eLeading a Supply Chain Turnaround(p6)

8/12/2019 eLeading a Supply Chain Turnaround(p6)

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HBRSpotlight

T h e 21st Centuiy Supply Chain^

Five years ago, salespeople t

Whirlpool said the

company's supply chain staff w r sales disablersNow, W hirlpoo l excels at ge tting the right productto the right place at the right tim e -w h ile keepinginventory low. What made the difference?by Reuben C Slone

adingha.in Turnaround ^ Supply Chain T u rna roundT

hings would be ver y different today-for m e my colleaguesand my company - if the votes of Whirlpool's No rth Americanleadership team had swung in a different direction on May 3,2001.It was a move hadn't expected; Mike Todman, our executive vice

president at the time, decided t o go around the table and ask each m emberof his staff for a thumbs-up or thumbs-down on the investment th at PaulDittmann and had just formally proposed. Did look worried? can't imagineI didn't, even though we d spent hours in individual m eeting s with each ofthem, getting their ideas and buy-in. We though t we had everyone's suppo rt.But the facts remain ed: Our proposal had a bigger price tag than any supplychain investment in the company's history. We were asking for tens of millions

during a period of general belt-tightening. Some of it was slated for new hires,even as cutbacks were taking place elsewhere in the company. And Paul and I,the people doing the asking, were coming from the supply chain organization.

Let me be clear: The supply chain organization was the p art o fth e businessthat Whirlpool's salespeople were in the habit of calling the sales disabiersin 2000. We were perpetually b ehind the eight ball, tying up too m uch capital infinished goods inventory - yet failing to provide t he product availability ourcustomers n eeded. Our availability hovered aro und 87%. Our colleagues grimlyjoked that in surveys on the delivery performance ofthe four biggest appliancemanufacturers in the U.S., we cam e in fifth.


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The 2X st Ce ntu ry Supply Chain.BRspotlight

And here, with all the credibility that track record con-ferred on us, we were proposing an ambitious new suiteof IT solutions something, too, for which the companyhad little appetite. It had been just 20 mo nths sinceWhirlpool North America had flipped the switch on amassive new ERP system, with less tha n desired effectNormally, Whirlpool ships close to 70,000 appliances aday to N orth A merican custom ers. The day after we wentlive with SAP, we were able to ship about 2,000. A barrageof bad press followed. Even thou gh the situation was soonrighted (SAP remains a valued partn er), the experience ofbeing treated as a sort of poster child for ERP folly hadleft scars.

So imagine our relief wh en we h eard th e first voice say yes. It was the executive who headed up sales to Sears.

Paul and I looked anxiously to th e next face, and t he next.The heads of our KitchenAid, Whirlpool, and valuebrands followed s uit -a watershed, given that the fundingwould have to come from their bud gets. could see thatJ.C. Anderson, my boss and senior vice president of oper-ations, was happy, too. He had tried to voice his suppo rtat the beginning ofthe meeting, but Mike Todman hadasked him to wait. Now that it was his turn to vote, he didit with a flourish: I amfu llycom mitted, he said, to mov-ing our supply chain from a liability t o a recognized com-petitive advantage. Only after Todm an had hear d fromeveryone in the room brands, sales, finance, human re

sources, and op erati ons -did he cast his vote.With that last yes, the tension broke, and everyone was

smiling and nodding. Paul and I had a sense of tri um ph -but also trepidation. Because now, we knew, there couldbe no excuses. We were on the hook to deliver some seri-ous value.

evising the Strategy

My responsibility at Whirlpool today is for theperformance of the global supply ch ain. Butin 2001,1 was focused only on No rth Am erica,

an d I was utterly new to the supply chain organization.(I had come into the company a few years earlier t o leadits e-business efforts.) By contrast, Paul D ittman n, the vicepresident of supply chain strategy, was a Whirlpool vet-eran with a tenure spanning a quarter century.

Our lots were cast tog eth er in October 20 00 by Jeff Eet-tig. Jeff is now W hirlpool's chairman and CEO, but at thet ime he was preside nt and COO and he was good andtired of hearing about spotty service and high logistics

Reuben E. Slone [email protected]) is the

vice president of Global Supply Chain at Whirlpool Corporation in Benton Harbor Michigan.

costs. Sales had risen to record levels in 2000 as ourlaunch of some innovative p roduc ts coincided with anuptick in housing starts. With the rest of the companychugging on all cylinders, there was only one thing holding us back: our supply chain. Jeff called me in to his officand gave me a two-w ord orde r: Fix it.

