Supply & Demand Chain Executive June 2015 by Supply+Demand Chain/Food Logistics

NEW DEPARTMENT: ON THE FLOOR, p. 44 June 2015

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Global Solutions for Supply Chain ROI

A Contractual Approach to Supplier Risk Management p. 46

The Road to Success: Innovations and solutions from the SDCE 100 Page 8

w w w.SD CExec.com EXCLUSIVE:

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SOLUTIONS FOR SUPPLY CHAIN PAIN POINTS!

INVENTORY MANAGEMENT: Distribution, Technology and Procurement p. 26-31

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Risk Management

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table of contents June 2015

Volume 16

8 COVER STORY

Issue 3

INSIDE 6 Executive Memo Searching for Solutions One tip? Learn how to reach Millennials to help solve the talent crunch By Barry Hochfelder

26 Best Practice Inventory Issues and New Retail Technology Solutions

The Road to Success The 2015 SDCE 100 is filled with innovations and solutions to make your supply chain more efficient and profitable By Barry Hochfelder and Carrie Mantey Supply chain leaders wake up every morning wondering what surprises they might face that day. And they’ll likely go to bed at night with the same thoughts. Those are among the reasons why Supply & Demand Chain Executive and our annual presentation of “100 Great Supply Chain Projects” exist. These projects can serve as a map for supply chain executives who are looking for new opportunities to drive improvement in their own operations. R, p. 44

NT: ON THE FLOO

NEW DEPARTME

June 2015

ach

A Contractual Appro to Supplier Risk Management p. 46

m www. SDCEx ec.co EXCLUSIVE:

Check out all of rs our archived webina NEW: MORE SOLUTIONS FOR PAIN POINTS! SUPPLY CHAIN

coverV2.indd

SDC0615_01_

GEMENT: INVENTORY MANA ology Distribution, Techn and Procurement

p. 26-31

AM 6/17/15 9:42

By Rich Becks

38 Industry Focus How to Overcome the ‘Blind Side’ Challenge

By Jeff Rauscher

By Tyson Leal

28 Best Practice Profitable Distribution in a Consumer-Driven Supply Chain Master supplier-customer collaboration to improve service and cut costs By Carl Marin

30 Best Practice Right-sizing Inventory with Demand Forecasting Forecasting intermittent demand helps control inventory for commuter rail line

Think Your Business from the Outside In

solutions from 100 the SDCEPage 8

How to stay competitive in today’s demand-driven consumer goods supply chain

From not really knowing where cargo is to port turnaround cycles, the blind spots in supply chains are bigger than we think

32 Best Practice

The Road ccess: to Su Innovations and

Manage What You Can’t See

Process automation keeps new customer-engagement models moving along successfully without dramatic cost increases

By Carrie Mantey

ly Chain ROI ions for Supp Globa l Solut

34 Global Focus

Understand what the market wants and how you’ll satisfy it By Karin L. Bursa

42 Case Study 360° Change Management It takes commitment from the top-floor to the shop-floor By Kelly Kuchinski

44 On the Floor Playing the Slots:

How to Determine a Winning Strategy Strategies to cut costs in DCs and warehouses By Carrie Mantey

46 Best Practice Supply Agreements A contractual approach to supplier risk management By Sam Miller

50 Professional Development Procurement in Private

On the Cover: Alex Brison of NCR trains colleagues in the Amber Road solution that has been honored in the 2015 SDCE 100. (Photo courtesy NCR)

4 Supply & Demand Chain Executive June 2015

Private equity firms need an adaptable approach when bundling spend By Steven Lutzer

There’s no such thing as a routine call for the highly trained customer service specialists at Saia. Every time the phone rings, it’s personal. With centralized access to the latest data throughout our entire service network, our experts can answer your questions, address your needs, and resolve potential challenges — and 97% of requests are handled with a single call. So whether we’re proactively monitoring new accounts to ensure problem-free shipping or fostering long-term relationships with customers around the country, it’s easy to see Saia’s commitment to superior service.

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June 2015 • Volume 16 • Issue 3

executive memo

Searching for Solutions

Global Solutions for Supply Chain ROI

www.SDCExec.com Published by AC Business Media Inc.

One tip? Learn how to reach Millennials to help solve the talent crunch

201 N. Main Street, Fort Atkinson, WI 53538 (800) 538-5544 • www.ACBusinessMedia.com

e’re all about solutions— global solutions—here at Supply & Demand Chain Executive. That’s why this issue is so valuable. Our annual SDCE 100 listing singles out the innovations that help ease the pain of so many supply chain problems. The vital issues that keep supply chain people—providers or practitioners, on the shop floor or in the C-Suite— awake at night are pretty much known to all of us: risk management, talent management, big data and a technology boom that shows no signs of slowing down. Within these pages, you should find some tips, hints and outright solutions that can work for you, no matter your industry. Talent management, including hiring and retaining staff, as well as blending the generations can be particularly vexing. How do you blend the Baby Boomers, who are nearing retirement and have immense knowledge, with the Millennials (also known as Gen Y, ages 18-34) who grew up in a technological age, but perhaps don’t know supply chain or a particular industry? I had an interesting conversation earlier this month with Sandy Rosenfeld, manager of operations at Fleet Advantage. We were chatting about the driver shortage— conservatively, there are 30,000 open jobs out there. There are an estimated 75 million Millennials in the U.S. These folks, she told me, “tend to think

Barry Hochfelder

Editor Supply & Demand Chain Executive

barry.hochfelder@sdcexec.com 6 Supply & Demand Chain Executive June 2015

that the trucking industry is older men in cumbersome equipment that’s inefficient, hard to drive and isn’t good for the environment.” What does it take to bring them into the trucking industry? Companies often don’t know how to recruit this huge talent pool. “Some companies are not advertising to them properly,” Rosenfeld said. “They’re still using newspaper ads. Millennials are all about social media and connectivity. Those are important tools to tap into that workforce.” Let them know that there are new vehicles out there that are technologically and environmentally sound, and contain the very latest safety features. “Millennials are environmentally conscious. Their lives blend into their work and their work blends into their lives. They’re tech-savvy and visual. You can’t recruit them if you don’t know who they are.” So there’s an assignment for you if you need drivers. Learn about the Millennials. In fact, that’s a talent pool you should know about no matter what employment needs you have. *** Over the past years, we focused on the technology and software that drive supply chain, but there’s so much more. Beginning in this issue, check out our new department, On the Floor, where we’ll highlight such important components as forklifts, racking, conveyors, pallets, power sources and related solutions that increase efficiency and return on investment in the warehouse. Turn to page 44 to read Associate Editor Carrie Mantey’s informative story on the latest in slotting. Enjoy the issue. ■

Print and Digital Staff Publisher Jolene Gulley Editor Barry Hochfelder Associate Editor Carrie Mantey Assistant Editor Eric Sacharski Art Director Kayla Brown and Greg Miller Ad Production Manager Cindy Rusch Sr. Audience Development Manager Wendy Chady Audience Development Manager Tammy Steller Advertising Sales (800) 538-5544 Jolene Gulley, jgulley@ACBusinessMedia.com Stephanie Papp, spapp@ACBusinessMedia.com Editorial Advisory Board Lora Cecere, Founder and CEO, Supply Chain Insights Tim Feemster, President, Foremost Quality Logistics John M. Hill, Board of Governors, Material Handing Industry of America William L. Michels, CEO, Aripart Consulting Julie Murphree, Founding Editor, Supply & Demand Chain Executive Andrew K. Reese, Former Editor, Supply & Demand Chain Executive Bob Rudzki, President, Greybeard Advisors Raj Sharma, CEO, Censeo Consulting Group Kate Vitasek, Founder, Supply Chain Visions Circulation & Subscriptions P.O. Box 3605, Northbrook, IL 60065-3605 (877) 201-3915, Fax: (800) 543-5055 Email: circ.sdcexec@omeda.com List Rental Elizabeth Jackson, Merit Direct LLC (847) 492-1350, ext. 18, Fax: (847) 492-0085 Email: ejackson@meritdirect.com Reprint Services Jolene Gulley, jgulley@ACBusinessMedia.com AC Business Media Inc. Chairman Anil Narang President and CEO Carl Wistreich Executive Vice President Kris Flitcroft CFO JoAnn Breuchel VP Content Greg Udelhofen VP Marketing Debbie George Digital Operations Manager Nick Raether Digital Sales Manager Monique Terrazas Published and copyrighted 2015 by AC Business Media Inc. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording or any information storage or retrieval system, without written permission from the publisher. Supply & Demand Chain Executive [USPS #024-012 and ISSN 1548-3142 (print) and ISSN 1948-5654 (online)] is published five times a year: March, May, June, September and December by AC Business Media Inc., 201 N. Main Street, Fort Atkinson, WI 53538. Periodicals postage paid at Fort Atkinson, Wisconsin and additional entry offices. POSTMASTER: Please send all changes of address to Supply & Demand Chain Executive, P.O. Box 3605, Northbrook, IL 60065-3605. Printed in the USA. SUBSCRIPTION POLICY: Individual subscriptions are available without charge in the United States, Canada and Mexico to qualified individuals. Publisher reserves right to reject nonqualified subscribers. Oneyear subscription to nonqualified individuals: U.S., $30; Canada and Mexico, $50; and $75 for all other countries (payable in U.S. funds, drawn from U.S. bank). Single copies available (prepaid only) for $10 each. Return undeliverable Canadian addresses to: Supply & Demand Chain Executive, P.O. Box 25542, London, ON N6C 6B2. The information presented in this edition of Supply & Demand Chain Executive is believed to be accurate. The publisher cannot assume responsibility for the validity of claims or p erformances of items appearing in editorial presentations or advertisements in the publication.

Before NeoGrid

Separate Systems

Data Inputs Customer Orders (VMI / CPFR)

Order Management Retail Inventory Master Data Demand Planning

POS / Consumption Promotions Spending

Trade Promotion Management

Quotas / Budgets

With NeoGrid

Data Inputs Customer Orders (VMI / CPFR)

Single NeoGrid Solution

Retail Inventory Master Data POS / Consumption

A single cloud-based solution for your business

Promotions Spending Quotas / Budgets

Order Management

INTEGR ATED!

Demand Planning Trade Promotion Management

Global Solutions for Supply Chain ROI

The Road to Success The 2015 SDCE 100 is filled with innovations and solutions to make your supply chain more efficient and profitable

By Barry Hochfelder and Carrie Mantey While we emerged from the economic recession that caused so much havoc to business a few years ago, it’s not easy to say things are completely stable. It’s a volatile world economically, geopolitically and climatologically. All of those, and more, put business and supply chain on the spot. Supply chain leaders wake up every morning wondering what surprises they may face that day. And they likely go to bed at night with the same thoughts. That’s on top of the day-to-day issues to which must be attended. Those are among the reasons why Supply & Demand Chain Executive and our annual presentation of the “100 Great Supply Chain Projects” exist. These projects can serve as a map for supply chain executives who are looking for new opportunities to drive improvement in their own operations. These innovations show how supply chain solution and service providers help their customers and clients achieve supply chain excellence and prepare their supply chains for success. 8 Supply & Demand Chain Executive June 2015

SDCE 100

Featured Projects ENABLER: AFFLINK (Tuscaloosa, AL, www.afflink.com) CUSTOMER: Zodiac Aerospace PROJECT: Attain a supply chain reduction cost target through the Performance for Growth initiative. SOLUTIONS/SERVICES: eLev8 BUSINESS IMPACT: Through eLev8’s Supply Chain and Site Needs Analysis features, Zodiac Aerospace reduced its supply chain costs by an immediate 17 percent across 14 of its manufacturing facilities. This percentage is ongoing as the initiative is carried over into 2015. Its target was reached in just seven months and the 2014 savings for the Performance for Growth Initiative was $634,900. ENABLER: ALOM (Fremont, CA, www.alom.com) CUSTOMER: One World Play Project PROJECT: Implement an online ordering, inventory management, and worldwide distribution and logistics system to bring play to youth in disadvantaged communities. SOLUTIONS/SERVICES: ALOM’s COMPASS™ client order management portal and MasterShipper database was configured to interact with the ALOM ERP database and e-commerce storefront to automatically route orders based in Europe, India, Asia and Africa to the European-based order fulfillment center. BUSINESS IMPACT: The supply chain strategies and systems implemented by ALOM allowed the One World Play Project to reach more kids by seamlessly expanding its delivery footprint globally. The ALOM e-commerce order processing solution allowed for highly scalable growth and instant order routing between major world markets. Back-order situations were virtually eliminated. The

soccer balls are relatively light, but freight costs are based on volume and the balls do not deflate. ALOM negotiated volume freight pricing with major carriers, which saved nearly 20 percent in shipping costs, all with 100 percent on-time shipping. ENABLER: Amber Road (East Rutherford, NJ, www.amberroad.com) CUSTOMER: NCR Corp. PROJECT: Achieve total landed cost visibility across the supply chain. SOLUTIONS/SERVICES: Amber Road’s Supply Chain Visibility Solution BUSINESS IMPACT: NCR saw increased landed cost accuracy, which gives it access to previously unavailable cross supply chain decisions. Additional benefits include improved in-transit visibility, lower shipment expediting costs, improved raw material landed costs into the production factories, and improved costing accuracy. ENABLER: Avendra (Rockville, MD, www.avendra.com) CUSTOMER: Blackstone Hospitality PROJECT: Implement supply chain management and procurement solution to allow the global sourcing organization to quickly analyze and visualize actionable performance metrics across the organization without disrupting operations. SOLUTIONS/SERVICES: Avendra property and portfolio reporting helped optimize procurement savings, while proactive communication was accomplished through the myavendra. com portal regarding price trends and product recall notifications. BUSINESS IMPACT: According to Blackstone, a typical independent hotel is managed by a family that does much to try to cut costs whenever possible.

