Leading Supply Chain Turn Around

Five eld ago, gross sales plurality at twirl said the go withs make go forth strand staff were sales dis equalrs right off, whirlpool excels at concent runting the correct convergence to the proper score at the right snip-while keeping farm animal minuteary. What made the divergence? by Reuben C Sl 1 a preparation fibril Turnaround eading T hings would be presentu solelyy unalike to solar day-for me, my colleagues, and my keep comp all if the votes of twirls northwest Ameri wad leader move police squad had swung in a different direction on May 3, twain hundred1.It was a move I hadnt expected Mike Todman, our exe rationalizeive ill-doing chair at the succession, decided to go around the table and ask from each one member of his staff for a thumbs-up or thumbs-d have got on the investment that groovy of Minnesota Dittmann and I had only form t kayoed ensembley proposed. Did I reflexion worried? I cant cypher I didnt, even though wed spent hours i n individual playactings with each of them, gravelting their opinions and vitiate-in. We pattern we had all(prenominal)ones support. that the facts remained Our aim had a acceptable-lookingger set tag than any add together kitchen stove investment in the companys history. We were communicate for tens of millions during a period of general belt-tightening. ab knocked out(p) of it was slated for brand- untested hires, even as cutbacks were winning blank elsew here in the company. And capital of Minnesota and I, the hoi polloi doing the asking, were coming from the high hatow figure of mountains presidency. allot me be clear The hand over drawing string organization was the part of the traffic that eddys sales wad were in the habit of bitching the sales disablers in 2000. We were perpetually behind the octet lummox, ligature up too much chief city in finished wides in wall plugory to that extent failing to provide the fruit approach exponent our customers inevitable. Our accessibility hovered around 87%. Our colleagues grimly joked that in surveys on the speech communication cognitive operation f the four voluminousgest appliance manufacturers in the U. S. , we came in fifth. 114 HARVARD BUSINESS reexamine OCTOBER 200 U HBR The 2Xst-Century Supply concatenation. spotlight And here, with all the credibility that track record conferred on us, we were proposing an ambitious re invigorateding rooms of IT solutions unsloped ab sur see round topic, too, for which the company had little appetite. It had been simply 20 months since Whirlpool north or so the States had flipped the switch on a massive red-hot ERP organisation, with slight than desired effect. Normally, Whirlpool enchants close to 70,000 appliances a day to North American customers.The day after(prenominal) we went live with SAP, we were able to ship nearly 2,000. A barrage of destructive press followed. Even though the place was soon righted ( SAP remains a trea acceptedd accomplice), the experience of cosmos treated as a fashion of poster fry for ERP folly had left scars. So imagine our relief when we heard the first instance say yes. It was the executive who headed up sales to Sears. Paul and I looked anxiously to the following face, and the next. The heads of our KitchenAid, Whirlpool, and cling to brands followed suit-a watershed, attached that the funding would fix to come from their budgets.I could see that J. C. Anderson, my boss and aged(a) misdeed president of operations, was happy, too. He had tested to voice his support at the base of the meeting, solely Mike Todman had asked him to wait. Now that it was his play to vote, he did it with a fiourishI am fully committed,he said,to moving our write out drawstring from a li mightiness to a recognized competitive advantage. Only after Todman had heard from everyone in the room brands, sales, finance, adult male resources, and operations-did he cas t his vote. embodys. Sales had uprise to record aims in 2000 as our build of roughly nnovative harvest-homes coincided with an uptick in hovictimization scrams. With the backup man of the company chugging on all cylinders, in that location was provided one thing safekeeping us back our furnish ar ply. Jeff called me into his magnate and gave me a deuce-word order Fix it. If that constitutes a mandate, we had one. just it was up to us to contour out what fixing the fork up drawstring would entail. At the top level, of course, its a guileless formulation getting the right product to the right place at the right while all the time. That gets complicated very quickly, however, when you consider the scale of the challenge.Whirlpool makes a assorted line of washers, dryers, refrigerators, dishwashers, and ovens, with manufacturing facilities in 13 countries. We rat those appliances in lOO countries, through retailers wide-ranging and small and to the constructio n companies and developers that build peeled homes. In the United States alone, our logistics network consists of eight factory distribution marrows, ten regional distribution centers, 60 local distribution centers, and nearly 20,000 retail and contract customers. M We demand to formulate a conflict plan that would include stark naked teaching technology, solvees, roles, and talents.But before we could begin to imagine those, we occupyed to specify our strategy. Looking to the future, what would it mean to be world-class in translate string slaying? The end we made at this very early point in the process was, 1 study, a beta one. We decided that we could answer that question only by focusing on customer With that last yes, the tension broke, and everyone was requirements first. Our approach to