In a world dominated by global economies, outsourced logistics and Internet-based transactions, it’s quite clear that competition is no longer limited to individual companies vying against each other. The best-run organizations are those who have developed world-class supply chains, extending from their customers’ customers to their suppliers’ suppliers, and all points in between.
The Council of Logistics Management defines a supply chain as the material and informational interchanges in the logistical process stretching from acquisition of raw materials to delivery of finished products to the end user. All vendors, service providers and customers are links in the supply chain. We used that definition as our guide to identifying the best supply chains in 10 different industry verticals.
In compiling our list, we are indebted to supply chain experts at ARC Advisory Group, EntryPoint Consulting, IDC and the University of Wisconsin’s Grainger Center for Supply Chain Management, who provided suggestions and input as to which companies are truly impressive in managing their extended enterprises.
Let us know how well (or how lousy) we did in coming up with our “best of the best” list by dropping us an e-mail at [email protected].
Northrop Grumman Corp. (www.northropgrumman.com)
When your biggest customer is the U.S. Department of Defense, it’s essential that your supply chain team stays up to date with both technology and best practices to ensure efficiency and customer satisfaction. That’s certainly the case for Northrop Grumman, the country’s biggest shipbuilder and second-biggest defense contractor, which takes educating its personnel so seriously that it has established its own university of continuous improvement.
“If you look at the geo-political issues today, there’s a different demand on the U.S. Navy than there was three years ago,” says Veasey Wilson, vice president, supply chain management, for the company’s Newport News shipbuilding division. “It requires our entire supply chain to be integrated.”
To that end, the shipbuilder has made a significant investment in a Six Sigma program, aimed at taking out or reducing variation in its supply chain and manufacturing processes, Wilson says. Newport News is focusing both internally and externally on lean initiatives, working with select suppliers to drive efficiencies into the supply base and being more responsive to Newport News as a customer.
Northrop Grumman has become an aerospace & defense powerhouse in recent years thanks to its acquisition of companies such as Newport News, Litton Industries and TRW. Earlier this year the company won a $9.6 million contract from the DOD’s U.S. Transportation Command to develop tools that will reduce costs and improve the management of the Defense Transportation System during both peacetime and wartime. Northrop Grumman will work with the military to improve mode selection optimization, to better manage limited assets, and to capture transportation requirements from multiple sources.
Technology Providers: i2 Technologies Inc, Manugistics Group Inc., SAP, SupplyPro, Yantra Corp.
Logistics Providers: Bax Global, Con-Way, Eagle Global Logistics, FedEx, Landstar, Pilot Air Freight, Ryder System Inc., Yellow Corp.
Ford Motor Co. (www.ford.com)
Ford Motor Co. relies as much on information flow as it does material flow in managing its supply chain. The Big Three automaker has centralized its supply chain information and functionality in a single global material manufacturing system, which gives Ford’s suppliers direct access to real-time inventory and shipping data, updated on a daily basis.
“We give customers and suppliers access to our proprietary systems,” explains Joseph Hinrichs, executive director, material planning and logistics. “This ensures the decisions they are making are based upon real-time, accurate information.”
It now takes fewer days to move vehicles to dealerships. The average lead-time required for material procurement has been cut, as has the number of people needed to contact suppliers. Also, inventories at the vehicle assembly facilities and the supply base are significantly smaller than in the past.
“Ford is utilizing technology to provide more accurate and timely information to manage our internal and external business processes to a Six Sigma level of capability, and to provide our customers with better information about their specific vehicle locations,” Hinrichs says. “We anticipate extending our information flow beyond our Tier One suppliers and other service providers, thereby strengthening the entire supply chain.”
For example, Six Sigma-focused efforts concentrate on reducing inbound carrier discrepancies, such as parts deviations due to shipment overages, and better managing its use of expedited shipments. All told, these efforts represent a savings of more than $1 million for Ford.
Ford has also overhauled its service parts distribution process. Instead of operating eight huge distribution centers that held all types of parts, Ford’s plan is to segment its parts inventory into 19 high-velocity centers that will hold and deliver fast-moving parts; three high-cube centers for such materials as sheet metal; and a low-volume, low-cube center for parts best shipped via small package.
Technology Providers: EXE Technologies Inc., i2 Technologies Inc., Manugistics Gruop Inc., Oracle Corp., PeopleSoft, SAP, SSA Global, Vastera Inc.
