December 2002 | Case Studies | I.T. Toolkit

INSIGHT: Sticking With the Strategy

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An in-house supply chain modeling system helps Henkel Consumer Adhesives react quicly to change.

You can fashion it into a wallet or a prom gown, and researchers in Cincinnati used it to remove warts. But not even logistics planners at Henkel Consumer Adhesives (HenkelCA) have figured out how to build a distribution network out of duct tape.

So when the company that makes Duck brand tape wanted help maintaining the best network possible, it turned to a strategic supply chain planning system.

HenkelCA is the North American consumer adhesives business of the Henkel Group, Dusseldorf, Germany. Henkel Group bought Manco Inc., Avon, Ohio in 1998. It then put that company in charge of the consumer businesses of two other North American subsidiaries, Loctite and LePage, and named the combined entity HenkelCA.

Along with duct tape, HenkelCA provides other varieties of tape, plus insulation, mailing and shipping products, and numerous other retail products. Manco's revenues had been increasing steadily, and the much larger HenkelCA continues to grow at seven to 12 percent per year, says Gene Obrock, the company's vice president of operations. Keeping up with that growth requires foresight and flexibility.

"We like our salesforce to be able to say yes to everything," Obrock says. That means anticipating customers' needs with the right mix of warehouse and transportation capacity.

HenkelCA has production plants and distribution centers in Avon and in Brampton, Ontario. It owns a third DC, operated by Genco Distribution Systems, in Oklahoma City. The company also uses DCs owned by third-party logistics providers in Alaska and Hawaii.

HenkelCA pursues a regional distribution strategy, trying to place its facilities so that shipments reach customers in two days or less.

Where to Grow?

To make sure they have the storage space and manpower to accommodate rapid growth, Obrock and his team must constantly evaluate their distribution resources with an eye toward the future.

"If I acquired $200 million in business, what would my network have to do?" Obrock asks. "Would I have to add on to three buildings? Would I have to acquire a new building? How big would I make it, where would I put it, and how much inventory would that building need to support?"

HenkelCA's planning team used to approach such questions "the old- fashioned way," spending hours manipulating data in spreadsheets, Obrock says. Sometimes they hired a consulting firm to run the data through sophisticated modeling software and make recommendations. HenkelCA officials wanted to harness the tools consultants employed, but they wanted to bring the software in house, where they could ask it all the questions they wanted, whenever they wanted.

After considerable research, HenkelCA chose the SAILS21 strategic supply chain planning system from Insight of Manassas, Va., and Bend, Ore.

Other products on the market probably could have done the job, including some applications that are integrated into warehouse or transportation management systems, Obrock says.

But HenkelCA wanted a solution designed especially for strategic analysis, from a well-established vendor favored by consultants, he says. "And we wanted a product that was easy to learn."

Full Speed Ahead

Insight has traditionally sold SAILS21 to consulting firms and large shippers, says Bob Belshaw, Insight's vice president of marketing and business development. In the past, only companies big enough to dedicate staff full time to strategic planning could use the tool effectively, he says.

Three years ago, Insight launched a program to train users at companies smaller than the Fortune 50. Through this Core Competency Program, Insight helps new customers get up and running on SAILS21 and teaches the people who will operate the system the fine art of supply chain modeling.

"The tool is the science, and the art is to understand how to look at your business and translate it into a model," Belshaw says.

For instance, a company with thousands of SKUs needs to aggregate those into product groups before it can perform an analysis. "How you do that varies, and depends on what you're trying to ask," he says.

As part of the training, experts from Insight support the end users in their first analysis project, teaching them how to ask the right questions to produce the results they need. For HenkelCA, developing this internal expertise is essential, Obrock says. If a consultant takes three months to respond to a list of questions about the supply chain network, the answers he or she returns won't address new questions that arise in the meantime, he says.

But with a strategic planning tool in house, "every time I think of something new, I can walk down the hall and say, 'Give me an answer in two weeks or less.'"

"Bringing it in house and owning it within your organization gives you the chance to be flexible, fast, and efficient," Belshaw says. "This core ability to plan ahead, to understand the impact before, is a significant competitive advantage for companies that embrace it."

To implement SAILS21, a company must first load the system with historical data to create a picture of its current supply chain. HenkelCA imports this information from an Oracle data warehouse. Other customers might transfer data from their management applications into templates that Insight provides, and from there into SAILS21, Belshaw says.

When Obrock was interviewed in October, HenkelCA was fine-tuning its baseline data for accuracy. With that process complete, he says, "we'll run through as many scenarios as my mind can come up with."

"We have already scripted out at least 10 major what-if scenarios," Obrock says. For example: "What if we grow the business on the West Coast to certain specific retailers? What if we move a warehouse into a certain region in the United States—what will that do to my freight costs and inventory position?"

The analysis might point to actions HenkelCA should take 12 or 24 months in the future. When the time comes, if Obrock isn't sure the strategy is still the right one, his team can rerun the analysis with fresh data.

Identifying Cost Savings

Obrock predicts SAILS21 will pay for itself within three months of purchase. "Just in setting up the baseline, and getting the data populated, the system already identified two things that we intuitively felt weren't right but had trouble understanding," he says.

The software found that the company was paying too much to ship some of its freight.

"It automatically identified that our salesforce, through normal processes, has influenced out-of-route shipping," Obrock says. "You wouldn't catch it looking at the data. But you do catch that with this tool."

Shifting that freight to the correct routes will save the company from $200,000 to $500,000, he says.

The graphics that spotlight such problems also improve communications with executives who aren't deeply involved in logistics planning, Obrock says. A color-coded map illustrates how much weight the company ships to various points and what costs are involved; it "brings the message and the answer right out in front of them where they can understand quickly and get into making big decisions," he says.

As the retail industry consolidates, Obrock says, HenkelCA will soon have only two or three major customers in each category it serves, such as mass merchandisers, drug stores and home improvement warehouses. If it wants to remain a vital part of those giant retailers' supply chains, it needs a strategic planning system.

"If we're not good at managing the supply chain with the right tools, we won't be able to hire the right talent," Obrock says.

Beyond that, "if we don't have our hands on this part of the business, we will slowly, then very quickly, lose our competitive advantage."

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