2015

As a result, it sometimes uses too many vendors and it’s a logistical nightmare. “Managing multiple vendors takes a lot of time,” said a Blackstone executive. “Avendra allows you to focus on what matters most, guest services and growing our businesses.” ENABLER: Avercast (Rigby, ID, www.avercast.com) CUSTOMER: Fortune 500 auto parts retailer PROJECT: Improve forecast accuracy, and eliminate overstock and stock-outs SOLUTIONS/SERVICES: Avercast Business Forecasting BUSINESS IMPACT: Within nine months of implementation, the customer’s inventory value was lowered by several million dollars while improving overall customer services levels. Now spending 80 percent of its time analyzing/adding additional value to forecast (instead of the previous 20 percent), the customer has direct collaborative input into the forecasting process from the sales team with the ability to measure and calculate the net effect of each salesperson’s recommended modifications. ENABLER: Basware (Espoo, Finland, www.basware.com) CUSTOMER: Developer and distributor of interactive entertainment software PROJECT: Transform its timeconsuming and inefficient AP operations into a center of excellence. SOLUTIONS/SERVICES: Basware Invoice Automation BUSINESS IMPACT: The company realized savings in excess of $1 million over a two-year period. It used the system to identify its top 25 suppliers based on invoice value and approached them to re-negotiate terms based on early payment discounts. Additionally, the company is benefiting from streamlined AP and T&E processes, a reduced headcount of 70 percent and decreased processing costs. June 2015 Supply & Demand Chain Executive 9

2015

SDCE 100 ENABLER: CaseStack (Santa Monica, CA, www.casestack.com) CUSTOMER: Fortune 500 retailer PROJECT: Create a specialized freight consolidation program designed to offer truckload benefits to less-than-truckload suppliers. SOLUTIONS/SERVICES: Cloud-based technology platform that enables suppliers to monitor the progress of any order BUSINESS IMPACT: The solution reduced transportation costs, improved delivery times, lessened inventory holding costs, increased inventory turns and reduced dock congestion. ENABLER: Celestica (Toronto, Ontario, www.celestica.com) CUSTOMER: Celestica and multiple customers PROJECT: Control tower deployment SOLUTIONS/SERVICES: A customerdriven control tower solution combining multiple technologies, including PredictivePower™ for statistical forecast creation, as well as Microsoft, Java and RapidResponse® technologies for clear-to-build, forecast development, available-to-promise and try-for-fit capabilities BUSINESS IMPACT: The Control Tower platform enables more informed and faster decisions, decreased levels of inventory and quicker response time. By leveraging data analytics to preemptively solve challenges, Celestica allows customers to access real-time supply chain data from anywhere at any time. ENABLER: Chainalytics (Atlanta, www.chainalytics.com) CUSTOMER: Provider of wireless voice, text and data services PROJECT: Supply chain transformation SOLUTIONS/SERVICES: Design and implement complete supply chain model—greenfield (pre-merger) and post-merger—focused on service level

10 Supply & Demand Chain Executive June 2015

and operations cost. BUSINESS IMPACT: The client achieved an estimated cost savings of more than $40 million through strategic sourcing analysis and additional estimated revenue streams of $134 million over the first three years of operation, with completion of the entire design and implementation in less than 10 months. ENABLER: CLX Logistics (Blue Bell, PA, www.clxlogistics.com) CUSTOMER: Global 500 chemical company PROJECT: Manage logistics activity, and freight audit and settlement. SOLUTIONS/SERVICES: TMS process design and implementation, including freight audit and settlement BUSINESS IMPACT: This project improved overall freight accrual and carrier invoice accuracy, which resulted in projected freight savings in the 2 to 3 percent range. It also increased the visibility and level of detail available for freight charges, which helped identify potential savings projects (detention mitigation, load consolidation, etc.). The project also allowed CLX Logistics to act as the primary point of contact for the customer’s freight carriers for any payment issues, and materially reduce the number of carrier invoices requiring customer review and approval. ENABLER: Corporate United (Westlake, OH, www.corporateunited.com) CUSTOMER: Curtiss-Wright PROJECT: Achieve cost savings, improve compliance and lean indirect spend processes through Corporate United’s Group Purchasing Organization’s PO’s multifunctional devices agreement. SOLUTIONS/SERVICES: Corporate United Group Purchasing Organization BUSINESS IMPACT: Beyond making headway toward its savings goals, Curtiss-Wright is reaping the other

benefits of Corporate United’s agreements. By circumventing the traditional three- to six-month RFP process for each agreement, it freed up internal resources and achieved quicker implementation, leading to faster savings. ENABLER: Crane Worldwide Logistics (Houston, www.craneww.com) CUSTOMER: International Drilling Company PROJECT: Pack, truck and ship several land-drilling rigs to Saudi Arabia within a 65-day window. SOLUTIONS/SERVICES: Leveraged WMS to help with this process, traced the vessels while in transit, and provided the customer with a map to show where the vessels were and give visibility to the customer. BUSINESS IMPACT: Crane Worldwide delivered an average transit of 48 days, never exceeding 62, which included delays due to local holidays. This helped the customer avoid more than $100,000 in fines due to reduced transit time. ENABLER: Demand Management (St. Louis, www.demandsolutions.com) CUSTOMER: Specialty textile manufacturer PROJECT: Replace the legacy business process with an optimized process to improve demand planning results. SOLUTIONS/SERVICES: DSX FM with professional services from Demand Management, along with a Microsoft SQL Server BUSINESS IMPACT: The company reduced weighted absolute percent error, which positively impacted both working capital and service levels. The participants in the process appreciate having a more effective and useful tool and process to use, which had a soft benefit of them being more engaged and helping achieve better demand planning results.

Collaborate. Mobilize. Accelerate. Work this way.™

Sounds so easy. Just be there when you say you’ll be there. Do the things you say you’ll do. Over and over and over again. It helps to have the right information. And a straight, clear line back to HQ. It helps to empower the people who are out there, doing the miles. With simple, mobile tools instead of clunky, manual processes. Just keep your promises. Just deliver. Sounds so easy. See how our portfolio of fleet and asset management solutions can help you deliver. Dig in. sprint.com/justdeliver © 2015 Sprint. All rights reserved. Sprint Business and Sprint logo are trademarks of Sprint.

For companies with people in them™

2015

SDCE 100 ENABLER: DiCentral (Houston, TX, www.dicentral.com) CUSTOMER: TJM Innovations PROJECT: Send accurate invoices. SOLUTIONS/SERVICES: DiCentral’s hosted EDI translation and routing services, and NetSuite ERP BUSINESS IMPACT: Since implementing DiIntegrator by DiCentral, TJM easily imports the day’s purchase orders from DiIntegrator to NetSuite ERP, where the orders and labels are created. TJM can easily process over 1,000 documents a week. As a result, TJM is enjoying order automation and near-perfect transmissions to all of its trading partners. ENABLER: Dispatch Track (San Jose, CA, www.dispatchtrack.com) CUSTOMER: Large appliance retailer PROJECT: Field management software solutions SOLUTIONS/SERVICES: Web-based dashboard integrated with existing POS software system, mobile technology and tracking widget. BUSINESS IMPACT: Immediate results were accomplished in truck visibility as well as real-time proof of delivery. Most importantly, customers are being provided a higher level of service because time windows were shortened and the communication with the customer is at a higher level because it is happening in real time. The impact on the bottom line was worth the investment as the savings are over 10 times the cost of the program. ENABLER: enVista (Carmel, IN, www.envistacorp.com) CUSTOMER: Federated Co-Operatives, LTD PROJECT: Labor management system implementation to find best practices, define engineered labor standards and train employees SOLUTIONS/SERVICES: enVista worked with FCL’s existing technologies including AFS Technologies and Priya WMS.

12 Supply & Demand Chain Executive June 2015

BUSINESS IMPACT: Year over year, the company increased productivity of 25 percent for all tasks; increased case picker productivity by 22 percent; reduced 5,400 hours of labor during the first six months; reduced overtime by an annualized $440,000; increased throughput of tons per hour by 6 percent; and decreased the warehouse expense-to-sales ratio by 8 percent. ENABLER: Epicor Software (Austin, TX, www.epicor.com) CUSTOMER: Duncan-Parnell Inc. PROJECT: ERP implementation SOLUTIONS/SERVICES: Epicor Prophet 21 ERP BUSINESS IMPACT: Profits are up by 133 percent, sales increased 58 percent over three years, sales per employee went from $15,700 per month to $22,500 per month, and inventory is not going up as fast as sales or profits, allowing cash conservation. ENABLER: Fortna (West Reading, PA, www.fortna.com) CUSTOMER: New Era Cap Co. PROJECT: Support the company’s growth by increasing storage capacity and throughput in a constrained distribution operation while running in full production. SOLUTIONS/SERVICES: FortnaWCS warehouse control software integrated with the existing warehouse management system BUSINESS IMPACT: New Era can service the NFL, and continue its growth with new licensing partners and new markets. Service improved dramatically. Orders that used to take days are now fulfilled in hours. The new operations are more efficient, decreasing operations expense by 30 percent and increasing picking efficiency by three times. ENABLER: Greybeard Advisors (Pittsburgh, www. greybeardadvisors.com)

CUSTOMER: Fortune 500 company PROJECT: Transform procurement from a tactical to strategic function that enhances shareholder value. SOLUTIONS/SERVICES: Worked with client’s existing software BUSINESS IMPACT: This process is one of the “strategic priorities” in the words of the company’s CEO. The client is on track to achieve an outstanding return on consulting investment (far greater than conventional consulting approaches). As important as the immediate financial results, the capabilities of the procurement team are being substantially upgraded and enabling the client to drive future results on its own. ENABLER: Intesource, a PROACTIS company (Phoenix, www.intesource.com) CUSTOMER: Price Chopper PROJECT: Intesource and Price Chopper conducted an online RFI, followed by a preliminary RFQ, and live, online reverse auction to collect pricing and information for a three-year contract for floor cleaning, floor cleaning chemicals, floor stripping and floor stripping chemicals for 135 stores. Pricing included all fees and taxes, and vendors agreed to adhere to specifications, expectations and safety requirements. Following the online negotiation, Price Chopper compiled all of the data to determine the best overall value based on quality, service and price. SOLUTIONS/SERVICES: Full-service online RFI and reverse auction (pre-bid and live bid) BUSINESS IMPACT: The company saved more than $4 million over the life of the agreement. ENABLER: JVKellyGroup (Huntington, NY, www.jvkg.com) CUSTOMER: Fortune 500 pharmaceutical company PROJECT: Assist client’s global sourcing

SDCE 100

2015

organization manage its objectives through performance monitoring, trend monitoring and opportunity identification across multiple business areas. SOLUTIONS/SERVICES: SharePoint, Microsoft SQL, XML and Xcelsius BUSINESS IMPACT: Without disrupting operations, JVKellyGroupâ&#x20AC;&#x2122;s solution allowed the global sourcing organization to quickly analyze and visualize actionable performance metrics across the organization. ENABLER: Logility (Atlanta, www.logility.com) CUSTOMER: PartyLite PROJECT: Improve supply chain visibility to reduce lead times, increase collaboration with suppliers, and lower inventory and costs. SOLUTIONS/SERVICES: Logility Voyager Solutions BUSINESS IMPACT: The company improved active inventory turns 94 percent, reduced active finished goods inventory 50 percent and cut supplier lead time by 30 percent. Improved planning led to a significant increase in freight utilization further reducing costs. To date, PartyLite achieved $3.5 million in savings and counting. The company turned challenges into opportunities through the use of innovative supply chain technology from Logility to drive operational alignment and formalize what became an essential S&OP process. ENABLER: ModusLink (Waltham, MA, www.moduslink.com) CUSTOMER: Republic Wireless PROJECT: Grow business and revenue via a lean e-commerce supply chain. SOLUTIONS/SERVICES: ModusLink BUSINESS IMPACT: Since launching the e-commerce fulfillment project, Republic Wireless achieved double-digit percent growth month over month, in addition to perfect order results consistently above 97.5 percent. As a

result of the project, Republic Wireless can also ship same day using multiple shipping options to optimize costs and transit times. The two companies developed a tight systems integration so that inventories match at the fulfillment center and internally at Republic Wireless. ENABLER: NetSuite (San Mateo, CA, www.netsuite.com) CUSTOMER: Akustica, Inc. PROJECT: Introduce visibility and automation into a geographically diverse global supply chain, encompassing both in-house and third-party factories and warehouses in the United States, Europe and Asia. SOLUTIONS/SERVICES: NetSuite ERP with Work Orders and Assemblies module, and Dell Boomi BUSINESS IMPACT: The company increased the effectiveness of a multilocation, multi-party global supply chain. The client substantially improved the

speed and precision of processes while gaining real-time transparency into inventory, production and distribution. The company strengthened its financial controls, enhanced partner relationships, and eliminated the inherent business risk of running on-premise financial and legacy operations management solutions. ENABLER: Puridiom (Mechanicsburg, PA, www.puridiom.com) CUSTOMER: Midstream Energy, Co. PROJECT: Safety and compliance are critical for the client. To ensure that suppliers meet specific legal and safety requirements, it required an internally driven, single sign-on automated supplier onboarding system. The system integrates with an industry-standard safety company that qualifies and verifies the safety standards and history of the supplier. If a supplier does not meet the requirements or has safety June 2015 Supply & Demand Chain Executive 13

2015

SDCE 100 infractions, it is rejected, eliminating safety risks for the client. SOLUTIONS/SERVICES: Puridiom 5.0 Supplier Hub/Puridiom 4.3 Enterprise Procure-to-Pay solution BUSINESS IMPACT: The project is now being implemented, but anticipated benefits include: improved safety, faster onboarding of qualified suppliers, fully documented suppliers with historical information, improved approval workflows, centralized location of supplier information (Supplier Hub), better reporting abilities and improved tracking. ENABLER: Purolator International (Jericho, NY, www.purolatorinternational.com) CUSTOMER: Color by Amber PROJECT: Help Color by Amber’s distributors grow their business throughout Canada by providing reliable, timely door-to-door service. SOLUTIONS/SERVICES: PuroPost™ service for most shipments and air courier for more time-sensitive shipments (Purolator International developed PuroPost as a hybrid service with Canada Post, using technology to combine its U.S. shipping platform with Canadian customs clearance requirements, labeling and tracking specifications.) BUSINESS IMPACT: Color by Amber’s business grew exponentially. Canada now makes up a full two thirds of all its business since launching into the market. The company now has customers in every province from British Columbia to Nova Scotia. Most customers receive their items in three to four business days or five to seven for the more isolated areas. The number of stylists in Canada also grew due in part to the trusted delivery methods provided by PuroPost, which allows them to sell with confidence. ENABLER: ShipXPress (Jacksonville, FL, www.shipxpress.com) CUSTOMER: Internal project

