Managing Logistics Change: Doing it Right
Wrapped in a chrysalis of change, business logistics managers are rebuilding internal elements and morphing legacy systems to answer increased customer demands and manage never-ending variables. What emerges is a logistics process that is more agile, able to fly faster and go farther. See how leading companies use change to transorm themselves, with breathtaking results.
Never before in the history of business has there been so much change," says Robert E. Murray, president of REM Associates, Princeton, N.J. "The constant in business today is change—from customer demand to technology to new products and services to a shifting marketplace."
As a result, managing change has become as much a part of a logistics professional's job as meetings and memos.
While it's an integral part of the job—and a very difficult task—many managers have had no formal training in managing change. So Inbound Logistics went to the experts—those experienced in helping companies implement change. Here is their advice.
Whether you're implementing a new warehouse management system or completely redesigning your supply chain, you'll increase the likelihood of success by paying attention to these do's of change management:
Choose the right strategy. "The most important success factor is that 'the change' be the right change," says Terry Harris, managing partner, Chicago Consulting, Chicago. The need for change stems from recognizing a problem, such as slow growth, low productivity, or loss of key employees and customers.
Whatever the type of change, "the first order of business is to figure out what to do," Harris says. Evaluate all possible courses of action, identify the optimum strategy, and confirm that the chosen strategy will solve the problem.
"Some courses of action that will solve a problem are difficult or impossible to implement," Harris points out. They may take too long, require too much investment, or are too complex. Such actions usually fail. Make sure that the solution you've selected is doable.
Beware of misalignment. "New SCM initiatives—such as logistics information systems, logistics facility designs, or outsourcing—often bring organizational issues to the forefront," notes Edward H. Frazelle, Ph.D., president and CEO of Logistics Resources International, Atlanta.
Many of these issues involve misalignment of goals, which hampers achieving desired results. "A house divided against itself cannot stand," Frazelle says, citing the case of one company's decision to install a new WMS in warehouses that were full to the brim. The company justified the WMS investment by pointing to a reduction in inventory.
But, the director of procurement, tasked with boosting service levels, was aggressively buying inventory, which had to be kept in the warehouses. "No system will alleviate this lack of alignment within the logistics organization," Frazelle says.
Before you start the change management process, confirm how the change will affect, and will be affected by, other areas of the organization, and work to correct any misalignment. This company, for example, could have had the directors of procurement and warehousing report to the same boss, and tied them together through common metrics such as total logistics cost and perfect order percentage.
"Inevitably, both solutions would be required to yield the desired ROI and supply chain improvements the company envisioned when it justified the WMS," Frazelle notes.
Identify the right change agents. Having an effective change agent is essential to successfully managing logistics change. "Change usually is difficult, and only a few people can be effective change agents," says Clifford F. Lynch, principal, C.F. Lynch & Associates, Memphis, Tenn.
Change agents must be willing and able to think beyond the present, beyond the way things are currently done. "They need to be able to recognize the need for change and not be afraid to recommend it, regardless of the consequences. They must also be sensitive, caring, and influential, yet not be afraid to make the hard decisions," Lynch says.
Lynch cites one manager at a major international corporation who is exploring the economics and advantages of outsourcing her company's entire logistics function. "She also recognizes that there probably will not be a job for her and her colleagues after it is done," he says. Despite the potential consequences to herself and her team, "she is thoughtfully leading her group toward significant change."
The change agent may be the project manager. "Complex projects require the project manager to be a true leader to carry the vision forth," says Fred Kimball, principal, Distribution Design Inc., Saco, Maine. He believes the project manager should report to the project's executive sponsor for its duration, and be given the authority to make critical decisions and to steer committee meetings.
But an internal champion who is not necessarily directly involved with implementing the change is also important, notes Thomas L. Freese, principal, Freese & Associates Inc., Chagrin Falls, Ohio. The internal champion supports the change and sponsors it at senior levels.
"They will invest the political capital necessary to give such change priority, and to help it weather the inevitable start-up discouragements," he says.
Gain executive and management support. Having solid executive and management support for change is a critical success factor. "The vision for the project's success and the reason change is required must come from executive level management," according to Kimball.
Executive-level support must then cascade throughout the company. "It does no good to have an effective change agent, then have management defer for political, personal, or territorial reasons," Lynch says. "I have been in the logistics industry a long time, and I have seen far more managers unwilling to support change than I have willing ones."
Make sure the change is aligned to corporate strategy. To be effective, the vision underlying the change should be strategic, not tactical, and linked to shared goals such as strategic objectives. For example, says Kimball, instead of a tactical vision—"reduce costs by 10 percent"—a strategic vision—"improve customer service to leap ahead of competitors"—is more effective.