Logistics Providers: FedEx Supply Chain Services, Penske, Schneider Logistics, TNT Logistics, UPS
E.I. du Pont de Nemours & Co. (www.dupont.com)
For chemical giant DuPont, globalization is a strategy to ensure that the company sources the best quality at the lowest total cost from every region of the world, explains John Campi, vice president of global sourcing and chief procurement officer. “The goal is to expand our global supply base to provide global coverage and leverage.”
To that end, DuPont’s global sourcing and logistics department includes three operational groups — the Centers of Expertise, Regional Supplier Management and Business Unit/Site Sourcing. The three groups work together with the goal of providing improved efficiency and effectiveness of the sourcing operations.
Part of DuPont’s global logistics push includes centralizing its logistics information in one database, to improve visibility and communications between shippers and carriers. The TransOval project provides a common platform for all shipment information.
DuPont realizes the future of logistics relies heavily on its carriers’ abilities to provide shipment status through web-based systems, says Jerry Reynolds, the company’s global logistics technology and process manager. DuPont is hopeful that the improved logistics setup will also help it get a better handle on inventories — particularly by decreasing the number of safety stocks needed in the system.
“The major benefit is having all of our logistics information globally integrated into one database and making that accessible to anyone who needs it on a global basis, quickly and efficiently,” he says.
Technology Providers: Ariba Inc., Aspen Technology, Comergent Technologies Inc., G-Log, Manugistics Group, Inc., RedPrairie, SAP
Logistics Providers: Averitt Express, Con-Way, DHL, Estes Express, Exel, Schneider National, USF
CONSUMER PACKAGED GOODS
While brands might be the lifeblood of CPG companies, for Unilever the sheer number of them had become oppressive. Thanks to numerous acquisitions in the 1990s, Unilever — the company responsible for such popular brands as Dove soap, Skippy peanut butter and Ben & Jerry’s ice cream — found itself with 1,600 brands, many of which were unprofitable and were constricting the company’s logistics resources.
In 2000, the company launched a five-year Path to Growth initiative to drop the total number of brands down to 400 by the end of 2004, achieve 5%-6% annual sales growth and a 16% increase in operating margins.
Three years ago, the company was running hundreds of manufacturing sites under an umbrella of 300 operating companies. Path to Growth mandates a reduction in sites to 150 locations.
Unilever’s logistics operations present perhaps the biggest opportunity to streamline its supply chain and boost the company’s ability to achieve its lofty growth goals. The company is in the process of consolidating its nearly 30 warehouses down to five massive distribution centers capable of shipping customer orders within a day’s time.
Much of that consolidation is a recognition that retailers are adopting zero-inventory policies, which require an optimal use of flow-through and cross-docking in the warehouses. To increase asset utilization, lower inventories and improve service, Unilever adopted collaborative planning, forecasting and replenishment (CPFR) relationships with some retail customers. Thanks to those CPFR efforts, Unilever has been able to achieve 10% inventory reduction, 10% forecast accuracy improvement and 5% increase in sales due to better on-the-shelf availability.
According to Fred Berkheimer, vice president of logistics for Unilever Home and Personal Care, since orders are often impacted by factors that cannot be projected, collaboration between manufacturer and retailer is necessary to increase forecast accuracy.
“High accuracy in replenishment can only be achieved through order forecast collaboration and extended supply chain visibility,” says Berkheimer. Today, Unilever’s logistics department is experiencing include improved relationships with retailers, better planning, improved on-time performance and more efficiency in handling promotions.
Technology Providers: Adexa Inc., Agilisys, Finmatica, Global Exchange Services, Manugistics Group Inc., RedPrarie, SAP, SSA Global, Syncra Systems Inc., Vastera Inc.
Logistics Providers: Exel, Transplace
Maytag Corp. (www.maytag.com)
Appliance manufacturer Maytag Corp. used to send over 60% of its finished goods to customer distribution centers (DCs) via truckload or rail. Prompted by recent changes in the retail environment motivated by improving supply chain performance, Maytag now ships nearly 70% of its outbound freight through its own regional DCs and onto crossdocks for delivery to retailers, builders and private homes. In addition to its own products, Maytag also markets appliances under the Amana, Hoover and Jenn-Air brands.
According to John Nolan, vice president of logistics, Maytag targets five critical areas for its logistics management: supply chain planning, customer order management, distribution operations, transportation and international services. “Everything else supports these activities,” says Nolan.
Maytag maintains 41 crossdock facilities, which store no inventory. “Our objective is to cover 70% of the U.S. population with a crossdock no more than 125 miles away,” Nolan says. “In the last year, the new delivery network has added millions in revenue. That’s due to the high fill rates and short lead-times we get through this system.”