14 Supply & Demand Chain Executive June 2015

PROJECT: Improve multi-company supply chain processes by lowering costs, eliminating redundant and unnecessary activities, and providing greater information visibility. SOLUTIONS/SERVICES: Java and Oracle BUSINESS IMPACT: The cost savings of using ShipX Crude portal will be evident within six months of implementation. The current customer base in the E&P sector accounts for 8 percent of the total crude produced in America and our current active opportunities account for another 12 percent of the total crude produced. With a satisfied customer base, ShipXpress was successful in retaining customers and a large percentage of the company’s revenue is generated from the ShipX Crude Portal. ENABLER: Solvoyo (Boston, www.solvoyo.com) CUSTOMER: SOK Marketler PROJECT: Increase accuracy of demand forecasting, decrease DC and store inventory, and increase on-shelf availability in a network with 2,500 stores and 2,500 SKUs per store in 17 regional DCs. SOLUTIONS/SERVICES: Demand forecasting, multi-echelon inventory optimization, replenishment planning, procurement planning, UI and process support for exception-based parameter setting and planning, and KPI tracking BUSINESS IMPACT: Stock-outs dropped by 25 percent and stock-day dropped by 13 percent within six months of go-live. Waste for limited shelf-life items dropped by 8 percent. The current measured value of the solution within six months of go-live is several millions of dollars in inventory carrying cost as well as margin capture due to reduced stock-outs. ENABLER: TransportGistics, Inc. (Bohemia, NY, www. transportgistics.com) CUSTOMER: Fortune 500 manufacturer

PROJECT: The client was challenged with a legacy business practice for managing corporate-approved carriers used for global traffic with multiple modes. Carrier partners dynamically issued new rate changes frequently, placing the burden of managing and updating these changes on a limited staff. These rates were not standardized, and used disparate rate structures making analysis and rationale difficult. SOLUTIONS/SERVICES: Two of TransportGistics seven cloud-based transportation/logistics solutions, TGI-Bid and TGI-Rater, were integrated and deployed to solve and enhance the client’s transportation management environment. BUSINESS IMPACT: Through the deployment of TGI-Bid and TGI-Rater, the business process for managing the client’s carrier’s rates and tariffs was dramatically streamlined. The client was able to reduce staff requirements to manage the legacy process, standardized carrier tariffs, reduced transportation cost through challenging proposed rate changes, and use of lane and shipment bids. It also enhanced transportation analysis through SQL reporting. ENABLER: Transportation Insight (Hickory, NC, www.transportationinsight.com) CUSTOMER: Electronics distributor PROJECT: Help customer quantify and control supply chain costs associated with serving customers in a highly competitive market. SOLUTIONS/SERVICES: Blended solution of freight bill payment and audit, transportation management, carrier sourcing and BI reporting BUSINESS IMPACT: The company reduced DCs from 31 to seven while maintaining the ability to deliver products to 95 percent of the U.S. in two days or less; reduced inventory redundancy; larger volumes inbound

SDCE 100 to fewer DCs, which allowed client to buy in larger quantities and utilize cost-effective TL; centrally managed rate structure and contracts, increasing company-wide discipline and greatly reducing freight costs; improved visibility to all inbound and outbound freight costs through comprehensive reporting; reduced freight claims; and added cost savings while improving the customer experience.

MORE SDCE 100 RECIPIENTS ENABLER: Actian CUSTOMER: Conocophillips PROJECT: Implement a supplier performance management system that could collect performance data

from suppliers across a range of categories fundamental to the success of operations worldwide. ENABLER: AFN CUSTOMER: Global private-label bottled beverage manufacturer PROJECT: Adhere to strict service requirements to reduce the high number of chargebacks and operational costs. AFN conducted an analysis of the outbound network, and customized a solution to drive out operational inefficiencies and reduce costs. ENABLER: Americo Manufacturing CUSTOMER: Internal project PROJECT: Using Crystal Reports, Americo developed a reorder report that looks at the last 12 months of history, as well as recent history, to create dynamic order points that automatically change

2015

with seasons and demand. ENABLER: Aptean CUSTOMER: Berner Food & Beverage PROJECT: Through Aptean’s Process Manufacturing Suite, Berner saw an increase in throughput, along with a sizeable gain in OEE. The company reduced factory floor paperwork by approximately 40 percent, leading to monetary savings, along with a reduction in rework and waste. ENABLER: Ariba CUSTOMER: Konica Minolta Business Solutions PROJECT: Using the Ariba Network, Konica Minolta can fuel a more collaborative procurement process, and create a consumer-like experience by which goods and services can be ordered with just a few clicks and tracked through delivery.

When you’re driven by details, the world is a smaller place. Old Dominion simplifies global shipping by doing more than delivering freight. Our focus on premium service means every shipment arrives with one of the lowest claims ratios and one of the best on-time records in the industry. OD Global offers: • Personalized, single point of contact for status on all shipments • Paciﬁc Promise™: service from 24 Asian ports direct to the U.S. • Direct service to or from Canada, Mexico, Puerto Rico, Alaska and Hawaii

For more information, visit odfl.com or call 1-800-432-6335. Old Dominion Freight Line, the Old Dominion logo, OD Household Services and Helping The World Keep Promises are service marks or registered service marks of Old Dominion Freight Line, Inc. All other trademarks and service marks identified herein are the intellectual property of their respective owners. © 2015 Old Dominion Freight Line, Inc., Thomasville, N.C. All rights reserved.

June 2015 Supply & Demand Chain Executive 15

2015

SDCE 100 model, while also executing a multichannel operation to include drop shipping and ship-from-store functionality. ENABLER: E2open CUSTOMER: Coriant PROJECT: E2open’s software consolidated Coriant’s supply chain data, giving visibility into shifting demand and supply. By integrating with SAP and data from external contract manufacturers, E2open reconnected the outsourced supply chain in a closed-loop process, allowing Coriant to respond in real time.

ENABLER: Arkieva CUSTOMER: Momentive PROJECT: Arkieva created a tool that had a multi-echelon approach, a tailored safety stock calculation, the ability to understand make-to-order and protection of bottleneck materials from stock-outs. There was also an understanding of the purpose of safety stock, the placement of safety stock and the amount of safety stock.

and maintaining inventory levels during a time of accelerated growth.

ENABLER: Barcoding, Inc. CUSTOMER: Canton Port Services, LLC PROJECT: Barcoding integrated the solution with Canton’s partner’s booking database so when units come in, workers type in the last six digits of the VIN, which pulls up the corresponding vehicle on a monitor and generates two barcodes—one for the vehicle and one for its title—for printing. Then, by scanning the barcode, Canton updates its partner’s inventory in real time.

ENABLER: CBX Software CUSTOMER: El Corte Ingles PROJECT: The CBX platform, now in Phase 1, will support sourcing-related order follow-up processes between El Corte Ingles Sourcing in Asia and several global business units. CBX will implement its cloud-enabled CBX 5 software, offering an enterprise system without heavy investment in hardware and headcount.

ENABLER: Blue Ridge CUSTOMER: Kele Inc. PROJECT: Kele set out to grow its customer base, optimize working capital and implement best-in-class processes. Kele wanted to embrace inventory best practices and optimize operations by enhancing service levels, increasing turns 16 Supply & Demand Chain Executive June 2015

ENABLER: B-Stock Solutions CUSTOMER: Home decor E-retailer PROJECT: B-Stock launched a branded, customized online auction B2B marketplace for returned and overstock inventory, enabling the retailer to sell bulk auction lots of excess merchandise via its own transparent online platform.

ENABLER: Deposco CUSTOMER: Onestop Internet PROJECT: Onestop was looking for a WMS platform that provides the inventory visibility it needs for a multi-customer, multi-channel operation. Deposco offered the flexibility to accommodate any type of customer fulfillment requirements and manage the traditional B2B fulfillment

ENABLER: Elemica CUSTOMER: Lonza PROJECT: Lonza wanted to implement a touchless order management solution allowing customer orders to be placed quickly into its SAP system without errors. QuickLink Email automates inbound fax and email orders into electronic formats and data values that Lonza’s ERP system can process automatically. ENABLER: Focus Chain CUSTOMER: ISAGEN PROJECT: Focus Chain configured a complete supply chain management solution, including people, organization, planning processes for MRO, execution processes, definition of SC governance, flow definitions, definition of metrics, and definition of best practices and technologies to support integration. ENABLER: Geotab CUSTOMER: Red Hawk Security PROJECT: Service more customers in a day, which means boosting employee productivity and increasing customer satisfaction, reducing fuel consumption and spend. ENABLER: HighJump CUSTOMER: Red River Transport PROJECT: Since implementing AccellosOne Transport TMS, Red River

SDCE 100 improved data accuracy, speed and efficiency. Employees are making decisions based on real-time data, not speculation. Due to increased automation, reports are generated and acted upon quickly. ENABLER: Informatica CUSTOMER: Velspar PROJECT: Velspar sources raw materials from thousands of vendors, and realized its buying power was limited by the age and quality of vendor and raw-materials data. It wanted to control spending, build stronger relationships with its preferred vendors and develop internal process efficiencies to realize additional savings. ENABLER: Inmar CUSTOMER: Large CPG company PROJECT: Inmar developed a multi-

phased approach to collect data by evaluating the physical process of the movement of goods across the retail supply chain. Vendor participation drove collaborative process reviews and analysis of products, packaging and shipment quality that identified numerous opportunities to reduce waste. ENABLER: International Business Systems (IBS) CUSTOMER: 2XL PROJECT: IBS’s Dynaman WMS let 2XL customize workflow processes to match customer needs, including the ability to integrate value-added services, such as case picking, cross-docking and returnable packages. ENABLER: Invata Intralogistics CUSTOMER: Cleveland Brothers Caterpillar CAT

2015

PROJECT: FastTrak Warehouse software automated and implemented a batchpicking operation to accommodate the requirements of an omni-channel distribution strategy. The system addresses all aspects of receiving and put-away, as well as batch picking, consolidation, packing, staging, shipping and loading. ENABLER: JDA CUSTOMER: Office Depot PROJECT: JDA centralized and optimized store management across 56 stores in France through improved space and floor planning. ENABLER: Jump Technologies CUSTOMER: Penn State Milton S. Hershey Medical Center PROJECT: Nurses in the emergency department were dissatisfied with the

We’re on time when time is scarce. When you need something shipped immediately, Old Dominion Expedited delivers. Our focus on premium service means every shipment arrives with one of the lowest claims ratios and one of the best on-time records in the industry. OD Expedited offers: • Next-day arrival • Delivery at a guaranteed time • Weekend Promise: guaranteed Friday to Monday delivery

For more information, visit odfl.com or call 1-866-637-7333. Old Dominion Freight Line, the Old Dominion logo, OD Household Services and Helping The World Keep Promises are service marks or registered service marks of Old Dominion Freight Line, Inc. All other trademarks and service marks identified herein are the intellectual property of their respective owners. © 2015 Old Dominion Freight Line, Inc., Thomasville, N.C. All rights reserved.

June 2015 Supply & Demand Chain Executive 17

2015

SDCE 100 PROJECT CONFIDENTIAL ■■ 4flow (Global car maker/TMS implementation) ■■ American Global Logistics (Furniture company/ supply chain cloud design) ■■ Avnet (Avnet technology distribution/WMS) ■■ Baxter Planning Systems (High-performance computing company/supply chain planning) ■■ Beroe Inc. (Fortune 500 beverage and brewing company/procurement) ■■ BizSlate (Small women’s accessories business/ERP implementation) ■■ C3 Solutions (Fortune 500 retailer/supply chain integration and infrastructure, and ERP) ■■ Caterpillar Inc. (Caterpillar/supply chain network redesign) ■■ DHL: (Automotive company/logistics) ■■ eLynxx Solutions (Manufacturer of wood-alternative outdoor building products/ procurement) ■■ ESM Solutions (Higher education/sourcing, contract management and procurement) ■■ ET2C (Footwear startup/sourcing and procurement) ■■ Fieldglass (Global 500 network and communications equipment and services provider/ sourcing and procurement) ■■ GEP (Fortune 500 food processing company/procurement and the building of a greenfield food processing plant) ■■ Iasta (Real estate services company/procurement optimization) ■■ InfinityQS International (Consumer packaged food and beverage company/decision support/business intelligence, consulting, education and quality) ■■ Infor (Global pharmaceutical company/supply chain transformation) ■■ Ingram Micro Mobility (North American consumer electronics startup and wearable manufacturer/order and demand management, and forecasting) ■■ INSIGHT Inc. (Global oil company/supply chain network design) ■■ Integration Point (Large multi-brand apparel corporation/export management and compliance) ■■ NeoGrid (Consumer electronics retailer/collaborative planning, forecasting and replenishment) ■■ OnProcess Technology (Fortune 500 technology company/order and demand management, and forecasting) ■■ Optricity (Home improvement retailer/warehouse management) ■■ Pace Harmon (Fortune 25 healthcare services company/supply chain optimization and transformation) ■■ PINC Solutions (Manufacturer and distributor of food packaging/yard management system) ■■ Retrotech (CPG company/WCS application) ■■ Riskmethods (Global manufacturer/procurement) ■■ Software AG (Fortune 50 device and pharma manufacturer/logistics and transportation) ■■ Sparta Systems (Global pharmaceutical company/PLM) ■■ Terra Technology (Multinational consumer goods manufacturer/demand sensing and inventory optimization implementation) ■■ ToolsGroup (Internet retailer/forecasting and inventory management) ■■ UltraShip TMS (Major chicken processing company/yard management system automation) ■■ Universal (Large engine company/WMS implementation)

18 Supply & Demand Chain Executive June 2015

approach to managing supplies. The supply chain teamed up with the nurses in a Kaizen process to identify a new inventory management approach. ENABLER: Junction Solutions CUSTOMER: Century Martial Arts PROJECT: The company replaced multiple legacy systems with one ERP platform for scalability, and integrated operations for better visibility and timely data access. ENABLER: Kewill GmbH CUSTOMER: Lufthansa Cargo AG PROJECT: With a new handling system, the customer modernized its interfaces to different customs authorities for transit and temporary storage reporting. Kewill provided a solution for both interfaces based on industry standards. ENABLER: Keysight Technologies CUSTOMER: Internal project PROJECT: The team assessed ways to customize its supply chain to match different types of demand streams. For demand, products are clustered based on volatility and volume. Supply is categorized using supply and sourcing complexity. ENABLER: Kinaxis CUSTOMER: Avaya PROJECT: Help Avaya’s supply chain evolve from the critical intersection of basic needs and a vision into a complete transformation that resulted in numerous business wins and a shift in company culture. ENABLER: Lectra CUSTOMER: Auto seating supplier PROJECT: Lectra used lean methodologies to create a customized action plan that would reduce operational costs, improve process efficiency and enhance performance. ENABLER: LLamasoft CUSTOMER: Fortune 200 food and beverage manufacturer

SDCE 100 PROJECT: LLamasoft ran a baseline analysis of the current state of the supply chain. Then, with rapid what-if analysis, the team began to build a tailored modeling platform to enable the move toward a more collaborative model builder. ENABLER: Loftware CUSTOMER: EMS PROJECT: Loftware provided an enterprise labeling solution with configurable business rule functionality to enable EMS to define logic and address unique UDI requirements, while enabling it to streamline and remove risks from label printing. The business logic functionality helped eliminate failure points, and allowed users to simply enter field values to dynamically select printers and templates, populate label data, and apply conditional formatting.