Or, suggests Judith Anderson, a partner in Anderson & Rust, Allendale, N.J., "to meet our service objectives, we need better customer service systems. The most cost-effective way to achieve this is to outsource the warehouse operation. Failing to link the change to a shared goal sets up politics and power plays," she says. Anderson advises making sure that there is a common goal for the change, and that the change is linked to the goal.
Control the scope of the change. "Many projects become overly complex and require so much money and resources that success is too far into the future," Kimball warns. To avoid this, the project team should establish ground rules, such as how to prioritize tasks so that "must dos" are accomplished and non-critical "nice to dos" are left for a later phase.
Identify the change's negative impact, and address it. "There will always be one area that is negatively affected by a change," says Catherine Cooper, president of The Progress Group, Atlanta. She advises identifying that area by conducting an impact analysis. "List every step of the way you manage logistics, and how each process will be affected by the change," she suggests.
Once you've identified those areas that will be negatively affected, address them head-on. Imagine, for example, that implementing a new WMS will dictate a change in receiving processes, requiring that mixed pallets be broken down before product can be put away.
"The person on the receiving dock will hate the new system—it will take more time and more space," Cooper says. Rather than ignoring the negative impact, develop a solution for mitigating it.
Keep a decision history matrix. This document, which can be kept on an Excel spreadsheet, "tracks the life of the change process—the decisions that were made, and reasoning behind them," Cooper explains. Keeping a decision history matrix "allows the project manager to stay sane and keep everyone on the same page during implementation."
It can also help avoid fingerpointing after the fact. "People have very selective memories down the road," she says.
Document all major decisions, the reason for the decisions, and the individuals involved. This is particularly important for decisions that have changed. "You want to be able to say, 'We debated this from May until December. This is our final decision, and the reasons for it,'" Cooper says.
Understand the Human Aspects of Change
While strategic and project management aspects of change are key, it's the people aspects of managing change that can trip you up. Here's how to win the support you need throughout the organization.
Understand how open your people are to change. Many people have a natural tendency to resist straying from the norm. So an important step is to determine where people are with regard to the change.
"Are they so frustrated with the current situation that they're open to change? Or are they working OK in the current one and don't see the need for change?" asks Dale A. Harmelink, managing partner, Tompkins Associates, Raleigh, N.C.
Individuals frustrated with the status quo will be more open to change. You'll likely need a more aggressive effort to bring on board those who are satisfied with the way things are.
Communicate early and often. "Communicate the new information as early in the process as possible," advises Cooper. "Conditions change a lot faster than people do."
Opening the communication channel early enables you to get the project off to a positive start. "Notify the end users of whatever the change will be as early in the process as possible, so they have time to accept and embrace it," she says.
You have to sell the solution to every important constituent. Those who will be affected by the change "will need evidence that the solution is the right one—that it will solve the problem, that it is feasible, and that it can be implemented," Harris says.
Communicating change requires articulating, crisply and simply, the benefits of the change, notes Art van Bodegraven, a partner with The Progress Group, Atlanta. "There's no place for baloney or platitudes here."
There can't be too much communication, he says. "There needs to be a strategic context and a tactical plan for all affected parties—suppliers, customers, logistics associates, sales and marketing management and staff." Communication shouldn't be a set of one-time messages. Rather, "it's a series of campaigns that begin as early as possible and don't stop until implementation is a demonstrable success."
When developing your communication plan, consider all those who will be affected, from the boardroom and senior executives to the logistics manager and warehouse worker. "They all need to understand the change, but at different levels of detail," Harmelink says. "Everyone needs to understand how it will affect their position and the function they perform."
Develop and implement a public relations plan. "When a company implements improved business practices that affect individuals, the project sponsor and project leadership must pre-empt fear and negative energy by sending enthusiastic messages targeted at each relevant group," says Julie Baylin, president and CEO of Harkness Wilder, Evanston, Ill.
Companies can do this by implementing a positive publicity or awareness-building campaign for the change. "Change is always received negatively. People will receive it positively when the benefits outweigh the painful part of the process," says Catherine Cooper.
Unfortunately, the first time many people hear about a change initiative is when it negatively affects them, and it takes significant effort to transform negative feelings into positive buy-in.
For best results, Cooper says, assign someone the responsibility for the communications/publicity campaign, and have them consider a full range of communications media such as flyers in the break rooms, company newsletters, e-mails, staff and shift meetings.
Establish two-way communication with employees. An effective way to open a dialogue with employees about an impending change is to set up a page on the company's intranet. The page could include FAQs and other information regarding the change, and provide employees the opportunity to post questions and concerns. "The executives who have sponsored the change need to respond—or at least give input into the responses," Baylin says.
