Innovation: A Fresh Eye on the Supply Chain
Innovation is in. Just ask Bill Ford, star of the Ford Motor Company commercials touting the company’s “new mission—innovation.”
Innovation is also at the core of IBM, which invests billions of dollars in research and development every year and has been the leading patent-generating company in the United States for more than a decade. “Innovation that matters, for our company and the world,” is an IBM core value.
For this global technology leader, “innovation begins at the intersection of invention and insight,” notes Patricia Pepper, director of strategy and innovation for IBM Integrated Supply Chain (ISC), Raleigh, N.C.
While many companies talk innovation, what’s truly important is “achieving the results of that innovation, according to the standards of your clients, internal employees, or suppliers,” Pepper says.
Supply chain innovation is important for companies of all sizes. It means looking at the way a company applies its assets, operating resources, and capabilities to develop new ways to satisfy customer needs, says Bill Read, Americas supply chain strategy leader, Accenture, Cleveland, Ohio.
“Companies should measure the value of innovations or improvements by how well they help meet customer demands,” he says.
While a small number of companies are implementing breakthrough or what Read calls “leapfrog” innovations, nearly every company today is looking to innovate in one way or another.
And with good reason. “A company with a static supply chain strategy will not be successful in the future,” says Read.
“When evaluating how important innovation is to your organization, ask, ‘Will pursuing a strategy of incremental improvement allow us to meet our business objectives? Can we avoid having our products and services become commodities?'” says John Langley, professor of supply chain management at Georgia Institute of Technology, Atlanta. “If they do become commoditized, the ability to price effectively decreases, and so does profitability.”
Organizations are developing innovations across the entire supply chain continuum. Some key areas of activity include the following:
Adapting. “The ‘adaptive supply chain’ has been the buzz over the last few years,” Read says.
Some organizations have moved beyond talking about an adaptive supply chain to actually implementing one, putting in place the necessary technology, people, and global operating models. This means companies will be operating with a global view of demand, “and a supply chain process enabled throughout the world to satisfy that demand,” he explains.
Collaborating. “Collaborating with trading partners is one key area of innovation today,” says Read. In fact, supply chain collaboration has increased dramatically over the past three years, according to a recent Accenture survey.
“Companies had been operating within their own borders, whether internally or around the world,” says Read. “Today, they are looking beyond their boundaries, collaborating with their trading partners to collapse the time between sales and production or replenishment.”
Integrating. Breaking down silos and integrating functions helps companies develop creative solutions. In companies that excel at supply chain innovation, “supply chain managers and C-level executives usually have a good relationship,” Langley says. “Companies that conduct business in an integrated environment can be more innovative.”
“To transform the supply chain, companies need to have a strong desire for internal and external collaboration,” says Sundi Aiyer, principal and Americas supply chain operations capability leader, Capgemini U.S., Dallas. “Transformation cuts across departments and areas of focus within a company. It also usually links with the extended enterprise, such as key suppliers, customers, and channels.
“Some companies talk about innovation; others deliver it,” Aiyer adds. IBM is one company clearly delivering innovation.
At IBM, innovation isn’t only about new technology. The company recognizes that technology innovation on its own is not enough to achieve breakthrough results. Instead, IBM makes innovation an integral part of its entire operation.
“Innovation is not just applied to products; we also value process and execution inventions,” says IBM ISC’s Patricia Pepper, who oversees a team of 20 people responsible for strategy, innovation, and process in ISC’s Innovation Program Office, established six months ago.
“We have a six-person strategy team, a four-person innovation team, and a process innovation team of 10 people,” she says. “Their overall mission is to direct and coordinate a growing portfolio of innovation approaches.”
The Innovation Program Office formalizes the innovation process at IBM, encourages new ideas, and provides resources and a centralized repository of best practices.
“We’re getting tremendous results,” Pepper says, from focused ideas to changes with broad impact across the organization.
One new idea the Innovation Program Office developed is ISC’s ride-along program, where an IBM logistics employee rides with product to a customer site, experiencing firsthand the environment in which the product is received. The ride-along program enables IBM’s logistics team to better understand and meet customer requirements and develop innovative solutions.
A more far-reaching example of the Innovation Program Office’s success is IBM’s paperless import system, which replaces individual papers, faxes, and e-mails. IBM piloted the system with servers moving from Guadalajara into the United States, and is now expanding to servers shipping from Ireland.