ENABLER: LogFire CUSTOMER: FarmaCorp. PROJECT: LogFire’s solution let the company grow in the most profitable way. FarmaCorp didn’t have a proper warehouse system and needed a state-of-the art digital supply chain to deliver results. ENABLER: Logistix Solutions CUSTOMER: Global food distributor PROJECT: Logix identified operational efficiencies and corresponding savings. The company developed static, multi-stop truck loads and schedules that can be used repeatedly or can be supplemented as needed with additional stops. ENABLER: Newegg CUSTOMER: Internal project PROJECT: Established a state-of-theart fulfillment center to better serve Midwestern customers.

2015

ENABLER: Next Generation Logistics CUSTOMER: Cabot Creamery PROJECT: NGL worked with Cabot to refine business practices and install intelligent business rules for route planning and execution. Cabot has visibility into its aggregated transportation data through customized reporting, which created efficiencies in customer service, warehousing, logistics and now accounting. ENABLER: NGC Software CUSTOMER: Rocky Brands PROJECT: The company implemented EZ-Ship software, a factory scan/pack system that integrates with NGC’s webbased SCM system, to ensure carton compliance and inventory accuracy. This ensures that each box of shoes is correctly labeled.

We make a big deal over the tiniest items. Old Dominion’s focus on premium service means every item arrives with one of the lowest claims ratios and one of the best on-time records in the industry. OD Domestic offers: • More than 225 service centers nationwide • Competitive transit times and pricing • Proactive shipping solutions

For more information, visit odfl.com or call 1-800-235-5569. Old Dominion Freight Line, the Old Dominion logo, OD Household Services and Helping The World Keep Promises are service marks or registered service marks of Old Dominion Freight Line, Inc. All other trademarks and service marks identified herein are the intellectual property of their respective owners. © 2015 Old Dominion Freight Line, Inc., Thomasville, N.C. All rights reserved.

June 2015 Supply & Demand Chain Executive 19

2015

SDCE 100 ENABLER: NPI CUSTOMER: Fashion designer and manufacturer PROJECT: Mitigate sharp increases in year-over-year shipping costs, especially in international modes, accessorial fees and surcharges, and improve SLA performance. ENABLER: Nipendo CUSTOMER: Clalit Health Services PROJECT: The company wanted to automate the procure-to-pay process, establishing a paperless and errorless process across the supplier base for all spend categories. 90 percent of invoices are processed by Nipendo straight through to the SAP system without manual intervention. ENABLER: Paragon Software CUSTOMER: Southeastern Food Merchandisers

I N N O VAT I O N

CLARITY

PROJECT: Paragon RMS optimizes fixed delivery routes. The challenge is to manage the impact of daily changes, such as fluctuations in orders and delivery quantities, which could compromise transportation costs. ENABLER: Performance Consulting Associates (PCA) CUSTOMER: North American Mining & Salt Processing Company PROJECT: The client needed to reduce inventory investment while increasing equipment availability by having the right quantities of the right parts at the right PRECISION time. PCA developed a model that would work at all of the client’s locations.

A P L AT F O R M F O R O P T I M I Z AT I O N S O L U T I O N S

IMPROVE

YOUR WAREHOUSE I N 2015 .

20 Supply & Demand Chain Executive June 2015

ENABLER: Pool4Tool CUSTOMER: Grohe Group PROJECT: The solution reorganized the ordering and forecasting process, and helped 400 suppliers optimize their own processes. Today, 10,000 purchase orders are conducted via Pool4Tool each month.

ENABLER: Quintiq CUSTOMER: Marquis Inc. PROJECT: Marquis has a fleet of rail cars and barges that interchange crude oil inventory via an intermediate storage location. Optimizing transportation reduces operational costs and gains end-to-end visibility. ENABLER: Resilinc CUSTOMER: Amgen PROJECT: Resilinc provided supplier training and data validation services, and delivered an analytics platform to quickly assess global risk hotspots and failure points in the multi-tier supply chain. The global event monitoring service quickly alerted Amgen to events that could disrupt material flow. ENABLER: Ryder CUSTOMER: Parallon Business Solutions PROJECT: Ryder reengineered the client’s transportation network, optimizing delivery of equipment with just-in-time and next-day service to provide cost savings. ENABLER: Saddle Creek Logistics CUSTOMER: Nu Skin Enterprises PROJECT: With an eye on increasing efficiency and speeding delivery time for orders, Saddle Creek built a 27,000-square-foot, temperaturecontrolled facility in six weeks. ENABLER: Sealed Air CUSTOMER: MBS Textbook Exchange, Inc. PROJECT: Sealed Air’s single I-Pack®

SDCE 100 system achieves a rate of 850 packages per hour, enabling MBS to improve its packaging efficiency. MBS reduced its processing labor costs by 75 percent. ENABLER: S-One Holdings Corp. CUSTOMER: Brand Management Group PROJECT: S-One allows UPS to use its tools for warehouse management globally and integrate feeds from its systems directly into NetSuite. The result was a global WMS that can handle an average monthly order volume of about 3,000 to 5,500. ENABLER: Source One Management Services CUSTOMER: Multinational medical devices manufacturer PROJECT: Source One designed and implemented a multi-phase, multiyear approach to savings. The project successfully brought together sales, engineering, manufacturing and sourcing teams. ENABLER: Spend Management Experts CUSTOMER: Pipe and fittings supplier PROJECT: The customer needed to develop a strategic plan to reduce transportation costs and increase operational efficiencies. Spend Management Experts helped the supplier revamp its operation by outsourcing distribution to C.H. Robinson, giving it access to a TMS to automate load sequencing, increase bandwidth and get visibility into its supply chain.

ENABLER: TradeStone Software CUSTOMER: Ascena Retail Group PROJECT: TradeStone enabled collaboration with Ascena’s vendor and factory partners made up more than 55 vendors and 120 factories. This community gained access to a single platform for all retail brands.

ENABLER: Ultriva CUSTOMER: Fortune 500 CPG company PROJECT: Ultriva’s cloud-based Collaborative Demand Portal and Lean Factory Management modules enabled the company to reduce the amount of raw material inventory, going from 15 days to less than eight hours.

ENABLER: Transplace CUSTOMER: Fortune 500 IT manufacturer PROJECT: Transplace streamlined the cross-border shipping process by consolidating shipments at the U.S. origin point into a larger truckload shipment to be taken to a hub across the Canadian border for delivery. Transplace developed a solution for shipping under one custom clearance charge for easier border crossing.

ENABLER: XChanging CUSTOMER: Federal-Mogul Motorparts PROJECT: Federal-Mogul acquired Honeywell Friction Materials. As part of the merger, the procurement team was tasked to leverage increased spend, gain high-visibility market pricing and turn the project around quickly. Xchanging’s solution managed a series of sourcing initiatives that saved millions of dollars in spend.

ENABLER: TrakLok International LLC CUSTOMER: Large intermodal trucking company PROJECT: TrakLok’s locking device provides robust physical security, multi-sensor alarms, GPS tracking and wireless alerts.

2015

ENABLER: XPO (formerly Norbert Dentressangle) CUSTOMER: Commercial seed manufacturer PROJECT: The objective was to centralize the customer’s planning and distribution activities, and create standardization across its network.

ENABLER: SYSPRO USA CUSTOMER: LOCKMASTERS PROJECT: Created a system that enabled the company to improve business processes and streamline internal procedures with new features and customizations. June 2015 Supply & Demand Chain Executive 21

2015 Pros To Know

Lennox Team Delivers a State-of-the-Art Supply Chain New model brings products and parts closer to the customer for increased service levels

ennox Residential—a leading manufacturer of heating, ventilation and air conditioning (HVAC) systems for the residential market—recently conducted a massive expansion and transformation of its supply chain, moving from a single national distribution center that served 66 company-owned retail stores to a hub-and-spoke model with eight regional distribution centers and 19 local distribution centers serving 160+ stores (with more on the way). “Our new supply chain model puts parts and products closer to the customer, enabling us to provide 22 Supply & Demand Chain Executive June 2015

service levels that lead the HVAC industry,” says Keith Nash, Vice President of Supply Chain Logistics at Lennox Residential, and Supply & Demand Chain Executive Pro to Know of the Year for 2015. “Whether our customers live in the sun-belt, the snow-belt, or somewhere in between, if their HVAC system has a problem they want it fixed yesterday. We deliver same day or next morning to almost 98 percent of our demand. “Of course, achieving those industry leading service levels was a major challenge, especially since HVAC is a highly seasonal business and literally as unpredictable as the weather,” says

Supply Chain Leadership Team: Back row L-R: GM LI RES Gary Bedard, Corey Larsen, Tim Wismer, Richard Wroclawski, Mark Johnson, Ross Angell, John Ernat, Keith Nash, Front L-R: Kathryn Manders, Keith Barnes, John Beckett, Karen Schuller, Von Reynolds, Laura Dahlberg

Nash. “Designing and implementing the new supply chain model was a multi-year undertaking that required tremendous skill and dedication from our transformation team.”

True transformation One of the biggest challenges was the sheer size and scope of the effort. In just over four years, Lennox moved to the hub-and-spoke model. This

Advertorial included re-deploying an estimated 1,000 truckloads of material. Along the way, the team also installed TMS & WMS, supply and demand planning. These moves were supported by countless activities that were critical to success. For example, to ensure that planning and deployment calculations were handled correctly the team had to reconfigure an estimated 40 million data elements. Lennox supply chain leaders and team were tasked with replacing the company’s operational, physical and IT infrastructure, yet most still had full responsibility for doing their normal jobs and keeping the existing supply chain running smoothly. This led to a lot of hard work and stress during the transformation process but it has been worth it. The supply chain transformation led to a fundamental culture shift. Before, people were called to put out a fire, but went home every night knowing there would be more fires to fight in the morning. Now, the team is focused on permanently fixing problems and improving core processes.

L-R Bud Price, Tom Wainwright, Clif Turner, Mike Gleason, Derek Barnhill

Bottom-line results The transformation has enabled Lennox to dramatically improve its service levels. Immediate fill rate is up 15 percent to 93 percent and 98 percent of demand can be delivered by the next morning (up from 35 percent in 2008). Meanwhile, distribution costs as a percentage of sales are down by more than 17 percent. Even more important, the transformational improvements

have provided a strong foundation for the company’s overall business strategy. These improvements, including higher safety, less working capital, and smaller carbon footprint across the enterprise, have supported approximately 50 percent revenue growth and more than 20 percent increase in market share. “The impressive results we’ve achieved to date are a testimony to the incredible talent, hard work and dedication of our supply chain team,” says Nash. ”The new supply chain model is a key enabler of our business strategy and is already driving growth and improved performance across our entire business. From expansion to excellence. Whatever twists and turns the market throws at us, the team will be ready.” For more information: www.lennox.com/ residential

India Supply Chain Analytics Team: L-R: Suhel Mohhamad, Radha Satheesh, Kalesh Kaladharan, Naraynan Renganathan, Aniruhd GuruMurthy, Gopika Muthukesavaraj, Prasad Chandravihar, Onieyk Suraj, Gokul Chinnaraj, Ranjini Menon June 2015 Supply & Demand Chain Executive 23

2015 Pros To Know

Managing Data to Increase Efficiency Owens Corning Pro to Know Michael Morris leads complex supply chain transition

Michael Morris, Owens Corning

omplexity is inherent in any global business, and it creates special challenges in managing supply and demand. Instant communication and sophisticated tracking capabilities highlight the importance of having easy access to quality data. For a company like Owens Corning, which serves a broad array of markets from a combination of 30 plants and external warehouses in 15 countries, managing complexity is all about managing information. Owens Corning develops, manufactures and markets insulation, roofing, and fiberglass composites. The company’s building materials products, such as the iconic PINK® fiberglass insulation, are sold as finished goods to distributors, contractors and consumers. The company’s composites business, however, operates in a very complex, business-to-business model. Owens 24 Supply & Demand Chain Executive June 2015

Corning manufactures different kinds of glass fiber, and uses it to produce glass-reinforced composite materials that meet each customer’s specifications. Customers then use the composites to make thousands of products lighter, stronger, and more durable. According to Michael Morris, global supply chain process leader for Owens Corning’s composites business, the company manages more than 50,000 unique product/ customer combinations. “With a vast, global network, and so many customer variables, there’s no question this is a very complex business,” Morris said. “To grow and support our customers, we have to understand how all those variables interact and affect our supply and demand chain decisions.” Over the past several years, Owens Corning’s supply chain team has implemented processes and software that

have dramatically improved the company’s ability to use data effectively in decision-making. Morris recently was named a 2015 Practitioner Pro to Know by Supply & Demand Chain Executive for his work in leading this transition. He has applied three guiding principles that he considers universal best practices for supply and demand chain management: there must be a single, authoritative set of numbers that all decision-makers can trust; data about supply and demand must be integrated with financial data; and the integrated data must be readily available to decision-makers. Morris joined the global supply chain team in 2011 after 15 years in Owens Corning’s finance division. At that time, supply and demand were tracked through a collection of spreadsheets, emails, and notebooks. Financial data was entirely separate. As a consequence, decisions about pro-