Convert the informal power structure. "Nearly every company contains an informal power structure that will make or break any change initiative," van Bodegraven says. Sometimes referred to as the shadow organization, "it can't be found on organization charts, and even some company staff don't understand that it's out there, or how it works."
But, for change initiatives to be effective, companies have to identify the informal leaders and enlist their support. "You have to do whatever it takes to communicate process, intent, and target outcomes to these folks and get them on board—or at least into 'wait and see,' mode," van Bodegraven notes.
After the fact. Finally, after the change is made, you need an "aftermath manager," someone to deal with the change. "This might be a relationship manager in an outsourcing arrangement, for example, or it might be an HR manager who deals with the problems of personnel affected by the change," Lynch says.
Chump Change: Doing it Wrong
Avoid these common mistakes made in the change management process.
Organizations frequently shoot themselves in the foot when it comes to implementing change. Common mistakes include:
Not considering all the factors. "In my experience, the most recurring mistake is trying to initiate and implement change in a vacuum," Cliff Lynch says.
For example, in the interest of maintaining confidentiality and keeping the impending change under wraps, "proper input is not solicited and/or received, often resulting in confusion and error." Good change ideas, he says, can become disasters simply because all the facts have not been considered.
Hiding the facts. In other cases, companies invent cover stories. Employees are misled and not dealt with honestly. This can result in serious mistakes at worst, and lack of cooperation at best.
"I worked on a court case involving a logistics provider that was set up to fail so the client could make a change," Lynch recalls. "Honesty and candor would have saved hundreds of thousands of dollars in legal fees."
While it is not practical for everyone to know everything, "unpleasant surprise, and lack of candor and honesty will get you every time," he says.
Failure to communicate. Inadequate communication can hamper the success of the change effort. Communication failures can include not continually reinforcing the vision of the change, or not adequately communicating project status, problems, and successes.
Failing to address the individual's needs. "The biggest mistake companies make when trying to implement change is assuming that acceptance will be high if individuals understand the business reasons driving the change," says Julie Baylin.
While it's important to provide that type of information, you'll increase the likelihood of acceptance if individuals understand what the change means to them specifically. For greatest success, "the project needs to include information targeted to how the change will affect each group's role, as well as their upstream and downstream relationships," she says.
Not dedicating resources. Project managers and others with substantial project responsibilities should be dedicated to the change process, Kimball says. "Many companies burden managers with project work and responsibilities without reducing their other responsibilities—their 'day job'," he says. "When this happens, companies can expect marginal results and mediocre success in implementing change."
Maintaining an internal focus. "Many times when we implement change we emphasize saving money, which is internally focused," says Chris Barnes, director of strategy development for CMAC Inc., Atlanta. It's critical to keep the focus on the customer, and to involve customer-facing parts of your business in the change. "If a change is even perceived as having a detrimental impact on the customer, the concept will not go far," Barnes says.
He cites the case of a manufacturer that was redesigning its distribution network. "The plan was designed perfectly to optimize inventory and reduce distribution costs," he says.
The new distribution network would have 12 points of distribution, down from more than 40. Manufacturing, distribution operations, and transportation were delighted with the redesign, which meant less inventory and fewer physical assets. But sales and marketing, which wasn't involved in the redesign, was concerned about lower customer service levels and longer delivery lead times to key customers.
Jumping the gun. Some managers attend professional conferences or seminars and return to the office all charged up, ready to implement a fistful of changes, says Barnes. One attendee left a seminar so motivated with ideas that he went back to work the next week and started to implement the changes. What he didn't stop to realize was that his staff had not heard the same ideas, had not had the opportunity to think about them and embrace them. As a result, he was met with massive resistance.
"The moral of the story," Barnes says, "is either to take more people on your team to training events, or take the time required to sell the change to your team and your organization."
Thinking that others understand the change at the same level you do is a common mistake when implementing change, according to Judith Anderson. "The remedy for this is two-way communication," she says. Reiterate the change and its purpose, and what results are expected. Then ask questions—"Does this make sense to you?" or "Are you on board with this?"—to see where others stand.
Negating people's feelings. It's a mistake to tell people that they shouldn't feel upset or resistant, but rather should feel excited and enthusiastic about the change, Anderson says. She suggests, instead, acknowledging and validating individuals' emotional concerns.
Not dealing with the naysayers. Nearly every change effort has at least one naysayer—an individual who doesn't support the project and can spread seeds of discontent that can hamper buy-in. Sometimes you can surround and even convert naysayers by putting them on project teams, and respecting and acting on their input and perspective, van Bodegraven says.
