Technology Drives Supply Chain Excellence
Growing companies harness a variety of IT solutions to help them maintain outstanding performance.
Just as children outgrow their clothes, successful businesses eventually outgrow the tools they use to manage their supply chains. Spreadsheets, e-mails, and rules of thumb might suffice to support a business while it’s small. But enlarge the market, add suppliers, build more distribution centers, and, before you know it, those once-reliable props start sagging under the burden.
When old processes grow tired, companies trying to boost performance often turn to new logistics information technology solutions. Here’s a look at how three companies apply logistics IT to drive supply chain excellence.
Too Much, Too Little, or Just Enough?
Without the ability to spot demand trends, this fuel distributor risked creating a serious gap between supply and customer needs.
Challenge: Matching inventory levels to customer needs
Technology Solution: Demand management tool
Provider: JustEnough Software, Durham, North Carolina
Result: 50% inventory reduction and more than 97% fill rate
McPherson Oil was facing a problem of balance. The more the company grew, the harder it became to match inventory levels with customer needs.
Based in Trussville, Ala., McPherson Oil is a distributor of lubricants, fuel, and petroleum equipment. It delivers products from locations in Alabama, Florida, Georgia, and Tennessee to manufacturing plants, auto repair shops, quick lube chains, and other customers throughout the southeastern United States.
In the past, when they needed to analyze demand, forecasters at McPherson moved data from the company’s enterprise resource planning (ERP) system into spreadsheets. The more the company grew, the more cumbersome that process became.
Moreover, the spreadsheets couldn’t respond to fluctuating demand. Analysts plugged in figures based on forecasters’ past assumptions, not on the rise and fall of customer orders in the present.
"We needed a software solution that would allow us to be more flexible and identify trends faster," says David Bright, McPherson’s director of logistics.
Without that ability to spot trends, McPherson risked creating a serious gap between supply and customer needs. "We weren’t able to build inventory fast enough to support new customers," Bright says. Or, if a major customer stopped buying a certain product, the company might get stuck with inventory it couldn’t sell.
In 2008, McPherson put out a request for proposal to implement a demand planning and inventory management system. All four software vendors that bid on the project offered good forecasting tools, Bright says. But officials at McPherson also wanted a system that would let them manage by exception and display reports as on-screen dashboards. That last requirement, in particular, tipped the scales in favor of JustEnough Software, a solutions provider based in Durham, N.C.
When it signed an agreement with JustEnough, McPherson set an aggressive 90-day schedule for completing the implementation. One major task was defining business rules that would govern the solution. What service level targets would McPherson use, based on the needs of different customers and the volatility of demand? Did the company want to forecast demand for particular products every week or every month? What inventory levels should it carry, and what levels could the company afford?
JustEnough also had to configure the software to accommodate unique constraints in the petroleum industry. For example, companies buying bulk lubricants must purchase minimum quantities. "We can’t just buy 100 gallons from ExxonMobil," Bright says.
Nor can the company exceed its storage capacity. "We needed JustEnough to understand that we could not carry more than what our tank could hold," he explains.
CALLING ON HISTORICAL DATA
To provide a solid foundation for future analysis, McPherson and its software vendor pulled historical data from the ERP system into the JustEnough solution.
"From day one, the system gave us access to two years’ worth of sales history, sorted by customer, warehouse, or product," Bright says. JustEnough continually refreshes that history, importing new sales data from the ERP system each afternoon and night.
Another implementation task involved deciding what kinds of reports to present on the JustEnough dashboards. These displays provide information that company officials use to forecast future demand and adjust inventory levels.
Bright made suggestions based on his experience with a different demand planning system at a previous employer. The implementation team also took requests from end users. To a large extent, though, McPherson relied on JustEnough to provide reports that had worked well for other customers. "Two-thirds of the reports we use are the system’s standard reports," Bright says.
Implementing the JustEnough solution was complex, but the project proceeded smoothly. "We rolled it out on time and below budget," Bright says.
McPherson Oil did make some adjustments, however, once users had gained some experience. For one thing, Bright and his team discovered that the service level targets they’d used while configuring the system were too conservative.
