Transformers!

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Transforming the supply chain requires vision, execution, and a strong constitution.

Successful supply chain transformation is not a one-time deal. You don't just transform yourself, then sit back and enjoy your fruits," says Dr. Hau Lee, professor at the Stanford University School of Business and co-founder of Non-Stop Solutions Inc. "The advantage of one transformation is temporal. Successful companies need to continuously transform themselves as needs and market conditions change.

"Dell dominates the PC industry because of its constant process of SC transformation. 7-Eleven Japan continuously changes its supply chain model and business process. Zara, a Spanish apparel giant, created a competitive edge by having a supply chain that constantly adapts to fashion needs and competitive fields. These companies use technology solutions smartly, and are not enslaved by them," Lee says.

Transforming a supply chain isn't easy—but the results can be great. "Cost and asset efficiency is a natural advantage that these companies have been able to achieve," Lee notes. "But more importantly, these companies were able to transform their supply chains so that they can create new market opportunities, thereby increasing market share, revenue, and ultimately, shareholder value."

For example, he says, "by the time other retailers caught up with 7-Eleven's logistics efficiency, the company was already working with suppliers to create new products and form new partnerships to develop its e-commerce channel."

Companies can continue to reap benefits from SC transformation, Lee says. "Constantly breaking new ground and opening new opportunities will enable companies to continuously widen the gap between themselves and their competitors."

Here's a look at how four leading companies are sharpening their competitive edge by changing their supply chains.

Unilever HPC Brings It All Together

Unilever Health & Personal Care North America's (HPC NA) supply chain transformation efforts "all started when Unilever globally adopted a new strategy called Path to Growth," explains Chuck Irwin, director of transportation for Unilever HPC NA, Clinton, Conn.

Path to Growth "is a five-year strategic plan that is designed to accelerate top-line growth and further increase operating margins," according to Unilever. To drive growth, the consumer products company "had to liberate funds that were imprisoned within the business, so that we could redirect that money toward innovation and market initiatives," Irwin notes.

That led to the integration of Unilever's many operating businesses into six regional operating businesses, which included merging Helene Curtis, Chesebrough-Ponds, Lever Brothers, and part of Unilever Canada into Unilever Home and Personal Care North America.

For the past several years, Unilever HPC's logistics organization has tackled the challenge of blending three disparate supply chains to create a single world-class supply chain.

The massive change effort has included rethinking Unilever HPC's entire supply chain, from raw materials to finished goods. In addition to closing several factories, Unilever is completely redesigning its physical distribution network. As a result, the company is moving "from a collage of warehouses with different capabilities and limitations to one single set of regional distribution centers" located closer to customers, reports Fred Berkheimer, vice president of logistics for Unilever HPC.

Unilever will expand one facility and open four new one-million-plus-square-feet distribution centers over the next two years. The goal is to have the majority of HPC's customers within a 24-hour in-transit time. The company is well on its way to realizing a key goal for this piece of the transformation: compressing order cycle time from nearly a week to 48 hours.

In March 1999, the logistics department at Unilever HPC NA, through an initiative called Joint Ship, began shipping all its products to customers "on one trip, one truck, and one invoice," Irwin recalls. "That was a major 15-month project that required a huge warehousing and systems change."

But this is just one component of the transformation as Unilever HPC NA's transportation department recreates itself and the way it does business.

Transforming Transportation

Chuck Irwin joined the transportation unit of Unilever HPC NA in 2000, moving over from the company's sourcing function. At the time, the transportation department "was focused on taking care of today's problems," he recalls. "We didn't have a long-term strategy, or a broad understanding of business processes."

In addition, he says, transportation professionals staffing the department "were very deep but not very broad. We had single individuals who were experts in just one business process. They knew it inside out, but nobody else knew it. If that individual was out for a day, everything ground to a halt."

Managers in the unit were "the biggest involuntary firefighters you've ever met," reports Tim Towler, transportation manager. "We were so involved in day-to-day operations that we were not contributing at the strategic level. We were not doing what was needed to move ahead to world class." Instead of allocating resources to do the work, he says, managers "were trying to be the lead resources" themselves.