If that constitutes a m andate, we had one. But it was upto us to figure out what fixing the supply chain wouldentail. At the to p level, of course, it's a simple form ulatiogetting the right product to the right place at the righttime all the time. That gets complicated very quicklyhowever, when you consider the scale of the challengeWhirlpool makes a diverse line of washers, dryers, refrigerators, dishwashers, and ovens, with man ufacturin gfacilities in 13 countries. We sell those appliances in lOO

countries, through retailers big and small and to the construction companies and developers that build newhomes. In the United States alone, our logistics networconsists of eight factory distributio n centers, ten regiondistribution centers, 60 local distrib ution centers, andnearly 20,000 retail and contract customers.

We needed to formulate a battle plan that would includnew information technology, processes, roles, and talentBut before we could begin to imagine those, we neededto define our strategy. Looking to the future, what w ouid me an to be w orld-class in supply chain performance?

The decision we made at this very early point in the

process was, think, a pivotal one. We decided that wecould answer that question only by focusing on customerequirements first. Our approach to developing our supply chain strategy would be to start with the last li nk -thconsumer-and proceed backward.

It's an obvious th oug ht, isn't it? Except tha t it wasn'tThe overwhelming tendency in a manufacturing organization is to think about the supply chain as somethingthat originates with the supply base and moves forwarIt's understandable; This is the part of the ch ain overwhich the company has control. But the unfortunateeffect is tha t supply cha in initiatives typically run o ut osteam before they get to their end point-and real poinWhether or not they make custom ers' lives easier becomes an afterthought.

Understanding Customers' Needs. If you start with thecustomer, the customer can't be an afterthought. The waI expressed this to m y colleagues was to say, Strategic reevance is all from the consum er back. And convenientlwe had new research to consult on the subject of con-sumer needs. Whirlpool and Sears had recently engageBoston Consulting Group to study consumers' desirewith regard to appliance delivery. The top-line findinwas that people value what I call delivery with integrity.Tha t is, your ability to get it there fast is important, but


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Lea ding a Supply Chain Tux naround

not as impo rtant as your ability to getit there when you said you would. Give a da te , hit a da te is whatthey're asking for. This sounded fa-miliar to me, coming from the auto-motive industry. In my previous po-sition at General Motors, I d beeninvolved in several studies that em-phasized the psychology of deliverydate comm itments.

Identifying Trade Partners' Priori-ties. Moving upstream, we needed tounderstand the desires of our directcustomers better. We conducted ourown interviews to define requ ire-

ments by segment. s

well as lookingat smaller retailers versus largerones, we focused individually onSears, Lowes, an d Best Buy, our th reebiggest customers. And within thecontract-builder market, we studiedmany subdivisions, from contractdistributors and apa rtme nt develop-ers to single-family-home build ers.We asked about their overall avail-ability requ irem ents, the ir prefer-ences in comm unicating with us, and

wha t they would like to see along thelines of e-business. We asked abo utinventory mana gem ent and how theymight want Whirlpool to assist in it. In all, we discovered27 different dim ension s along which our perform ancewas being judged, each varying in importance accordingto the customer.

Benchmarking the Comp etition. Naturally, our custom -ers' expectations and perceptions were shaped in largepart by what others in our industry were doing. So webench marke d our com petitors-prim arily GE, which wasour biggest rival. We obtained cross-industry informationand competitive intelligence from AMR, Gartner, andForrester Research to make sure we had a broad and ob-jective assessment of supply chain capabilities. Then wemapped out what would be considered world-class (ver-sus sufficient or transitional) perform ance for each of the27 capabilities and how much it would cost us to reachtha t top level. It turn ed o ut tha t to prevail on every frontwould require a total investment of more t ha n $85 mil-lion, which we knew wasn't feasible. It was time to ge tserious about priorities.