Advertorial duction were sometimes made without fully evaluating cost implications. The difficulty of consolidating information from disparate sources led to other challenges. Each manager might have a different version of the data, and getting alignment on the facts was often difficult. To make matters worse, the end-to-end supply and operations planning cycle could take up to eight weeks. Morris remembered, “You’d go into a meeting and start talking, and then someone would say, ‘Wait, that data is old. I’ve got fresh numbers.’ But the new numbers hadn’t been verified, so you’d get caught in this endless cycle. We spent so much time gathering, consolidating and validating data, we really didn’t have time to do any analysis or provide meaningful insights.” Morris’ charge in his new role was to improve the data infrastructure used for forecasting. The company was working with Solventure, the provider of Arkieva™ software, for statistical forecasting related to one small part of the business in Europe. Morris’ first project was to institute a statistical forecasting process for the North America composites business. The success of this project led to the

decision to roll out the process to the global sales team, and begin using Arkieva directly within the business. To better support the global implementation, Arkieva was integrated with the in-house business intelligence toolset for sales history (volume and revenue), linking history and forecast at all levels of aggregation and providing significant transparency. Managers and supply chain leaders had real-time access to a demand forecast that could be created in minutes instead of days and used to support both financial forecasting and supply planning. Based on the success of this project, Owens Corning purchased the Arkieva software, and it has become a core resource. Morris has introduced Arkieva’s modules in phases, building new processes along the way. For instance, he is now working with the composites business’ global and regional planning teams to implement the rough-cut capacity planning toolset. Because the tool is fully integrated with the demand planner, the system

can automatically move demand to primary sources (plants or warehouses) assigned to each product within the toolset. That creates a starting point for the planners, who focus on optimizing the supply balance. And Morris’ team can now execute the end-to-end supply and operations planning process in ten days. There are other projects on the horizon, with benefits that Morris is excited to capture. Further integration with financial planning means even richer insights about the cost associated with supply decisions. The Arkieva inventory analyzer will provide insight on the quality of the company’s inventory, supporting decisions about stock and production, and helping reduce working capital. The Arkieva scenario planner will make it easy to test changes in supply or demand assumptions and compare the cost impact of each scenario. “We’re learning as we go,” Morris said. “This approach to supply and demand management is new for us, but having the integrated data available makes it much easier for us to manage the complexity we deal with every day. “It’s been fantastic to see what a difference these tools have already made in how we use data in our decisions,” he added. “The process improvements alone have freed up so much time for people to do more valuable work than consolidating spreadsheets. Now we can use our sales history and forecasts to help us understand our customers and the market. Doing that well is really critical for any company to grow.” For more information: www.owenscorning.com

June 2015 Supply & Demand Chain Executive 25

industry focus technology

Inventory Issues and New Retail Technology Solutions

Process automation keeps new customer-engagement models moving along successfully without dramatic cost increases By Jeff Rauscher

n retail, sometimes the best of times can quickly transform into the worst of times. Increased demand and higher transaction volumes mean that your business is going well, but are you prepared to cope with this growing business? You know that new customer engagement models and omnichannel shopping can lead to healthy increases in sales revenue. However, the new, accelerated retail model means that your organization has to be incredibly fast and completely accurate to keep building that revenue stream. Any glitch or stall in your supply chain activities can mean lost sales, customer dissatisfaction and dulled competitive edge. According to Deloitte’s 2015 Industry Outlook, “…success will come to those who are creative in managing their product supply chain—ensuring consistent supply, services, and quality across all channel platforms. Adopting an agile supply chain strategy is of critical importance for allowing retailers to preserve already narrow margins while simultaneously not compromising the customer experience.” Increasing customer demand for the fastest service possible in multichannel consumption makes this situation even more challenging. For many retailers, it’s getting harder to balance efficient inventory management with taking advantage of ever-evolving consumer technology. 26 Supply & Demand Chain Executive June 2015

New technologies such as Apple Pay speed up transactions for consumers, as a result of these innovations retailers must quicken their response to inventory requirements. They only have a few chances to provide the rapid and accurate response that consumers demand. They can hire more people and increase their hours as sales increase—processing orders, delivering products and monitoring inventory manually—which is risky and expensive—or they can change the way they do business. Process automation across the retail supply chain is the secret weapon many organizations have already discovered. It keeps new customerengagement models moving along successfully without a dramatic increase in the cost of doing business. By automating repeatable processes within the supply chain, retailers get the insight needed to handle unexpected complications quickly— or, better yet, preemptively—while ensuring that all parts of the business support the same bottom line. These days, having fast, error-free retail supply chain processes is the only way to maintain customer loyalty.

Collaborating with New Tech Consumers are drawn in by trendy technology that makes their experience more interesting and adaptable. Drone delivery, Apple Watches and shopping by tablet all provide futuristic cache that retailers use to generate interest and sales. Nevertheless, it’s the hidden processes

that really support the fulfillment of the consumers’ wishes. Without streamlined automated back-office activities running 24/7, the drones may not arrive on time with the right package at the correct address. When that happens, those same customers who liked the trendy tech become very much aware of the shortcomings of the out-of-date back-office. Relying on manual management across diverse steps in complex processes such as order-to-cash, procure-to-pay, or supply chain management is risky. It plays a major role in disrupting services and increasing operational costs for businesses. Latency and human error can cause real problems even in enterprises that appear, on the surface, to be completely “automated.” The best way to prevent this kind of problem from happening is to take a long look at your entire organization—see the big picture. Where are the gaps between silos, steps and technologies? How do you fill these gaps so that you provide better, more reliable service and reduce the risk of error or delay? Automating critical back-end processes is the only way to eliminate these problems while providing the quickest, most efficient shopping experience possible on the front-end. With automated monitoring, alerts and updates, companies can maintain precise inventory details in real time. This, in turn, makes global partner coordination a much simpler and

industry focus technology less labor-intensive task—even when sales volumes increase.

Take the First Step The first step toward effective process automation across your retail supply chain is to establish a common language and connected ownership across the enterprise. Bring your IT and businesses teams together and agree on common goals and measurement. Everyone should have goals for the role they play, but they should also be very aware of the ultimate destination—fast and reliable delivery of product from order to cash. Global retailers have many back-end systems that must be coordinated for this to work. Automating these systems in tandem ensures that standards-based

procedures work accurately and quickly throughout your value chain, with a minimum of painstaking individual effort. It can make a tremendous difference. RS Components is a leading distributor of electronics and maintenance products. With operations in 32 countries, the company regularly ships more than 50,000 same-day deliveries. Matthew Ling, Competency Centre Functional Team Lead at RS Components says: “Orders placed with our business can be processed

and ready for dispatch within the hour. The transition [to a new solution] was seamless and our supply chain was operational at all times. With automation we can now achieve far more without the need for incremental costs. We achieved ROI within 18 months.” With process automation any retailer can make the latest and greatest high-volume customer engagement technologies work for them—and keep their clients happy. It’s a hidden trend that keeps the best of times rolling along. ■

About the Author: Jeff Rauscher, Director of Solutions Design for Redwood Software, has more than 31 years of diversified MIS/IT experience working with a wide variety of technologies including SAP, HP, IBM, and many others. Rauscher has worked in operations management, data center relocation, hardware planning, installation and de-installation, production control management, quality assurance, and customer support.

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June 2015 Supply & Demand Chain Executive 27

industry focus distribution

Profitable Distribution in a Consumer-Driven Supply Chain

Master supplier-customer collaboration to improve service and cut costs By Carl Marin

he growing adoption of eCommerce and mCommerce give today’s consumers an unprecedented amount of information to make purchasing decisions, as well as new fulfillment options like “purchase online and pickup in store.” Using smartphones and tablets, consumers can quickly make complex purchasing choices without speaking to a sales representative or setting foot in a retail storefront. In this new paradigm, consumers believe they have more leverage over the purchasing process than in the past. Thanks to the Internet they can find multiple sources of the same product or identify alternatives, effectively putting price pressure on retail channels. Consumers want increased product selection, faster delivery, and better service... at a lower cost. Conventional wisdom suggests that consumers can ask for faster or better or cheaper, but not all three. How low can prices go without sacrificing quality? Does this trend put the consumer-driven retail supply chain on a collision course with shoppers’ ever-rising expectations? Or is it possible for distributors to offer retail 28 Supply & Demand Chain Executive June 2015

customers “more for less?” Our experience indicates that there is, indeed, room for improvement. A combination of supply chain network optimization, business process optimization, and IT investments can yield a supply chain that delivers goods faster through a greater number of channels.

Today’s Omnichannel Retail Supply Chain The most basic enabler of today’s omnichannel retail capabilities is accurate, real-time data across the supply chain. This is the critical factor that determines how and when an item can be fulfilled. It also provides the best predictor of the cost of fulfillment to the supply chain and the price to the consumer.

To that end, supply chains (not just retailers) require integrated systems that expose inventory data and provide forecast visibility that extends from the point of purchase to the factory floor. Consumers don’t care who makes it or how it is shipped: “Just tell me when it will be delivered or where I can pick it up!” “Independent” (that is, nonintegrated) and inflexible channels and data systems are doomed in this context. Retailers and distributors must build new supply chains that can rapidly adapt to market conditions, including disruptive service enhancements like parcel drones and free twoday shipping. Analytics are key to planning for success and adjusting instantly and accurately to trading

industry focus distribution partner and customer demands. Maximizing customer satisfaction means leveraging improved visibility into inventory and processes to ensure order accuracy and on-time shipment while meeting supply chain partners’ information needs. Minimizing costs means minimizing “touches”—both human and electronic—on orders. These goals require technology that lets distributors optimize critical fulfillment processes, as well as space and labor in the warehouse, without adding to the burden of IT complexity.

Optimizing Omnichannel Fulfillment To enable omnichannel capabilities, business processes must deliver efficient, integrated communication of commitments around materials purchasing, payment, and the direction of movement between points in the supply chain. To reduce the cost of meeting those commitments, systems must also enable efficient operational processes, especially: Retailer communication: Commitments to purchase are often communicated through electronic data interchange (EDI). The first step is to integrate EDI with ERP (on both sides of the transaction) so that order data is accurately reflected and immediately exposed in those systems. Picking/packing efficiency: The key to reducing warehouse costs per transaction is to reduce the labor associated with inventory movement. This requires Warehouse Management Systems (WMS) software that optimizes aggregate product movement in a warehouse or improves inventory conveyance from point A to point B. Compliance: Whether it’s serial and lot tracking, managing expiry, or logging transactional information,

regulations continue to weigh on the supply chain. Efficient systems incorporate attribute data into the physical process in the most efficient manner possible. Small parcel shipping: Shipping is becoming more complex with the introduction of DIM (dimensional) rating across the major carriers. Rather than incorporating shipping silos into outbound processes, efficient systems manage shipping data in the background, so shipping complexities don’t burden outbound processes. This makes the shipping process transparent to users and eliminates bottlenecks during seasonal spikes.

The Blueprint for Success Many small to mid-sized supply chain participants have stitched together point solutions that were adequate under retail distribution models. However, those solutions are buckling under the increased volume pressure that omnichannel models create. Optimizing operational efficiencies requires an integrated supply chain execution (SCE) solution, which incorporates a WMS to drive multiple efficiencies and improve speed and accuracy in the distribution center. For example, a configurable WMS is vital to managing and automating complex omnichannel order types; i.e., drop- shipping, direct-toconsumer, retail replenishment, and wholesale. A WMS can optimize omnichannel fulfillment by enabling distributors to: ■■Minimize product touches by predetermining carton size and aggregating items on order, or picking directly into shipping containers; ■■Ship efficiently with integrated rate selection and manifesting; ■■Minimize travel around the warehouse;

■■Utilize RF, voice or automated picking technology—increasing order accuracy and inventory visibility to near 100 percent; ■■Reduce out-of-stocks, accurately assign inventory to orders and optimize bin replenishments; ■■Maximize labor productivity while improving customer service metrics; ■■Streamline document interchange through integration across WMS, ERP and EDI. and ■■Excel at drop-shipping. Of course, accelerating time-tovalue and maximizing ROI for a SCE solution takes not just adaptable software, but also aligning it with each distributor’s unique workflows. The SCE vendor, in partnership with the distributor, can determine and implement best practices for system and warehouse configuration. Your company needs to move quickly, manage more channels than ever, and keep up with consumers’ demands of faster, better, and cheaper. This is no easy feat when competitiveness is at an all-time high and margins are razor-thin. What does this mean for suppliers, manufacturers, distributors, and retailers? In many cases, the lines between each are fading. Whether or not your outfit manages one or all of these functions, it is increasingly important that your technology strategy is ready to face these evolving complexities to keep up with consumer behavior. ■

About the Author: Carl Marin is Vice President of sales and marketing at HighJump. He has fulfilled many leadership roles for the company, including International and Domestic Sales, Channel Management, Marketing and Business Development. June 2015 Supply & Demand Chain Executive 29

case study inventory management

Right-Sizing Inventory at Metro-North Railroad

Forecasting intermittent demand helps get inventory from Point A to Point B so commuters can move from Point A to Point B By Carrie Mantey

etro-North Railroad serves some 7 million passengers per month and maintains a substantial inventory of parts to achieve high levels of customer service. It is the responsibility of Rich Price, chief material officer for Metro-North, to manage the railroad’s inventory of over 40,000 items, valued at $128 million, with the objective of achieving high service levels with the optimal inventory investment. Price is well-suited to the challenge. Now in his seventh year at MetroNorth, he previously led materials management at New Jersey Transit, where he served for 34 years. “I’ve been around, kicked the tires and know the problems,” says Price. “The biggest challenge to ensuring that we have just enough of the right parts is the intermittency of demand. This is due to long life of our assets, technological changes and the uniqueness of the systems we manage—not only our fleet but the railroad itself, the signal systems, bridges, propulsion and electrical systems, substations and more.” Early in his tenure at Amenia, NYbased Metro-North, Price

30 Supply & Demand Chain Executive June 2015

was tasked with substantially reducing inventory requirements while increasing service. Addressing the challenge of intermittent demand— the highly sporadic, seemingly unforecastable requirement for service parts—proved central to this effort.

