Blast from the Past: 10 Best Supply Chains of 2004

Roots
(www.roots.com)

Roots almost became a victim of its own success, but thanks to a late-in-the-game strategic supply chain shift, the company has proven the value of collaboration.

In 2002, Canadian apparel manufacturer and retailer Roots was handling licensed USA logo Olympic wear during the Winter Games in Salt Lake City. With patriotism in those post-Sept. 11 days spurring on demand for Team USA apparel, expectations of 100 calls per day into the Roots customer service center were well below the actual 1,500 per day peak. The company was forced to open a separate web-based ordering channel and revamp its entire distribution strategy on the fly.

Roots couldn't handle the 50,000 orders per month for USA Olympic gear from its Canadian operation, so, with the help of a third-party call center and fulfillment provider, it added two U.S.-based call centers, moved distribution to Memphis, and changed delivery carriers — all while orders were still flooding in.

In a build-to-order industry like apparel, forecast errors can be a deadly enemy. Roots manufactures locally in Canada, so it had a short supply chain for finished product. Based on at least two prior Olympic events, the company forecast demand, ordered raw materials, scheduled production, and set up its third-party relationship for call center and fulfillment operations.

Roots worked with its third-party logistics provider (3PL) to set up reporting, check points and audits throughout the fulfillment chain. The systems were scalable and well planned, rules and procedures were in place, and it was clear who had what authority when the time came to decide customer service, manufacturing, or distribution issues.

This year, in anticipation of the Summer Olympic Games in Athens, Greece, Roots proactively developed an online ordering system capable of handling major spikes in e-commerce activity.

Building a close relationship with its 3PL has helped Roots showcase its brand and serve the market as a first class retailer. In a crowded market, close supply chain relationships make all the difference.

AUTOMOTIVE

(Dave Martin / Getty Images)

International Truck and Engine Corp.
(www.internationaldelivers.com)

Blending legacy and innovation yields results in manufacturing and logistics for truck manufacturer International Truck and Engine Corp.

Parts are a small but profitable portion of a manufacturer's business. But more than that, parts represent after-sale contact that will help build and reinforce a bond with the end customer.

International's service parts goal is to provide reliable next-day deliveries to dealers. With 1,000 dealer points to serve, this requires a hybrid central/ regional approach. Slow-moving parts are shipped from a central distribution center (DC), while the majority of orders are filled from a regional DC, typically within 300 miles of the dealer.

While International will ship individual items as well as pallet loads, it tends to receive goods and materials by truckload. Intermodal ramps and rail connections are, therefore, important in the DC location and operation.

International also operates a private fleet to handle some of the manufacturingto-distribution moves. Outbound tends to be less-than-truckload (LTL) and parcel, so proximity to those services and air parcel hubs are important.

One of International's constraints on siting distribution operations is the more capital-intensive manufacturing real estate investment. Maximizing its network opportunities using existing manufacturing facilities places International in some legacy DCs that are over 50 years old.

International has also updated its legacy transportation management methods on inbound shipments. The company had negotiated transportation pricing centrally and provided a routing guide, but plants operated largely autonomously. Those plants are widely dispersed throughout North America.

International also participates in a joint thirdparty logistics (3PL) venture with Ford Motor Co. This relationship brought systems and software International could not afford to invest in on its own, including transportation management. The combination of efforts provides better visibility up the supply chain and has helped reduce inventories while providing better delivery consistency to the plants, a total supply chain effect.

CHEMICALS

Dow Corning Corp.
(www.dowcorning.com)

After achieving the relatively easy gains possible by improving its inventory management processes, Dow Corning Corp. recognized the next step up the supply chain ladder was fundamental change. Historically, 95% of its silicone-based products (60,000 unique SKUs) have been make-to-stock. Its goal is to move away from make-to-stock while improving deliveries to customers.

One of the first steps was building a flexible self-service model allowing customers to order via the Internet. About 35% of Dow Corning's business comes through this model, and the company is looking to expand the number of lines carried on the web-based system.

The web model has clearly stated rules for companies doing business with Dow Corning. Delivery lead times are part of the model and are guaranteed. If a customer wants faster delivery, the system can provide the appropriate scenario and additional costs for the higher-level service. One of the benefits of the system is its ability to blend Dow Corning's capability with the customer's needs and model the price based on competitive pricing updated several times a day. Dow Corning's benefit has been reduced back office costs and improved flexibility. The company has become adept at developing the systems as well as identifying what business processes are needed or need to be changed. It has begun offering this expertise to its customers in order to improve their market position, making this approach not just a company initiative but a supply chain tool that provides benefits on many levels.

The company has larger issues to tackle. It wants to reduce in-transit inventory on ocean vessels by 25% to 35%. Visibility on where demand is generated will help in this effort. The initiative will also lead to a more careful examination of Dow Corning's manufacturing and sourcing network. With plants and sourcing arrangements throughout the world, there is opportunity to rationalize and streamline the process that delivers product to customers. One high-level goal to help control costs and reduce inventory levels will be identifying what is needed to link up demand visibility and production so that Dow Corning can shift more of its production to make-to-order.