Now tha t we had established th e cost of w orld-beating

performance, we asked ourselves: For each capability,what improvement could we accomplish at a low invest-

me nt level, and at a me dium level? We quickly staked othe a reas where a relatively small investm ent w ould yiesupremacy, usually due to an existing s tren gth. A fewareas we simply decided to cede. Our plan was to m eet bea t the comp etition in most areas, at minim um cost.

Building for the Future. Strategy, of course, does notsimply address the needs of the moment. It anticipatesthe challenges of the future. A final c om pon ent of oursupply chain strategy was identifying th e prob able rangof future operating scenarios based on industry, eco-nom ic, and technological tre nds. The p oint was to assuourselves that our proposal was robust enough to with-stand these various scenarios. To date, the planning haworke d. Having set a course, we've been able to deal wisituations we hadn't conceived of and to continue evoling in the sam e basic direction.

Selling the evolution

It's always a difficult decision-when to involve you

internal customers in the planning of a

major capitalinvestment. Their time is scarce, and they typically


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HBRSpotlight

The 21 st -c en tu ry Sm ply Chain.

don't want to be embroiled in the details of what you,after all, are getting paid to do. You must have your acttog ether and have a solid plan to which they can respon d.On the o ther hand, you can't be so far along in th e processtha t you've beco me inflexible. You need to main tain a care-ful balance between seeking their guidance and sellingyour vision.

Paul and liked to think we had th at m anda te from JeffFettig to get the supply chain fixed. But it wasn't the kindof mandate that comes with a blank check. Like mostwell-managed companies. Whirlpool will not undertakea capital investment without a compelling b usiness case.As a cost c enter in the company, we had to justify ourproject wholly on expense reductions and w orking capitalimprovements. Even if we believed that be tter prod uct

availability would boost sales, we couldn't count thosechickens in the business case.

We spent an enormous amount of time talking w iththe brand general managers and others who would be

needed. They said they had nothing more to add. But wpersisted. I rem em ber telling Paul, If they won 't let in the do or, we'll go throug h the window. And if they lo

the window, there's always the air ve nt .. .Along the way, we'd been particularly concerned abocherry-picking. We knew that, in a company of smart busnesspeople, the first reaction to a multimillion-dollaprice tag would be, OK, wh at can I get for 80% of thatotal? And indeed, from a project man agem ent standpoint, we knew it was important to break out each component ofthe plan into a stand-alone initiative, justifieby its own business case. Yet we knew the whole thincame together as a sort of basket weave, with each pa rsupporting and relying on multiple other parts.

What helped here was our competitive analysis, in

which we had plotted our capability levels against oters' . We charted our current position against our nu mbone competitor on each dimension valued by customerthen extrapolated to show how, depending on the lev

We staked out the areas where a relatively smallinvestment would yield supremacy usually due toan existing strength.

affected by the chan ges we were propo sing. The Japan esecall this kind of consensus-building nem w shi (literally,it mean s root binding ), and it is impossible to overstateits importance. Yet it is often neglecte d in the midst of acomplex project. Note that, at the same time we neededto be mee ting with key decision makers, we were also inthe thick of the analysis and design of the solution. Inthose early months , the project need ed leadership in twodirections - the kind of work people typically refer to asneedin g a Mr. Inside and Mr. Outside. I made sure wehad sufficient consulting resources for the inside workwhile Paul and I devoted 50% of our time to the outsidework - interfacing with the trade, outside experts, andinternal stakeholders.

In our initial meetings with these key people, we'dessentially say, Here's what we're doing. What do youthink? Typically,the executive would half pay attention,half blow us off But we'd get some input. In a secondmeeting, we'd show how our work had evolved to incor-porate their ideas and others'. Usually, we'd see moreenga gem ent at this poin t. By the time we were asking for

a third m eeting, reactions were mixed. People were m oreor less on board, but some felt another meeting wasn't

of investment, we could overtake that company or allothe gap to widen. Sure enough, the competitive instincof our colleagues kicked in. No on e wa nted to fall b ehin

Getting ocused

One of the earliest successes in the turnaround oWhirlpool's supply chain was the rollout of a newsales and operations planning (S&OP) proces

Our previous planning environment had been inadquate. What passed for planning tools didn't go far byond Excel spreadsheets. Now, we had the ability to putogether the long-term and short-term perspectives ofmarketing, sales, finance, and man ufacturing and producforecasts that all the participants could base their gamplans on.