Working with specialty retailer Best Buy Co. Inc. as well as one of its main competitors, Whirlpool Corp., Maytag has been able to trim expenses by sharing a large distribution facility in Seattle. A Best Buy order placed at 7 a.m. is picked by noon and delivered to a door at the demising wall that separates each company’s space. The door is opened and the completed order is pushed through to a fenced-in pen the size of a 53-foot trailer. At that time, Best Buy takes possession, reducing order lead time from 14 days to five hours.
For durables manufacturers like Maytag, the hardest challenge “is developing the trust to have information shared by the retailer with enough time to plan,” Nolan says. “Last-minute promotions can cause unwanted expediting. Some of those promotions may be our fault, and some may come from the retailer responding to competitors. But you can have everything else working well, and an unplanned sales promotion can throw off everything for a period of time.”
Technology Providers: Adexa Inc., Comergent Technologies Inc., John Galt Solutions Inc., SAP
Logistics Providers: Exel, Public Logistics Inc.
Cardinal Health Inc. (www.cardinalhealth.com)
Customer service drives Cardinal Health, one of the leading distributors of products and services to the healthcare industry. “We try to make sure we never miss a delivery, and if we do, it’s because it was just impossible to make,” says Gerald Moultry, vice president, field operations, pharmaceutical distribution. Even when one of the company’s facilities burned to the ground a few years ago, Cardinal was nimble enough to shift the operation to another facility and fill the orders for its customers. “We were late, but they still got their orders that day,” Moultry says.
According to Moultry, the company’s business continuity department is tasked with focusing on its facilities. “We have contingencies for weather, and for just about everything that we can think of that may happen, to make sure we deliver product. After all, what we are delivering [healthcare products] is pretty serious if people don’t have it,” he says.
At the company’s website, customers have access to product information for 500,000 products from more than 3,000 suppliers. While online, customers can place, track and manage their orders, and a backorder resolution feature provides real-time inventory status across the company’s more than 50 distribution centers.
Cardinal also participates in Novation, an online marketplace that helps participants manage and track orders for hundreds of thousands of pharmaceuticals and supplies.
Technology Providers: Aether, LXE, SSA Global, Tecsys, Vistant
Logistics Providers: Cord Logistics, UPS
FOOD & BEVERAGE
PepsiCo Inc. (www.pepsico.com)
Collaboration is an essential ingredient in the PepsiCo Inc. supply chain. For instance, the company has been a pioneer in the development of a direct store delivery (DSD) model. The concept of DSD centers on eliminating the warehousing step in the process of getting high-turnover, high-volume perishable goods such as soft drinks and snacks to market; instead, the suppliers take their products directly to the store. DSD suppliers free up warehouse space for retailers, and are able to get a better handle on their product sales and inventories.
Working with grocery store chain Wegman’s, Pepsi and its Frito-Lay snack food division leased retail floor and shelf space from the grocer. In effect, Pepsi took over inventory management of its products within the Wegman’s stores. By managing its own products within a retail environment, Pepsi was able to better leverage sales of its high-margin Frito-Lay products while maintaining sales of its fast-moving but low-margin beverage products.
Meanwhile, PepsiAmericas Inc., a bottler of Pepsi products, has adopted a pre-sell strategy, a form of DSD in which a brand owner places an order before the delivery date. By incorporating wireless technology, PepsiAmericas’ account sales managers can take orders on-site, which are then remotely uploaded to a central order and routing system at headquarters via wireless connectivity. The result is that delivery trucks can be stocked more efficiently and accurately for the day’s routes. Drivers now have the capability to track inventory, record deliveries and wirelessly print invoices to portable printers.
Technology Providers: i2 Technologies Inc., Insight, PeopleSoft Inc., Symbol Technologies, UCCnet
Logistics Providers: CH Robinson, Penske, Schneider National, Transplace
Dell Inc. (www.dell.com)
Don’t bother asking computer giant Dell Inc. about the prolonged slump in the high-tech market — the company just posted a 16% increase in sales for its most recent quarter, the sixth straight quarter Dell has enjoyed a double-digit revenue gain. Even more impressively, the hike in sales was accompanied by a 21% increase in profit. All told, Dell expects to reach $40 billion for the year, a substantial improvement on the $32 billion in sales it had last year.
The secret to Dell’s success is really no secret at all — the company has said all along that its direct model works because of a single-minded adherence to supply chain excellence. The company manufactures more than 50,000 computers every day, but carries only three to four days’ worth of inventory, when many of its competitors carry between 20-30 days of inventory. However, Dell isn’t exactly sitting on its laurels.