The new import system enables IBM to slash document delivery time from 15 days to 25 hours; reduce the time required to resolve classification errors from one day to two hours; and eliminate missing documents.
In addition, IBM and its import partners now have complete real-time visibility as goods move through the supply chain, from supplier to forwarder to customs broker to importer.
Facilitating and tracking such innovations and measuring results is part of the Innovation Program Office’s job. The office also helps would-be innovators with resources and advice on how to take ideas to the next level, such as assembling a team, developing a plan, and securing a patent.
Most importantly, the office helps ensure innovations are linked to IBM’s strategies, a critical step in ensuring that innovations deliver desired results.
Here’s a look at several other companies enacting innovations across their supply chains.
Harman-izing Inbound Shipments
Company: Harman Consumer Group
Challenge: Optimizing inbound shipments in China
Innovation: Discovering a new strategic location
“Innovation comes from being close to processes, looking ahead strategically, and developing and evaluating new ideas,” says Lalit Panda, vice president of supply chain and information systems for Harman Consumer Group, a division of Harman International Industries, Woodbury, N.Y.
“Taking an idea from conception to reality is a lot of work. Innovations require more than ideas. You also need infrastructure in place to implement ideas properly.”
Because of its long supply chain and the dynamic nature of its market, logistics innovations are particularly important to Harman. The company designs, manufactures, and markets high-fidelity audio products and electronics systems, the majority of which are produced in China.
In addition, China offers a growing consumer market for Harman products. The country will soon liberalize trade regulations, making it possible for foreign manufacturers to ship directly from their outsourced vendors to the Chinese market, avoiding export and re-import costs.
These developments triggered an innovation in Harman’s inbound operation, which previously revolved around consolidating shipments in Hong Kong.
“We found a customs-bonded free zone on the border of China and Hong Kong in Futian. It is a strategic location, equidistant from three major ports in the Pearl River Delta,” says Lalit.
Consolidating inbound shipments in this free trade zone would allow Harman to move product through the ports of Yantian in eastern China and Shekou in western China, or through Hong Kong. Realizing the potential a Futian operation offered, Harman sought a third-party logistics provider (3PL) to help make this innovation happen.
Harman met with several major 3PLs that were not interested in the move from Yantian to Futian before finally launching the operation in September 2005 with APL Logistics. Now, other 3PLs are developing operations in Futian as well.
“We expect the Pearl River region to be a huge area for inbound cost savings,” Lalit says. “In addition, the new location sets the stage for five years from now when China is completely liberalized and we can ship directly inside the country.”
Recognizing that information is a critical requirement for innovation, Harman recently deployed a vendor extranet that gives supply chain partners visibility of important data. Harman uses the information as source data for a vendor metrics scorecard that measures vendors on their ability to execute. It also uses the data to enable root cause analyses.
Lalit works closely with Harman’s supply chain partners to explore innovative approaches, and encourages them to be open to new concepts.
“Carriers, for example, need to find innovative ways to add value—such as adopting pricing models that include performance incentives—in an increasingly commoditized business,” he says.
And commercial shipping companies need to think creatively about guaranteed service levels, multiple pricing options, and data visibility, he notes.
This type of innovative thinking should touch all aspects of the supply chain, according to Lalit. Clearly, Harman agrees.
Quenching a Thirst for Data
Company: Evian North America
Challenge: Controlling global logistics and transportation costs
Innovation: Implementing a new technology platform that unifies data
Evian North America, a wholly owned division of Danone, distributes water bottled at the company’s plant in the French Alps.
“The product dictates the supply chain,” says Philip Greenfield, vice president of supply chain for Evian North America. Because bottled water is a heavy-weight, low-price-point product, the company continually looks for innovative ways to control transportation and logistics costs.
“We work with all kinds of logistics providers: freight forwarders, customs brokers, export and import specialists, warehouses, and carriers,” Greenfield says. Each shipment involves multiple parties and must comply with multiple countries’ regulations. Time zone differences further complicate matters.
Like many other companies, Evian grapples with tight ocean shipping conditions. “With ocean capacity razor thin from Europe to North America, we have to be innovative and creative,” Greenfield says, managing within a band of acceptable freight rates and a range of available slots.
Evian recognized that it needed an integrated, web-based technology platform to enhance supply chain management effectiveness, and is implementing hosted software and information management services from GT Nexus, a logistics technology provider in Alameda, Calif.
The integration platform will serve as a unified data hub, standardizing logistics processes and centralizing global product visibility—from order to delivery—across Evian’s global supply chain network.
