A Tale Of Two Planners

Two companies employed two different supply-chain solutions -- and both came out winners.

"Our orientation is to be the best vendor of choice for our customers -- judged by their service criteria." That's how Corey Hughes, senior customer planning manager for Pacific Coast Feather Co., characterizes his firm's approach to business. Making such a statement is one thing, but delivering on the commitment is quite another. Among other things, it requires a highly efficient, synchronized supply chain. This is the story of two companies, and how each used sophisticated supply-chain planning software to dramatically improve efficiency while boosting customer satisfaction to new levels. Pacific Coast Feather, which makes pillows, comforters, and mattress pads, implemented a collaborative planning tool from Manugistics Group Inc., Rockville, Md., to manage inventory at its retail customers' stores. Office systems manufacturer Herman Miller Inc. implemented a factory and master planning tool from i2 Technologies Inc., Dallas, to cut lead times in half and trim the fat out of its production process. Pacific Coast Feather (PCF) began life in Germany in 1884 as a bedding manufacturer. Today, the $220 million company -- still owned by the family that founded it -- calls Seattle home. While the company has expanded its product line somewhat over the years, its core business continues to be "top-of-the-bed" basic bedding. Customers include J.C. Penney; Linens-n-Things; Bed, Bath and Beyond; and Eddie Bauer, for which it makes private-label bedding products. PCF runs 16 manufacturing plants throughout North America that operate primarily on a make-to-order basis. What little distribution center space the company has is located at the plants. In mid-1997 PCF started considering the idea of offering vendor-managed inventory (VMI) -- now termed collaborative planning, forecasting, and replenishment (CPFR) -- as a service to its retail customers. "We felt that VMI was a good way to serve our customers better, while at the same time increasing the efficiency of our supply chain," Hughes notes. In May 1998 PCF launched a pilot program employing Manugistics' CPFR system with one of its major customers -- a large U.S. mass merchant. "We knew that with the complexity of the retail environment -- a widely diverse number of stores and highly volatile demand -- we needed a superior tool to handle demand planning," Hughes says. As part of the program PCF managed its product inventory in the retailer's stores (although the retailer actually owned the stock). On a weekly basis, PCF monitored store-level sales and inventory, and allocated orders based on agreed-upon plans and in-stock objectives at each outlet. Compared with other software rollouts, the CPFR implementation was fairly small, Hughes says. On an ongoing basis, the project team consisted of Hughes and a PCF programmer, as well as one Manugistics consultant and a technical hardware/software specialist. The on-site consultant helped PCF develop the business model for the company's collaborative forecasting and replenishment program. As the implementation progressed and PCF "got control of " the retailer's store-stocking data, Hughes realized that some stores were tremendously overstocked, while others were understocked. "Going into this, I thought our big issue would be to cut store inventory," he says. "But really what we needed to do was to correct out-of-stock situations, and relocate stock from one store to another." With better store-inventory data, PCF was able to reduce the amount of product it sent to the various retail stores. Rather than being pleased by this reduction, however, the mass-merchant partner got worried. "The stores' main focus was on being in-stock at all times, so they wouldn't have to issue rain checks to customers," Hughes explains. "They felt we were sending them too little product. As the implementation process went along, we realized we were just too drastic too soon in making changes. We had to gradually get them used to the idea of trusting our numbers on how product was selling and what was an adequate level of inventory. "From this experience," Hughes observes, "we learned that when it comes to these implementations, the biggest issues are not technological, but cultural. We were introducing a new way of doing business. Our customer had to learn to trust the system enough not to hoard inventory." PCF's pilot experience with CPFR was tremendously beneficial, Hughes reports. "By our calculation we increased inventory turns by 17% over a 13-month period against previous year-to-date measures," the planning manager says. "We also moved the customer's average in-stock position from 95% to 99.4%." During the final six weeks of the pilot, PCF achieved a 99.9% in-stock record with the retailer. Additionally, the CPFR pilot delivered an unexpected, but very welcome surprise to PCF. "It really improved our ability to plan production," Hughes notes. "Because we're in a make-to-order environment, every morning was a real exciting time here at the corporate office. We had no idea what orders were going to show up. In November or December we could arrive at work and be slammed with orders. We'd have more work to do than our capacity could handle." With the new planning solution, "We aren't caught off guard by large unexpected order quantities," the planner says. PCF is working on rolling out the CPFR solution to three other customers, and Hughes is optimistic about the potential results. "We've gotten a taste of what we think we can do [with CPFR], and we know we want to continue to pursue this." While Pacific Coast Feather used a collaborative planning tool to reach into its customer's supply chain, furniture-maker Herman Miller turned to planning software as a way to improve its internal operations. Founded in 1923, the $1.3 billion company is the second largest office systems manufacturer in the United States and has more than 6,500 employees worldwide. In 1995, with customer satisfaction dwindling due to poor service performance, Herman Miller undertook a major software implementation aimed squarely at improving customer satisfaction through better, faster service. The company installed a new planning software tool -- the Rhythm planning suite from i2 Technologies -- to completely overhaul the way it scheduled production and delivery. Herman Miller processes more than 3,000 office furniture and accessory orders each week. The company faced a host of challenges in its existing manufacturing/distribution environment, including:

  • Many partial orders waiting to be physically consolidated into a single delivered order.
  • Large amounts of inventory in plants and distribution centers, waiting to be shipped.
  • Little coordination among plants.
  • Little problem solving and lots of last-minute expediting of orders.
  • Long customer lead times.
  • Low customer satisfaction.
The nature of the company's products further complicated the supply-chain picture. Approximately 80% of the company's business is project-based, requiring significant coordination among the company's plants and other operating units so an entire order can be shipped together and on time. "Synchronization is key to fulfilling customer demand," says Mark Douglas, project manager at Herman Miller. "We call it the '99% effect.' If only one piece of a multipart order is missing, the entire order becomes late, negatively impacting customer delivery performance." The first step toward gaining better control of its supply chain was to overhaul factory production scheduling. To do this, Herman Miller implemented i2 Technologies' Factory Planner (FP) software at eight plants, completing the task late last year. The FP system translates customer orders into a material/capacity feasibility plan and schedule, including production order numbers. Next, the FP generates procurement requirements. "We wanted to be able to be 100% reliable to a manufacturing schedule," says Douglas. The i2 system enables the company to do just that. "This was the first time the plants could create schedules that they knew with 100% certainty they could produce," the manager notes. After Herman Miller got the majority of its plants up and running on Factory Planner, the company started implementing i2's Master Planner. "Our biggest challenge was to synchronize production and shipments from our various plants to a single customer. We build different parts of an order in different factories. But most of our customers order an entire office. They want it all to arrive together to be installed at one time. So we have to synchronize the building and delivery of that order." Prior to the implementation of Master Planner a lack of synchronization created a three- to four-week lag time between when the first and last components of an order were completed. "We'd get in one item one day, then the panels would come in the next day, then a few days later the chairs would come in," Douglas recalls. "This meant we had three or four weeks of finished goods waiting for the rest of the order. This was driving high inventory in both our warehouses and our plants. "When all this waiting time was factored in, we were looking at very extended internal lead times of eight to 12 weeks," the project manager notes. Add at least another month on the end of that in the distributor network (80% of Herman Miller's sales move through a dealer network), and you get a very slow product pipeline. With Master Planner the system creates an intelligent completion date by querying each plant as to when it can build its particular line items. Each line item is synchronized to the longest production date. The rule is to build an item no earlier than three days before that build date. Within 18 months of implementing i2's Rhythm planning modules, Herman Miller had boosted delivery performance -- i.e., on-time shipments -- from 70% to 99%. It decreased leadtime by 22%, and now ships 30% of orders directly to customers, bypassing distribution center layovers and handling. The company reduced finished goods waiting time to two days and eliminated $50 million to $70 million in pipeline inventory. Other impressive milestones: a 40% increase in throughput and a 100% increase in inventory turns. Total i2 implementation project cost was about $6 million, Douglas reports. The total economic value added, however, was nearly $18 million -- a three-fold return on investment.
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