Changing the nature of business practices in an industry accustomed to large stocks and plenty of inventory in the pipeline won't be easy. Dow Corning is realigning customer practices while it revamps its own corporate culture relative to production and inventory management with a goal of producing a supply chain that serves the market, not just one company.

CONSUMER PACKAGED GOODS

Procter & Gamble Co.
(www.pg.com)

Consumer packaged goods (CPG) manufacturer Procter & Gamble Co. has some lofty goals for its supply chain transformation efforts: reduce inventory by 50%, trim out-of-stocks by 50% and achieve 20% savings in logistics costs. To reach those goals, P&G has helped pioneer numerous industry-wide supply chain initiatives, such as Efficient Consumer Response, the UCCnet GLOBALregistry and the Electronic Product Code (EPC).

"Our core work is building a supply chain that is transparent, that is real time and that is moving toward an environment with machines talking to machines, [enabling] perfect, no-touch transactions," explains Steve David, P&G's chief information officer.

With the UCCnet, for instance, P&G has been synchronizing item data with key retail customers for a couple years now, as part of its effort to develop an electronic product catalog. According to David, the company saves at least $25 million per year by eliminating unnecessary transcription work and reducing its out-of-stocks.

On the logistics side, P&G uses third-party logistics providers because of the expertise specific 3PLs have in the consumer goods industry, explains Gregg Schwerdt, P&G's distribution manager, beauty care. "Private fleets are a thing of the past," he says. "With 3PLs you get a natural benchmark. Because they also work with your competition, you get their expertise in terms of what your competition does."

While the 3PLs don't reveal exactly what they do for each customer, P&G is able to leverage cost efficiencies common throughout the CPG industry by tapping into their 3PL's experiences.

Through its work with the EPC, P&G was one of the first suppliers to begin pilot testing RFID tags with retail giant Wal-Mart Stores Inc. For P&G, the value proposition in using RFID will come from having more of its products on retail shelves, as well as reducing labor and inventory costs.

FOOD & BEVERAGE

ConAgra Foods Inc.
(www.conagra.com)

As a conglomerate of more than 30 brands, including Armour, Chef Boyardee, Hunt's and Orville Redebacher's, ConAgra Foods Inc. has seen a great deal of change in the recent past, acquiring some companies while shutting down or consolidating others.

"We're in the midst of a major transformation of the company," explains Rick Blasgen, ConAgra's senior vice president, integrated logistics. "Everything we do is all about finding ways to be more efficient, streamlining our assets to move inventory faster. It's all about getting the product to the shelf, so it's available to the consumer when they want to make a purchase."

There is an effort underway to simplify processes to eliminate redundancy, whether within ConAgra or its supply chain. The aim is to treat all ConAgra Foods businesses as a single entity to simplify integration with its customers, as well with providers and vendors.

While simplifying its operations, the thinking at ConAgra is that its customers will win with more frequent deliveries for less inventory, allowing them to turn inventory faster.

"Throughout our distribution network, we can ship from a common point — on one truck — varied products that have in the past gone through multiple sales organizations and on multiple vehicles to the customer," Blasgen explains. "Instead of having two separate ConAgra trucks on different sides of a building, there will now be one with all ordered products. This allows customers to make truckload weights, increasing opportunities to reduce cash flow."

Since ConAgra also handles perishable products, when it places fresher product in the marketplace, it provides the consumer with a fresher product of better quality.

Blasgen has a clear vision of the importance of good supply chain operations to ConAgra. "My goal is to have logistics be a revenue-generating engine for the company. A good, effective logistics process and organization can generate revenue."

HEALTHCARE/ PHARMACEUTICALS

Pfizer Inc .
(www.pfizer.com)

Pfizer Inc. understands supply chain management to be the primary link between its operations and customers and the key to uniting its worldwide sites and disciplines to meet or exceed expectations at all times. The pharmaceutical company characterizes itself as the discoverer, developer, manufacturer and marketer of leading prescription medicines for both animals and humans and a great number of the world's most familiar brands of consumer products.

Three functional areas support Pfizer's supply chain activities. Its distribution/ logistics team handles coordination of the movement of products between the company's global sites.

Translation of customer needs into production is coordinated by planning teams who work in tandem with those in the company's marketing and sales areas. Critical to Pfizer's success is long-range planning.

"Particularly for longer run planning, one of the decision support tools we use is mathematical optimization," explains Tan Miller, Pfizer's director of logistics planning and team leader for consumer distribution operations. "We use those models to evaluate our distribution network in terms of all the flows that go over it, best sets of origin and destination matches and pairs, and so forth."

The third team functions in procurement of everything from raw materials and drug substances through securing energy, maintenance, repair and operating supplies through purchasing freight and myriad other services for Pfizer's global manufacturing and logistics sites.