We soon pushed our forecasting capability further blaunching a CPFR pilot. The acrony m stands for collabrative planning , forecasting, and replen ishm ent, with t hcollaboration hap pen ing across different com paniewithin a supply chain. The idea is straightforward. Trad

tionally, we forecast how many appliances we will sethrough a trade par tner (Sears, for exam ple) to a given


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Leading a Supply hain TumaroiuuL

market. And at the same t ime, that trade part ner developsits own forecast. Fach of us has some information that theother lacks. With CPFR, we use a Web-based to ol to shareour forecasts (without sharing the sensitive data behindthem) , and we collaborate on the exceptions. As simple asit sounds, it isn't easy to pull off. But we hav e, and it's beena real home run. Within 30 days of launch, our forecastaccuracy error was cut in half. Where we had close to100% error (which isn't hard, given th e small qu antitiesinvolv ed in forecasting indiv idua l SKUs for specific w are-house locations), today we're at about 44% o r 45%. To putthis in perspective, a one-point improv ement in forecastaccuracy across the b oard reduces our total finished good sposition by several million dollars.

These were just two of m any initiatives we launched in

rapid succession after May 2001. A

couple things were ab-solutely critical to keeping them all on track: a highly dis-ciplined project management office and stringent per-formance metrics. The key was to think big but focusrelentlessly on near-term deadlin es. We organized thechange effort into 30-day chunks, with three new capa-bilities, or business releases, rolling out m on thly -so me onthe supply side, some on the demand side.

The job of the project m anag eme nt office was to en-sure the completion of projects on time, on budget, andon benefit. Paul oversaw th is for m e. Also keeping us h on-est were new metrics - and the man 1 brought in to en-

force them. My colleague John Kerr, now general man-ager of quality for the North America division, was thenin charge of Wh irlpool's Six Sigma pro gram . He's a realblack belt when it comes to performance man agem ent. Ittook some persuading, aimed at both John and the NorthAmerican leadership team, before he was freed up andallowed to dedicate him self to the supply cha in tu rn-around. But we absolutely needed his data-driven per-spective. When one of my team would say, We need totake this action to ix his issue, John would alwayscounter with, Please show me the data that allowed youto draw that conclusion. Were these deman ds som etimes

a source of irritation ? I'd b e lying if 1 said they weren't.But they forced all of us to rebuild th e metric fact baseand hone our problem-solving skills.

By the third qua rter of 2001, we had already done a lotto stabilize product availability and reduce overall supplychain costs. And, after a challenging fourth quarter, wetook a huge step forward by imp lementin g a suite of soft-ware pro duc ts from i2, which specializes in supply chainintegration tools. That was in January 2002. Six monthslater. Whirlpool had historic low inventories and a sus-tained high service level. Before th e year w as out, we weredelivering very near our target of 93% availability acrossail brands and p roducts. (Mom entu m has since carried us

well into the mid-nineties.) We delivered slightly morethan promised by reducing finished goods working capi-tal by 10% and improving total cost productivity by 5.1%.

Our customers were voicing their approval. By May2002, a blind In ternet survey given to our trade partn ersshowed us to be most improved, easiest to do businesswith, and mos t progressive. I remember that after theseresults came out, our VP of sales said, You're good no w -but more important, you're onsistently good. It was aturning point in the trade's perception of Whirlpool.

Engaging Talent

ve touched on th e state-of-the-art techno logieswe've employed in our turnaround-the Web-based

collaboration tools, th e plann ing software, i2'srocket-science optimization-but let me correct any im-pression th at this is a story abo ut technology. More th ananything . Whirlpool's supply chain turn arou nd is a talentrenaissance.

It's sometimes hard for us to remember how demoral-ized this 3,000-person org anization h ad becom e. In 200 0,many people in supply chain roles had been with th ecom pany for years and had w atched in frustration as com-petitors outspent and outperformed us. Part of the prob-lem was the massive effort required by the ERP imple-mentation. As an early adopter of enterprise systems in

our industry (SAP and other vendors got their start withprocess-manufacturing concerns like industrial chemi-cals). Whirlpool had bitten off a lot. With limited atten-tion an d resources to spare, it put o ther projects on hold.We took our eye off the ball in supply chain innova tionand fell behind.

