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SPECIAL ADVERTISING SECTION Supply Chain Teamwork Nothing but NET (profit) 
The supply chain never sleeps. It's a complex sequence of activities that moves raw materials and component parts through sourcing, manufacturing and processing, finished goods inventory, and customer fulfillment. Some leading companies recognize that their supply chain is their heart and soul, and the healthiest supply chains win the race--driving customer satisfaction, cost control, and investment productivity. Most supply chains, however, are still underperforming, and therefore offer tremendous opportunity for improving corporate results. The good news is that supply chain improvement methods and role models are quite compelling, and the tools to drive radical improvements in supply chain performance get better every day. Story continues below
Events of last year--the dot com implosion, economic slowdown, and September 11 shock created major stresses for many supply chains. Companies were challenged to keep critical supplies and products moving, maintain manufacturing productivity, manage inventory levels efficiently, and keep emergency transportation costs in check. Despite the slowdown and unexpected events, many companies are not standing still, and continue to initiate supply chain improvement initiatives. The reason? Rapid financial payback, often within months, contributing to improvements in productivity and profits when you need it most. And, perhaps more important, the growing recognition that excellent supply chain performance has strategic value--improving customer positioning and product quality, as well as long-term relationships with suppliers. As our panel of experts testifies in the following pages, however, shrinking volume and profits tend to focus the mind accordingly, changing the nature and mix of supply chain initiatives. In the last year, companies were more likely to postpone enterprise-wide supply chain projects in favor of more bite-size performance improvement with the most obvious "bang for the buck." Based on our discussions, there appears to be no shortage of supply chain projects with clear payback. A theme of "back to basics" is evident, emphasizing focused efforts such as enforcement of transportation routing compliance, automation of core carrier exceptions, event visibility, and one-to-one collaboration with key supply chain partners. As the economy recovers and supply chain IT budgets open up, the relentless trend of supply chain process "webification" will continue and companies will get their arms around supply chain visibility issues on a global scale. With more and more information readily available and easily shared, the rollout of sophisticated supply chain management, planning, and optimization tools can continue and accelerate. Previously limited to Fortune 500 companies with hefty IT budgets, these powerful tools will migrate to decentralized Fortune 500 firms and then to mid-tier firms with the increasing growth and availability of new application service provider (ASP) tools. When companies can buy these services "by the drink," the sky is the limit for supply chain efficiency gains over the next 10 years. Supply Chain Responses in Today's Economy The last 12 months have been very challenging, forcing many adjustments in response to the economic slowdown and shocks emanating from September 11. These forces have changed the way companies are dealing with their supply chains as well as the frequency with which some companies analyze their operations. "I have seen some supply chains move from primarily scarcity-driven to abundance-driven--from a collaboration phase, business objective to a return on assets," said Ed Sitarski. "And that's where some of the more strategic applications have come in, as well as more of a general feeling that there's increased global volatility that has motivated people to say, 'well, maybe I should revisit my business strategy on a monthly level as opposed to only looking at it every six months or every 12 months.'" For Richard Sherman, the logistics stressors of the last year laid bare the fact that the supply chain is much more complicated than early models made it out to be. "Management of the supply chain is a complex undertaking. The simplistic model of the supply chain is evolving to a more complex network model," said Sherman. "I think one of the biggest things we're seeing is that people are not looking at the supply chain any more as sequential location-by-location or lane-by-lane. They're taking a more holistic look at their network and how to gain visibility to all of the events that occur that cause change both inside and outside of the organization. And I think that's spawned a lot of the emphasis on collaboration and supply chain process management beyond the four walls," he said. "The fact is that people are recognizing that what the retailer is planning to buy can have significant impact on what they're forecasting to sell. And wouldn't it be great if they could have visibility to what the customer is planning to buy and map that against what the forecasting system is telling them to be selling so that they can manage that gap." Progress toward those supply chain goals is the driver of strong IT expenditures predicted to occur this year despite the soft economy, said Ned Ahearn. "The focus of these expenditures is typically around sourcing and eProcurement, and improving customer