Pfizer's order entry and material resource planning systems are interfaced with a fulfillment management solution to aid in the flow and staging of inventory with its more than 50 worldwide manufacturing sites and its distribution centers. The aim of the alliance is to reduce Pfizer's emphasis on supply-to-order and create a supply chain replenishment model in order to improve service levels and inventory turnover and to increase visibility into the supply chain.

To meet new threats, Pfizer recently introduced new packaging security measures for medicines it sells in Europe to fight supply chain risks, including counterfeiting and improper re-packaging.

HIGH-TECH/ELECTRONICS

IBM Corp.
(www.ibm.com)

Last year computer maker IBM Corp. completed an end-to-end integration project that connects all of its business processes and supporting systems into the Integrated Supply Chain (ISC), an organization employing 19,000 people at more than 50 locations worldwide. The ISC comprises manufacturing, procurement, logistics, distribution, customer ordering and scheduling.

As an illustration of how nimble IBM's supply chain has become, earlier this year the company was transitioning to a new options ordering system at its Greenock, Scotland, facility. A glitch in the change-over process cut server production in half and caused a backlog that swelled to 45,000 units. A significant percent of IBM's server revenues derive from options — the "extras" clients order with their servers, such as additional processors, memory, storage, etc. — so delays meant lost revenue and the possibility of losing clients.

To overcome this potential crisis, the ISC offloaded backlogged server orders to plants in Shenhzen, China, and Guadalajara, Mexico. This enabled Greenock to get its production output back to normal using the new system. The problem was stabilized within two weeks and by June, 90% of the orders had either shipped or committed to ship via the workaround. IBM's server business ultimately met its second quarter commitments to clients.

INDUSTRIAL PRODUCTS

3M Co .
(www.3M.com)

3M has grown from producing sandpaper products, Scotch Cellophane Tape and Post-It Notes into a global enterprise using its technology to serve seven primary markets. It has offerings in the consumer and office markets; display and graphics; electronics and communications; health care; industrial products; safety, security and protection services; and transportation.

The company is a global entity with 58% of its sales coming from international sales. Worldwide, its sales total is $18.3 billion with 136 plants around the globe, companies in more than 60 countries and its products sold in almost 200 countries.

For 3M, supply chain management is a key competitive edge as it uses processes not only to reduce inventories and costs, but to speed key business activities, and most importantly, to retain customers and increase their satisfaction. For instance, the company formed a Six Sigma team to coordinate a collaborative planning, forecasting and replenishment (CPFR) initiative with a key trading partner, West Marine, a retailer of boating supplies.

The end-to-end integration between 3M and West Marine resulted in on-time shipments improving from 45% to 85%; in-stocks improving from 91% to 97%; and lead time being reduced by four days.

ONLINE RETAIL

Amazon.com
(www.amazon.com)

From its launch in July 1995, online vendor Amazon.com has sought to make itself a customer-centric company. Logistics, shipping and overall savvy supply chain management have combined to make the company a leading merchandiser of everything from gourmet food to apparel to electronics, not to mention the books and music the company built its reputation on. In fact, while 75% of its income is derived from the sale of media, the other 25% of worldwide income comes from its sales of electronics and other merchandise and marketing ventures.

Part of Amazon's supply chain proficiency is based on its operations philosophy, which is more reminiscent of industrial manufacturing than traditional retail. For instance, Amazon takes a Six Sigma approach to its distribution operations, and applies lean manufacturing and Total Quality Management methodologies to its processes.

Amazon's online proficiency is such that major brick-and-mortar retailers such as Target Corp., Borders and Toys "R" Us use the Amazon website for their e-commerce efforts.

Conducting business on an international scale — the e-tailer ships to more than 200 countries — Amazon has begun using a global trade management solution to provide customers in more than 40 countries details on the full cost of orders, including country-specific duties, taxes, tariffs and licenses.

RETAIL

Wal-Mart Stores Inc.
(www.walmart.com)

When it comes to supply chains, retail giant Wal-Mart Stores Inc. is clearly in a class by itself. With annual sales over $250 billion, Wal-Mart sells more products than the next five biggest retailers combined. That kind of market command has led to some unusual activities in the retail space. When retailer Toys "R" Us let it be known it might stop selling toys, which would basically cede the market to Wal-Mart, a group of top toy manufacturers agreed to produce and promote toys that would be exclusively sold at Toys "R" Us stores.

However, Wal-Mart might very well be unstoppable. The company currently operates 4,800 stores worldwide, including 1,475 discount stores, 1,750 discount/grocery superstores and 540 warehouse stores. Wal-Mart's strategy is deceptively simple — every move its supply chain makes has the ultimate goal of maintaining the lowest prices possible for the end consumer.

Wal-Mart is again reinventing the entire retail supply chain with its radio frequency identification (RFID) initiative. Wal-Mart's top 100 suppliers are currently involved in affixing RFID tags on every case and pallet destined for three Wal-Mart distribution centers in Texas. The RFID process officially begins next month (see cover story for more details).