Benchmark Against the Best, part II

SUPPLY CHAIN

MHM: What does the term “supply chain” mean from your perspective? Is the image that it is based on relevant — linear as opposed to web-like?

LEVINE: I think supply chain refers to your ability to have good collaborative relationships with your suppliers and your end users. That relationship allows you to do strategic partnering, whether it is through information technology and systems or really working with the individuals and groups of people within those environments.

HUFF: You can take a broader scope and say it is order to delivery, but the chain that I am responsible for adds value from the suppliers all the way to the points of use within our manufacturing facilities. So I look at that as a value chain. The success of our manufacturing organization depends on how we define that because unless you can define it, you can’t comprehend how to get full utilization of it.

MOULTRY: It really gets right back to those relationships and understanding what’s going on in those relationships. We are getting better at measurement, and people are getting better at providing information and identifying new opportunities to provide it.

ROGERS: In our industry, it is much more of a network than it is a chain because of the myriad number of SKUs that we provide and the components that go into those. That creates information complexity.

SCHWERDT: We divide the supply chain into much smaller buckets when it comes to the deliverables. From a distribution standpoint, the lynch pins are on-time, shipped complete, delivered complete. Those are the basic criteria for operations. I don’t think there is anybody that can actually tell you what the supply chain actually looks like from end to end, other than maybe in a simplistic chart. So supply chain to us is like consulting jargon.

MHM: Are you saying supply chain is not a term but a natural function of your business and we are getting bogged down into an academic debate?

SCHWERDT: That’s exactly the way I think about it. I would love to think I could get rewarded if I could influence purchasing, but I’m not.

LEVINE: In our organization, I own responsibility for the entire supply chain. I have responsibility for purchasing, asset management, material management and information technology. That’s the information relationship. The teams we have are compensated on the efficiency of their piece of overall business. We tie those management teams into the overall compensation program.

HUFF: What’s going through my mind is this whole difference between the thought of supply chain management as a natural business process, as Gregg suggests, versus, in my opinion, a more dynamic tactical discipline. It is almost a thought process and in order to be effective at it, you need to really understand the technical inputs to have effective communications and therefore understanding, commitment, and appropriate action. I work with several educational institutions, including Georgia Tech. They have a good supply chain management program, and I see value in their ability to assist with getting more experts into the field that understand the language of supply chain management. More and more companies will eventually be speaking the same language, and you won’t have this environment where everyone has their own supply chain interpretation.

EDUCATION AND THE TALENT POOL

MHM: That brings us to a critical point, regarding academia and their role in supplying future talent. That should get companies thinking about how their cultures are going to change with the infusion of fresh talent. How do each of you see your cultures changing?

LEVINE: Today individuals are more technically oriented to information systems. The systems have become collaborative. I think successful supply chain initiatives will be driven by people with the technical ability to interact with these systems that reside between the distributors and the manufacturers. They’ll also have better forecasting techniques.

HUFF: For us to influence the direction of supply chain management, that will require funding the projects being done at the universities. We also have interns come in. We have people who understand the lean supply chain environment.

MOULTRY: These new professionals will force us to stay on top of technology. They are going to have a broader perspective than the people who worked their way through the organization with an Associate’s Degree or no degree at all. We have to stay involved with the colleges. At the same time, these people may have great technical knowledge, but they also need people skills, especially if you are building leaders. There are some really smart people out there, but I have interviewed some who couldn’t present themselves very well.

ROGERS: The people we are seeing are strong in statistical analysis and are challenging how we look at things. I mentioned the number of SKUs we have. One of our young folks took 80-20 to the ultimate and found the top 100 SKUs that were influencing over a third of the transactions. So by micromanaging those items, it allows us to significantly improve customer service, inventory management and replenishment cost. The tools these young people are bringing in, particularly the analysis tools, are helping us look at things much more effectively than we were in the past.

SCHWERDT: Today they come in thinking much more broadly than folks that have grown up in the industry, where they focus on their own components. Even if I don’t sell to customers, I better know what my deliverables are for a customer.

MHM: Are we sacrificing depth to have breadth across all supply chain functions?

MOULTRY: Personally, I think the company is responsible for the depth part of it. I think academia gives them what they need to walk in the door, and it is our job to provide that depth.

LEVINE: We are a very broad type organization. We don’t have deep functional verticals. We want our folks to be more multi-functional, and because our company and our industry move very quickly, we want to be able to switch people internally very easily. We look for people who are more wide than deep because we think we can teach the depth we need.

INNOVATION

MHM: Every time we do a feature about automation the project managers talk about the importance of building a team made up of people representing each area of the organization. That’s another way to build good cross functional knowledge from within an organization. Without that, you can’t foster true innovation. What we would like to get from each of you is a concrete example of an innovation that developed out of the needs of each of your companies’ cultures.

SCHWERDT: At one time five to seven percent of our orders had damage on them, and in some sites, we were in the 14 percent range. Obviously, that is not acceptable. We contracted with some consultants and did a gap analysis as to why we were getting damage and what we could do to fix the situation. We developed a pallet pick program, Auto Pallet P3, that takes 26 load variables including dimensions, crush index, and stackability, and suggests a pallet load build sequence for our loaders, interacting via RF. The next thing we put in place was our advance shipment planning system, which is basically an in and out routing program that maximizes cross docking and schedules trailers coming in and out of the sites, building more efficient trailers, and then basically doing an overall productivity utilization matrix.

ROGERS: We had been putting in a great deal of effort to reduce reported shipping errors so we implemented electronic scales and a number of other processes. But we still weren’t happy. We were running about 700 PPM in reported errors per line shipped and wanted to bring that down. One of our folks developed a quality auditing capability that is a blind scan. We scan all of the items that have been picked into either a carton or tote, then the system will identify any errors. It really fool-proofs the quality performance, and we dropped the PPM below 500. We are now trying to move away from auditing because of the labor intensity of it. We developed a labor reporting capability where we can track productivity by individual and also errors by individual. This allows us to change the workplace by applying lean manufacturing tools -- so that it is error free.

MOULTRY: We started out with picking one order at a time. Then we designed this batch pick process where we do 22 orders at a time. That improved our productivity by about two thirds. We figured out how to organize those 22 totes so it walks the picker through the pick zone and improves productivity. We are laying out the warehouse so it reduces the distance people have to travel.

HUFF: We developed the ILAS system within Ford: Indirect Labor Analysis System. We can simulate utilization, based on volumes, ship frequencies, and various other inputs. It maps inbound transportation and traffic flows outside and inside the plant. We can determine the equipment that we would need, the necessary number of people, and how frequently we have to deliver to a specific location. We now get 95 percent utilization of resources compared to 80 to 85 percent.

MHM: We have covered a lot of ground today and you all presented some great lessons from which our readers may learn. We look forward to working with you as our new editorial advisory board so MHM can continue to provide such important content. MHM

The panelists:

Gregg Schwerdt, distribution manager, Beauty Care, Procter & Gamble

David Rogers, vice president logistics, Rockwell Automation

Gerald Moultry, vice president, field operations, Pharmaceutical Distribution, CardinalHealth

Jeff Levine, senior vice president operations, Pioneer-Standard Electronics, Inc.

Roger Huff, plant operations manager-N.A. Powertrain Operations, Material Planning and Logistics, Ford Motor Company

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