Just two years later, the transportation unit at Unilever HPC NA has changed dramatically. "We are no longer a transportation department, we are now a business. We have to compete in the open marketplace for the right to be Unilever HPC's transportation solutions provider," Irwin says. The transportation unit is known as the Transportation Business Team (TBT).

Delivering Significant Change

The TBT is having tremendous impact. "Just 18 months ago, we didn't have many projects that delivered change—nor were we very good at delivering change," Irwin recalls. "Now, we have 15 or so major change projects that are significantly remaking our business."

These include:

Transportation sourcing. For example, Irwin says, the transportation department had not restructured its truckload sourcing base after Lever Brothers, Chesebrough-Ponds, and Helene Curtis were merged.

Furthermore, transportation was organized into inbound (production items to factories and third-party manufacturers), finished goods positioning (from the factories to warehouses), and outbound shipments to customers.

"There was amazingly little overlap in the carrier base," Irwin notes. Consolidating its fragmented transportation business has enabled Unilever HPC NA to enter the marketplace as a much larger customer of truckload transportation services. TBT has developed a rigorous transportation sourcing strategy, whittling both its TL and LTL carrier bases by about 70 percent.

This is just the beginning. Unilever HPC NA has teamed up with the directors of transportation at other Unilever NA businesses, organizing themselves into the North American Transportation Community of Practice. This year the group will tackle ocean transportation sourcing and yard management (spotting and shuttling).

Managing inbound transportation. HPC's TBT has just begun a major initiative, remaking the way it handles its inbound transportation. Presently, HPC's suppliers often select their own carriers, rather than working with the carriers specified in Unilever's routing guides.

"The way to get compliance is to require that all vendors access a web site to tender their loads," says Irwin. The TBT recently began working with Plano, Texas-based Transplace, as its web-based solution provider for managing inbound transportation.

"The Transplace Load Control Center tenders the load according to the routing guide information HPC provides," Irwin explains. "If a vendor chooses to ship on a non-approved carrier, then they pay for the load. We only pay for moves that are tendered via the Transplace solution."

Transportation Business Center. Unilever HPC is developing and implementing a B2B web-based solution for managing TBT information, including updating and approving carrier contracts. The first phase of the Business Center is a database of shipment specifications and carrier contracts. Later phases will include posting spend history, sourcing strategies, and carrier and system key performance indicators. The first two phases are scheduled to go live by the end of the year.

Carrier Development Program. "This program is nothing more than being explicit with our carriers about exactly what we need them to do," Irwin says. "We then provide objective and explicit feedback," comparing desired performance to actual, and working with carriers to close any gaps.

The work is being done by the self-directed High Performance Work Teams that today make up the Transportation Business Team. Each team is comprised of members who play a similar role.

For example:

Coordinators deliver solutions. "Our function is to get raw materials into our factories and third-party manufacturers for production, and to get the finished goods to our customers," explains transportation coordinator Carolyn Smith.

"These may be the most junior people in our department by grade level, but they are at the top of our organization chart," Irwin adds. "The nine of them touch our customers every day."

Specialists act as change agents. Five specialists develop processes for implementing improvements. For example, reports transportation specialist Christine Edda, this team has focused on developing truckload sourcing strategy initiatives.

Analysts are considered "scouts." They go ahead of the business team, benchmarking and analyzing the cost-effectiveness of solutions to identify the best opportunities for improvement. "We have four members in the group," says analyst Linda Beauvais.

The Transportation Leadership Team sets goals and priorities, develops detailed action plans, allocates resources, and guides the development of the TBT. Transportation managers at Unilever HPC NA today are part of the Transportation Leadership Team (TLT).

The five members of the TLT "develop detailed action plans every year that are aligned with Unilever's strategic plans," Towler explains. Once these plans are formulated, the leadership team looks at the resources available—both people and systems—then lines up those resources to implement the action plans.

Team members also have individual responsibilities and areas of expertise. For example, Tim Towler has responsibility for inventory positioning, while other transportation managers have responsibility for inbound and outbound operations and pricing/claims. Towler is a Subject Matter Expert (SME) on intermodal, is working toward becoming an SME in budgeting, and wants to become an SME in bulk transportation. Linda Beauvais has been an SME in freight payments, and is learning about budget, systems, and diversity.