"Sometimes, sadly, they'll try to use an inside position to poison a team and sabotage an effort," he warns. If that occurs, take quick action to put a stop to it—and let others know that you're doing so.
Skimping on training. Providing sufficient training, particularly when new systems or processes are involved, is critical to success. But it often doesn't get the attention it deserves.
"As managers, we are trained to negotiate a lower price for anything of value," Fred Kimball says. "Instead of doubling a vendor's already-skinny training budget for a new warehouse management system, we cut the training budget in half, and consider ourselves heroes."
In addition, when time or money get short, training is often the first thing to be cut.
Change: Order of the Day at Associated Food
AFS super-sizes its distribution center and cooks up a new corporate culture.
Associated Food Stores (AFS) of Salt Lake City, Utah, serves a network of independent supermarket owners and members, some 600 grocers throughout an eight-state region.
For more than 60 years, AFS delivered shipments to customers through distribution facilities in Salt Lake City. But the time came to consolidate five warehouses into one integrated mega-distribution center, says Paul Jones, general manager of AFS's one-million-square-foot distribution center in Farr West, Utah. AFS added 340,000 square feet of perishable space to an existing facility.
The magnitude of the consolidation was significant. "We had to take five different cultures—with five different leadership structures and five different methods of doing business—and put them all together into a new facility with a completely different product flow," Jones says.
In addition to expanding the facility, AFS management took the opportunity to define the culture it wanted in place at its new DC. Dissatisfied with its turnover rate, the company wanted to "create the kind of culture we believe needs to be in place in order to keep good people," Jones recalls.
To make the desired culture a reality, Jones, who was then AFS's director of human resources, was named general manager of the new Farr West facility. His purpose was three-fold:
- To select, teach, and develop leadership.
- To create a culture for the DC that people wanted to be part of, and where people cared about each other and the effort of the overall team.
- To build accountability into the organization, so that it could become the best in the industry.
The AFS executive team knew that getting the right leadership and people in place to staff the new facility was a crucial part of establishing the new culture.
The first step for the AFS management team was to define the core values and principles they wanted in place at the new DC. These principles were translated into the HARTS concept, Jones explains. The acronym stands for Hustle, Attitude, Right (as in the perfect order), Team, and Safety. An integral part of the facility's operation, the HARTS values were incorporated into AFS's performance review process for management and team members alike.
In With The New
Team members at the Salt Lake facilities were told that if they were willing to make the move to the new DC—which was 50 miles away—"we'd have an opportunity for them unless they were unwilling to fit into the new culture, and that we'd let them know clearly what would be expected," Jones notes. His estimate that nearly two-thirds of the workforce at the Farr West would be new proved right. Approximately 475 of its 785-person start-up crew were new.
In addition, DC leadership had to apply for positions at the new facility. "We anticipated reducing the number of leaders by about one third," Jones says. Twenty percent of the new leadership were hired from outside AFS; the rest were hired from within and made the move.
DC management clearly laid out behavioral expectations to the workforce. "We told them that we would hold them accountable, and that it was not acceptable to haze the new team members or to growl, grumble, and glare at each other," Jones says. "During the first six to eight months, we weeded out a bunch of people—team members and a few leaders as well—who didn't believe that we were going to create this new culture."
From a change management point of view, "it was a great springboard to have a new facility, so we didn't have to break old habits in order to establish new ones," notes Tim Van de Merwe, AFS's internal logistics manager.
Implementing change at AFS's Salt Lake facilities in the past had been an uphill battle, he recalls. Associates often resisted the change, and sought to hold on to old, familiar ways of doing things. "Change was viewed as hostile and threatening," Van de Merwe says.
"Now, change is the order of the day, and it's no longer a scary word for our folks." It wasn't that way in the beginning, when the old facilities were being shut down. "We had to transform the perception of change from negative to positive," he recalls.
Operating the mega-distribution center—which has 149 dock doors and uses flow-through racking and sorting/retrieval systems—required new information systems. AFS implemented new warehouse and yard management systems from OMI International and WhereNet's asset-management system to track and manage its trailer inventory.
Aware that it was moving to a more sophisticated technological environment, AFS "re-evaluated the skills of both internal people and those we brought in from outside," Van de Merwe explains. "Getting the right people in the right place is crucial."
So that they could become familiar with the new systems, team members were rotated into the Farr West facility for a five-day period during the four months prior to its opening. "We brought our general merchandise into the facility to test the systems and give people the chance to become familiar with it," Jones says.
In addition, selected IT personnel were given ownership of a particular major system, such as the WMS, and asked to specialize in supporting it. "We told people that they needed to be an expert in their assigned system, and that was all that we were going to ask them to do," Van de Merwe says. As a result, they're able to develop deep expertise and capability.