“We’re on the tip of the iceberg,” says Dick Hunter, vice president, Americas Manufacturing Operation. “Most people think that Dell has reached the ultimate goal in supply chain management — an inventory of three days. We disagree; every day we work to bring that number down. Our current goal is to get down to two days. Long term, I think we can get even lower.”
The key to that will be transition management.
“We sell what we have and we don’t sell what we don’t have,” explains Hunter. “We don’t tolerate excess inventory. We do whatever it takes to move inventory, even if it means creating demand. Working through our direct model and having such tight control of the supply chain allows us this significant competitive advantage.
The company keeps what it calls a supplier report card on every supplier, and tracks each supplier’s performance against a set of metrics maintained by Dell.
Against the charge that Dell’s remarkably low inventory levels come at the expense of its suppliers, Hunter points out, “About 30 suppliers provide 75% of our direct material purchase spend, and most of them maintain eight to 10 days of inventory in nearby, multi-vendor hubs. If those levels exceed 10 days, we work with suppliers to lower them since excess and obsolete components are not acceptable to Dell, our suppliers or customers.”
Dell also works with its suppliers to prevent inventory levels from becoming too low, Hunter adds. “For Dell and our suppliers, information is increasingly replacing inventory, and we are regularly identifying, gathering and sharing new types and levels of data.”
Technology Providers: Agile Software Corp., Ariba Inc., GT Nexus, i2 Technologies Inc., Oracle Corp., PartMiner, Servigistics, Viewlocity, V3 Systems, webMethods, Xelus
Logistics Providers: Eagle Global Logistics, FedEx Express, UPS Supply Chain Solutions, (SonicAir)
General Electric Co. (www.ge.com)
General Electric Co. may not have created the idea of Six Sigma (that distinction goes to Motorola), but the industrial conglomerate has certainly embraced it like no other organization. The company currently has more than 2,000 Six Sigma projects going, and reportedly GE is able to save $4 billion per year thanks to cost reductions and other streamlining efforts.
Six Sigma, at its most basic, is a measure of quality that strives for near-perfection (no more than 3.4 defects per million opportunities). And it’s that single-mindedness that has made GE’s supply chain world-class.
Like the focus on Six Sigma, another cultural shift at the Fortune 5 company has been its move to electronic communications and transactions, an effort the company refers to as digitalization.
“GE’s goal is to drive digitalization throughout the supply chain process to better collaborate with our supply base and to digitize traditional manual processes,” says Lee Garbowitz, manager of the company’s Corporate Initiatives Group.
Case in point: The GE Global Supplier Network (GSN), a private supplier marketplace, allows for electronic auctioning, invoicing and demand forecasting, and provides a real-time collaboration tool for GE and its suppliers. Twelve of the company’s businesses use the online marketplace with over 35,000 suppliers, making it one of the largest private exchanges in the world.
The results have been just as impressive. In its first two years, the GSN reportedly handled more than $28 billion in purchases from 32,000 electronic auctions, with savings estimated at roughly $1.7 billion.
Technology Providers: Aether, Agile Software, Global Exchange Services, i2 Technologies Inc., Manugistics Group Inc., Oracle Corp., RedPrairie, SSA Global
Logistics Providers: Atlas, Averitt Express, Eagle Global Logistics, Penske
Wal-Mart Stores Inc. (www.walmart.com)
“Is Wal-Mart too powerful?” a recent BusinessWeek cover story asked. When you’re Wal-Mart Stores Inc., you can pretty much do whatever you want. A year ago the retail giant endorsed the EDI-INT AS2 standard and directed 10,000 mid-size suppliers to adopt those communication protocols as a way of sending and receiving transactional data. Its adoption of the UCCnet standard in 2001 provided much-needed momentum throughout the consumer packaged goods industry to embrace data synchronization. And it was Wal-Mart who drove the adoption of bar codes throughout retail nearly 20 years ago.
Wal-Mart’s latest effort at realigning the supply chain, though, might be its most ambitious yet — it’s requiring its suppliers, numbering into the tens of thousands, to implement radio frequency identification (RFID) tagging on all pallets and cases within the next two years (its 100 biggest suppliers need to have implementation plans in place by February 2004).
Even the U.S. Department of Defense takes its cue from the retailer’s supply chain initiatives. Shortly after Wal-Mart announced its RFID dictates, the DOD notified its top 100 suppliers to start formulating their own RFID plans. In fact, Wal-Mart is helping the DOD develop its RFID implementation strategy.
Technology Providers: Alien Technology, i2 Technologies Inc., iSoft Corp., Sterling Commerce, UCCnet, Verticalnet
Logistics Providers: ABF, CH Robinson, Exel, J.B. Hunt, Yellow Corp.