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.