A Trio of Benefits
“We’re looking to realize savings and improvement from this innovation in three areas,” Greenfield says. First, the company expects to eliminate costs, such as demurrage charges, that it incurs as a result of misunderstandings and communication errors.
The ability to reduce inventory around the world is a second benefit the company hopes to achieve. “Historically, a parallel relationship exists between inventory and service: if you want high service levels, you need a lot of inventory. We want to switch that, and deliver high service levels with less inventory,” Greenfield explains.
Third, Evian wants to better understand its suppliers’ performance. “We have to identify our best suppliers, know their strengths and weaknesses, and meet with them regularly to share this information,” Greenfield says. “The linchpin is having accurate data and key performance indicators.”
Evian began implementing the new technology platform in August 2005, and expects to be up and running enterprise-wide in early 2006. In addition to the new technology, Evian is putting into place innovative processes and methods.
“At the end of the day, the technology is only a tool. If no one uses the tool, we’ve wasted time and resources,” Greenfield says.
Because the new software eliminates manual work, Greenfield expects the logistics and supply chain staff will have more time to proactively use the data the tool generates to develop additional innovations for Evian.
Building a Lean Machine
Company: Bobcat Company
Challenge: Leaning out inventory
Innovation: A new outsourced business model
When Bobcat Company, a Wells Fargo, N.D.-based producer of small loaders, excavators, and other types of compact construction equipment, began exploring lean manufacturing concepts, it targeted inventory control as one area for improvement.
The ultimate goal was to set up synchronous material flow that would enable Bobcat to get the right piece at the right time to the line-side operator, in the optimal part configuration and presentation. But first, it had to solve the riddle of who could best help it achieve this goal.
“We had to decide whether to hire internal employees or partner with a company offering expertise in logistics, warehousing, and material flow,” says John Mark Shaw, Bobcat’s global production planning and inventory control manager. “We wanted to focus on building Bobcat machines, and decided to look into working with a third-party logistics provider.”
A New Partner
For Bobcat, using an outside partner was an innovative strategy. It issued an RFP to five 3PLs, conducted site visits, and had each 3PL come to its office to meet with Bobcat plant and business unit managers, and inventory control personnel. The company chose to partner with Menlo Worldwide Logistics, San Mateo, Calif.
In September 2005, Bobcat began working with Menlo to deploy synchronous material flow with single pieces flowing to each work cell. Menlo set up an offsite warehouse located seven miles from Bobcat’s manufacturing facility in Bismarck, N.D. The two companies worked together to design packaging, and the racks that serve as delivery conveyances. They also developed internal delivery routes for material handlers who travel to assigned work cells.
A four-person engineering readiness operations team from Menlo worked onsite with Bobcat, acting as an extension of the Bobcat team to put in place the underlying elements that would enable single piece material flow.
Part of the innovation process involved creating value stream maps of various logistics functions, then improving processes to enable an effective synchronous material flow strategy. The effort was successful—in one case, Bobcat cut lead times by nearly two thirds, and eliminated $100,000 in on-hand inventory.
The team also set up key performance indicators (KPIs), identifying 26 indicators for the production planning and inventory control departments to manage. Half the KPIs measure Menlo’s performance.
“The KPIs are included in a materials report that we send out daily so everyone can see how the group and the company is doing on supply chain processes,” Shaw says.
Switching to an outsourced business model was a challenge for Bobcat. “It’s easy to launch a customer-supplier relationship. It’s more difficult to establish a strategic third-party logistics partnership” such as the one in place between Bobcat and Menlo, according to Shaw.
“The relationship entails a greater degree of communication and visibility into internal processes than many companies are comfortable with,” he says.
But the new relationship and technology implementation have progressed smoothly. When issues arise, Bobcat addresses them immediately by analyzing root causes, assigning employees to make corrections or adjustments, and developing metrics to track progress.
“This allows the team to focus on important issues, instead of fighting fires,” Greenfield says.
Because the initiative was successful in the Bismarck facility, Bobcat expects to expand it. The company plans to set up similar manufacturing support centers to link all Bobcat facilities, to integrate the facilities so they have single data flow, and to strengthen the supply chain and supplier alliances, says Shaw.
Mixing Up an Innovative Culture
Company: Noveon Inc.
Challenge: Developing a supply chain from scratch
Innovation: Tapping into people power
Specialty chemical manufacturer Noveon Inc., headquartered in Cleveland, Ohio, was spun off from parent company BF Goodrich in 2001. The new company designed its supply chain from scratch, says Alex Spinos, Noveon’s global logistics manager.