connectivity, i.e., knowing and understanding the status of product shipment by customers. While most companies will take a hard look at IT expenditures and consulting, our feedback is that most everybody is looking at expenditure levels that are at or above the same levels as last year. There is a big difference between the manufacturers who have heavy commitments to technology versus those that do not in terms of their competitiveness and their ability to actually manage cost. Fifteen to 20 years ago, the impact of systems on cost and competitiveness was in a range of 5% to 8% between the best and the worst. Now the best companies with the top cost and customer satisfaction results, it can be as much as a 35% and 45% difference. Companies realize they must continue investing in technology--to connect better to customers and to control operations." Tom Sanderson says supply chain customers are looking most for rapid payback. And that's not measured in traditional return on investment but in time period to payback. "If I make an investment, am I going to earn that back and be in a net positive position measured in weeks or months? Not 12 to 18 months but two to three months. And that's the kind of technology that we find people are willing to pull the trigger on, where they can 'pay by the drink' so to speak and get a return immediately." Story continues below
"In today's economy, we see companies who want to cut costs and improve profitability," said Bob Smith. "Our customers are also demanding a rapid ROI for their software investments. By providing global supply chain visibility, Harmony quickly identifies cost saving opportunities that can range anywhere from 1% to 20%, and in some cases, even higher. With Harmony, for example, the CFO and VP of Logistics or Operations are seeing the same information at the same time, enabling collaborative decision-making...real time with accurate information." One change Herbert Klein has seen among consumer packaged goods companies' use of software and technology is that they "find themselves to be more comfortable with the [supply chain] technology out there today. A year ago a lot of them were very nervous that they weren't moving fast enough. That they weren't taking advantage of the trading communities that were springing up, and I think really what we've seen in the last few months talking to these companies is that their businesses are just getting back to basics. What I mean by back to basics is there's a real focus on execution. A lot of companies are finding you can develop a fantastic plan to optimize your business, but if you don't execute your plan, you're wasting a lot of money and resources on the planning side. There's a real focus back to making sure that the execution is right. That you can actually build a plan, and deliver what you promise." Some very basic changes in supply chain planning and execution occurred after last September's terrorist attacks that grounded air cargo flights for days. "Right after September 11th we didn't see a significant uptake in LTL, converted from air. Some customers, who shipped air, did move some of their freight back to trucking. We believe a limited amount of it stuck around. Some of it went back," said William Michael. "Right now shippers are in the evaluation stages. They seem to be asking, 'do we need to do as much air as we did before?' So, the disruption of air comes into play. Our shippers may push a little more to the LTL side, but I don't know if it'll be a lot." David Sisson concurred. "To say that my trading partners in the aviation business have been affected is perhaps a bit of an understatement. Their attitude in the past few months has been one of near panic in terms of survival when you read in the business press serious discussions about major carriers filing bankruptcy. A few months ago we would have thought that was impossible. Cost reduction is very important, but perhaps more urgently their attitude is cash management." Supply Chain Bang for the Buck Many companies are finding that corporate initiatives focused on supply chain performance can generate impressive results. Can you give some examples of where you've seen the biggest bang for the buck? "Consumer products in general are undergoing great changes. Many companies recently completed acquisitions. Now they're grappling with that acquisition, and identifying core products and maximizing productivity. And managing the supply chain is a big piece of what they absolutely have to do to refine productivity and cost goals," said Ned Ahearn. "They are focused on their top brands and their top customers and managing the supply chain either in a DSD, managed inventory, or other type of inventory relationship that a particular customer needs to have. And to operationalize these core products and key customers, the top companies are coordinating their customer relationship management and supply chain systems to manage fulfillment." One of Bob Smith's customers was able to smooth the effects of a major merger by using supply chain visibility software to measure performance from day to day. "ChevronTexaco has Harmony running on each executive's desktop...monitoring key business processes across the enterprise to ensure that operational excellence is maintained during and after the merger. Because our solution is a complete application with audit-ready Key Performance Indicators built in, it was up and running in less than 90 days...not 24 months like some of our