As a newcomer, I tried to inject some fresh energy intothe organization and give people a reason to be confidentPaul Dittmann told me this project gave him a secondcareer wind. He s a brilliant guy, with a PhD in operationsresearch and indu strial engin eering, and suddenly, he h adthe opp ortun ity to innovate in ways he had only dream ed

of in his first 20 years at the comp any.Other people benefited from changes to how we de-

velop, assess, and reward talen t. With he lp from Michig anState University and the American Production and In-ventory Control Society (APICS), we developed a supplychain com peten cy model. This is essentially an outlin eof the skills required in a top-tier org anization, the rolesin which they should reside, and how th ey need t o be de-veloped over t ime. And we created a new band ing system,which expanded the compensation levels in the organi-zation. Now people can be rewarded for increasing the irexpertise even if they are no t being prom oted into super-visory roles.


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The 2 1 st c en tu r y Supply Chain.

We also put a heavy empha sis on developing people'sproject management skills. Here, we relied on a modeldeveloped by the Project Management Institute (PMI),a sort of standard for assessing and enhancing an organi-zation's project management capabilities. I wanted asmany supply chain professionals as possible to becomePMI-certified, and not just because of the glut of projectswe were facing at the mo me nt. My view is that projectmanagement's disciplined planning and execution is justas vital to ongoing ope rations m anag em ent. After all, theonly real difference between running an operation andrun ning a project is the d ue d ate of the deliverable. Overtime , my operating staff stopped dismissing project man-agement as a lot of ove rhea d from a former manage-m ent consu ltant and car guy. Now they 're the one s insist-in g on thing s like project cha rters an d weekly projectreviews.

Mean while, we hired at least 3 new people on th e busi-ness side and at least as many m ore on the informationsystems side, and I m ade sure that every one of them wastop-notch. To fill out our project management ranks, werecruited young people from companies with strong sup-ply chains and from premier operations-oriented MBAprograms like Michigan State and the University of Ten-nessee. Perha ps we were lucky that o ur talent drive coin-cided with a downturn in the consulting industry. On theother hand, it might have been the excitement of a turn-

around si tuat ion that drew the best and brightest toWhirlpool.

Finally, I wasn 't so arrogan t as to believe tha t my sen iorteam and didn't need development ourselves. We as-sembled a supply chain advisory board and c harte red itsmembers to keep challenging us . The g roup includes ac-ademics on Bowersox of Michigan State and TomMe ntzer of the University of Tennessee, and prac titionersRalph Drayer (the Procter & Gam ble executive who pio-neered Efficient Consumer Response) and Larry Sur (whomastered transportation and warehouse management ina long career at Schneider N ational and G ENCO). Get a

group like this together, and you can count on creativesparks flying. These ex perts keep us on our toe s in a wayno consulting firm could.

Sustaining omentum

ree years into the project now, we continue to

assign ourselves and deliver three new capabil-ities per month. This doesn't get simpler over

time, either. As I write this, for exam ple, we're focused onsom ethin g we call Plan to Sell/Build to Order. Here , th enotion is tha t c ertain high-volume SKUs should never b eout of stock. These are the heart-ofth e-line dishwashers,

refrigerators, washing machines, and other products thappeal to a broad range of consumers. They are the equialent of a supermarket 's milk and eggs; running out othem has a dispro portion ately n egative imp act on customers ' perceptions.

We're now formulating a supply chain strategy t haallows us to identify the se SKUs across all of our tradepartners in all of our channels and to ensure that the replenishment system for our regional warehouses keepthem in stock. That constitutes the plan to sell par t othe program. At the same time, for our smallest-volumSKUs, we are taking out all the inven tory a nd ope ratinon a pure pull basis, with a new, more flexible build-toorder process. The inventory savings on the small-volumSKUs helps offset the costs of stocking up o the high-volume SKUs.