AFS worked hard to keep its staff fully informed about the new systems. "Any time we had good information, we tried to prime the pump and build morale, by citing benefits of a new system," he says.
For example, AFS was the first in its industry to implement WhereNet's asset management system. "It all appeared unreal and magical at first," Van de Merwe recalls. The company explained to its drivers that the new technology, combined with the yard management system, meant that drivers would no longer have to check in their equipment or park in a specific pad.
"There was some skepticism prior to implementation," Van de Merwe says. But the technology upgrade went smoothly, and paved the way for future changes, such as the on-board PCs that are now being tested on certain trucks. In contrast to drivers' previous skepticism, they're now asking for new applications.
Training and Team Building
Core components of the change process were training and team building. Before the new facility went live, AFS built and developed the staff of team members who would move to the new DC.
"We pulled them out of production in the Salt Lake facility and brought them to Farr West for a full day of orientation," Jones explains. "We had them get familiar with the new equipment and the building, and talked with them about the new culture we were creating."
Developing this new culture required training DC leadership in how to convey the strategy. "We didn't bring someone else in to do the training, we trained our leadership to do the training," Jones notes.
"Through tools in the classroom and specific examples, we tried very hard to help people understand why it was so important to treat other employees with kindness and respect, to be firm, fair, consistent, and caring. We taught the 'why' in the classroom, but the real teaching occurred when handling day- to-day situations."
AFS developed an expanded program for orienting and training new employees. New team members today participate in an extensive two-week training process, completing culture, quality, and safety training assessments, and working side-by-side with a warehouse trainer on the floor.
The new building was designed to foster team spirit. "We built a cafeteria that would be a place where employees could gather together and get to know each other," Jones says.
Today, AFS conducts pre-shift meetings—stand-up gatherings where teammates "stretch out, celebrate successes of the previous day, and introduce new employees. They get to know each other every shift, every day," Jones says. Providing a formal opportunity to do so is important in a facility as large as the AFS DC—and it's a critical part of building a strong team atmosphere.
In addition, "we do a lot of crazy things to generate some fun and excitement, so that people feel valued and important," he says. Spontaneous rewards may include a free cookie from the facility cafeteria, movie tickets, or a free lunch.
Introducing Change to Trading Partners
The new facility wasn't the only change. AFS is working with suppliers and customers alike to move to e-business. For example, AFS used to produce a large catalog for its customers each week that included products and price changes. "We mailed these out or delivered them via trucks," says Van de Merwe. "The catalogs were very cumbersome. Now, we've put them on the web for the retailers."
Some suppliers and customers resisted the move away from hard-copy catalogs to electronic listings. "We service some outlying communities, where stores still have the old ring-style cash registers instead of scanners," he says.
AFS gave retailers six months to transition to the web-based catalog, and established a retail counseling group and retail technology group to help customers. "The groups go out on site visits, and train and help retailers work through issues such as this," Van de Merwe says.
Today, Paul Jones says, morale in the Farr West DC "is really high. Our people are excited to see our successes." Turnover has been slashed from nearly 100 percent to around 16 percent. Since start-up, the staff has been reduced to 585 people, and they handle even more volume than was experienced prior to the move.
Workers comp claims have been reduced by more than $300,000 a year, and people help each other and treat each other with respect. On-time departures of trucks run at about 98 percent, and errors have dropped to almost one-half the industry standard.
"It's not a perfect world—we're like any other organization," Jones notes. "But you can really feel the difference." Being very clear about expectations regarding culture and performance is an ongoing process. "If you stop that effort, people revert to what's easiest and natural," he says.
Secrets of Success
Among the observations that Jones and Van de Merwe identify as crucial to their success implementing so much change are:
Having a clear vision of what AFS wanted to accomplish at the new distribution center.
Getting the right management team in place.
Listening to the experts on the floor for input on the best ways to improve. "People support what they help to create," Jones says.
Holding facility management accountable for establishing and fostering desired values.
Hiring the right team members and training them well.
Being crystal clear on expectations for the new workforce.
Giving employees the tools to do what is asked of them, which means selecting the right technologies.
Communicating thoroughly with employees, giving out negative as well as positive information. "This contributes to a level of trust that opens up employees to consider all kinds of improvements or changes," Van de Merwe says. "When they have open minds, they embrace change rather than resist it."
Great Lakes Cheese: Whizzards of ERP
ERP and RF systems, aged eight months, product sharp results.
At the beginning of the 21st century, the CEO of Great Lakes Cheese (GLC), a $1-billion manufacturer and processor of cheese products headquartered in Hiram, Ohio, recognized that the company needed to change to keep up with the continued growth it was experiencing.