competitors," Smith said. "Our customers demand real-time data for faster decision-making. They don't have the patience or the budgets for long, tedious implementations." CHEP USA is another firm that requires fast decision-making. According to Tom Sanderson, "CHEP, like many large shippers, has a good core carrier program. They have an electronic tender process where they send out the primary tender to truckload carriers. But in truckload, on any given day you're going to have up to one-third of those shipments where the primary carrier is not going to have capacity to handle the load. So, what we've done is provide dynamic carrier selection (DCS) to drive all that excess freight back to CHEP's other core carriers. Everything is set up. The core carriers come back and say okay, I'll take this one, I'll take that one. I don't want that one. And it's a win-win because CHEP gets their freight covered by their other core carriers at contractual prices." William Michael said his company creates a similar collaborative environment between the shipper and the consignee for carrier and route compliance. "Large retailers have determined that non-compliance is very expensive when it comes to transportation and shipping. So, they have very strict protocols for suppliers shipping into their distribution centers. We've capitalized on a decade of system development and strict adherence to administrative processes to develop best practices; and, we have taken these to our customers, which are both suppliers and consignees in the supply chain," Michael said. "For example, one problem in the retail supply chain is the chargeback. We've found, by using our information and systems, we can clear up miscommunications between supplier and consignee--avoiding the chargeback and increasing efficiencies in the process. Really, their intent isn't to make money on chargebacks even though sometimes it may seem that way. They want compliance because non-compliance is costly. By being the intermediary and bringing the two together, Roadway can actually improve supply chain processes, help meet compliance protocols, and reduce supply chain costs." David Sisson holds out his company, AirLiance Materials, as a success story despite difficult times. "To say that airlines are not expert in materials management of spare parts would perhaps be the second biggest understatement. They have accumulated a surplus of spare parts. These are the things that come on and off of airplanes during maintenance activities. Three airlines--and I'm picking up your theme of specific examples here, some time ago faced this issue and asked if we could do something about it....United Airlines, Air Canada, and Lufthansa Technik decided to attack the issue of materials management and supply chain management. They had two goals. One is to get rid of the surplus in their spare parts inventory and turn it into cash. They would also like to buy from other airlines' surplus rather than buying a new part from the OEM. And that's why AirLiance Materials was created four years ago." In the last four years, AirLiance has taken about $100 million of excess inventory off their balance sheets and turned it into cash. "Now, before you write this down and think I'm a magician, we didn't hand them back $100 million in cash," Sisson said. "It was somewhat less than that. So, we didn't sell it for what it was on their books for, but we did take an unused asset and turn it into cash. Perhaps a more important achievement for the airline." Edward Sitarski's example of a supply chain success story is David A. Joseph, a scrap dealing company. They have real-time visibility so they can manage and optimize their deployments to meet customer needs. But, the penetration of supply chain, both analysis and planning applications in the marketplace, is very small. And until we have that action piece that gives that real-time decision support or optimization, we're not going to be able to exploit the communication. Story continues below
Pacesetters Which companies do you most admire for their success in supply chain management? "I've always admired the automobile manufacturing business because if you've only got two or three days supply sitting in your warehouse or manufacturing facility, that's got to be pretty slick," said David Sisson. "Well, I think on the CPG side, I've always admired Procter & Gamble, the way they've gone about things," said Richard Sherman. "I think Wal-Mart has done a better job of marketing their supply chain practices than they have necessarily done executing their supply chain practices. I think, Meijer, in Grand Rapids, Mich., is probably one of the best retailers I've seen at managing their overall supply chain and supplier base. Nabisco has always done a phenomenal job and now it's part of Kraft." Tom Sanderson agrees that Wal-Mart and P&G have top-notch supply chains. "I think they both have a lot of opportunity to take it further and I think they both would acknowledge that they've got a lot of continuing area for improvement. I think if you arm mid-size companies with technology and a little bit of process improvement, combined with their own gung ho attitude, you'll see some mid-tier companies emerge as logistic leaders," Sanderson said. "I couldn't predict which one it would be. There are too many of them out there. But I think you'll see some real advancement in the mid-tier." The best supply-chain practitioners never stop improving, said William Michael. "The guys who