Supply Chain Technology: Integrating the Old & New
New supply chain technology can power up existing operations, streamline inventory, and increase revenue—if implemented correctly. Making sure new solutions integrate with existing technologies and processes is crucial. Here’s how it’s done.
Integrating new technology into existing operations can help significantly increase customers service, reduce costs, and streamline supply chains. The new technology must be fully synthesized with existing policies, practices, and people, however, to tap its full power.
Collections Etc., a privately owned catalog company located in Elk Grove Village, Ill., took the steps required to synthesize the old and the new when it revamped warehousing operations to handle significant growth.
Collections, which sells giftware direct to consumers, previously maintained three warehouses—two housed picking and packing operations, while the third stored goods and replenished the pick-and-pack facilities.
When the company decided to consolidate its different facilities, it began building up infrastructure and staff to support the change. Collections also developed a deep understanding of its current status, explains Bruce Getowicz, operations manager for the catalog company. This required getting a full picture of order profiles, shipping trends, fill rates, back-order rates, and productivity.
Collections hired Sedlak Management Consultants, a supply chain and distribution consulting firm based in Highland Hills, Ohio, to study its existing operations, including volume, activity, and production rates. Then, armed with a good baseline of its operation, Collections began envisioning the new facility.
The company gave Sedlak its three- to five-year growth projections, and asked the consulting firm to plan its new distribution center. The distribution center uses new technology, including a warehouse management system (WMS) from Manhattan Associates, handheld scanners, conveyors, and narrow aisle high-bay storage.
One of Collections’ goals was to move the majority of its warehouse workforce to the new DC. Finding a new facility less than 10 miles from the other location helped make that possible.
Collections also invested time to ensure that associates—some of whom had not worked with computers before—were comfortable with the new technology.
“We started conversations early on with our warehouse group. We held two open discussions about five months before the new building was operational,” says Getowicz. During these meetings, associates saw the building layout, learned about new processes, and were introduced to the new technology.
Two months before the system was scheduled to go live, managers and super users received WMS training. Shortly after, associates and group leaders began weekly training sessions with the new system, working with detailed instructions developed by Sedlak and the Collections team. Four weeks before the facility went live, Collections began formal tours with employees.
In addition, the company conducted two mock go-lives. In the first, conducted three weeks before actual go-live, 20 people performed operations—picking, scanning, and moving product—for two hours.
A second mock go-live, conducted one week before the launch, involved more than 30 associates. Both exercises served the dual purpose of getting associates comfortable with the technology, while helping to resolve minor systems issues before actual go-live.
Collections went live with the WMS in April 2004, roughly 120 days before the beginning of its peak holiday season. It also selected a phased implementation.
The initial go-live brought 15 percent of activity from an existing facility into the new distribution center. The company gradually increased the percentage of activity in the new DC until it was completely transitioned. Thanks to careful preparation, go-live went smoothly, Getowicz reports.
“Peak season last year went well, but we still weren’t in full stride with production—we were at 90 percent,” he says. “About six months after the initial implementation, we hit full stride.” The company will continue to fine-tune operations in the future to maintain optimum performance.
Integrating new supply chain execution technology into an existing operation can present significant challenges, notes John Pulling, chief operating officer of supply chain software vendor Provia Software Inc., Grand Rapids, Mich.
Companies that merge old and new systems correctly take the following steps to mitigate risks and maximize success, he says.
REENGINEER PROCESSES. Adding new technology without reengineering related processes won’t reap maximum results. The magnitude of the reengineering effort depends on the type of technology being implemented.
Installing a transportation management system (TMS), for example, will generally involve less process reengineering than implementing a complete supply chain management suite.
Regardless of the type of technology, however, companies should conduct a full process review early on. “Conduct a high-level process review, document the business’ current state, and identify ways the new technology can streamline operations,” Pulling recommends. Next comes the process redesign.
Improving data quality can be a big part of process reengineering. “Companies need to do an analysis to understand how good their data is, and put a plan together to fix what needs fixing,” Pulling says.
PLAN THE IMPLEMENTATION TIMING. “Implement the system at the easiest time of year for the business,” Pulling advises.
If an implementation bumps up against peak season, for example, it is best to wait. “Companies cannot go live with a new technology a few weeks before busy season,” Pulling warns. “It creates havoc and puts too much pressure on everyone involved.”
Companies should also consider carefully the pros and cons of a “big-bang” approach versus phasing in the new technology, he says.
The Surfactants Business Unit of chemical manufacturer Akzo Nobel, for example, is tackling transportation improvement in two phases.