"We had in place different kinds of interfaced systems—highly customized packages that weren't scalable," explains Ron Barlow, GLC's director of information systems, who was brought in to help implement the necessary changes.
GLC is essentially a private-label make-to-order company, producing cheese products for retail, foodservice, and industrial customers. Its manufacturing and processing network consists of six plants, including facilities in Ohio, Wisconsin, Utah, and New York, with warehousing done at the plants.
"We use multiple plants to source customers," Barlow explains. "An order goes into the system that can put demand on multiple plants."
The logistics are complicated. The plants may manufacture the product or buy it for resale, customers may get full truckloads shipped direct from each plant, or products from different plants may be merged into one truckload. "Transportation needs to know how to plan the trucks, and the shipping people need to consolidate orders on an interplant or individual plant basis," Barlow says.
Teaming Up to Make Change
Barlow and his team considered various ways of replacing legacy systems with a sophisticated wireless data collection solution. Rather than take the time required to develop the existing small internal staff, GLC opted to supplement its staff with carefully chosen outside consultants.
At the end of 2000, Barlow, GLC's CEO, and other members of the management team handpicked members of the crossfunctional team, including the manager of the shipping warehouse, the plant's production manager, the transportation manager, and the receiving warehouse manager.
"Each of these had a subteam that worked across our different plants to make sure that each plant was represented properly, and that the systems we selected could do what each plant needed," Barlow explains.
Mapping the Process
As the first step in its change process, the crossfunctional team developed a solid set of process maps that showed what they wanted to accomplish, and how. After evaluating potential solutions, the team selected four partners: SAP, BearingPoint (formerly KPMG), Psion Teklogix, and Matrix Industrial Systems.
Again, the participants were handpicked, in this case by Barlow. One key to success in working with third parties "is making sure you select the people carefully, and that they fit well with your style and approach," Barlow says. "GLC looked for individuals, not companies." For example, he had worked with a BearingPoint consultant while at a previous company.
Getting the right partners was particularly important in GLC's case, where the consultants and vendors were treated as an integral part of the team, rather than as outsiders. For example, the representatives from each of the four vendors were made a part of the project steering committee.
"We encouraged people to be open and candid, to be confrontational in a positive manner," Barlow says, and communication among the project team was wide and open.
The team integrated a highly customized RF data collection system that provided warehouse staff with mobile access to the new enterprise SAP system. Warehouse floor personnel today use wireless handheld RF terminals to handle system transactions, such as receiving, inventory, and transferring product onto the production line for slicing, packaging, and shipping.
Bar codes are generated when materials are received, enabling precise tracking of materials. All manufacturing and production data is fed directly into the ERP system via handheld data collection terminals. Integrated sales force automation enables GLC's remote sales force to review current inventory levels and reserve specific raw materials and products for customers.
Barlow, who has 30 years of experience implementing new systems, attributes GLC's swift and seamless installation to several factors, including:
Candid and complete communications. "Over the years, I've learned that the key to successful implementation is communication with people," Barlow says. Being candid in your communication and listening to users are critical to gaining user acceptance.
Employee involvement. Equally important, he says, is involving users in the change. "When you're done, the ownership has to be with those folks who use the new system. The only way to get that ownership is to get people involved throughout the process, not just at the end."
A flexible and open workforce. "The people at Great Lakes Cheese are very adaptive to new ideas and processes, and quick to pick up on new things if they seem right," says Barlow. While a handful of individuals were initially resistant to the change, that has long since passed, and the new systems have been embraced by all.
Hands-on training. GLC's education and communications programs were tailored around the people in the facilities. In addition to classroom and one-on-one training, GLC used "sandbox training," so employees could work first-hand with the system. "New people can go in and play with the system," Barlow says. "They can try it out and not hurt anything."
A strong team of partners. Barlow's care in picking vendors with whom to partner paid off. "A great deal of the project's success is due to the excellent team of people helping us," he notes. "As a team, they were challenged to look at GLC's requirements and cost-effectively design and develop an innovative solution that would work well together."
The new systems have been working excellently for more than a year, according to Barlow, and there's more to come. "We're looking at expanding the ERP system into some new areas, taking advantage of the database we have and adding newer features and functions beyond the basic ERP approach," he says.
Outsourcing and network redesign is IKON's business solution.
When IKON Office Solutions, Inc. took a good look at itself as part of its implementation of a new enterprise resource planning system, two key decisions were made. First, unlike sales and service, logistics and supply chain management were determined to not be a core competence of the business solution company. Second, it became clear that IKON's supply chain, the byproduct of several acquisitions, needed reengineering.
