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  First Thoughts

    Dan Gilmore


    Supply Chain Digest


April 15, 2016

Trip Report: University of Tennessee Supply Chain Forum

Interesting Presentations from Caterpillar, Unilever, Procter & Gamble, Mondelez and More

This week I am fresh back from Knoxville and the University of Tennessee's Spring Supply Chain Forum

I have presented at many university supply chain forums in the past, including Penn State (several times), Georgia Tech (several times), MIT, Harvard, University of Wisconsin and maybe one or two others. The basic structures are the same: a group of companies (generally in the 20-40 range) pay a decent size fee to belong to the forum, in return for which they usually receive in part two events per year featuring presentations from practitioners and others.

Largely but not totally, the sponsoring companies tend to be either in the general geographic region or have supply chain execs that graduated from a given university.

Gilmore Says....

Most interesting, Negrescu said Mondelez has managed to take most product development responsibilities away from brand managers. A new best practice?

What do you say?

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So earlier in the year, Dr. Paul Dittmann (ex of Whirlpool) who runs Tennessee's Global Supply Chain Institute and assists Dr. Ted Stank with the Forum inquired if I would come down and present on supply chain trends. After the demand for my standard speaking fee was quickly rebuffed, I said Yes anyway, as I was planning on issuing a new set of supply chain megatrends sometime this year as it was.

I managed to get the new trends finalized a good 24 hours before my presentation on Wednesday morning, to what was a very large crowd for these type of Forum events (Tennessee does as good a job as anyone at marketing their Forum and especially their research). My presentation seemed to go over very well, with dozens of people complimenting the work afterwards. The new megatrends for 2016 will be released here in this column in coming weeks.

It was a quality event, with a number of excellent speakers. I have seen Frank Crespo, VP and chief procurement officer at Caterpillar, speak before, but he keeps updating the presentation, so I am always happy to hear him again.

Let me first say that what Cat is doing in many areas is simply incredible, "engineering" the supply chain (vendor, sourcing point, flow path, inventory levels and more) for literally every one of the hundreds of thousands of parts Caterpillar sources or makes. How this is even possible I am not quite sure, but it is saving the company I am guessing many tens of millions of dollars annually if not more.

Caterpillar is also on the leading edge on the Internet of Things, with nearly all of its some 3 million machines in the field equipped with sensors and wireless data connections. Caterpillar can now see in detail how each is actually being used, both in terms of efficiency and optimal performance. Crespo told an anecdote of a technician in Peoria who saw an operator of a piece of mining equipment in Virginia was shifting the motor in neutral when coming back down the rock pile, and who then called the driver to make user he understood that practice can lead to premature transmission wear.

"Every decision impact time and money," Crespo noted.

Caterpillar has built a slew of analytics and visibility tools to support its managers. He observed that many companies sort of assume the information on a manager's screen is accurate and timely. Often not the case, Crespo said, and the reason why Cat has been so focused on improving the flow of supply chain information to optimize the flow of materials. "You have to attack problems with the information flow with the same rigor you do with issues with the material flow," Crespo said, but noting that is harder because you can't see it in the same way.

Wendy Herrick, VP of supply chain in North America for consumer products giant Unilever, spoke on "Leading with Purpose," which detailed the company's aggressive efforts at sustainability and making the world a better place.

I did not know that much of this mindset comes from the company's founding days, when in the 1880s William Lever started what would ultimately become half of Unilever by marketing a new kind of soap that he hoped would "'make cleanliness commonplace," and " lessen work for women."

Now, Unilever aims to "make sustainability" commonplace, and is aggressive as any company towards that end.

For example, when Unilever measures its carbon footprint, it not only counts the CO2 emissions of its own operations and that of its supply chains, but also the CO2 that might be released in its customers' use of the product. That contributes to the fact that its total Unilever greenhouse gas emissions rose 4% from 2010 to 2015 - but that is as compared to a 21% growth in sales.
Unilever has achieved zero waste to landfill I believe at all its operations worldwide, well ahead of schedule, and goes so far as "dumpster diving" with some of its some of its suppliers to help them down the same path.