Team members hadn’t thought they could store enough inventory to offer better than a 97-percent fill rate. But after using JustEnough for about one year, officials at McPherson found they had more storage space than they’d expected. "We reduced inventory because we had more of the right product and not as much of the wrong product," Bright says.
Using the extra available space, the company could adjust inventories to support higher service levels. "Instead of a 97-percent fill rate, we increased it to 98 or 99 percent—even, for some products, up to almost 100 percent," Bright says. "And we were still able to reduce inventory even more."
Overall, McPherson reduced its inventory by 50 percent and increased fill rates by two to three percent.
Results like those are now encouraging McPherson to apply the demand planning system in a new area of business. Although it’s mainly a distributor, McPherson also does some production—blending used hydraulic oil with virgin oil and additives and selling the recycled product. "We’d like to do that on a larger scale," Bright says.
For example, the company could bring in a railcar full of base oil and add different combinations of additives to produce several products. But to do that profitably, the company must determine how much of each product to create.
Technology can help. "By applying a logistics IT solution, we’ll be able to forecast and create plans for blending our own products," Bright says.
Gaining the Global View
To improve customer service and order management, this home shopping firm needed end-to-end shipment visibility around the world.
New York, New York
Challenge: Tracking import shipments
Technology Solution: Global trade management system
Provider: TradeBeam, San Mateo, California
Result: Full visibility into the global supply chain
A division of the multinational Redcats Group, Redcats USA is the third-largest home shopping firm in the United States. The New York-based company owns brands including men’s and women’s plus-size fashions, home and lifestyle products, sporting goods, and outdoor gear. About 70 percent of Redcats USA’s products come from suppliers in Asia, and the company brings goods into distribution centers in Indianapolis; Troy, Ohio; and South St. Paul, Minn.
The two Indianapolis DCs service the company’s direct sales apparel and home and lifestyle businesses, which operate as OneStopPlus.com. The DCs cover a total of 1.5 million square feet and ship about 17 million packages to customers annually.
Before 2006, Redcats USA’s OneStopPlus.com used manual processes to manage much of its global supply chain operation. "It was a logistics manager’s nightmare," recalls Chip E. Edgington, executive vice president of operations at Redcats USA. Phone calls, faxes, and e-mails flew back and forth internally within Redcats USA, and between the company and its suppliers and service partners. The company tracked the status of orders on spreadsheets. And much of the time, that status was unclear.
"We had visibility to purchase orders, but only after they were in transit," Edgington says.
Some status information came from carriers’ visibility tools, but that wasn’t the best way to gather information. "Relying on vendor systems can be ineffective," he says. "And we were relying on multiple systems, versus one consistent tool."
All these labor-intensive processes created inefficiencies and increased costs. Even worse, without end-to-end visibility, customer service representatives couldn’t tell customers when to expect their merchandise. "That could make the difference between a successful and an unsuccessful order," Edgington notes. When reps can’t promise when goods will arrive, customers are tempted to shop elsewhere.
Redcats USA’s large size and global supply chain magnified the problem. "We had limited visibility on 70 percent of the goods coming into our distribution centers," Edgington says.
Redcats USA had three main criteria in choosing an IT tool to better manage its global trade. First, the system had to be user-friendly to accommodate users throughout the company. Second, it had to support management by exception. "We wanted to focus on shipments that went wrong, not shipments that moved according to plan," Edgington says.
Third, and perhaps most important, the system needed to provide visibility—not just at the purchase order (PO) level, but for each of OneStopPlus.com’s approximately 170,000 stock-keeping units (SKUs).
In 2004, Redcats USA signed a contract with TradeBeam, a vendor of global trade management software based in San Mateo, Calif.
To prepare for the implementation, Redcats USA assembled a team that represented the interests of departments throughout the company, including IT, inventory control, global sourcing, fulfillment, customer service, finance, and logistics—reaching all the way to the CEO’s office. "A dedicated, cross-functional team met weekly to work on our design requirements," Edgington says.