During the first phase, ChemLogix LLC, the company’s third-party logistics provider, is automating shipment rating, prepay-and-add customer billing, freight cost accruals, and freight bill audit/settlement using an on-demand TMS from Nistevo.
In addition, Akzo’s customer service staff are using the Nistevo application through a web browser to determine freight rates for customer quotes.
During the second phase of the transportation initiative, ChemLogix will use the Nistevo application to automatically plan, execute, and track Akzo’s truckload, bulk, and LTL shipments.
American Electric Power (AEP) is also taking a phased approach to implementing its modular, web-based TMS, e-CTMS from Memphis-based Continental Traffic Service Inc. (CTSI).
“As a small transportation group, we’ve been successful using a phased-in approach, buying separate modules rather than buying a complete package and trying to ramp up all at once,” reports Ted Lunsford, senior transportation and logistics coordinator for AEP.
Based in Columbus, Ohio, the company is one of the largest electric utilities in the United States. Primarily an inbound shipper using thousands of suppliers, and shipping to several hundred locations, AEP faces myriad possible shipping lane combinations.
When implementing the new technology, which helped automate its previous manual environment, “we started slowly and waited until we felt comfortable that our first TMS piece was running smoothly,” Lunsford explains. “Then we started the next phase. We wanted to make sure we didn’t overwhelm our users with too many changes at one time.”
AEP began using an online routing guide in mid 2004, then added an online load posting site for truckload and flatbed shipments in spring 2005. By using these modules, the company’s transportation professionals have significantly reduced their contact with suppliers and internal shipping facilities. This frees them to work on strategic projects.
AEP is now phasing in benchmarking and freight modeling tools that will further facilitate transportation management.
INVEST IN CHANGE MANAGEMENT. The challenges of implementing new technological tools go far beyond the systems themselves, according to Pulling. Addressing the change management aspects of implementation is where difficulties may arise.
“Change is difficult for people, no matter how well you manage it,” Pulling notes. That’s why investing in planning, communicating, and training is key for a successful transition from old to new.
“To address change management formally, someone within the organization should be tasked with handling it,” Pulling says. He considers it a near full-time job within a major systems implementation.
“In addition, rolling out technology that affects multiple aspects of the supply chain requires change management people for each function or place where the technology is being implemented,” he says.
Companies that give lip service to change management but don’t invest the necessary resources often pay the price with less-than-optimal results. To maximize the likelihood of a successful implementation, companies need to develop a communications plan that spells out a change management approach, including the process for gaining buy-in from those the change affects.
Rather than waiting until the technology has been selected, employees should be involved in the early stages of the change, says Pulling. Otherwise staff members may feel steamrolled, and resent having to make the new technology work despite the fact that they weren’t involved in its development.
Also, companies can increase buy-in success by identifying informal leaders in the organization and bringing them onboard early in the process.
Hy Cite Corporation, a distribution, marketing, and financial services company based in Madison, Wis., used this approach when it replaced its manual warehouse with a new distribution center and new technologies in spring 2005.
The company identified subject matter experts who would act as change agents, explains Arin Brost, Hy Cite’s vice president of information systems. “They become your evangelists,” Brost says. “You have to find the people who will continually talk about the benefits of the change.”
Communicating with supply chain partners that will use the new system was also key for the company. Hy Cite, which uses the direct sales model to market its cookware, cutlery, crystal, china, and housewares, recognizes that its distributors are critical partners, so it informed them in advance about its new distribution center.
“We explained that we were making the change to support our growth, and so that we could continue to service them at the highest level,” notes Brost. Distributors were pleased to learn that the new facility would enable a shorter order cycle time, and are happy with the results.
Ted Lunsford e-mailed and faxed details on AEP’s new web-based TMS to his company’s top 600 suppliers, who would be the system’s major users. In addition to telling suppliers about upcoming changes and providing screen shots, the company also included a web link in all its purchase orders, so suppliers had the information each time they received a PO.
These efforts have paid off. “We are now getting close to 1,000 hits per month on our online routing guide,” Lunsford reports.
Lunsford also trained the company’s truckload and flatbed carriers on using the e-CTMS web site and sent them samples of the e-mail notifications they would receive when loads are posted. Response from suppliers and carriers alike has been positive.
PLAN THE IMPLEMENTATION TIMING. As a go-live date approaches and work still remains to be done, “companies are often tempted to cut training time,” Pulling says. “It’s one of the biggest problems software vendors face.”
Like change management, companies often pay lip service to training, but don’t commit to it. “Taking staff out of production environments and pushing them into training is a big dollar commitment,” says Pulling. Companies that have been through an implementation will usually admit that they didn’t train enough, he says.