At the time, IKON's distribution facilities were not appropriately sized or located, observes Carlyle Singer, senior vice president of operations for the company, a leading provider of products and services that help businesses manage document workflow and increase efficiency. Rather than expend resources on a non-core competency, including several new parts and equipment DCs, IKON decided to outsource the storage and distribution of its supplies and parts inventories to UPS Supply Chain Solutions, and storage and distribution of equipment and supplies to Exel.
Before starting the project, IKON conducted a survey so that the company could understand the expectations of its internal and external customers over the next five to seven years. IKON surveyed about 100 people internally, plus a number of customers, to determine the service level customers expect for the delivery of equipment, parts, and supplies.
"One of the other things our team did was have strategy sessions with two of our major suppliers. We wanted to understand their five- to seven-year supply chain strategy, so that when we implemented our changes, we'd have a clear direction of how we could both win," Singer says. With that research completed, IKON then worked with a consulting firm to identify the distribution network design that would enable meeting those service levels.
Before the change, IKON had warehouses located throughout the United States, organized on a regional basis, with each region having at least one equipment warehouse plus supply and parts warehouses. The redesigned network breaks down the walls between the regions, using a major parts distribution center in Louisville, plus a second parts warehouse in the western U.S. , and 19 supply warehouses, all managed by UPS SCS, plus four equipment warehouses across the U.S., managed by Exel.
A Crossfunctional Project
Supply chain reengineering and the move to outsourcing are part of the work done in parallel with IKON's implementation of Oracle's e-Business suite. The ERP implementation "is a crossfunctional effort," Singer observes. "It's an end-to-end implementation that begins when the phone rings or the salesperson puts the order into the system until we invoice the customer."
The executive sponsor of the overall change initiative is IKON's CEO; the CIO and Singer jointly manage the project, she explains. "There are team leads and team members for each function that are dedicated to the implementation."
At the corporate level are process owners for each major process area, including service, order management, and supply chain applications; Singer is the process owner for the latter.
The corporate program management office, which includes the implementation team, has dedicated resources that support each of the process areas. They meet with each of the team leads on a weekly basis, and the group meets as a whole each month to consider crossfunctional matters.
"We have an excellent planning process in place," Singer says, with detailed implementation plans reviewed and updated each week.
In addition to IKON personnel, the supply chain team includes representatives from Exel and UPS SCS, well as from two software vendors whose solutions will be connected to Oracle. These include Manugistics, whose demand forecasting module is being piloted, and Servigistics, whose service parts planning and forecasting solution is scheduled to be implemented this month.
Making it Work
IKON piloted the new distribution model this fall, in the southeastern U.S. region. One of the lessons learned from the change effort has been the importance of managing expectations.
"Everybody in the process has to understand what's expected of their team and of them as individuals, and there needs to be a good way to measure those expectations," Singer says.
For example, IKON uses key performance indicators (KPIs) to measure its logistics providers' performance. Take UPS SCS as an example. IKON looks at KPIs on a weekly basis and has a conference call to go over them monthly.
The two partners get together quarterly for a formal review of the whole business, and go over KPIs , and discuss what they can do differently to improve the process.
IKON's continuous improvement approach with its logistics service providers helps the partners think outside the box and develop creative solutions. For example, before the change, IKON's technicians received replenishments parts and supplies twice a week. Replenishment and emergency orders were shipped to branch offices. IKON wanted to improve service on emergency orders, so worked with UPS SCS to map locations of Mail Boxes Etc., a unit of UPS, to IKON technicians.
"Now, they can go in to the store, pick up the order, drop off parts to be returned, and get them packaged and sent back to us," Singer explains. The new method is expected to reduce technicians' travel time and boost their productivity.
IKON began an outsourcing pilot in one geographic region last year. Following the pilot, IKON plans to roll out its outsourcing arrangement and the new distribution network throughout the remaining regions in the United States during 2003. Once the rollout is complete, Singer says, "I expect that IKON will work closely together with its third-party logistics providers—UPS SCS and Exel—to achieve synergy, streamline operations and continually improve service to customers."
Krafting One Network from Two
Keeping customer focus paramount when two food supply chains converge.
When Kraft Foods Inc.'s parent company, Philip Morris Companies Inc., acquired Nabisco Holdings in 2000, the Nabisco brands were integrated into the Kraft Foods business worldwide. This was a tasty combination, blending Kraft's cheeses, dressings, beverages, and other products with Nabisco's cookies and crackers business.
The Nabisco acquisition meant that the two food giants would have to design a supply chain that would eliminate redundant activities and excess capacity while speeding thousands of food products including Planters nuts, Milk-Bone dog biscuits, Grey Poupon mustard, and Life Savers candy to store shelves and into consumers' hands.