The company decided to automate in small steps. It focused on the Indianapolis DCs and a facility it owned at the time in Boston. It started with a few overseas suppliers and its most tech-savvy service providers. Eventually, it added more suppliers and service partners. "Once we overcame the hurdles, we were able to accelerate the project," Edgington says.
IMPLEMENTING THE SOLUTION
Redcats USA’s OneStopPlus.com implemented TradeBeam’s visibility solutions, which allow companies to manage orders and collaborate with overseas suppliers; manage activities with forwarders, brokers, and carriers as shipments move through the supply chain; and collaborate with suppliers and partners to manage inventory levels. Because TradeBeam provides software-as-a-service (SaaS) applications, Redcats USA didn’t need to buy new equipment or install software on its premises.
It did, however, need to train users on the complex new system. TradeBeam’s onsite trainers did a great job, Edgington says, but if he had the project to do over, he would have spent even more time on training. "On a launch like this, which touches every aspect of your business and every cross-functional department, you cannot train enough," he adds.
Getting the system up and running took about 18 months, which is longer than a TradeBeam deployment normally takes. "Tracking at the SKU level created a lot of complexity," Edgington says. Redcats USA started using the new technology in 2006.
TradeBeam provides links with service partners’ information systems, allowing Redcats USA and all parties in its supply chain to share data electronically. Vendors receive POs and change orders immediately. Once an order is placed, Redcats USA can see its estimated ship date and stateside DC delivery date. As soon as an order ships, the TradeBeam system receives an electronic message that includes all the manifest information and packing details, down to the SKU level.
VISIBILITY MAKES IT WORK
When Redcats USA needs to shift part of an order from ocean transport to air, everyone involved in managing that order immediately receives a "shipment change request" and reacts accordingly. As the order makes its way around the world and through Customs, logistics staff receive alerts if something goes awry.
"We can focus on shipments that are being delayed or weren’t handed over on time, and spend our energy helping to resolve those exceptions," says Amy McFayden, import manager at Redcats USA.
TradeBeam has given Redcats USA full visibility into its global supply chain, making the operation more efficient and improving customer service. "We can click on a PO and see an estimated time of arrival, truck number, and whether the shipment cleared Customs," Edgington says.
A second click provides a shipment manifest, and a third click serves up a detailed event plan for the movement. "That’s a lot of information—and it’s paperless," he says. "The system has changed the way we operate."
In the future, Redcats USA’s OneStopPlus.com plans to use the system to generate bar-code labels, which overseas vendors can print from the Web and place on cartons before they ship. Redcats USA will also use TradeBeam to help manage shipments into the foreign trade zones that the company plans to establish in Indianapolis. "The system will help us file those entries with Customs faster and more accurately," McFayden says.
Tuning In for a Competitive Edge
Better planning and communications helped this auto parts distributor get a handle on delivery schedules and fuel usage.
Ideal Supply Company
Challenge: Inconsistent fleet departures and inefficient delivery stops
Technology Solution: Route planning software and wireless communications
Provider: Descartes Systems Group, Waterloo, Ontario
Result: Better control of delivery schedules; up to 30% less fuel spend
Ideal Supply Company, based in Listowel, Ont., has used a routing and planning system and wireless communications to manage customer deliveries since 2005. Last year, the company gained even better performance when it switched its wireless carrier.
Ideal Supply distributes auto parts, electrical components, industrial automation products, telecommunications products, and safety supplies from a warehouse in Listowel and 25 stores throughout western Ontario. It also operates a network of machine shops. Customers include auto repair shops, factories, contractors, and consumers working on do-it-yourself projects.
Some customers come to Ideal Supply’s stores to make purchases. But many place their orders via phone, fax, electronic data interchange (EDI), or the Web. Ideal operates 93 trucks to deliver those orders.
Ideal Supply enlisted supply chain technology to deal with the challenges that come with success. As the company grew, it found itself making as many as 2,000 deliveries each day. Many mornings, it held back trucks to accommodate last-minute orders. "Those delays led to inconsistent departure times," says Chris Moon, Ideal Supply’s assistant manager, innovation and technology support. Inconsistent departures led to erratic customer service.