“The only thing we knew was the company would change drastically, and we had to be flexible,” Spinos recalls.
Running the business in a new environment required ingenuity and inventiveness from the well-established manufacturer of plastics, performance coatings, and ingredients and additives for personal care products, pharmaceuticals and the food and beverage industry.
Establishing a culture of innovation paid off when The Lubrizol Corporation acquired Noveon in June 2004, after three years operating as an independent company.
Recipe for Success
Noveon’s success is a result of several innovations: establishing a staff dedicated to fostering supply chain improvements, working with experienced third-party logistics providers, and assembling a team of individuals who ensure managers have the data they need to make effective decisions, according to Spinos.
To foster an innovative environment internally, Noveon established a four-person project management team. Members act as internal consultants.
“They don’t have operational duties; they are tasked only with supply chain and sourcing process improvement,” Spinos explains. “These folks push, poke, and prod a ‘Let’s do business a little differently’ mentality to the rest of the organization.”
Noveon’s first-ever global ocean bid is an example of the project management team’s success in generating innovative ideas.
“We used an e-sourcing model for the bid. This allowed us to present one company to the carrier base as opposed to a fragmented approach,” Spinos explains.
As part of the process, the project management team held three global meetings, attended by every manager in the company involved with ocean transportation. As a result, employees were able to share best practices and form relationships that are likely to enable future innovations.
A group of logistics interns also help Noveon drive its innovative culture. Noveon works with six college interns every year, and the company often hires them after graduation “to infiltrate the organization with supercharged folks who look at things with a fresh eye,” Spinos says.
The interns, from the business school at nearby John Carroll University, are empowered by project managers to collect and collate data and “make it smart,” according to Spinos. Energized and ingenious, the interns chase down data that provides the foundation for new ideas and methods.
Working with leading third-party providers is another core element of Noveon’s innovative logistics strategy. “We need partners with the necessary infrastructure and product knowledge to enable us to react quickly to business demands,” Spinos says.
Outsourcing has also helped the company handle its strong growth. As a result, Noveon looks to its providers to be key innovation enablers. Domestically, the company works with two 3PLs: Ryder manages its transportation, and Kuehne + Nagel provides warehousing services.
“We explain our business needs to our partners, and give them the information necessary to make recommendations,” Spinos says. “They come back with great options.”
Ryder, for example, developed a customized transportation solution that gives Noveon complete visibility of transportation costs, centralizes data reporting and freight bill payment, improves damage claims management, and reduces freight costs.
When Noveon was evaluating warehousing options in the eastern United States, the company consulted both providers. Kuehne + Nagel provided information on warehousing costs and volumes, and Ryder analyzed transportation data and provided feedback on potential locations. They combined the transportation and warehousing data to identify an optimum warehouse location, which helped Noveon reduce costs, save time, and improve service.
“We treat our 3PLs the same way we do our own staff; that has a lot to do with our success,” Spinos says.
Onsite 3PL personnel in Asia and the United States attend Noveon’s supply chain meetings along with its internal employees. In addition, the providers work with Noveon to develop its strategic plan, which guides warehousing, transportation, and international logistics efforts.
Armed with this information, Noveon works with its providers to develop tactical and strategic innovations that help the company achieve its mission.
Driving On New Terrain
Company: Suzuki Manufacturing of America Corporation
Challenge: Streamlining inbound logistics processes
Innovation: Sharing resources with a direct competitor
In the constant quest to improve supply chain performance, companies try some surprising innovations. But leveraging the resources of a direct competitor? It sounds unlikely, but is exactly the innovation Suzuki Manufacturing of America Corporation chose to streamline its inbound shipping process and reduce inventory.
Suzuki manufactures all-terrain vehicles (ATVs) at its manufacturing plant in Rome, Ga. Seeking to lean out on-hand inventory and better manage inbound logistics, Suzuki turned to its 3PL transportation partner, Tipp City, Ohio-based Transfreight, which had been managing Suzuki’s inbound logistics, to develop a new approach.
“We try to model ourselves after Dell—whatever inventory comes in the front door in the morning goes out the back door in the evening,” explains Thomas J. Willig, supply chain manager for Suzuki. “My goal is to turn the lights off at 5 p.m., and have no inventory left in the building.”
Thanks to changes made during the past year—and the company’s surprising alliance with a fellow ATV manufacturer—Willig is on the way to achieving his goal.