After the deal was finalized in December 2000, "the first thing we did was get to know the different players—those who were responsible for functions in the supply chain," says Rick Blasgen, vice president supply chain, Kraft Foods North America, Chicago.
After initial orientation meetings, the two companies' supply chain counterparts started identifying overarching objectives to be accomplished. The ultimate goal was to merge the two supply chains in a way that was transparent and beneficial to customers.
"Many of our customers and the trade channels we served were the same," Blasgen says. "So, in concert with our selling organization, we put together a process by which we could benefit our customers."
The team identified the top opportunity as selling Kraft and Nabisco products to customers via one order, one shipment, and one delivery, with one sales force. Once Kraft's consolidated face to the customer was defined, the team addressed how to design a supply chain solution to support it.
"We sat down with all the key distribution, inventory management, and supply chain participants on both sides, and began to construct a plan and a process," Blasgen recalls. "We evaluated all kinds of alternatives, looking at our portfolio and trade channels, volume, SKU mix—all the variables—so that we could decide on the best solution for delivering internal objectives and the best opportunity for serving our customers."
Despite many similarities, there were some key differences between the two companies' distribution practices. Nabisco was primarily an LTL shipper, and had outsourced 100 percent of its transportation and warehousing. Kraft is a truckload shipper, with a network of mixing centers, some managed internally, and others managed by third-party logistics providers.
The redesigned distribution network is not substantially different from the one Kraft created when it brought General Foods, Oscar Mayer, and Kraft Foods under one roof. "We just added a Nabisco base to their existing network, which was large enough to accommodate Nabisco products," Blasgen notes. While some mixing centers needed modification, and one new one was built, the locations remained the same.
Some former Nabisco distribution facilities are being eliminated, while others are being converted to overflow or outside storage facilities. Some are used for repacking.
Making the Change
Merging the two distribution networks has been a huge task, involving the convergence of physical goods with vast amounts of information.
"We didn't move all the Nabisco product to the Kraft facilities over one weekend," Blasgen says. "We phased it in, based on product lines," so that customers were able to order certain Nabisco products with Kraft products on a single order as of a specific date."
An incredible amount of work has to take place to enable that single order, single invoice event to occur. "We had to recreate all appropriate master files in Kraft order management systems, build the files to accommodate Nabisco SKUs, and populate the systems with the appropriate data SKUs, such as internal and customer information," Blasgen says.
In addition, Kraft and Nabisco colleagues had to get up to speed quickly on each other's strategies and policies. "We had to learn the supply chain strategies, and understand the business process and technology enablers," he says. At the same time the merger was underway, the supply chain team had to focus on continuing to meet business objectives.
"We needed to move quickly, to learn from each other," Blasgen explains. "We did not want the integration to take an inordinate amount of time—we wanted to act fast, and offer the best for our customer base."
The first physical move occurred in January 2001. Today, the Kraft and Nabisco supply chains are well on their way to being fully integrated. And the transition, by and large, has been transparent to customers. "Things have gone very well," Blasgen says. "Externally, this merger looked a lot easier than it was."
Blasgen attributes their success to "good teamwork, open and honest communication, focus from our employees on goals and objectives, diligence and rigor around milestones and timelines, leadership on cross- functional teams, and dedication and commitment."
Blasgen identifies five key lessons learned from the complex supply chain integration effort:
Keep it simple. Despite the complexity, "we tried to make our integration process as simple, efficient, and disciplined as possible," he says.
Communicate continuously and consistently. The Kraft/Nabisco team used town hall meetings as well as one-on-one and group sessions. "You can have the best plan in the world, but if you don't communicate it well, a person's initial reaction will be, 'What's going to happen to me?'" Blasgen says.
Make employee retention a priority. This was one of the top priorities for the integration team. They made sure that everyone knew "the 4 Rs"—their Role, Responsibilities, Reporting relationship, and Reward and recognition system. In addition, they worked with individual logistics professionals.
"We focused on individual development plans and career aspirations, explaining opportunities that were open to employees," Blasgen says, and emphasizing the career benefits that the merger would make possible for Nabisco personnel. "It took a lot of time and energy, but it was a key to our success."
Lead the way. While it might have been tempting to concentrate on integration tasks and challenges, the group recognized the importance of getting out into the field to address anxieties and answer questions. "We felt it was important to meet in person and show how integration teams would work together to deliver the overall game plan," Blasgen says.
Always keep in mind that you have to have a benefit for your customer. It's not your customers' fault that you're integrating the supply chain—they need to know that there will be benefits, and that you're looking out for their best interests," Blasgen says.
The integration of the Kraft and Nabisco physical supply chains is proceeding toward completion this year. But the change process won't stop then, Blasgen says. "We always look forward to enhancing our supply chain and serving our customers."