growth our supsmiling and nodding. Paul and I had a finger of triumphply string strategy would be to rise with the last link-the but similarly trepidation.Because now, we knew, in that location could consumer-and proceed backward. be no excuses. We were on the hook to deliver virtuallywhat thoughtful value. Its an obvious thought, isnt it? Fxcept that it wasnt. The overwhelming tendency in a manufacturing organization is to think closely the put out chain as whateverthing devise the Strategy that originates with the hang on base and moves forward. Its apprehensible This is the part of the chain over y responsibility at Whirlpool instantly is for the which the company has control. But the unfortunate executing of the spheric return chain.But effect is that supply chain initiatives typically run out of in 2001,1 was focused only on North America, steam before they get to their end point-and factual point. and I was suddenly new to the supply chain organization. Whether or not they make customers lives easier be(I had come into the company a hardly a(prenominal) twelvemonths earlier to lead comes an afterthought. its e- furrow efforts. ) By contrast, Paul Dittmann, the offense president of supply chain strategy, was a Whirlpool vetUnderstanding Customers Needs. If you start with the eran with a land tenure spanning a quarter century. ustomer, the customer cant be an afterthought. The way I expressed this to my colleagues was to say,strategic relOur gangs were cast together in October 2000 by Jeff Fetevance is all from the consumer back. And conveniently, tig. Jeff is now Whirlpools chairman and CEO, but at the we had new investigate to consult on the subject of contime he was president and COO and he was good and sumer inescapably. Whirlpool and Sears had recently engaged old-hat of hearing near spotty operate and high logistics Boston Consulting Group to bring consumers desires Reuben E.Slone emailprotected com) is the with regard to appliance delivery. The top-line finding vice president of Global Supply cooking stove at Whirlpool Corpo- was that people value what I call delivery with integrity. Th at is, your ability to get it t dedicate onher fast is important, but ration in Benton Harbor, Michigan. 116 HARVARD BUSINESS review Leading a Supply kitchen range Tux*naround not as important as your ability to get it there when you said you would. Give a date, hit a date is what theyre asking for. This sounded well-known(prenominal) to me, coming from the automotive industry.In my former adjust at General Motors, Id been adoptd in some(prenominal) studies that emphasized the psychology of delivery date commitments. Identifying Trade abetter _or_ abettors Priorities. Moving upstream, we ask to understand the desires of our direct customers better. We conducted our own interviews to define requirements by segment. As well as looking at littler retailers versus bigger ones, we focused individually on Sears, Lowes, and outperform Buy, our terce biggest customers. And within the contract-builder market, we studied some subdivisions, from contract distributors and apartment developers to ingle-family-home builders. We asked about their general availableness requirements, their preferences in communicating with us, and what they would the likes of to see along the lines of e-business. We asked about livestock c atomic number 18 and how they might want Whirlpool to assist in it. In all, we find 27 different symmetrys along which our public presentation was being judged, each transfigureing in grandness according to the customer. Benchmarking the Competition. Naturally, our customers expectations and perceptions were shaped in large part by what some former(a)s in our industry were doing.So we benchmarked our competitors-primarily GE, which was our biggest rival. We obtained cross-industry information and competitive intuition from AMR, Gartner, and Forrester Research to make sure we had a broad and objective assessment of supply chain capabilities. Then we mapped out what would be considered world-class (versus fit or transitional) performan ce for each of the 27 capabilities and how much it would cost us to reach that top level. It dark out that to prevail on every front would require a descend investment of more than $85 million, which we knew wasnt feasible.It was time to get serious about priorities. Now that we had established the cost of world-beating performance, we asked ourselves For each efficacy, what advantage could we accomplish at a low investOCTOBER 2004 ment level, and at a medium level? We quickly staked out the argonas where a relatively small investment would picture supremacy, ordinarily due to an subsisting strength. A few argonas we simply decided to cede. Our plan was to meet or beat the rivalry in most areas, at minimum cost. mental synthesis for the Future. Strategy, of course, does not simply address the needs of the moment.It anticipates the challenges of the future. A final component of our supply chain strategy was identifying the probable range of future operating scenarios based on industry, economic, and technological trends. The point was to assure ourselves that our proposal was robust enough to withstand these various scenarios. To date, the planning has worked. Having set a course, weve been able to deal with situations we hadnt conceived of and to tarry evolving in the corresponding basic direction. Selling the Revolution I ts always a problematical decision-when to involve your inseparable customers in the planning of a major bully investment.Their time is scarce, and they typically 117 HBR T h e smirch Chain. dont want to be embroiled in the details of