We're also working on the capability to set service levels by SKU. Tha t is, instea d of hav ing one availability tage t for all our pro ducts , we are recognizing t ha t somproducts are of greater strategic importance than otherSome of the m , for instance , are more profitable. Somhold a uniqu e place in our brand strategy. Again, it 's easto grasp th e v alue of being able to v ary service levels acordingly. But in a sprawling business like ours, shippinthou sand s of different SKUs daily, it's a very difficult th ingto accomplish.

We continue to develop new Web-based tools. Recently

we've been focused on system-to-system transactions, which our system talks directly to a custom er's system fpurposes of transm itting orders, exchanging sales dataand even subm itting and paying invoices. We've rolleout this capability with a num ber of trade pa rtners ovethe past i8 m onths. At the same time, we keep enhan cinour P artne r Store, which allows custome rs to check avaability and place orders via the Internet The site allowthem to find near equivalents of models, for those timewhen a SKU is out of stock or reti red . They can even findeals on obsolete inventory.

By the tim e this article a ppea rs in p rint, we'll also havimplem ented event-managem ent technology, which wiallow us to be more o n top of the movement of goodsthrough the supply chain. An event manager providean alert whenever an action in the process has takenplac e-for example, when a wash er is loaded into a con-tainer in Schomdorf, when that container full of washeris loaded onto a ship in Rotterdam, when the ship departs, when the ship arrives, when the container is un -loaded from the ship in Norfolk, when the containerleaves the port via truck, and, finally, when the washeis unloaded at the Findlay, Ohio, ware house . The resu lt that people's attention is directed to what needs to bedone. We'll also be further along in our application of


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lean techniques (usually associatedwith manufacturing operations) toour total supply chain. This involvesusing pull concepts and kanbanliketriggers to speed up processes, re-duce inventory, and enhance cus-tomer service.

th e Hoz4zon

hirlpool has much toshow for its supply c hainefforts. By the end of

2003, our product availability hadreac hed over 93%, up from 88.3%

in 2001. (Today it's mor e th an 95%.)That allowed us to attain an ordertill rate for key trade partners ofover 96%. The n um be r of days'worth of finished goods we wereholding in inventory had droppedfrom 32.8 to just 26. We drovefreight and warehousing total costproductivity from 4% t o 7.2%. From2002 to 2003, we lowered workingcapital by almost 100 million andsupply chain costs by almo st 20

million. Does all

this add u p to valuein excess of the expense our leader-ship team approved ? Absolutely. Infact, total payback on that original investment occurredwithin th e first two years.

Still, our work is far from finished. In October 2001,just months after we kicked off our turnaround, we werefortunate in that the new executive vice presidentbrought in to run Whirlpool's North America region haddeep supply chain knowledge. Dave Swift, who came tous from Kodak, believes strongly in the strategic impor-tance of the supply chain both for building brands and for

creating sustainable competitive advantage. Immediatelyafter joining us, he elevated our sales and o perations plan-ning process by personally chairing monthly executiveS&OP meetings. These meetings have become the modelfor the com pany and th e basis for much of our just-startedglobal supply chain efforts.

In the future, we'll face greater demands for end-to-end accountability. We're already responsible for the re-sale of any return s. Soon we'll be a ccountab le for the dis-assembly of produc ts in Eu rope. It's only a ma tter of timebefore similar laws are enacted in the U nited States.

And we'll be taking an even closer look at the designof the prod ucts them selves. If we can redesign a p rod uc t-

l^a din g a Supply Chain Turnaroun d

make it in a smaller plant, make it with smaller parts, shiit in smaller pieces - we can dram atically affect supplchain econom ics. It's great to improve forecasts, optim iztransportation, and speed up our processes with existinSKUs. But wh at if we could p ush th e en d stages of production closer to the consumer and get higher leveragfrom those SKUs That's the kind of thing tha t can chang ethe rules of the gam e.

It's a wonderful thing about our business: We havefierce competition all over the world, and on top of thawe have very smart trade pa rtners who deal with numerous other suppliers. We may be a white goods, big boxsupplier, but because our customers also buy electronicand ap parel and so on, we're constantly being challengeby the benchmarks of other, more nimble industriesTechnologies continue to evolve, cha nne l power continues to shift, and the bar is constantly being raised. But I'mconfident that the talent in Whirlpool's supply chainorganiz ation will be equ al to it all. ^

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eLeading a Supply Chain Turnaround(p6)