It's a fine story, though I was less enamored with the notion that each of the company's many brands needs to also have a purpose. I must not be alone, because when Herrick asked the crowd if anyone knew the "purpose" of Dove soap, Hellman's mayonnaise and one other brand, no one raised a hand. Must my mayonnaise have purpose beyond making a turkey sandwich taste better? Maybe I am simply behind the times.


But Herrick said Unilever's results prove that sustainability wins in the market. Only 8% of publicly traded companies have increase both revenues and profits every year over the last 10 years. Unilever has a strong eight-year streak going, and expects many more.

Procter and Gamble's Joe Shields and Jason Merrick and Lance Sauders of Virginia Commonwealth University presented on a model and simulation of P&G's lipstick supply chain that Dr. Mary Holcomb of Tennessee was also somehow involved.

The 36-44 lipstick shades P&G markets have to be turned over every six months, and only 5-6 of those shades are likely to be big sellers - but it is very hard to forecast which ones those will be the winners, at least until very close to launch or after. That's a problem, because some of the SKU-specific components of the lipstick and packaging come from Asia with long lead times. P&G traditionally compensated by acquiring too much inventory of everything, with large supplies even for the majority of the SKUs that turn out to be dogs.

Greatly simplifying, if P&G went to local/nearsource supply versus Asia, it could substantially reduce lead times. That in turn would allow it use a later stage forecast that historically was much more accurate. But the VCU model showed that the faster lead times, allowing smaller product runs, had the bigger impact in terms of reducing safety stocks while maintaining very high service levels than did use of the more near term forecast (as I guessed when the question was asked).

What I don't understand is why a combination of the network planning and inventory optimization tools I know P&G uses couldn't have answered these questions, rather than needing a separate, outside modeling effort. The answer I received in part was that the VCU model allowed the "isolation of variables" better than such packaged tools. So custom modeling apparently is still required to get the job done in some (many?) cases.

There was an interesting session on "platform thinking" in the consumer packaged goods world by Cristian Negrescu of Mondelez and Mike Burnette of Tennessee, ex of P&G. "Platforms" of course make obvious sense in areas like automobiles or construction equipment, but in consumer packaged goods too?

The answer is Yes, and it is currently a pretty hot topic, though Burnette says very few companies are doing it well. What does it really mean though? Well, it has in large part has to do with supply chain simplification, achieved through SKU rationalization and standardization of formulas, processes and equipment across the globe.

Negrescu, for example, said he was too embarrassed to tell us how many different dimensions of its Oreo cookies the company was producing globally. Just standardizing that diameter has led to some $100 million in savings from lower material cost and being able to move production to a much smaller number of total lines.

Still not sure what a CPG platform is? Burnette said "Think of liquid in a bottle." So that could be a platform that defines equipment, processes, many materials and more that cross different product categories for a CPG company.

Most interesting, Negrescu said Mondelez has managed to take most product development responsibilities away from brand managers. The marketers still define product requirements, but a combination of supply chain and R&D take it from there for new product introductions to get maximum leverage and maintain SKU/platform discipline. It wasn't easy. An emerging best practice?

There is more, but I am out of space. Good job by the Forum. As a final note, there is an air show this weekend in Knoxville, and while awaiting my flight at the airport, we were treated to several practice sessions by the Navy's Blue Angels. I have seen them before, but they are very cool as always. Nice way to end a good couple of days in the Volunteer state.

Any reaction this trip report on the University of Tennesee Supply Chain Forum? Should supply chain and R&D wrest more control of NPI from marketers in the CPG world? Is custom modeling still the answer to many supply chain problems? Let us know your thoughts at the Feedback section below.

Your Comments/Feedback

Zach Zacharia

Associate Professor Supply Chain Management, Lehigh University
Posted on: Apr, 19 2016
Your comments as usual are insightful and impactful. Keep up the excellent work. It is very much appreciated.



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