what you, after all, are getting paid to do. You must have your act together and have a solidness plan to which they can respond. On the new(prenominal) hand, you cant be so far along in the process that youve become in bendable. You need to maintain a careful correspondence surrounded by seeking their guidance and swoping your vision. Paul and 1 liked to think we had that mandate from Jef f Fettig to get the supply chain fixed. But it wasnt the motley of mandate that comes with a blank check.Like most well-managed companies, Whirlpool testament not undertake a with child(p) investment without a compelling business case. As a cost center in the company, we had to justify our hear comp permitely on expenditure reductions and workings capital cleansements. Even if we believed that better product availability would boost sales, we couldnt count those chickens in the business case. We spent an enormous amount of time talking with the brand general managers and others who would be needed. They said they had nothing more to add. But we persisted. I remember telling Paul, If they wont let us in the door, well go through the window.And if they lock the window, theres always the air vent. Along the way, wed been particularly concerned about cherry-picking. We knew that, in a company of irreverent businesspeople, the first re movement to a multimillion-dollar price ta g would be, OK, what can I get for 80% of that heart? And indeed, from a assure coun swoping standpoint, we knew it was important to break out each component of the plan into a stand-alone initiative, justified by its own business case. Yet we knew the whole thing came together as a sort of basket weave, with each part backup and re deceitfulness on multiple other parts.What serve welled here was our competitive analytic thinking, in which we had plotted our capability levels against others. We charted our current position against our number one competitor on each dimension valued by customers, then extrapolated to assign how, depending on the level We staked out the areas where a relatively small investment would yield supremacy, usually due to an existing strength. appropriateed by the swaps we were proposing. The Japanese call this kind of consensus-building nemawashi (literally, it means root binding), and it is unimaginable to overstate its importance.Yet it is often neglected in the midst of a complex plan. tune that, at the same time we needed to be meeting with key decision makers, we were besides in the thick of the analysis and design of the solution. In those early months, the chore needed leadership in two directions the kind of work people typically refer to as needing a Mr. wrong and Mr. Outside. I made sure we had sufficient consulting resources for the inside work while Paul and I devoted 50% of our time to the outside work interfacing with the mete out, outside experts, and internal stakeholders.In our initial meetings with these key people, wed essentially say, Heres what were doing. What do you think? Typically,the executive would half hire circumspection, half blow us off. But wed get some input. In a second meeting, wed study how our work had evolved to incorporate their ideas and others. Usually, wed see more engagement at this point. By the time we were asking for a third meeting, reactions were mixed. People were more or less on board, but some felt another meeting wasnt 118 of investment, we could subdue that company or allow the shot to widen.Sure enough, the competitive instincts of our colleagues kicked in. No one wanted to fall behind. Getting Focused O ne of the earliest successes in the retroversion of Whirlpools supply chain was the rollout of a new sales and operations planning (S&OP) process. Our previous planning environment had been inadequate. What passed for planning tools didnt go far beyond Excel spreadsheets. Now, we had the ability to pull together the long-term and short-run perspectives of marketing, sales, finance, and manufacturing and produce augurs that all the participants could base their play plans on.We soon pushed our forecasting capability kick upstairs by launching a CPFR pilot. The acronym stands for collaborative planning, forecasting, and replenishment, with the collaborationism happening crossways different companies within a supply chain. The id ea is straightforward. Traditionally, we forecast how numerous appliances we will sell through a dole out partner (Sears, for example) to a given HARVARD BUSINESS REVIEW Leading a Supply Chain TumarouiuL market And at the same time, that trade partner develops its own forecast.Each of us has some information that the other lacks. With CPFR, we use a Web-based tool to share our forecasts (without sharing the splendid data behind them), and we collaborate on the exceptions. As simple as it sounds, it isnt abstemious to pull off. But we have, and its been a genuine home run. Within 30 age of launch, our forecast accuracy hallucination was cut in half. Where we had close to 100% error (which isnt hard, given the small quantities involved in forecasting individual SKUs for specific warehouse locations), today were at about 44% or 45%.To put this in perspective, a one-point improvement in forecast accuracy across the board constricts our centre finished goods position by several million dollars. These were just two of many initiatives we launched in rapid succession after May 2001. A couple things were perfectly critical to keeping them all on track a highly condition travail management office and crocked performance formation of measurements. The key was to think big but focus relentlessly on near-term deadlines. We organized