Measuring a supply chain from end to end

May 31, 2006
About two years ago, Eaton Corp. ( began taking steps to increase its ability to manage logistics around the globe since it was becoming

About two years ago, Eaton Corp. ( began taking steps to increase its ability to manage logistics around the globe since it was becoming more international in nature and saw an opportunity to get better control of its costs. Corporate strategy says that by 2010 Eaton will have end-to-end visibility into its total supply chain. The route to achieving that kind of visibility, the company has found, will involve the use of lead logistics providers (LLPs).

As a manufacturer of fluid power and electrical components, Eaton is a very decentralized corporation. As Mario Hegewald, the company's director of global logistics, observes, the company had been allowing logistics decisions to be made all the way down to the plant level and had a lack of visibility across its entire supply chain. In evaluating ways to move most quickly toward gaining needed visibility that would allow continued international growth, Eaton decided to partner with LLPs with the needed expertise. Speed-to-result is what Hegewald says was one of the main criteria for outsourcing.

Eaton discovered that it couldn't find just one LLP that could fill all of its needs. So instead, the company opted to take a regional approach, employing LLP partners in the U.S., Europe and Asia, "and we'll be picking a partner for Latin America before the end of the year," Hegewald notes. "The first step is to have our partners control and provide visibility to the movement of goods in the supply chain within their regions." Eaton has a great deal of product moving between its regions and is developing a strategy that will provide it with visibility for shipments between them.

In starting out, Eaton benchmarked other major manufacturers. Hegewald cites some of the models examined. One that seemed to rely on internal capabilities was chemical giant DuPont (, which he characterizes as a virtual supply chain, where DuPont has its partners work within its vision to gain control and visibility from the outset. Other companies, such as industrial conglomerate General Electric (, give more responsibility to third-party and fourth-party logistics providers (3PLs/4PLs), allowing them to manage the movement of materials.

Key performance indicators (KPI) Eaton established are speed to implementation, cost of implementation, speed to savings, and speed to efficiency. The company monitors supply chain performance with the five supply chain partners it uses around the globe.

Eaton shares scorecards with its providers, back and forth, on a monthly basis and is moving toward having them all furnished electronically since some of them are still on paper. In addition, the company conducts regular quarterly business reviews with its LLPs and other logistics core partners.

Speed to value has been a strong plus of the venture so far. Eaton's LLPs have been able to function successfully within its different supply chains. Some supply chains are characterized by a steady flow of goods — automotive products, for example — while others present a more dynamic distribution model, like those of the electrical or fluid power groups.

"The LLPs have been able to adapt, work with and implement our visibility and transportation management tools within those different supply chains," notes Hegewald. "We have been able to see a relatively rapid increase — within six months — increase in logistics efficiencies within our different businesses."

There are some quibbles. Hegewald says that visibility into the supply chain is a huge selling point in negotiations with 4PLs and 3PLs. But in practice, he claims, it's not as smooth and easy as it looks on paper. In order for the LLPs to provide visibility, they have to have links with their partners, the actual carriers. Hegewald is finding that at this point it's taking the LLPs longer to establish those links with the carriers and longer for them to get the information directly to Eaton.

For the company there has been a challenge to figure out the hand-offs. One question is , for example, between Eaton's LLP in Asia-Pacific and the one in North America, how should the brokerforwarder in the middle manage the relationship?

"We're working on governance," claims Hegewald. "How do you govern when you have several different LLPs with their own visibility tools, and how do you get them to work together? Once we figure that out, we'll have a virtual supply chain that truly gives us endtoend visibility."

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