Balancing Act
Retailers more than ever are demanding that suppliers ship the right products at the right time so that merchandisers can make optimum use of their shelf space. To be competitive today, the consumer goods manufacturers that stock those shelves must design and operate supply chains that are not only efficient, but flexible.
Henkel Consumer Adhesives, which makes the Duck brand duct tape and hundreds of other products, a year ago began using optimization and analytical software tools from Optiant in order to create improved supply chains that will support Henkel's growth and enable the company to respond more quickly to marketplace changes.
The company, a unit of Germany-based consumer and industrial goods manufacturer The Henkel Group, is using Optiant's PowerChain suite to help make rapid supply chain decisions that Henkel says result in greater efficiencies, cost savings and improved customer service.
The Balance of Power
One application in the suite, Powerchain Inventory, has helped Henkel to balance supply and lead-time uncertainties with demand variability so that it can design flexible supply chains that take advantage of varying market conditions, says Brian Bastock, vice president of supply chain at Henkel.
Powerchain Inventory, which runs on a server, is a decision-support application designed to scientifically configure a set of inventory levels, or help the user decide what inventory levels should be set based on uncertainties in the supply chain. It's based on three sets of data input: supply uncertainty, demand uncertainty and the desired level of service that a company aims to provide to its customers.
Using this data, the program tells Henkel how much inventory it needs to have at a given time. "We saw value in this tool because of our ability to extract data related to supply and demand uncertainties," says Bastock.
He says data is ported to the application from an Oracle data warehouse that receives information each day from a JD Edwards enterprise resource planning (ERP) system. The ERP system includes forecast sales orders, inventory and additional relevant information.
Bastock says the Optiant software is user friendly and provides easy-to-understand graphical images, so users are able to view supply chain "maps" to see how they are structured. The software allows Henkel to perform "what-if" scenarios. For example, the company can plug in numbers for demand for a certain product over a given period of time and the level of service it wants to deliver, then get a figure on how much inventory it will need in order to meet demand.
A Unique Tool
Henkel began working with Optiant about six months before installing the software to make sure the product was a good fit. Bastock says the manufacturer conducted benchmark studies against similar products from other vendors."We found the Optiant tool to be unique and not really having a direct competitor," he says. "Many of the other applications rested on an ERP system and were more planning and execution systems.
We were more interested in a decision support tool that would help us design -- not executive-- a better supply chain." The Powerchain suite is housed
in Henkel's materials planning department, but the product is also used by the strategic sourcing and demand planning departments. "Everyone feeds it with different information," Bastock says.
Although Optiant touts the return on investment enterprises can expect with Powerchain, Bastock says Henkel did not deploy the software based on the anticipated ROI. "Our motivation for purchasing it was to make better inventory management and supply chain management decisions, and to
gain more control over how we design our supply chain as the chain becomes more complex," he says. Adding to the complexity are such factors as increased sourcing from overseas suppliers, Bastock says.
The Return Factor Even though ROI was not a factor in the decision to invest in Powerchain, Bastock expects that the product will pay for itself quickly through customer service improvements and reduced spending.
For example, Henkel will save money in not having to rely as much on "expedited" shipping by costly air freight when demand from a customer unexpectedly
rises on short notice.
In the future, Henkel will use the software for applications such as analyzing shipping costs and service levels using pre-defined metrics, and to help make decisions such as whether to source materials domestically or internationally, or to make products internally or outsource their production based on a variety of market conditions.
"The tool is designed to take unbiased information and tell us in this case it makes more sense to buy something in Asia for 99 cents, but in another case it makes more sense to buy it in the United States for a dollar," Bastock says.
The company's deployment of Powerchain is serving as a "test case" for The Henkel Group worldwide, Bastock says. "Depending on our success and how we view the tool, [the parent company] has plans to roll it out in more divisions and regions," Bastock says.