Originally, Suzuki brought all inbound materials into its manufacturing facility. But with limited space, the yard quickly became congested, and the company suffered from poor inbound shipment visibility.
To streamline receiving and improve visibility, Suzuki opened a warehouse to handle inbound truck shipments of parts. A second warehouse received international shipments brought in via rail. Production lots were assembled at the warehouse, then delivered to the Rome plant.
As inventory began to build up at the warehouses, however, it became clear Suzuki wasn’t getting the results it wanted by taking this approach. Willig turned to Transfreight for a solution.
“We put together a plan to bring material in sequence by lot number to Transfreight service centers, and have Transfreight deliver it to us,” Willig explains.
Transfreight, which specializes in supply chain solutions based on lean logistics, Six Sigma, and best practices, suggested using integrated routes—a new innovation for Suzuki. The routes would combine Suzuki shipments with shipments from other Transfreight customers. That’s when Suzuki’s competitor entered the picture.
The Transfreight team analyzed its network—which includes customers with suppliers located throughout the Midwest and East Coast, where many Suzuki suppliers are located—and began building the integrated routes.
During this analytical phase, Aurelie Doucette, a Transfreight contract manager, contacted a Transfreight colleague who worked with Yamaha Motor Corporation of America—another Transfreight customer—to explore the potential for consolidating loads from Suzuki and Yamaha suppliers. The companies, which compete in the same marketplace—share many common suppliers.
Doucette previously worked with Yamaha, so she knew Yamaha and Suzuki suppliers were complementary, and that integrating shipments from the two competitors would result in improved service and reduced cost for both companies. Suppliers would also benefit from the efficiency of consistent, standardized pickups, and a single truck picking up for two customers.
Transfreight put together a proposal outlining the benefits of using integrated inbound routes and submitted it to Suzuki and Yamaha. The innovative plan was approved by the two rivals and successfully implemented. In September 2005, Suzuki began shutting down its warehouses.
Today, Transfreight picks up inbound materials at Suzuki and Yamaha suppliers and transports them to service centers in Tipp City, Ohio, and Calhoun, Ga. There, materials are sequenced by production lot number and delivered to Suzuki’s Rome plant. The Georgia service center delivers two shipments per day; the Dayton facility sends a shipment once a day.
“We asked Transfreight to assemble a network of suppliers stretching from Nebraska to Georgia to New Jersey, deliver parts to our facility at 6 a.m., and move the empty containers back to suppliers every morning—not an easy task,” Willig says.
Suzuki’s on-hand inventory has dropped from a high of four to five days of domestic parts inventory to one day of inventory.
“The total pipeline may be three days including product in-transit from our suppliers, but we never have more than one day of inventory on our floor,” Willig says.
The Suzuki plant has moved from an operation with two warehouses and a manufacturing facility, to one streamlined plant. This transition has sharpened Suzuki’s focus on accuracy and precision.
“We don’t have a 200,000-square-foot warehouse full of parts to fall back on,” Willig explains. “Suppliers know they must ship the right parts at the right time, every time, to avoid shutting down the line.”
The new lean approach and innovative shipping arrangement have improved performance throughout Suzuki’s ATV operation. Getting rid of excess inventory enabled it to uncover and eliminate problems it didn’t see previously “because the inventory covered them up,” according to Willig.
“The lower the water, the more the rocks stick out,” he explains. “We found a few ‘rocks’ to handle along the way—some internal, and some external.”
Suzuki expects its third-party logistics provider to suggest innovations. “I want my 3PL to come to me with ideas on how to cut costs, have parts delivered cheaper and faster, and keep more product off the floor,” Willig says.
Suzuki and Transfreight have a strategic, rather than a transactional partnership, and work together to achieve continuous improvement. Three of Transfreight’s employees work onsite at the Rome plant. In fact, Doucette’s desk is directly behind Willig’s, which facilitates a close working relationship.
Teamwork Pays Off
The 3PL employees working with Suzuki are included in Suzuki’s daily production meeting, and sometimes attend its monthly sales and operations planning meetings as well.
In addition, “Transfreight is the only supplier to make presentations at our supplier conference every year,” Willig says.
This close relationship makes it easier for the partners to continue to innovate. The key to the partnership is a solid foundation of trust. Because of its innovative approach to manufacturing and inbound shipping, both partners know that “we need to have total trust,” Willig says. “If any major problems occur, manufacturing shuts down.”