The Problem When Price began his employment with Metro-North, “one of the first things that I noticed was that the inventory value was very high and there was a significant amount of inventory. I started looking at the key performance measurement that we focus on in our industry, which is service level.” Service levels are measured by how many items are in inventory divided by the ones that aren’t in inventory, and that percentage is represented in a fill rate and stock-out rate. Price determined that a formal planning process and appropriate software could provide the focus Metro-North needed to right-size inventory: “Supplying and maintaining service parts to keep a fleet running at greater than 98 percent service is a challenge. We needed

a tool to help us ensure that, when demand occurs, we have the capability to provide what’s needed.” Service level at the time was running at 95.9 percent, which Price felt was lower than it should be. To combat the issue, he brought in consultants who revealed that much of the inventory, which represented the most dollars, was just sitting and collecting dust. The plan was to analyze the inventory and implement an approach to “get it back to a sweet spot, getting a proper inventory level and increasing service level at the same time,” says Price. The organization conducted a test to sample the most transacted items— which was around 14,000—and found that a little over 80 percent were consumed intermittently. “Some kinds of demand are predictable. When you own a car, you know you need to change the oil every 5,000 miles or so. That sort of demand pattern is easy to understand and plan for. Intermittent demand is different. For a host of reasons, some months you

case study inventory management

have no usage and, all of a sudden, you have several months where hundreds of items are needed, then maybe two. It becomes very difficult for a traditional modeling method to accurately predict how many items you should put on the shelf. Averaging models really don’t hit it,” according to Price.

The Solution When Metro-North went out to bid, it selected Smart Software for the accuracy and return on investment (ROI), which it estimated to come to an approximate three-year payback. In reality, payback occurred much more quickly, in eight or nine months. The software immediately alerted the company to the fact that certain items that were already scheduled for purchases and shipments were already over-supplied. Metro-North was able to cancel some orders, immediately and directly reducing cash flow for the purchase of inventory. Metro-North Railroad started implementing SmartForecasts from Smart Software in 2011 and went live in 2012. The company uses SmartForecasts, along with its intermittent demand forecasting

and planning solution, as a tool for inventory management and optimization. In addition to its accurate forecasting of inventory and safety stock, the tool rapidly generates tens of thousands of possible scenarios of future demand sequences and cumulative demand values over an item’s lead time. These scenarios are statistically similar to the item’s observed data and capture the relevant details of intermittent

demand without relying on the assumptions commonly made about the nature of demand distributions by traditional forecasting methods. “The purpose was to right-size the inventory and get ourselves to the point where the stuff that is critical is on the shelf. We needed to project our future needs and, if we had excess, start clearing the shelves so we could free up that valuable space.” According to Price, with the help of Smart Software, “That is just what we did.” SmartForecasts “helped us in a number of ways, but the most important one was giving us a clear roadmap so that we could make sure we had the items that we needed. At the same time, it helped us identify the items that were way overstocked, so we could wind back our replenishments that were previously planned,” says Price. “Smart Software is the only one out there that I know of that licked intermittent demand modeling. Without it, I think we would have seen our inventory levels continue to grow without comparable service gain.” ■

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June 2015 Supply & Demand Chain Executive 31

best practice demand-driven consumer goods

Think Your Business from the Outside In Understand what the market wants and how youâ&#x20AC;&#x2122;ll satisfy it By Karin L. Bursa

or many consumer goods (CG) companies, â&#x20AC;&#x153;becoming demand-drivenâ&#x20AC;? requires a significant break from the past. The organization must leave behind its legacy processes and embrace a new way of approaching the supply chain. The first questions to be answered are: What does it mean to be demand-driven, and what are the benefits to our organization? Being demand-driven, in its most basic form, means thinking about your business from the outside in, understanding what the market wants and determining how you will satisfy that demand. As simple as this may sound, it can be a difficult concept to execute. Decades of manufacturingas-usual and pushing products to market has engrained our attitude toward efficiency and output. All we care about is how much product can we produce and how efficiently can we bring that product to market? Being demand-driven means figuring out how to accurately perceive and satisfy the demand that exists, using all available resources, products, production capacity, and our distribution network. Here the market pulls goods from CG manufacturers. 32 Supply & Demand Chain Executive June 2015

Impact on Products The pace of new product introductions (NPIs) in CG places pressure on supply chain organizations to collaborate with sales, marketing, finance, operations, etc. to develop an accurate plan that ensures the right product arrives at the right place for the right price at the right time. The shift to a demand-driven philosophy impacts the consumer goods product portfolio. For example, a traditional inside-out plan would

look at a portfolio of 14 product families and develop a plan to push these out to the market. In a demanddriven organization, we first take a look at how many product families the market can absorb, and which products will sell at quantities that are profitable. This approach could drive the 14 product families initially planned down to 12 or 11, based on what the market can absorb.

Impact on Customers Consumer goods companies often look at customer-specific demand (for example a retailer) instead of demand in aggregate. To become demanddriven requires the ability to segment customers, know which 10 or 20 customers contribute the most to our bottom line, and ensure we can satisfy their needs. This information lets us

best practice demand-driven consumer goods develop a plan that meets the service level agreements in place.

Impact on Channels Consumers today are buying product through multiple channels, from retail to wholesale to online and direct from the manufacturer. Both the mix of channels and the capabilities to serve the channels profitably are critical to success. As channel complexity grows it is important to look at the demand for each product through each channel, as opposed to determining demand for each independently. We must develop the demand-driven capability to slice and dice and evaluate based on more than just a volumetric or financial measure.

I Know My Demand, Now What? When we understand demand for a period of time, we can take two key steps: 1) Determine if the demand is being realized at the expected pace, or if demand needs to be stimulated. Demand sensing techniques can quickly determine how we are performing against plan and indicate when sales and marketing effort is needed to influence consumer behavior. 2) De-emphasize the outbound point-of-view. Historically, CG companies have thought about planning product from a ship-from point-of-view. Today, demand-driven companies plan based on a ship-to process. Where will customers need our product? For example, selling through a national retail chain with seven distribution centers leads us to look at the demand for each distribution center and the most profitable path to deliver the product there. From this information, we set smarter inventory policies as well as supply and replenishment strategies.

A Change in Philosophy As our business philosophy changes and we start to look at demand from the outside-in, the strategy begins to change. Smaller, more frequent shipments are required for some customers while others may see better results from special pack sizes that facilitate the rapid movement of goods through the distribution center. We see this shift occur often in the apparel and footwear market where each retail location may receive a different assortment of styles, sizes, colors, etc. To help facilitate this demand, special packs and labeling can help facilitate the distribution. In another example, retailers such as home improvement centers may require unique packaging or the inclusion of accessories that help differentiate a product in its store from the same product in another. For CG manufacturers this means holding two distinct inventories for very similar products. As a consumer goods company, you need to evaluate complex inventory investments based on the pull through of that particular customer. You need to compare multiple scenarios that will allow you to bring together your strategic goal of being demand-driven.

approach to evaluating demand and the products required to satisfy that demand, accuracy increases. This has a waterfall effect across the supply chain. With a better predictor of demand you can better align inventory and supply, position inventory accurately, and utilize your production and distribution assets more effectively. Another area where CG companies are achieving significant gains is in customer service. With clear visibility to specific customer level demand for a product, you are able to more profitably meet their needs when and where they want it. New products create risk for consumer goods companies and can disrupt the production and distribution of well-established products. Becoming demand-driven allows companies to knock down organizational silos and create an integrated planning platform that ensures all teams involved are aligned and working toward the same goal â&#x20AC;&#x201C; the companyâ&#x20AC;&#x2122;s ability to profitably satisfy demand. The road to become demanddriven is not an overnight excursion; this journey requires a change in mindset, a change in process and an excellent technology foundation to make it happen. â&#x2013;

The Proof is in the Pudding Demand-driven organizations receive significant benefits. While there may be greater inventory stratification, inventory significantly lowers across the network, including obsolete inventory. Lower inventory investment allows CG companies to turn around and reinvest the savings into NPIs and expanding into new markets. Demand-driven organizations also see an improvement in forecast accuracy. With a more focused

About the Author:

Karin L. Bursa is a vice president at Logility, a provider of collaborative supply chain management and retail optimization solutions. She has more than 25 years of experience in the development, support and marketing of software solutions to improve and automate enterprise-wide operations. You can follow her industry insights at www.logility.com. June 2015 Supply & Demand Chain Executive 33

industry focus CPG

Manage What You

Can’t See How to stay competitive in today’s demand-driven consumer goods supply chain By Rich Becks

onsumer goods organizations have spent decades applying Lean management techniques and principles to every facet of their global supply chains. But today, they find themselves squeezed tighter than ever before by customer expectations for more inexpensive, customized, and rapidly supplied goods. To stay competitive, consumer goods companies are seeking new customers in new markets, and to cater to them, they are providing a dizzying array of local product variations, using a complex network of outsourced manufacturing partners. To compound the challenge, customers are now demanding smaller lot sizes and more frequent deliveries through third-party logistics providers (3PLs). These consumerdriven requirements have introduced an unprecedented level of complexity into the production and distribution of their products. Indeed, the 2015 MHI Annual Industry Report indicates that the top concerns of supply chain professionals are: customer pricing pressure (51 percent), demands for faster response times (50 percent), and increased customer service expectations (49 percent).[1] Smart companies are responding to these challenges by building collaborative 34 Supply & Demand Chain Executive June 2015

business networks that merge visibility, collaboration and process execution. Using cloud computing platforms powered by advanced analytics enables these informationrich networks to connect suppliers to manufacturing partners to customers by simplifying process orchestration, planning, and risk management. In addition to increased complexity, globalization has caused inventory levels to soar while reducing margins and much-needed working capital. Companies are looking for ways to bridge internal silos while optimizing supply and improving customer satisfaction. To build in agility and ensure that supply and demand are in better alignment, there are four supply chain challenges that today’s leading consumer goods companies must address: Lack of End-to-End Visibility and Collaboration Actionable, real-time supply chain

information is hard to come by in today’s highly volatile, complex, and outsourced consumer goods marketplace. Multi-tier visibility can address this challenge by making forecasts and orders visible to all parties sooner and allowing bidirectional collaboration between partners. Having data on actual shipments and receipts as they happen provides insight into stockin-channel inventory and point of sale (POS) trends, which gives brand owners the ability to proactively manage volatile demand. Inability to Link Product Design, Manufacturing, and Fulﬁllment Successful consumer goods companies are increasingly competing on new product innovation and customer service through supply chain segmentation. Close coordination with contract manufacturing partners during a new product launch around formulations, product specifications, and POS packaging can make or break

industry focus CPG market acceptance. Conﬂicting Performance Indicators Weaken Supply Chain Management Business intelligence is not just fancy charts and graphs, but rather, it is actionable insight gained by integrating data across the entire value chain to understand how demand patterns form, operations respond, and the customer experiences the buying process. To make the most of this insight, key players in the supply chain must be aligned in terms of what is measured, the tools they’re using, and how to interpret the information. A shared planning and execution process layer combined with the right business analytics gets everyone in sync and is the key to effective supply chain orchestration and risk management.

Lack of Real-Time Data Leads to Poorly Coordinated Planning Committing with confidence to customer orders requires demand planning and collaboration across multiple tiers of the supply chain to ensure that the right materials are delivered to the right locations at the right times. Nevertheless, many companies are still unable to synchronize supply and demand because they do not have access to timely, accurate data from all supply chain participants. Too often, they are forced into “dumpster diving” within online portals lacking real-time data and visibility into tasks and activities.

Collaborative Frameworks are Smarter, Faster, and More Competitive When it comes down to it, the

four challenges can all be traced back to the same core need for improved visibility and connectivity to get everyone on the same page, extending from multiple tiers of suppliers, up through multiple customer fulfillment channels. So how do you bring all of these parties together? The answer is simple: a shared, information-based business network. A business network can provide true multi-tier process orchestration through collaborative planning and execution that empowers network participants, including retailers, distributors, contract manufacturers (CMs), and component suppliers, to make better business decisions to serve the consumer. Building such a framework empowers businesses to leverage the collective brainpower of

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36 Supply & Demand Chain Executive June 2015

industry focus CPG their partners, including CMs, by continuously responding to changes in supply, demand, and new product launches. Once connected to the network, businesses are better equipped to handle timely, seamless transactions, and networkwide planning and response across enterprises. This close level of connectivity also makes brand owners and their CM partners leaner and more responsive. Business networks are changing the ways that consumer goods companies launch new products and use supply chain information to separate their products and services from the rest of the pack in volatile markets. Today, successful companies are reaching beyond their four walls of the enterprise and are integrating cloudbased business network technologies

to create value chains that serve customers better while lowering costs and reducing complexity. As a result, the end of enterprise-centric planning and fulfilment isolation is foreseeable. The MHI report shows that more than 35 percent of the industry leaders surveyed are maturing into significant adoption of inventory and network optimization tools.[2] These early adopters are better positioned to keep up with customer expectations and the rapid pace of innovation needed to win market share. Establishing a marked

competitive advantage will create a capability gap that will quickly become too wide for companies with more traditional supply chains to close. As forward-thinking companies leverage frameworks that provide deep, collaborative connectivity, they will make the previously invisible visible and the lean even leaner, and will begin to define the new age of consumer goods business networks. ■ [1] Deloitte and MHI, “The 2015 MHI Annual Industry Report: Supply chain innovation – Making the impossible possible,” p. 5, http://www.businesswire.com/news/home/20150325005023/ en/Traditional-Supply-Chains-Undergo-RadicalTransformation-2025#.VTfPXk1JCpp. [2] Ibid. p. 9.

About the Author: Rich Becks is the General Manager, Industry Value Chains at E2open, delivering strategic, cloud-based solutions for brand owners managing business across global trading partner networks. He has more than 27 years of experience in materials and supply chain management, working for large multinational data storage companies. While at Seagate Technology, he implemented many of E2open’s software-as-a-service solutions, helping Seagate to become known as an industry leader in supply chain practices.