The Human Side of Transformation

The transformation efforts underway in Unilever HPC NA's transportation operation—and, indeed, throughout the company—have required a tremendous culture change. "Unilever has a very long and proud history of being task-oriented," Chuck Irwin notes.

"Managers manage tasks, leaders lead people. We had to transition from being managers to leaders, inspiring people to achieve more than they ever thought possible."

And that's what is happening. A fragmented, tactical culture with managers acting as firefighters and narrowly defined jobs is evolving into an integrated, strategic culture with high-performance work teams, cross-trained team members, and managers who truly lead.

"I've seen different initiatives come and go, and that's what happened: they came and went," says Linda Beauvais, a long-time employee. "I think this initiative is for real. It works. It's here to stay."

Key to the change has been a significant culture shift, which started two years ago. As the new director of transportation, Chuck Irwin called together Unilever HPC NA's transportation managers, asking them to bring the existing mission and vision statements for HPC Transportation.

"He asked us to hold these up, and to follow his lead," recalls Tim Towler. "He took his, tore them in half, and dropped them in a trash can. Then he carried the trash can around for each of us to drop in those statements."

The group then spent the next day hammering out new vision and mission statements. "We want to be known as the highest value provider of transportation solutions," Irwin says. The team's mission is "striving for the highest value in the creation and execution of transportation solutions through empowerment and operational excellence."

The Culture Club

The TBT, which was officially launched in March 2001, established its own "Culture Club." The club identifies critical behaviors and values for the team, and provides a common- sense approach for implementing extensive change.

The change hasn't been fast, or easy. "We all expected we would be able to get things changed in a month or six weeks," says Christine Edda. But that wasn't the case. Implementing the changes has required intense effort, created significant stress, and involved risk. "A lot of people were apprehensive about doing something new," observes Carolyn Smith.

The transportation leadership team has worked hard to support the TBT, providing tools and resources, and communicating fully with the team, Towler says. They've used formal communication vehicles such as e-mail and a monthly newsletter, as well as informal communications including talking with team members over lunch or at meetings.

"You can't be timid," says Tim Towler. "It takes courage to step out like we did."

But the results are paying off tremendously in terms of better management, better service to the customer, and more interesting jobs, according to Beauvais, Edda, and Smith. "In the last year and a half, the group has done more than they ever dreamed possible," notes Irwin.

PepsiCo Optimizes Production

PepsiCo Beverages International, Purchase, N.Y., is a global beverage company delivering Pepsi, Tropicana, and Gatorade products to customers that range in size from large global accounts to moms and pops around the world. The complexity of doing business globally—with variables such as currency fluctuations and political conditions—makes it critical for PepsiCo to manage its production facilities very tightly.

"The company has a strong commitment to improving return on assets (ROA)," reports Dave Collins, senior project manager for PepsiCo. "A big part of that is to make sure we don't spend capital unnecessarily."

PepsiCo sought to minimize expenditures and achieve the best ROA on its existing assets—its manufacturing and bottling facilities. In addition, Collins explains, "we wanted all our decisions to be made on total cost, so that we were not optimizing one part of the supply chain while adversely affecting another."

PepsiCo's manufacturing plants are both company- and franchise-owned. "Our challenge was to find the best way to use these multiple bottling plants, which can have multiple manufacturing lines," Collins says. Not all lines can produce all packages—Pepsi is sold in various sizes in three types of containers: returnable glass, plastic, and cans.

To optimize its production infrastructure and planning process, PepsiCo began using the SAILS (Strategic Analysis of Integrated Logistics System) tool from Insight, an optimization technology provider headquartered in Manassas, Va., to perform international network analysis and strategic capacity planning. Each time the company ran the model, "we saw savings ranging from five to 15 percent of our network cost," Collins says.

PepsiCo uses the tool to identify where it needs line additions, where it can consolidate production facilities, as well as where it can perform make vs. ship analysis. In addition, the company has been able to improve its sourcing strategy, changing sourcing options depending on the season.

Initially, the modeling was done centrally. In January of last year, when a new version of SAILS was released, PepsiCo made the decision to put the modeling capability out into the field.

"Instead of having five people running all over the world doing this, we're able to build a team of people in the field" performing network analysis, Collins says. "The big benefit is local ownership—we get better analysis and local managers are more involved with data collection and results."