In addition to gaining better control of delivery schedules, officials at the company wanted to curb the rising cost of operating—and, especially, of fueling—the delivery fleet.
To help meet those challenges, Ideal Supply chose Route Planner RS from Descartes Systems Group in Waterloo, Ont. One reason for the choice was that, unlike some other software vendors, Descartes offered a wireless communications option.
Ideal Supply’s delivery drivers carry cell phones with GPS capabilities and a Java application for interacting with the Descartes solution. Once the system analyzes the day’s deliveries and plans each route, drivers use the application to pick up their delivery instructions.
During the day, the GPS technology periodically transmits each driver’s position back to the system, so dispatchers can monitor the fleet. Drivers also use the phone to transmit status messages as they move along their routes.
When Ideal Supply chose its system, the ability to track delivery status was important. "Delivery is such a core competency for us that we expected a high return on a real-time data display investment," Moon says.
When Ideal Supply implemented the system back in 2005, its first order of business was examining its current business processes and studying the capabilities of the new software, known at the time as Roadshow. "We tried to re-engineer existing processes to take advantage of the Roadshow program’s capacity," Moon says.
In one important change, Ideal Supply redesigned its invoices so that each one displays the delivery route and truck assigned by Route Planner RS. This change provided visibility into orders leaving the warehouse. "We can grab any box and know, for example, that it is destined for the branch in Barrie, and will end up on truck route two," says Moon.
PICKING UP THE PHONE
For wireless communications, Ideal Supply originally chose Telus, a leading communications company in Canada. Company officials wanted to give drivers a phone that would support a Java application and GPS tracking, and that also offered "push-to-talk" communications with the dispatcher. "Telus was the only company that we felt offered a device—the Motorola i355—that met all our needs at a price point that made sense," Moon says.
The network choice had a downside, however. Ideal Supply serves a largely rural area, and drivers sometimes found themselves outside Telus’s coverage area. "That presented some communications issues," says Moon.
Since 2005, other area wireless carriers have started to offer push-to-talk capabilities. In the spring of 2009, Ideal Supply switched its drivers to Sanyo SCP 7050 phones, operating on Bell Canada’s wireless network, which offers more extensive coverage in Ideal Supply’s region.
Aside from that small challenge, the technology has worked well. Each time Ideal Supply receives an order, workers in the warehouse pick and pack it, and the company’s distribution management system creates an invoice. The system accumulates invoice data each day until 9:30 a.m., when it uploads the information to a file transfer protocol (FTP) site. A dispatcher then pulls that file into Route Planner RS. The Descartes system assigns those orders to drivers, creating an optimized delivery plan.
As drivers prepare to start work, they log into the system to request the day’s route. "The Descartes system pushes it over the network, and the driver receives the electronic manifest on the cell phone," Moon says.
UPDATED INSTRUCTIONS IN AN INSTANT
Besides using menu choices to report deliveries and other activities, such as product returns, drivers use the phones to receive new instructions from dispatchers throughout the day. For example, a farmer might call Ideal Supply to say he needs one of the company’s machine shops to work on an engine piece. The dispatcher would use Route Planner RS to find a nearby driver, assign a new stop, and transmit that assignment to the phone.
Drivers and dispatchers communicate so well using the Java application and text messaging that they’ve stopped using push-to-talk, the very feature that originally drove Ideal Supply’s choice of wireless network. Thanks to Route Planner RS and wireless communications, Ideal Supply has reduced its transportation costs. In some parts of its territory, the company now spends 30 percent less on fuel than it did before it started using the system.
The technology also has helped Ideal Supply serve more customers with a smaller fleet. "Back in 2005, we operated about 100 vehicles," Moon says. "We’ve added four branches and grown substantially, and we’ve actually been able to reduce the number of vehicles while providing consistent levels of service to more customers."
That consistency produced another important result. "We achieved a competitive differentiator in terms of service," Moon says. That advantage has helped Ideal Supply capture a larger share of its market.
Like their counterparts at McPherson Oil and Redcats USA, officials at Ideal Supply are impressed with the way logistics information technology has helped develop a more powerful supply chain operation.