June 2015 Supply & Demand Chain Executive 37

industry focus overcoming disruption

How to Overcome

the ‘Blind Side’ Challenge Running Blind: The Missing Supply Chain Answers

From not really knowing where cargo is to accurately predicting production and port turnaround cycles, the blind spots in supply chains are bigger than we think By Tyson Leal

hat is impacting the bottom line of every major retailer and manufacturer in the world? Supply chain disruptions, which are inherently resulting in the operational “blind side” across industries. Among publicly traded companies, this challenge negatively affects shareholder value in excess of 7 percent annually, and requires months to rebound to original levels (Building Resilience in Supply Chains—World Economic Forum, 38 Supply & Demand Chain Executive June 2015

January 2013). The threat of disruption in the theater of global operations is growing more volatile and less forgiving year over year. For supply chain leaders, the need to analyze and respond to these detrimental occurrences has been replaced with a predict-plan-monitorand-execute discipline in advance of critical events. It’s an attempt to eliminate blind side disruptions by getting “left” of them on the event timeline to mitigate or eliminate risk or expose opportunities requires a non-traditional approach.

Today’s systems of record and execution in the supply chain arena have been oriented to the enterprise and optimized for basic processes. I often use a sports analogy when referring to these systems of record/execution as operational blocking and tackling. To win in the future, supply chain executives will need to ask themselves, “Will the fundamentals of blocking and tackling ensure my growth aspirations, or will I need to do more?” According to Gartner, “Revolutionary changes are happening…as industries move from a product focus to services and solutions. The winners will manage an entire value chain ecosystem that provides complete solutions to customers.” (Innovation Insight: Original Solution Orchestrators Extend Innovation in the Demand-Driven Supply Chain—Gartner, November, 2012). In short, Gartner asserts that over time, companies will fall into three categories: survivors who will innovate and manage their own

The problem with ERP isn’t the box it comes in. It’s the box it puts you in.

The old-fashioned software-based approach to supply chain management definitely has its limits. But what‘s really unfortunate is the limit it puts on your company‘s global trading potential. At GT Nexus, we set you free by putting your entire supply chain in the cloud. ERP is slow; the cloud is fast. ERP is expensive; the cloud is cost-efficient. ERP leaves you talking to yourself; the cloud gets you talking with your whole network. On-demand and in real time, you‘ll be able to respond to every opportunity and every challenge with the kind of speed and precision you‘ve never known before. It all translates into higher profits. Isn‘t it time you started thinking outside the box? Get your supply chain in the cloud.

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industry focus overcoming disruption processes, winners who will innovate and servitize their best in-class capabilities, and losers who will continue to block and tackle. To do a quick assessment of where your organization is on this scale today, ask these four simple questions of your team. Measure how long it takes to answer, and the accuracy of the information provided: 1. Where is this particular shipment? 2. When will it actually arrive? 3. How certain are you? 4. Could it have been delivered more quickly without an increase in cost? If questions 1-3 cannot be answered in less than 10 seconds and No. 4 in less than 60 seconds, there is work to be done. Winning companies are attempting to understand how to

remove the inefficiencies and harvest the real-time value locked in their supply chain. Many are seeking help from technology organizations to support these efforts. According to The Smarter Supply Chain of the Future study published by IBM, 70 percent of supply chain leaders and managers report that lack of visibility is their biggest challenge. From not really knowing where cargo actually is in-transit to accurately predicting production and port turnaround cycles, the blind spots in supply chains are bigger than most would ever understand.

The Inconvenient Truth: Traditional Technology Approaches Fall Short Traditional technologies in the supply chain space often rely on

Time Is Always Critical When you need a provider that values your time as much as you do, turn to Crane Worldwide Logistics. We provide complete visibility to your supply chain solutions, so you can make timely business decisions.

the data and information of their extended networks to deliver the â&#x20AC;&#x153;end-to-endâ&#x20AC;? picture and the transactional insights along the way at a drudgingly slow, industry-driven velocity. The unfortunate truth is, most organizations have found themselves at the mercy of a tangled, latent and inaccurate data network, where service providers self-report information and industry service-level agreements have allowed them to do so 24-36 hours after each event in the process occurs. A recent study produced by TransVoyant for a Fortune 500 hi-tech OEM revealed that a best in class EDI-based network slowed the end-to-end order lifecycle for finished goods shipped globally via airfreight an average of 5 days. This was due to insufficient data velocity and quality, which delayed downstream process triggers. In this model, even if you are best in class, you will obtain 70 percent of the information needed to drive efficient decisions at a velocity that is at minimum 50 percent slower than advanced alternative approachesâ&#x20AC;&#x201C; falling far short of what is needed to unlock the value held hostage in the supply chain.

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A small but growing list of supply chain executives have begun to challenge the status quo of traditional supply chain technologies and press organizations large and small to develop and innovate the solutions of tomorrow. The members of this elite list are often referred to as visionaries. These visionary players are not focused on better blocking and tackling but determined to force the industry to look past optimized processes and deliver competitive advantages.

industry focus overcoming disruption I have had the opportunity to sit in on visionary discussions within multiple verticals–from hi-tech to pharmaceuticals to retailers–and found that leaders from each have a common interest…time. Every hour, day or week of delay is extremely expensive. Even more costly to these organizations is the “fluff” that is built into cycle times due to low quality, self-reported and latent information that drastically inhibits efficiency. Delivering time, which reduces decision windows and fluff, is more readily available than many realize. The challenge, however, is that it takes a very non-traditional approach to do so.

The Live Information Model: Retiring EDI and Removing Latency We could talk all day about 850s, 856s, 214s, 315s or rated 810s, but we would certainly not teach an astute logistics or supply chain executive anything. I also understand that not all EDI signals that power most global organizations can be retired, but I will argue those that attempt to provide answers to questions stated in the “Running Blind” section of this article can be. What many shippers (e.g., beneficial cargo owners or BCOs) do not realize is that it does not take EDI signals to communicate these precious events and it certainly does not require BCOs to wait 24-36 hours to receive them. I liken this to reading yesterday’s news–not very helpful. BCOs should know that it does not require EDI signals to: ■■share shipping notifications, ■■monitor origin terrestrial milestones, ■■confirm booking processes, ■■track departure notifications, ■■track in-transit performance to plan,

■■provide notifications to customs brokers, ■■track arrival notifications, ■■track progress with customs entities, ■■provide turnovers to truckers/onforwarders, ■■track terrestrial hub or final mile deliveries, or ■■provide forward visibility. To do this requires technology that is geospatially oriented and optimized for speed. Additionally, the technology must be capable of colliding static enterprise data, live risk data, and predictive analytics, and correlating these elements in real time to deliver complete transparency and actionable intelligence. The good news is, if you don’t want to waste tens of millions of dollars

attempting to build this on your own, analytics as a service and web-based applications have been built to do this very thing–giving you insights into your blind side and delivering time back to forward-thinking companies. ■

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June 2015 Supply & Demand Chain Executive 41

best practice change management

360Â°

Change Management

It takes commitment from the top-floor to the shop-floor to get it right By Kelly Kuchinski

he manufacturing industry is complexâ&#x20AC;&#x201D;to say the leastâ&#x20AC;&#x201D; thanks to thousands of moving parts and a wide spectrum of issues to address on a regular basis. A big challenge for most manufacturers is managing a global perspective on regulations, sourcing and outsourcing, and competition. The 2009 recession increased hardships for organizations, forcing many executives to review their existing processes and discover ways to both increase productivity and reduce cost. This opened the door for 42 Supply & Demand Chain Executive June 2015

manufacturers to implement a variety of changes throughout their organizations. However, a 2014 PMI study1 indicated that 82 percent of companies do not consider themselves to be highly-effective at managing change. They also found that nearly 15 percent of every dollar spent on strategic initiatives is lost due to poor project performance. These results can be directly traced back to insufficient communications and a lack of leadership. To implement effective change management programs, organizations

need a structured process that will coordinate people, systems and technology so that workflows are controlled and performed differently. Sustaining lasting change requires management and employees alike to comply with the change requirements and successfully meet company objectives.

Getting Started Teams: The first step is assembling a team of employees from all levels of the company. One critical factor to successful change management

best practice change management is having an executive sponsor who engages employees across the enterprise, eliminating bottlenecks in the process. Managers of specific teams affected by the change should also be involved to identify critical needs and enforce the change management with direct reports. The most successful projects include employees from all different levels of the organization, which enables the team to examine and take into account a variety of viewpoints. Plus, employees typically feel more empowered when they contributed to the change. Areas of change: The next step is to identify areas and processes in need of improvement. Start by looking at the five-year plan to determine if any changes are needed before the deadline approaches. The five-year plan also will determine what resources, facilities, equipment, suppliers and contract vendors are needed. Identify weaknesses with a supplier early on and determine if an improvement in the quality process can be made at their site. This can be traced back to company objectives as well. For example, one company was trying to reduce the backorders and late customer deliveries. The initial thought was that production was to blame for the delays, but after further investigation they found that the root cause was actually the receiving process at the warehouse. By automating this process and prioritizing incoming material, the company was able to reduce production delays by over 42 percent and backorders by 46 percent. Buy-in at all levels: Since most employees outside of the C-suite are not too concerned with financial ROI, managers need to show them how the new process and procedures will benefit them with greater efficiency and no added complexity.

For example, when rolling out a new workflow system, piloting the system for one process shows users across the organization how the process is simplified and the benefit of other tools, such as analytics dashboards, to view issues and trends earlier in the process. Select an IT system that is easy-to-use, otherwise users will avoid it and return to manual processes. Measuring success: Now you need to identify milestones and metrics around each change to track progress and success of the program. If you can’t measure it, you can’t manage it. Building out key performance indicators (KPIs) and tracking them at different intervals provides enterprises with measures of success for the team and a chance to make modifications before they get too far down the project path. Analytics tools are helpful here because they

provide the overview that enables management to identify issues and trends earlier and in-turn make necessary adjustments to resolve the concerns before they affect the bottom line. Implementing change within an organization is difficult. If the new process or software is too difficult to use, employees will avoid processing changes in the system which could result in product or compliance issues. That’s why it’s imperative that change management extend throughout the organization, from the boardroom to the shop floor. ■ (1 – Enabling Organizational Change through Strategic Initiatives, Project management Institute (PMI), March 2014)

Kelly Kuchinski is Director of Product Marketing at Sparta Systems

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June 2015 Supply & Demand Chain Executive 43

on the floor slotting and racking

Playing the Slots: How to Determine a Winning Strategy

These profiling and slotting strategies can streamline the flow, and cut costs in distribution centers and warehouses By Carrie Mantey

lotting is the process of determining the best storage location for each stock-keeping unit (SKU) in a distribution center (DC) or warehouse, or in layperson’s terms, pinning down the items that are touched most often (not the total quantity that is picked), and making them as accessible as possible. In theory, the SKUs that must be physically touched most frequently get the best seats in the house. When optimizing warehouse or DC operations, slotting is considered lowhanging fruit. Since the more time an employee spends locating or picking a product, the more money that drains from the bottom line, it’s a boon when it comes to cutting costs. “More than half the labor in a DC is focused on order selection, so employing smart racking and slotting techniques is a way to target a highcost activity as a means for reducing costs by increasing efficiencies,” according to Dan Basmajian, CEO of Optricity. “Technologies that optimize rack layouts (that is, profiling), and then sequence and group product can create a beneficial impact by cutting the cost of the selection operation. “Furthermore, nobody wants to waste space inside a slot, so it’s important to try to fill the slot to capacity every time, according to the rules and targeted number of days of product. By employing good slotting techniques, an operation can reduce travel distance by sequencing items 44 Supply & Demand Chain Executive June 2015

Photo credit: Manhattan Associates

based on velocities and reduce the time to build stable outbound pallets by sequencing based on case density (which also cuts down on product damage in transit). These are just a couple of examples. If an operation pays the most attention to the biggest expense (usually selection), then the result is the biggest opportunity to cut the most dollars.”

Profiling—Simple and Complex Profiling is the other side of the slotting coin, and another facet to use when optimizing warehouse and DC picking operations. Basmajian notes, “Profiling considers the expected SKU mix, dimensional information (including TI HI values), outbound movement and volumes, and the target amount of product to keep in the pick location.” TI HI means the number of boxes stored on a layer or

tier (TI) and the number of layers high that they are going to be stacked on the pallet (HI). While profiling may appear relatively simple, putting all of the criteria together and assessing it can be daunting. Fortunately, software exists to process the data and ranges in simplicity from Excel spreadsheets to advanced applications. Basmajian warns, however, that warehouses and DCs must evaluate the software to ensure that it can achieve the necessary complexity that is sought. “As an example, consider the ergonomics of heavy items and where they are placed—ideally at chest height—or breakable items for which a tool must be able to handle exceptions like putting glass at chest height for safety and prevention of product breakage. The optimal solution is subject to a certain set

on the floor slotting and racking of goals and constraints related to product characteristics (like weight and fragility). It’s challenging for spreadsheets to handle this problem because they only consider two dimensions. Specialized software can handle any number of goals and constraints, which allows a useful and usable solution. Slotting is the implementation process that goes with the specialized software.”

Slotting and Sequencing “Once the profiling piece is complete, it’s time to consider all the goals and constraints associated with the pick line, such as groupings— for example, groupings based on flammable items that require sprinklers, groupings based on storefriendly deliveries, groupings that are required to have separate temperature control or explosive safe rooms, etc.—and sequencing, for efficiency and ergonomic picking,” Basmajian continues. “Specialized profiling and slotting software handles all the side conditions or constraints that the real world imposes on this problem; a simple solution doesn’t fit the realworld requirements.” “Pick line balancing, family grouping and like item separation are some of the components necessary to arrive at the most

sensible organization,” concurs Peter Schnorbach, senior director of product management at Manhattan Associates. “Slotting technology considers these factors and delivers the most efficient arrangement,” thereby decreasing strain on travel and replenishment. Different companies have distinct slotting strategies based on their line balancing needs, and product alignments and segregations. The reason that slotting is so successful is that it manages all possible scenarios of how a DC could be structured. According to Schnorbach, one scenario is, “with the ability to look at the historical movement of inventory, slotting can assess the optimal location to put the products in the warehouse. This location is determined through slotting’s intricate algorithms, which place inventory based on reducing travel time and replenishment cost. Putting it simply, slotting doesn’t just allow you to place products anywhere you want. It takes a look at the greater picture and decides the best location.”