While PepsiCo originally used SAILS as a strategic tool, local managers want to use it as a tactical tool. "Our business environment changes quite often. We want to be on top of that," Collins notes. Once an analysis is done, "it's there for you to leverage over and over again. The process doesn't end." This enables PepsiCo to continually finetune its supply chain to anticipate changes in its business environment.

DuPont Turns to the Web

DuPont's Global Sourcing and Logistics Services Group (GS&LS) serves 22 DuPont business units plus all the subsidiaries and affiliates that make up the DuPont family. The challenge is significant: DuPont is the nation's largest exporter of containerized freight, moving more than 1.5 billion tons a year.

GS&LS continually works to optimize DuPont's supply chains. A core component of its optimization initiative is a new logistics web portal that provides integrated logistics decision support information and visibility across the supply chain.

"Our customers want global visibility, and a way to work more efficiently," notes Jerry Reynolds, manager, global logistics technology and process for DuPont, Wilmington, Del.

In addition, the company was working with multiple legacy systems, many developed in-house, that had done a good job at collecting logistics information and managing the logistics operation. These systems, mostly mainframe-based, were becoming costly to operate and more difficult to support.

A global team formed to tackle the challenge was charged with developing a strategy to deliver, via web-based technology, global visibility of product movement and decision support data. Team members included Reynolds, logistics managers with systems expertise, a DuPont technology consultant, a technology manager in Europe, plus support from a contract organization.

"We've had heavy involvement from all regions," Reynolds says. This enabled the team to develop a full understanding of business practices and data formats around the world. That involvement was critical to the success of the project. "We've grown up with 60 to 70 businesses, and have a hodgepodge of legacy systems with which to connect," he explains.

After the strategy was developed, DuPont's third-party logistics providers played an integral role in implementation, according to Reynolds, and continue to provide input on the current and future state of the new system.

DuPont's web portal, TransOval, is a registered DuPont web site for logistics. "It's a site that provides one-stop shopping for those using DuPont logistics," Reynolds explains. Users include DuPont operating units, customers, third-party logistics providers, freight forwarders, customs brokers, carriers, and suppliers. TransOval is powered by GC3—Global Command and Control Center—an e-business and transportation technology from G-Log, a provider of global transportation and logistics software based in Shelton, Conn.

The web site provides access to a single centralized logistics data warehouse, delivering logistics information on a global basis through an Internet browser to those granted access. Having more timely, accurate, and complete information enables DuPont's businesses, customers, and suppliers to reduce inventory levels, improve operational efficiencies, decrease freight costs, improve transportation security, and deliver superior customer service for DuPont's one-million- plus worldwide shipments each year.

Orgill Reshapes Its Network

Orgill Inc., the largest independent hardware distributor in the United States, has expanded its distribution network from a single facility in Memphis to four distribution centers in the Southeast, according to Randy Williams, vice president of logistics for the Memphis, Tenn.- company. Williams described the remaking of Orgill's network last month at the Warehousing Education and Research Council's annual conference.

Today, Orgill buys from some 1,500 vendors, servicing 8,300 customer locations out of four distribution centers, which stock 55,000 SKUs. Independently owned small hardware stores comprise 82 percent of Orgill's customers.

When Williams joined the company in 1993, its distribution network consisted of one 650,000-square-foot DC in Memphis and nine crossdock facilities. Orgill knew it needed a new DC, but was concerned that a number of its competitors had gone out of business after adding a second distribution center. So the company chose to take a deliberate, methodical approach to expanding its network.

"We thought, 'this is going to be an evolution, not a revolution,'" Williams recalls. The thinking at the time was not "to turn everything upside down right away, but to try to plan, execute on the plan, and move the needle a little every day to make things better," Williams says. The strategy was to "make small changes that over time would equal big results."

Orgill collected customer data, performed trend and Pareto analyses, and developed a series of models to determine the best location for its second distribution center. The final selection was Tifton, Ga. The distributor designed and built the DC around a five-year growth scenario.

Acquisitions Drive Expansion

But just a few months after the new DC opened, the acquisition of a hardware distributor based in Greensboro, N.C., caused Orgill to reach its five-year targets. That was just the beginning. Two years later Orgill acquired a company based in St. Louis, Mo., including its distribution center in Vandalia, Ill.

