Chain Letters And Supply Chains
From The Desk Of
Drumlin S Boulder
One of our important repeat customers uses specially engineered small
scale versions of our portable holes which they incorporate into their
line of dremels. Every year we receive a large order for the Christmas
season, and every year there's a different theme.
Dremels are a perfect he-man gift. They spin really fast and cut, drill,
shape, sharpen, saw, sand, and brush, and come with lots of neat
attachments. Every year our customer orders limited edition themed
portable hole attachments for the festive season, somewhat like tea
spoons, thimbles, bells, and ornaments, except they're for guys.
Which led to the problem at hand. Despite the fact it's a he-man tool
that should not be subject to the vagaries of fashion, buyers are
typically their wives and girlfriends, and no woman wants last year's
Christmas dremels. As a result, our customer often has to write off some
unsold inventory every spring.
Now we knew something was coming because, as a public company, they get
press, and their newly appointed president, Gung Ho Krahl, announced
they would be aiming for "minimized input driven full capacity
utilization based on carefully planned conservative volume planning".
Like you, I have no clue what this meant, except that maybe he was
trying to look good chasing a U$ public company big bonus cheque.
But we found out what Gung says to media is managed when we were invited
to a meeting at their headquarters. The three of us, Watson Overseer,
our operations man and chief engineer Slide Rule, and I boarded a plane to
Pittsburgh, and made it to the riverfront area meeting on time. We were
met by Gung and some of his staff in their boardroom, and after
exchanging the usual pleasantries, he announced his intention to focus
on his supply chain.
He went on to say he wanted to reduce his inventory write-off by 50
percent or more while maintaining 100 percent product availability for
his customers, and minimize shipping costs from one region to another to
meet unexpected demand. He asked us how we could help him make that
happen, after telling us that he liked what we brought them each year,
but that we were an important cost in his chain.
Now I know about bicycle chains and chain stores, and Cool Hand Luke is
my favourite chain gang movie, but supply chain was one of those buzz
phrases, like value chain, that had escaped my full focus and attention
as a discipline .
Oh I'd researched it on the internet, but it seemed everyone had a slant
on the term, and there were several software solutions for it, but no
one could really explain clearly what it meant. I think all the
consultant's websites could really agree on was that there's a chain
reaction to ordering too much inventory that leads to losses when you
have to write it off. This we could ignore for ourselves since we
largely manufacture to order, and in fact our clients normally contract
for all we ship them, so supply chain management was "cash for
consultants" and mostly ignored. Until now.
But of course I was not going to show my ignorance in a meeting with the
president of one of our high profile customers, so I paraphrased what he
"As long as you recognize
we're more than a cost but an important cog in your chain, and continue
to like the way we extend the use of your dremels, and continue to pay
us well, I think we can work together and make what you want happen" I
As I saw it, he needed to
track daily product sales, constantly update demand forecasts, order the
inventory as he needed it, and move it to the right places at the right
times, and use it all up by the end of the season. I concluded with a
confident something like "I think we understand", and "we'll be back to
you with some specifics in a few weeks".
Flying home, we knew we were in for a challenge. This was a high
priority project for them and we'd better deliver, or we'd risk losing
them to Stacking Pits & Cavities, and you know how aggravating that
would be if you are a regular reader. Even the loss of our high profile
customer and their not winning it would be a win for them.
And as Slide Rule reminded me, it was almost June so we had until mid
August to come up with a plan, get the necessary buy in, and begin the
cycle to ensure they could begin stocking inventory by October. I began
looking at the brown bag in the seat back as my stomach began churning.
You know they were initially introduced for people who couldn't travel
well and because air turbulence shakes planes around, but Gravol and
better handling planes have reduced their use. Now they're for business
travelers like me coming back from meetings with big problems to solve..
Back at the office, the gang met to discuss the problem. Watson, Slide
Rule, our shipping manager Pronto, our MBA Symon and our new hire Kerry
Oakstone and myself gathered around a flip chart. As we saw it, this was
going to have to be a collaborative effort starting with us. Everyone
had to have a continually updated overview as actual demand became
apparent, and we all had to respond quickly not only to overall demand,
but to regional demand. And no overnight courier charges. This overview
would have to be accessible at all times to us at Portable Holes, our
customer, and their customers, and this overview would then become the
basis for our collaboration and decision making.
Symon immediately sees software as the solution, and rhymed off vendors
who we could look to, but we collectively said no pointing out that
implementing it would take time we did not have, and cost much more than
we were willing to spend. Payback would take years given our level
of annual profits from that one customer. Besides, we'd have to become
experts on the group's systems.
But realizing this did
point us to the beginning of the solution, as pointed out by Kerry who,
bless her soul, paid off immediately with a workable idea we turned into
We began by talking to our customer and their customers, and asked them
how they forecast demand, kept track of inventory and shipments, how
they shipped, time lines, how they reported these activities, and whole
host of other things.
What we found was that everyone used spreadsheets, text files, e-mail,
web pages and the telephone. From there it was easy to devise a system
that would collect data from everyone who was part of the supply chain.
The data consisted of demand models, lead times, inventory amounts in
production, in warehouses and on order, and it included historical sales
data by customers and regions, current orders and deliveries, and
information about the marketing plans developed by everyone involved.
At an August meeting, we decided to propose a simple solution to the
group. We can all share relevant data in agreed formats via email and
schedule conference calls that will increase in frequency as the season
progresses. We'll all review the numbers and projections over the next
couple of weeks, and make decisions and continue to learn and fine tune.
Sharing information on a timely and systematic basis will be the key.
In effect we're going to have a few key people share manually what the
expensive supply chain software does. Make do and simplicity is
sometimes an easy and best solution. But we did have a bit of fun. To
ensure this proposal got through our customer first and then to their customers, we
sent our proposal out to look like a chain letter.