Many companies have their technology vendor train the entire staff, but a train-the-trainer approach—where the systems vendor trains super users, who then train other users—is also effective. This approach transfers the knowledge to the company, and ensures that it has the in-house capacity to train new users in the future.
Hy Cite, for example, made sure its associates were fully trained on its new warehouse management system and processes. The company used its WMS vendor, HighJump Software (a 3M Company), to train its systems staff, supervisors, managers, and super users. Then super users, working with a consultant, trained associates.
Two months of preparation and training helped Hy Cite associates get acclimated to using handheld devices. Hy Cite brought small groups of associates into the new facility for a half day of training. This involved pushing production data and packages through the new WMS, enabling associates to train in a real-world test environment.
“This provided us with two benefits,” Brost reports. In addition to giving associates hands-on experience with actual data in a test environment, “it gave our systems administrators and developers a chance to watch the data flow,” he says.
BE OPEN TO CHANGING YOUR GO-LIVE DATE. “Customers will forgive you for being late; they’ll never forgive you for being bad,” Pulling says.
“If your company is not on schedule to meet a go-live date, it is not okay just to say to the team, ‘You have to speed things up,'” he adds. “There’s a natural tendency to do that, but sometimes you are simply too far behind schedule to catch up.”
Companies not prepared to meet an initial implementation date should consider changing it.
Avoid last-minute surprises by building milestones in your project schedule. “Add success criteria that serve as go/no-go points in your project plan, and make them visible,” Pulling advises. If these criteria aren’t met, think seriously about changing your go-live date.
Integrating RFID Into Your Operation
Suppliers to retailers such as Wal-Mart and Target are integrating new RFID technology into existing operations to meet their customers’ RFID compliance standards.
Atlanta-based Newell Rubbermaid, for example, is a chosen vendor for both the Wal-Mart and Target RFID initiatives. The company started its RFID effort in August 2004.
“Our initial strategy was to use the ‘slap-and-ship’ approach,” explains Jason C. Vag, director of global RFID for the consumer products giant, which produces household names such as Rubbermaid products, Calphalon cookware, Little Tykes toys, Graco baby strollers, and Irwin Industrial Tools.
Newell Rubbermaid went the slap-and-ship route for several reasons. “Not only had we not done RFID before, few people in the world had done it. Our plan was to keep it simple and minimize the complexities of the installation,” Vag says.
In addition, Newell Rubbermaid wanted to give RFID technology time to mature before undertaking a broader initiative.
The company assembled a crossfunctional RFID team that included both divisional and corporate resources—including business, IT, and financial representation—as well as external consultants and software vendors. In fall 2004, team members traveled to several RFID testing facilities and vendors to evaluate available solutions.
The company chose to implement RFID technology in a California distribution center that handles Graco baby strollers, selecting a handful of RFID-friendly SKUs. It sent product to an RFID testing facility for tag placement testing in the fall of last year. Graco conducted its final technology testing in the DC in November, and went live with RFID in mid-December 2004.
“When an RFID order came through, we segregated it, ran it through a slap-and-ship line, then married it with the rest of the order,” Vag says. Go-live occurred as expected, and the company ran the RFID initiative status quo for the first six months.
In mid-2005, Graco expanded its initiative, fully integrating RFID orders into its warehouse management system. To do this, it had to upgrade the Manhattan Associates’ RFID module it used during the initial phase, and integrate it with Manhattan’s WMS.
Interestingly, the process required little change management or training, according to Vag. It has been nearly a seamless transition for the users on the floor, who pick to a label. Labels for non-RFID orders are produced by a regular printer; labels for RFID orders are printed by an RFID printer. Other than the change in labels, picking and shipping processes are the same, he explains.
Graco has implemented RFID in a second DC, and is now rolling it out through other divisions. “Eventually, all our divisions will be fully RFID-enabled,” Vag says.
Getting Ready for RFID
Use of RFID technology is expected to grow as RFID tag costs drop, standards are adopted, and the technology’s benefits become more established. Most companies implementing RFID will need to integrate the technology with their existing bar-code technology.
“Bar codes are not going away in the foreseeable future,” says Frank LaBarbera, director of RFID product management for Accu-Sort Systems, Hatfield, Pa.
Clothing manufacturer Garan Inc., which makes the popular Garanimals line, for example, recently installed an automated RFID and bar-code system in its distribution center in Jena, La. The new technology, Accu-Sort’s FAST Tag In-Motion system, enables Garan to automate the application of bar-code labels and RFID tags, which previously were applied by hand.
Today, all pick-pack products at Garan’s DC run through the system. Cartons processed on the line receive a bar code and a retailer-compliant shipping label. The system determines which cartons need RFID tags, and applies them as appropriate.
