Chain Reaction
Rapidly evolving customer demands are forcing manufacturers to adjust the execution of their supply chain activities. But knowing which solutions in which to invest, in order to build a slam-dunk business case to present to senior management, can be a daunting challenge. In response, CG companies are employing a combination of outside data and internal evaluation and planning processes to ensure their supply chain execution projects align with their business and financial requirements.
Under Pressure
Georgia-Pacific Corporation was under increasing pressure to ship smaller quantities of its paper products to retailers in more frequent shipments, sometimes directly to stores, which meant sending out partially full trucks.
The company turned to a once unlikely source for help: other manufacturers. Georgia-Pacific was an initial investor in Nistevo, an online transportation exchange that helps match excess capacity to shippers' needs.
With a $600 million annual transportation bill, the half-million or so Georgia-Pacific laid out was an easy decision, says Pat Byrnes, senior director of logistics for the $23 billion manufacturer. The investment has paid dividends, not only by lowering transportation costs by maximizing asset efficiency, but in persuading similar but non-competing manufacturers with complementary products and distribution requirements to work together on a multitude of supply chain execution challenges.
"We rely more and more on relationships with other manufacturers to benchmark against them," says Byrnes. "A lot are unwilling to talk about their cost initiatives but we've started to share ours and have found that we're, in fact, very similar."
Keeping on Track
Dial Corporation employs a continuous improvement approach to ensure its investments stay on track with industry forces. Each month, a committee comprised of warehousing, transportation, customer service and manufacturing meet to discuss issues such as regulations and market drivers that shape their priority list for supply chain projects, according to Paul Cunningham, director of logistics. The primary goal is to reduce unit costs and for the past six months, for example, the committee has been focused largely on inbound freight issues, such as ensuring payment accuracy.
For Dial, projects such as its recent deployment of IMI America's order management system must deliver at least a 20 percent annual rate of return, says Cunningham. A set of internal worksheets that calls for numbers such as asset life, labor costs, implementation costs and consulting fees is rolled up into a total project cost calculation.
For new product development, Dial pulls in data from A.C. Nielsen. Part of the feasibility test for a proposed product includes its future impact on the supply chain.
A Vision for Change
For CIBA Vision, a Novartis Company, it was a radical change in the way its products were consumed that forced equally radical supply chain changes. A rapid rise in the use of disposable contact lenses meant the customer that used to consume two pairs of contact lenses a year may now use 365 pairs. Combine that increase in demand with the 120,000 separate contact lens SKUs CIBA carries due to color and power variations, and that made for a daunting production, inventory and transportation challenge. CIBA Vision manufacturers worldwide and sells to both individual optometrists and large eyewear chains including Wal-mart.
When CIBA Vision sought a new solution to address these new market conditions, the number one objective was to maintain delivery to optometrists within 24 hours. Other objectives were lower inventory, 99.9 percent product availability, improved asset use and improved ability to plan for promotions.
CIBA's justification process included a financial analysis as well as identification of all of the business areas that would be impacted by the proposed i2 Technologies solution. Part of that included realizing areas where business processes would need to be changed to accommodate the software.
"Senior management approval and support is essential throughout the acquisition and implementation process," says Unni Makkuni, CIBA Vision supply chain manager.
Eyeing the Big Picture
Customer requirements shape decisions about supply chain execution projects and oftentimes, it easy to give those requirements too much credence.
"If we're not careful, [those decisions] can be dictated by larger entities in our distribution space," says Georgia-Pacific's Byrnes.
While Georgia-Pacific anticipates increased requests for direct store delivery and channel-specific packaging, for example, the company must satisfy those needs in a way that makes sense for the entire corporation, not exclusively for a few customers.
Georgia-Pacific justified its investment in RedPrairie labor management and warehouse management systems through the labor savings, productivity increases, higher inventory turns and reduced chargebacks those solutions would deliver, says Byrnes. While most SCE solutions positively impact customer satisfaction, justification is always based on internal benefits and Byrnes beleives proposed projects must offer payback within two years.
Future Investment
Fine-tuning SCE is essential for CG manufacturers to remain competitive and according to recent research, it is clear that CG firms will continue to invest in execution software. AMR Research has found that the SCE market will grow 8 percent in 2003, up from a slight decline of 2 percent in 2002 and closer to the 13 percent growth of 2001. According to AMR, warehouse management, transportation management and inventory management applications will likely be the easiest to justify, given their status as trusted applications that deliver manageable implementation times and tangible results.