Keep Tabs On Your Network

When Woody Allen’s character talks to Diane Keaton’s character about relationships in the film Annie Hall, he describes how sharks have to keep moving to stay alive. “What we have here is a dead shark,” he concludes. That same observation can apply to businesses today—if they aren’t moving, they risk extinction. But all of that movement comes with a price.

“The companies that are truly more leading edge have embraced the fact that change is all around them,” says Jeff Metersky, Chainalytics. “Change is an ongoing activity, and these companies have actually incorporated it as part of their strategic planning process,” he continues. They don’t wait for an event to trigger action, they’re continually reevaluating, including examining their logistics network.

Audio and electronics maker Harman International, parent of Harman Kardon, is one of those fast-moving sharks surviving in the fields of consumer, professional, and automotive audio components and a variety of brands, systems, and related products. An illustration at the corporate Web site showing product/ brand relationships in each of these divisions (and a new “infotainment” branch) looks like overlapping spider webs.

Keeping a supply chain in order when change is occurring everywhere is the job of Lalit Panda, senior vice president of supply chain management for Harman Kardon. When Panda joined Harman Kardon, its structure was pretty straightforward. The automotive group focused on the original equipment manufacturer (OEM) business. The consumer side distributed mostly to product-focused electronics retailers. And the professional group had a different channel for its large installations, used in churches, theaters, and other large facilities.

Most production is now overseas, says Panda, going back several layers within China. The market is also very dynamic and product life cycles dictate a lot of product rotation. Product lines also grow and change, along with distribution channels.

Putting the change into perspective, Panda describes the situation when he joined Harman Kardon in 1999. US operations consisted of two distribution centers, one in Indiana and another in California. The different products and the channels associated with their marketing, distribution, and service suggested some relationship between the consumer and professional divisions. Those operations were consolidated and moved to Phoenix in 2000.

Harman Kardon’s conventional retail distribution channel that included big-box retailers like Best Buy, Circuit City, and smaller chains like Guitar Center began to expand as new products were added to its line up. The popularity of Apple’s iPod not only added more SKUs for Harman Kardon, it put them into new distribution locations.

At the same time, other shifts were occurring in what Panda refers to as the mobile aftermarket. That title reflects some of the change as Harman Kardon picked up a line of navigation products.

These and other events led the company into new and very different types of retail outlets. From the product-focused retailers to the likes of Office Max, Office Depot, Target and others, Harman Kardon was seeing significant channel changes along with new product characteristics as the product line shifted from its traditional loudspeakers and audio receivers to “companion products” that had more of a fashion dynamic in marketing, distribution, and product life cycle.

To layer even more change on its system, Harman Kardon picked up e-commerce channels for some of its large business partners. Through the ecommerce sites, it marketed to Chrysler and Toyota and other business partners’ employees. The channel that consumed automotive OEM systems now generated on line sales for home audio and other products. While the distribution channels were realigning, customer demands for speed, the volatility of the product markets, and external factors such as fuel costs were dictating change in the supply channel as well. To relieve some of the pressure on Phoenix, Harman Kardon opened a facility on the West Coast. Phoenix offered some advantage moving product to East Coast customers, says Panda, but the port time and the time it took to get product out of Los Angeles to Phoenix was becoming an issue.

Panda started looking at alternatives in the East. “The average time getting a container from a ship arriving in Savannah to a warehouse in Atlanta is probably next-day,” suggests Panda. It can take an average of seven days from a ship arriving in Los Angeles to Phoenix, he notes.

Panda also explains that many people look at the West Coast and focus on the transit time from China. “I keep saying, you really need to look at the total transit time from source to destination— which is your customer. And if we look at that, maybe it’s a little more distance on the water to the East Coast, but the amount of time it takes from the port to the warehouse is shorter.” If you look at the overall time, says Panda, depending on your customer’s location, you could reach your customer’s warehouse faster through the East Coast. The cost of the additional transit time can be offset against the slow movement through the port and land transport time from the West Coast, but there is also a dollar cost. Panda explains that de-stuffing a container at a cross dock facility on the West Coast and trucking it across the country can be as much as $4,000 compared with a cost of $500 or $600 for the additional ocean service to the East Coast. Even after local transport is factored in, the dollars can favor moving part of the shipment volume to the East Coast.

With all of this evolving in his supply chain Panda led Harman Kardon to reexamine its network. He invited Chainalytics to work on a reoptimization. Asked if it is unusual for a company to reevaluate its network configuration without having its back against the wall, Jeff Metersky says, “It’s very unusual.” He notes that, “When firms are coming to us, there’s usually some burning platform that has driven them to say, ‘I need to reassess or I need to reevaluate my network.’” Drivers might be a new executive who feels the network might not be optimized, mergers, divestitures, or even some larger business reengineering initiative.

While Harman Kardon is moving forward with a network reoptimization to adjust to evolutionary changes in its supply chain and distribution channels, medical device manufacturer Sanuwave faced a very different situation which led to its modifying how it allocates product and how it manages field inventory. Its OssaTron extracorporeal shock wave technology device (ESWT) weighs 720 pounds and is too large and valuable to be kept in doctors’ offices or hospitals permanently. Consequently, the noninvasive orthopedic surgical device is moved from one surgical center to another on an as-needed basis.

Network optimization is helping Sanuwave bring its medical devices to clinics and doctors’ offices more cost effectively.

The devices are mobile, says Krista Spivey, manager of operations for Sanuwave. But having nationwide coverage and not always having a person in every city and state created a logistics challenge. Some field representatives had access to equipment, some equipment was located in storage sites strategically placed where technicians could fly in, and some of the equipment was at Sanuwave’s main facility.

Field representatives were spending a lot of time driving equipment from site to site in specialized vehicles, says Spivey. In addition, the centrally stored devices often had to be moved using premium transportation—expedited, direct ground service or air freight.

Sanuwave’s growth meant it was running out of space and its logistics issues were multiplying. It brought in TechTrans, a third party logistics provider which set its Medical Logistics Professionals group to work on the problem. TechTrans offered a freight service that would handle the long-haul moves. But Sanuwave was also looking for local storage in some of its field locations. It was also running out of space at its main facility. TechTrans provided an industrial warehouse and loading dock in Atlanta to store units and the special crates it had developed to transport them.

The transport crates are designed to keep all of the components and accessories together with the machine in one shipping container. The crate also insulates the device against shifting during transit. TechTrans layered on a shipment tracking capability that is Web accessible by Sanuwave. This helps the medical supplier monitor the delivery and set-up through an online proof of delivery (POD).

“Saunwave has been able to reallocate a lot of our assets in the field,” says Spivey and this has improved the efficiency of field representatives as well as maintenance. “We were always using some kind of air freight where we had to get a one-way, non-stop vehicle with padding and an air ride van. It was very expensive,” she adds. The devices are now moving without the risk of damage and without the added expense of special handling.

The improved logistics network has allowed the company to reduce the number of field units deployed. As a next step, Sanuwave is looking at using some of TechTrans’ hubs to store field inventory.

Like Harman Kardon, Sanuwave’s reoptimization is a work in progress. Both have seen some early returns on their efforts with more to come. Perhaps the lesson is that if you’re going to swim with sharks, you need to keep moving. Lessons these companies have learned point to a need to keep close tabs on how your business is changing and the impact it has on your supply chain.

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