are good now aren't resting. They continue to push. They keep pushing. They're gaining. They're good because they did certain things to improve and they're not relaxing from what I can see. One other example is Caterpillar on the parts side. I think Caterpillar has done an excellent job with their supply chain." Future Vision As you look ahead to the future, where do you see some of the major supply chain opportunities? "Some of the supplier lead times are 40 days plus. So all this information we generate in real-time has the assumption that one, it's useful and that two, you can do something with it. You might know that an order is no longer required or that it's doubled in quantity, but if you've got 40-day lead times to your suppliers the information doesn't help you unless you can do something with it. So, it's broader than just having real-time information. That's why I keep getting back to flawless execution," said Herbert Klein. "What is really valuable is looking forward and using planning systems in real-time to determine order profitability. When taking an order, we should not only ask can I produce it, can I distribute it and can I store it, but also should I take the order. Will it be profitable? I've got three different transportation modes that I can use to get it to the end customer. Which one should I choose? If I need it no sooner than 10 days from now, why am I flying it there? Actual real-time order promising information enhances your business profitability rather than longer-term strategic decision making tools." According to Bob Smith, "the market is also asking for something that Harmony can deliver today...and that's third-party benchmarking. We realized some time ago that measuring internal operational performance, while valuable, is no longer enough. If you want to be a major player in this global economy you have to know how you stack up against the competition, where your organization excels and where you need to improve. And you need to know that information today, not tomorrow, not next week or next month. To gain competitive advantage in today's fast-paced economy, you need that data in real-time. Harmony offers a 'guidance system' for cost cutting, improved profitability and operational excellence. It's a dashboard that tells me a lot more than 'I'm running out of gas,' if we stick with that metaphor. It shows me where I accelerated too hard (maybe my spending is out of line?)...shows if I've purchased the wrong fuel (maybe my suppliers didn't deliver?)...predicts where this has put me on my business plan roadmap, and lets me quickly examine my options for navigating safely to meet or exceed my goals." "I think the outsourcing industry is going to grow rapidly," Richard Sherman predicts. "The carriers are going to provide a lot more than just transportation services, which we're already seeing. It's also a given that the warehouse providers are going to provide more value-added services beyond warehousing than ever before. We're going to see lead logistics services providers or 4PLs emerge that will manage entire outsourced supply chains that include many service providers managed by the lead service provider." To William Michael, the future means "driving days out of the supply chain, and that's huge! Days will be removed by improvements to key processing points... closed trailer time compared to appointment time, trailer spotted at a customer's facility time to a call back of a Roadway empty, material arriving at deconsolidation terminal time to Roadway notifying customers that a trailer is ready for delivery time, etc., etc., etc.!" Continued implementation of technology and use of the Internet are the keys to supply chain opportunity, said Tom Sanderson. "The subscription and transaction pricing model appeals to mid-size customers and large companies that are decentralized. A large company may have decentralized inbound freight management where all of their plants basically do their own thing. We allow them to push the technology out not only to dozens of plants, but also to hundreds or thousands of vendors. It's a very effective way to reach users and deploy technology in a large decentralized organization. We also target mid-tier manufacturers and retailers where the upfront investment expense has historically kept them from implementing this kind of technology. I don't think you could do it any other way than using the Internet." According to Ned Ahearn, one of the hottest trends now is "driving new procurement arrangements which change total process cost and manufacturing allocations to achieve lower overall costs. We're going to see companies reassessing supplier relationships via procurement to really change manufacturing and distribution of goods. These innovations will force suppliers to innovate, building on strong one-to-one relationships, that will drive smarter ways of doing things. It's not going to be on the big exchanges, it's going to be on the many-to-many. It's going to be the strong one-to-one relationships that will drive change. The bigger marketplaces will adopt the changes after standards are developed." Compiled by Lothair www.lothair.com Researched by Norbridge |
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Nancy Bartels
Clayton Boyce
Peter Bradley
John Burnell
Tom Gelinas
Dennis Grim
Tom Judge
David Sisson
Tom Sanderson
Bob Smith
Ed Sitarski
Herbert Klein
William Michael
Ned Ahearn
Rich Sherman
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