Two years after that, Orgill acquired a company based in Frederick, Md., then built a fourth distribution center in Martinsburg, W.Va. Orgill also has two export consolidation facilities to meet the needs of its customers in 55-plus countries around the world.

From a single distribution center with about $150 million in sales in 1993, Orgill has grown to four distribution centers and more than $650 million in sales. The company has expanded from the mid-South, and now serves customers in the Southeast, Midwest, and Northeast. Today, Williams says, the company is "looking at a fifth distribution center and some expansion to the West Coast."

Logistics leaders such as Orgill, DuPont, PepsiCo, and Unilever continuously transform their supply chains for competitive advantage and cost efficiencies. With careful preparation, constant monitoring, and dedication to the cause, you can achieve the same benefits for your company.

Supply Chain Q&A With Dr. Hau Lee

Hau L. Lee, Ph.D., is co-founder and founding scientist of Non-Stop Solutions Inc., a San Francisco-based provider of demand chain software that optimizes the flow of finished goods for manufacturers, wholesale distributors, and retailers. A professor at the Stanford University School of Business, he is also the founder and director of the influential Stanford Global Supply Chain Management Forum.

Inbound Logistics asked Dr. Lee to give us his take on the current state of supply chain innovation.

How many companies today are working to transform their supply chains?

Hundreds. Stanford University is starting a global research study, jointly with INSEAD in Europe and Accenture, on Successful Supply Chain Transformation. In our investigative phase, we sent questionnaires to about 50 supply chain gurus in industry and academics and asked them to name some companies that have successfully transformed their supply chains.

We were astonished to receive hundreds of suggestions back from this group of gurus. In this study, we will interview every one of them to find out their experience with supply chain transformation.

What types of companies have been most successful at SC transformation?

I don't want to generalize too much, but definitely companies in industries dominated by change, with a lot of dynamics in product and process technologies, markets, and supply bases. These companies recognize the need to transform themselves to align their supply chains with the evolving needs of the marketplace.

What critical ingredients are required for SC transformation? What are the most important things logistics/SC executives can do to be successful in achieving their goals?

First, companies must be very sensitive to the dynamics of their industry. The ability to sense the changing landscape, technology shifts, market changes, and customer variations is very important.

Second, you cannot get too comfortable with a particular supply chain structure. You may have invested a lot to come up with the current structure, but when the time comes, you must move on.

Third, transformation requires communicating with people in your own organization as well as in your partners' organizations. The objectives of the transformation, the rationales for change, the expected outcome, the risks and rewards associated with the transformation, the technologies to be used, and the performance measurement system put in place, must be communicated clearly to all stakeholders.

Executives must be open to new solutions, new ways of doing things, and new relationships. At the same time, executives need to balance the need to make the transformation against the disruptions that sometimes come with the transformation.

Be anticipative and proactive. Don't make minor transformations that would be good for today but not sufficient for tomorrow. Too many small transformations may create unnecessary nervousness. This is a tricky balancing act.

What role does technology play in transforming a supply chain?

Technology often allows companies to accelerate the transformation process; focus on the critical few and let the technology solutions manage the majority; perform the necessary tradeoff analyses in exploring different transformation alternatives; and serve as an enabler for the operation of the new, transformed supply chain.

What are the barriers to SC transformation? How can companies overcome those barriers?

The barriers to SC transformation are the same as the barriers to change. Technological readiness has often been cited as a barrier, but I think this is of lesser significance today. It is still the people and organizations that we must manage well for successful SC transformation. We need to work on creating the right incentives for people and organizations to be motivated in supporting the transformation.

What mistakes do companies make in their transformation efforts?

Transformation requires close monitoring; it is not a one-shot deal. Implementing change without an explicit performance measurement system in place spells trouble. And if different parties in a supply chain are not equally impacted as a result of transformation the change may be short-lived.

Collaborative efforts among different stakeholders are necessary. Overlooking any one partner can slow down or even jeopardize the transformation. There will always be people who will do all they can to protect the status quo.

When Non-Stop works with customers to transform their demand chain replenishment process, we make sure that multiple functions—sales, procurement, logistics, finance, and operations—work together, understand the implications, measure the results jointly, and share the common vision.

With the proper preparation and monitoring, the benefits can be great.

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