Trending: What’s Next?

Where is slotting processes and software going? “In the last few years, there has been a very dramatic shift in the way companies do business,” laments Schnorbach. “Warehouses and DCs need to be organized in terms of how people buy. New products are being introduced constantly, with new inventory being brought in throughout the month, meaning DCs are slotted four or five times a month. In addition, a company may have multiple Photo credit: Manhattan Associates

What Optimized Slotting Can Achieve in a Warehouse or DC ■■Minimized travel, picking and replenishment costs. ■■Increased productivity. ■■Less operating and capital expenditure costs. ■■Improved pick line efficiency. ■■Reduced inventory damage. ■■Better overall order quality. ■■Optimized storage and retrieval. ■■Increased SKU capacity. ■■Improved warehouse throughput capacity (lines per hour). ■■Less employee picking injuries. ■■Better employee safety, inventory storage and store-friendly pallets. warehouse locations, in which case they need a robust solution in all locations to best determine singleitem slotting and real-time slotting. If a retailer has hundreds of thousands of items and SKUs, it takes a huge amount of processing power to optimize that.” Basmajian thinks that dynamic slotting, a process by which the system can set up new or temporary slots for SKUs, and simulation are both going to affect the DC and warehouse market in a big way. “Dynamic slotting allows an operation more control for understanding the requirements for a particular day; that is, dynamic slotting allows one to forecast how many temporary locations make sense for a period of time in order to reduce stock-outs. Furthermore, simulation is critical to making changes to slotting or racking. Re-racking is very expensive, and simulation allows one to test the impact and understand the return on investment before investing the labor or capital expense. Simulation cuts the risk and provides solution alternatives for evaluation.” ■ June 2015 Supply & Demand Chain Executive 45

best practice supplier risk management

SUPPLY

AGREEMENTS A contractual approach to supplier risk management By Sam Miller

uppliers in the chain of distribution often deal with two competing customer demands: just-in-time delivery and lower pricing. Accessing lower costs means buying in bulk, yet customers want product only as and when they need it and at the best possible price. Customers don’t want extended inventory commitments on their books, yet want pricing as if they had booked long-term commitments. To service these demands, suppliers may book bulk inventory commitments with their upstream suppliers or manufacturers, and attempt to manage their customer’s inventory requirements. This carries the risk, particularly in a falling market, of customers sourcing lower priced product at spot prices, and leaving suppliers with expensive product on hand or on order. Even large suppliers in the chain of distribution are wary of, or are unable to negotiate terms of purchase with their upstream manufacturers or suppliers, for example steel mills or other raw material producers, and risk being “stuck” with product. 46 Supply & Demand Chain Executive June 2015

Managing this risk can be tricky. Getting an extended supply contract is usually a major achievement and the lifeblood of any business.

terms of purchase. These often comprise term supply arrangements, with little or any obligations on the customer. While the supplier is obligated to sell at a “It is possible to effectively manage your fixed or determinable inventory and supply risks contractually price, there is rarely any purchase without losing the business.” commitment. A Suppliers are reluctant, for obvious commitment is only really made reasons, to push back on a large against a specific purchase order or, customer to address this risk. even later, inventory release orders, Yet, carefully crafting the leaving the supplier to carry the risk contractual terms of supply can of any inventory not purchased. help to effectively manage this risk. In managing this risk, the fine While lead in-house counsel to print can be key. I have a major North American steel seen the meaning of a service center group, one of my few paragraphs in a primary objectives was meeting supply agreement customer expectations while hotly litigated, with concurrently ensuring that inventory worth my client was not left millions of dollars commercially or legally at stake. Having exposed. language in the There is a fine art to agreement that getting this right. I find, pinpoints the almost without exception, supplier’s concerns that large and established may not only be very downstream customers, helpful in the event particularly industrials and of a dispute but may OEMs insist on using their also help avoid one.

best practice supplier risk management It can be very helpful to get on the same page early in the process by contractually delineating forecasting, reporting and inventory management expectations and responsibilities. Here are a few observations for suppliers from my experience, which may assist in contractually mitigating risk in supply agreements. Forecasts. Agree to the need, form and management of regular inventory requirements forecasts. Even though forecasts are usually non-binding commitments, the customer may expect you to hold minimum inventory levels to service its ‘just-intime’ needs. Meetings. Provisions for when inventory levels will be reviewed and by whom, and for joint “monitoring,” can all be helpful. Regular discussion, forecasts and aged-inventory reports review and other “customer buy-

ins” to your inventory management process will help regulate disposal of inventory, increase efficiency and may help with any inventory-level disputes down the line. Record the conclusions of each meeting.

Customer Buy-in. Use the supply agreement to record the parties’ objectives, even if couched in loose terms, for instance, the mutual objectives of ensuring continuous and uninterrupted supply and securing

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June 2015 Supply & Demand Chain Executive 47

best practice supplier risk management the inventory investment you have undertaken on the customer’s behalf. Writing in language that says that the customer would make every effort (if not commit) to issuing product releases in accordance with the forecasts, may also assist. Agree to Holding Periods. If applicable, you may want to include the period that you agree to hold inventory for, after which you would be free to sell to third parties. Slow-moving Inventory. If you are holding inventory that is not being bought in accordance with the original forecast, asking the customer to agree to help you move that inventory at the get-go can help avoid disputes down the line. Again, writing in regular meetings and aged-inventory review can be helpful. Customer Commitment. A primary point of risk mitigation is not over-extending your buying commitments to your upstream suppliers. A firm customer commitment for a minimum level of inventory tied into either or both of your customer’s minimum

requirements and your own purchase lead times, for example, “90 days’ of inventory commitment,” can be very helpful. Forecasts Change. This even happens on a daily basis, so you may want to tie your customer’s commitment to specific inventory forecasts, for example as it appeared at the date of your order from your upstream supplier. I have seen differing interpretations of how commitments are interpreted lead to extensive litigation, even over a few words in a contract. Termination Provisions. Customers want the right to walk at any time, particularly in falling markets. Termination “for convenience” provisions need not be struck out, but instead drafted round with a minimum inventory commitment on termination to cover your position. This could even be drafted as limited to any inventory not reasonably capable of being sold elsewhere. This is a good example of finding the right, minimally invasive drafting to please both parties. It also applies on expiry of the term of the

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48 Supply & Demand Chain Executive June 2015

supply agreement: you may want a run-off period or agree that your customer remains committed to a minimum level of inventory. Pass Through Price Hikes. Transparent and fixed or determinable pricing is key for customers in term supply agreements. If the supplier you are buying from implements a surcharge or declares force majeure, you would want to include “pass-through provisions” passing both unilateral price hikes or surcharges and the risk of supply stoppages on to your customer. These are just a few examples of how a well-drafted supply agreement can help you mitigate inventory and price risk, without over-lawyering. It is a fine art to getting this right and requires knowledge not only of the legal implications, but also the commercial practicalities in managing inventory. It is indeed possible to effectively manage your inventory and supply risks contractually without losing the business, and good legal advice can go a long way to achieving this in your specific supply circumstances. ■

About the Author: Sam Miller is a corporate and commercial transactional attorney, and is a member of Dykema Gossett LLP’s corporate finance team, based in its Los Angeles office. Before returning to private practice, Miller established and led the legal department of Kloeckner Metals, the third largest metals service center in North America, comprising Namasco Corp., Macsteel Service Centers USA and other subsidiaries. He also is founder of the pioneering online legal advice platform, http://svperbar.com, which uses technology to make lawyers, legal advice and pricing more accessible, transparent and efficient, with an emphasis on standardizing legal advice and providing access to flat-fee legal products.

best practice procurement

Procurement in Private

Private equity firms need an adaptable approach when bundling spend By Steven Lutzer

rivate equity firms are increasingly developing procurement strategies to aggregate spend across their portfolio companies. These private equity companies are under tremendous pressure to generate good returns on their holdings and this often accelerates the need to rapidly achieve savings in procurement. A financial services corporation may have very decentralized spend, but the core business is essentially similar. The portfolio companies within a private equity firm’s holdings can be quite varied and dissimilar. Because some companies get sold and others get acquired, the portfolio at a private equity firm can change over time. Therefore, these private equity companies need a highly adaptable approach to bundling spend that can be used even if their holdings change. Both internal and external obstacles can make spend aggregation challenging. The center-led procurement team at a private equity firm has to court both internal customers (portfolio company stakeholders) and external stakeholders (suppliers).

Vendor Engagement Vendors may be quite resistant to any initiatives on the part of the private equity firm to bundle spend. Often, the underlying questions from suppliers are the following: ■■Do you have control over the operational management of these portfolio companies? ■■Does the company have the 50 Supply & Demand Chain Executive June 2015

ability to compel the companies to use blanket agreements? ■■Can the center-led team actively promote the use of blanket agreements? Vendors often get fixated on issues of ownership when assessing whether to willingly participate in strategic sourcing initiatives across diverse companies. It is often the belief of vendors that true influence over spend can be achieved only if the equity company has complete ownership. In a world of gray in which the portfolio companies may not be completely owned by the equity company, suppliers are often doubtful about the true influence that the private equity firm can exert on procurement across the portfolio companies. Suppliers need to be convinced that the private equity company gives more than lip service to bundling spend at the diverse holdings of companies. In addition, these vendors often want clear evidence that lower pricing enables them to capture incremental business that they do not currently have. Their concern is that more favorable terms across all of the companies may erode some

of the more profitable contracts the vendors may have with some of these portfolio companies. The vendor is more likely to consider participating in these strategic sourcing initiatives if the private equity firm actively facilitates conversations and dialog with key stakeholders at the portfolio companies.

Engaging Management at the Portfolio Companies The portfolio companies within a private equity firm may seek to retain autonomy over operational control, which can often include calling the shots in procurement. A partial ownership stake of a company does not equate to automatic or actual control over the daily operations of the business. A private equity company needs to create a well-planned roadmap to bundling spend with its portfolio companies. There needs to be a systematic evaluation of which model and approach can be most effective. The roadmap should include: ■■Opt-in or directed model. The most important decision is whether the cultural landscape is compatible with an opt-in or

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best practice procurement directed model. In the opt-in model, participation in strategic sourcing is completely voluntary. With a directed model, however, the portfolio companies are compelled to participate in the strategic sourcing. An opt-in model is sometimes selected if the portfolio companies are quite dissimilar. ■■An aggregate direct materials or indirect spend approach. If the portfolio companies have clear clusters within a common industry, then there is a possibility of bundling direct materials. If the companies are quite dissimilar, then the centerled team may find it viable to aggregate spend only on the indirect side. ■■Spend analytics. An initial spend analysis need to be completed in order to assess which categories have the greatest potential for bundling. It can be very important to use these analytics when making the case of bundling spend to the companies. ■■Stakeholder engagement. Stakeholders need to be involved at the beginning of any strategic sourcing initiative. If internal stakeholders believe that they had input in the blanket agreements, they are far more likely to be on board once these agreements are in place. ■■Compelling deals with a focus on total value. Double-digit savings

often get the attention of portfolio companies. However, total value needs to be considered as well. If high vendor performance and ontime delivery can be melded with better pricing, stakeholders may find the deal quite compelling. Even if there are clusters of a similar industry with common direct material category spend, there may still be instances in which supplier or category consolidation does not make sense for a portfolio company. This can be particularly true if changing the raw materials creates significant retooling or internal costs for a specific company’s manufacturing process.

Spend Categories to Launch On the indirect procurement spend, the following categories are often the ones more easily bundled: Corporate card, travel agencies, office supplies, voice and data spend, and car rental, airline and hotels.

Strategic Sourcing Strategies It is often important to determine which segment of a vendor’s business is low margin vs. high margin. When negotiating with airlines, the airlines are more likely to discount business class and first class. The procurement leader needs to sub-bundle spend according to the class of service. Another key strategy is not to overcommit too far out into a contract. Sometimes the spend analytics may be imperfect. For example, if a center-led team

overcommits on the number of lines or hard dollar commitments for voice and data spend, they may find limited flexibility later on in the contract. For voice and data spend, a key question often centers on the ability to pool minutes or data spend. When negotiating a bundled spend for office supplies, the leadership needs to determine whether it has a core list of items for the portfolio companies or a more flexible program for the portfolio companies. Office supply vendors often are not willing to negotiate discounts for high-volume, low- margin items. A procurement executive needs to assess where the opportunities are for discounts. In summary, center-led procurement and bundling spend is gaining momentum for private equity companies. The center-led team at the private equity company has to carefully construct compelling reasons for vendors and portfolio companies to join willingly on the path of bundling spend. ■ About the Author: Steven Lutzer is the president of Lutzer Global Inc., an executive search firm that specializes in procurement, strategic sourcing and supply chain management. Lutzer had a 20-plus year career in supply chain management and global sourcing before founding Lutzer Global. For more information, please visit www.lutzerglobal.com.

advertiser index Amber Road............................................... 53

Fortna.......................................................... 36

Optricity...................................................... 20

Basware Inc.............................................. 27

G.T. Nexus.................................................. 39

Owens Corning.....................................24-25

C.H. Robinson Worldwide.......................... 2

JVKelly Group, Inc.................................... 31

Saia............................................................... 5

CaseStack Inc........................................... 49

Lennox Industries................................22-23

Solvoyo....................................................... 21

CLX Logistics, LLC..................................... 54

Logility Inc.................................................. 36

Sparta Systems, Inc................................. 48

Crane Worldwide Logistics..................... 40

NeoGrid........................................................ 7

Sprint Nextel Corporation........................ 11

Demand Management Inc....................... 37

Numerex..................................................... 35

Terra Technology...................................... 47

Dispatch Track........................................... 41

Old Dominion Freight Line Inc..... 15, 17, 19

TransVoyant............................................... 43

52 Supply & Demand Chain Executive June 2015

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