Will Fundamentally Change Distribution Center Operations

Users will Move from a "Periscope" to "Sonar," According to SCDigest's Mark Fralick


Living Supply Chains

by Dr. John Gattorna

Collaboration: How Far Do You Go?

We often worry to much about the competition, and not the enemy within


by Dr. Edward J. Marien and John Kenny

Inventory Management: Improve Product Lifecycle Profitability with End-of-Life Progressive Inventory Disposition (Part 2)

Focusing on the end of a product's lifecycle can have a dramatic impact on the bottom line, especially for high tech manufacturers


Have a supply chain or logistics related questions you need answered?

Ask our panel of experts. See our growing list of questions and answers - share your insight.


Q. What is is the claim to fame of Logisticon, a long gone supply chain software company?

A. Click to find the answer below

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Feedback is coming in at a rate greater than we can publish it - thanks for your response.

We're now really! behind - be patient if your letter has not yet been published. 

We're catching up on a variety of topics. First, Paul Fox of Procter & Gamble wrote to us with a correction to last week's trivia question about the first shipments of RFID'ed product to Wal-Mart. We think P&G and Kimberly Clark are both right.

Our Feedback of the Week is from Peter Goulding of Estee Lauder, commenting on our update on the fascinating potential of a technology from a company called SkyTech Transportation to address port and transportation infrastructure challenges. Goulding also sees the potential (see Curing Transportation Infrastructure Woes Revisited).

We also received an interestingly letter from a sales rep in Austin, stemming from our piece on Wal-Mart and Home Depot releasing more eco-friendly products, and one analyst questioning whether your average contractor buying from Home Depot will care. Our reader says it works for him in automotive repair shops.

Finally, we already received a response to our NewsBite posted earlier this week on former baseball star turned stock commentator Lenny Dykstra saying the stock of supply chain software maker i2 is a great bargain now after a big drop last week (sees NewsBites). Our reader agrees, noting i2's low stock price to sales ratio compared with other software companies.

Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the Week – SkyTech Technology

I really liked the folks from SkyTech (personal point of view, not necessarily ELC’s) and believe they have something good to offer once their prototype is tested. I am on the board of directors for the Health and Personal Care Logistics Conference and SkyTech was one of our speakers during the Fall-2005 session. They were very good. I think we all struggle with the concept, but there has not been any real innovation on how to move product since containerization and before that was the airplane!

Thanks for mentioning Sky Tech and giving the update on their progress…..

Peter Goulding
The Estee Lauder Companies
Exec. Dir. Global Inbound Logistics

On First RFID Product to Wal-Mart:

You posed the following trivia question:

Q.  What was famous about a pallet of Scott Paper towels in 2003?

A.  It was the first product to have its EPC tag read at a Wal-Mart distribution center. Scott is part of Kimberly-Clark.

Just want to put the record straight: That's not true.  The first EPC tag read by Wal-Mart was a pack of Bounty Paper towels in 2002 at a Sam's Club in Tulsa, Oklahoma.  You can find details of that event on the MIT site.  In the MIT technical report "Auto-ID Center Field Trail: Phase I Summary"  Published June 1, 2002 authored by Silvio Albano and Dan Engles you will find on page 16 a picture of Dan and Silvio waiting for the very first ping from the Bounty Paper Towels reaching the Sam's Store in Tulsa Oklahoma

You will also find on page 11 there is a reference on Gillette being an early participant in the field trial

Not sure where you got the Scott Paper claim but it's not accurate.

Paul Fox
ER Leader, Global Operations
Procter & Gamble

Editor's Note: The question and answer came from comments from a Kimberly Clark manager at the just concluded RFID Live conference. We believe the nuance is that he referred to the first RFID receipt to a "Wal-Mart distribution center," while P&G's Paul Fox refers to the first RFID receipt anywhere within Wal-Mart, in P&G's case at a Sam's Club.

We declare both to be right.

On i2 Stock Price:

I totally agree with Lenny Dykstra:.

I have been following i2 for about 2 years and this is a God-given opportunity for me to buy a best turn-around company at 30% discount at already cheap price.

i2 was traded at Price to Sales ratio of less than 2 before sell-off; now it is less than 1.4 - totally ridiculous.

Even a pink-sheeter Broadvision with revenue of $50m is selling at P/S 4-5.

This is totally insane.

George Tsai

Editor's Note: This is obviously just one person's opinion. Software companies especially can have very volatile stock prices.

On Eco-Friendly Products:

Does a contractor go to Home Depot and ask "for all that eco-friendly stuff?”

Not yet.  Wait 3 more months and ask that question again.

Eco-upgrades, I guess you might call them, may indeed tell a prospective buyer that if you care enough about the environment, you care about your work.

Here in Austin, Texas, I have been pounding the streets of the city for 3 years with adequate results  in order to try to get auto repair shop owners to consider buying a very sophisticated Auto Diagnostic Scan system which absolutely requires high-levels of training.

While 80 percent would not even let me begin to talk to them for various reasons, (they had a competitor's grossly-outdated red-thing, they were too busy, etc.),

I decided for different reasons to go to Home Depot and buy 128 compact florescent bulbs in 4-packs and start to give them out to my existing 120 shop customers, and get a few minutes of their time to let them know how concerned about the environment I am.

Then, I decided, what the heck, let me go to both shops whom were not interested and who had seen me once or twice before, and, also to shops where I had not been before.


The shops I had previously seen grew interested that I had concern for something (environment) that was not immediately related to the conversation. In giving a pack of four 100-watt compact florescent bulbs, each and every single person gave me complete respect for the 10 minutes I needed for them then to allow me to talk for another 20 minutes.   Most have committed to at least letting me come by to perform a complete automated diagnostic service on several vehicles (which take about three minutes each).

So, a few words  to the wise should tell you that folks are gravely concerned about the environment. Some are actually saying they are scared. But, while eco-friendliness might have been dismissed in the past,  it is absolutely market-blindness to not see it now.

I had gotten another batch of 128 bulbs and now they are almost gone. I will go to Home Depot tomorrow and buy them out of 100 watt compact florescent bulbs.

I hope this tip pays off for you as it is certainly paying off for me.

Dan Petit
Austin, TX


Q.  What is is the claim to fame of Logisticon, a long gone supply chain software company?

A.  It is generally believed to have offered the first Warehouse Management System based on a Unix platform and using RF terminals, in the mid-1980's. The company closed not many years later (an interesting story we'll share some day), but its alumni remain all over the industry, including its president, ESYNC's John Hill.

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