Whether implementing RFID with existing bar-code technology as Garan did, or using RFID as a standalone technology, companies need to prepare for the changes RFID will bring.
Here are six steps that help companies get ready for implementing RFID technology:
1. Get smart and get involved. “Talk with RFID experts, attend trade shows, and network with people who have been through an RFID implementation,” advises Vag of Newell Rubbermaid. Because “the best way to gain knowledge is to do it,” Vag suggests purchasing an RFID test kit to gain experience using RFID with your products in your environment.
2. Consider using external resources. Despite tremendous advances in the past two years, RFID technology is still maturing. Depending on your organization, it may make sense to work with outside resources such as consultants and technology vendors as you explore your RFID options.
“In our company, it made sense to bring in a third party,” Vag notes. “We didn’t have the expertise internally, so we used external resources.”
Newell Rubbermaid worked with consulting firm Tompkins Associates to gain a fuller understanding of the RFID market and where it’s heading, and observed various RFID hardware and software at Tompkins’ Emerging Technology Center in Orlando.
The company also worked with Tompkins to develop its RFID rollout strategy, and partnered with consulting firm Scott Sheldon LLC of Medina, Ohio, on RFID integration.
“There’s a full spectrum of RFID technology to consider, such as antennas, tags, and printers,” says Mark Buffum, partner, systems integration, for Tompkins.
Take advantage of investments other companies have made, such as consultants’ and systems vendors’ testing laboratories, to observe the various solutions in a realistic environment, Buffum suggests.
3. Understand the current environment in your facilities. “We’ll go to a customer site and conduct a materials handling site survey,” says Garan’s LaBarbera. This involves mapping the materials handling process, as well as understanding the systems, infrastructure, read points, and performance.
“You have to understand the existing infrastructure so you can minimize any disruptions. Because RFID is a disruptive technology, you want to develop it so that it interfaces with existing systems,” he says.
The site survey also involves a spectrum analysis to verify that an RFID system will work in a particular environment. Because of factors such as interference from an existing RF system, “just throwing an RFID system into an existing infrastructure won’t work,” LaBarbera says.
4. Conduct a prototype. “Start with a simple prototype that won’t impact your operations,” advises Buffum. Consider using a low-visibility product that will have little impact on your client base as you work through start-up issues.
The prototype should not disrupt a company’s existing operation. When conducting the prototype, “make sure you have a fail-safe switch,” LaBarbera recommends. Accu-Sort’s team, for example, will go into a facility in the early morning to install technology for a pilot. They also have a backup plan in place if they determine that the system is not ready to operate.
Integrating RFID technology into an existing operation works well for slap-and-ship prototypes involving a limited number of SKUs. If you’re looking to get a broader understanding of how RFID technology works with a group of SKUs that are representative of your entire product line, consider using a controlled environment in your facility or at a testing laboratory, LaBarbera says.
5. Look for flexible solutions. Because RFID technology is developing so rapidly, and because companies will likely be reading both bar codes and RFID tags well into the future, a scalable, flexible system is best. “Look for technology that can do more than one thing, such as read the different generations of tags,” LaBarbera advises.
This may mean taking a modular approach so that you can plug in modules as needed. “Today, you may tag one line. Tomorrow, if you need to tag other SKUs, and need to automate another line, you don’t want to disrupt the layer, you just want to plug in another module,” he says.
6. Manage expectations. “RFID is still a developing technology, so it’s important to have an understanding of not only its benefits, but its limitations,” LaBarbera says.
Make sure your team and your executives understand all the elements that can affect RFID’s performance—such as tags, tag placement, product characteristics, and RF interference. Companies should also be realistic about the payoff they’ll see initially.
Companies that are implementing RFID simply to comply with customer requirements may miss some opportunities. “If you have to implement RFID, and are going to make the investment, look for ways to bear fruit from it,” says Buffum. Use that information to develop a business case and identify return on investment, he suggests.
During the first year of its RFID implementation, for example, Newell Rubbermaid identified potential payback from two main areas: reducing chargebacks by having visibility to what product was actually received by the customer, and increasing product availability during promotional periods.
“With RFID tags, we can track where a product is in the supply chain. We know when we shipped it, when it reaches the retailer’s distribution center and the back room of the store, and when it is placed on the sales floor,” Vag says.
As a result, if product hasn’t been pushed out to the sales floor in time for a promotional effort, Newell Rubbermaid will be able to contact its customer and get the product out on the floor.
That may have a significant, positive impact on the company’s top line—which is just one benefit companies can achieve when synthesizing the new with the old in business logistics.