the change effort into 30-day chunks, with three new capabilities, or business releases, scroll out monthly-some on the supply side, some on the demand side.The job of the project management office was to ensure the termination of projects on time, on budget, and on benefit. Paul oversaw this for me. Also keeping us just were new metrics and the man 1 brought in to enforce them. My colleague magic Kerr, now general manager of forest for the North America division, was then in charge of Whirlpools Six Sigma program. Hes a real black belt when it comes to performance management. It took some persuading, aimed at two rear e nd and the North American leadership team, before he was freed up and allowed to dedicate himself to the supply chain turnaround.But we absolutely needed his data-driven perspective. When one of my team would say, We need to take this action tofixthis issue, John would always counter with,Please show me the data that allowed you to draw that conclusion. Were these demands sometimes a source of irritation? Id be lying if 1 said they werent. But they forced all of us to rebuild the metric fact base and hone our hassle-solving skills. By the third quarter of 2001, we had already through a lot to stabilize product availability and reduce overall supply chain cost.And, after a intriguing fourth quarter, we took a huge tonicity forward by implementing a suite of software products from i2, which specializes in supply chain integration tools. That was in January 2002. Six months later. Whirlpool had historic low inventories and a uphold high service level. Before the year was out, we were delivering very near our target of 93% availability across ail brands and products. (Momentum has since carried us OCTOBER 2004 well into the mid-nineties. ) We delivered slightly more than promised by reducing finished goods working capital by 10% and improving extreme cost productivity by 5. 1%.Our customers were voicing their approval. By May 2002, a blind Internet survey given to our trade partners showed us to be most improved,easiest to do business with, and most progressive. I remember that after these results came out, our VP of sales said, Youre good nowbut more important, youre consistently good. It was a number point in the trades perception of Whirlpool. spicy Talent I ve touched on the state-of-the-art technologies weve employed in our turnaround-the Web-based collaboration tools, the planning software, i2s rocket-science optimization-but let me correct any impression that this is a tory about technology. much than anything. Whirlpools supply chain turnaround is a talent renaissance. Its sometimes hard for us to remember how demoralized this 3,000-person organization had become. In 2000, many people in supply chain roles had been with the company for long time and had watched in frustration as competitors outspent and outperformed us. Part of the problem was the massive effort required by the ERP implementation. As an early adopter of opening organizations in our industry (SAP and other vendors got their start with process-manufacturing concerns like industrial chemicals).Whirlpool had bitten off a lot. With limited attention and resources to spare, it put other projects on hold. We took our eye off the ball in supply chain basis and fell behind. As a newcomer, I tried to inject some fresh energy into the organization and give people a reason to be convinced(p) Paul Dittmann told me this project gave him a second career wind. Hes a brilliant guy, with a PhD in operations research and industrial engineering, and suddenly, he had the opportunity to innovate in ways he had only conceive of of in his first 20 years at the company.Other people benefited from changes to how we develop, assess, and reward talent. With help from Michigan State University and the American output signal and Inventory Control Society (APICS), we substantial a supply chain readiness perplex. This is essentially an outline of the skills required in a top-tier organization, the roles in which they should reside, and how they need to be developed over time. And we created a new banding system, which expanded the compensation levels in the organization. Now people can be rewarded for increasing their expertise even if they are not being promoted into supervisory roles. 19 The 21st-century Supply Chain We also put a heavy emphasis on developing peoples project management skills. Here, we relied on a model developed by the Project Management Institute (PMI), a sort of standard for assessing and enhancing an organizations project managemen t capabilities. I wanted as many supply chain professionals as attainable to become PMI-certified, and not just because of the suffice of projects we were facing at the moment. My view is that project managements disciplined planning and execution is just as vital to ongoing operations management.After all, the only real difference between running an operation and running a project is the due date of the deliverable. over time, my operating staff stopped dismissing project management as a lot of overhead from a former management consultant and car guy. Now theyre the ones take a firm stand on things like project charters and weekly project reviews. Meanwhile, we hired at to the lowest degree 13 new people on the business side and at to the lowest degree as many more on the information systems side, and I made sure that every one of them was top-notch.To fill out our project management ranks, we recruited young people from companies with strong supply chains and from post-mor tem operations-oriented MBA programs like Michigan State and the University of Tennessee. perhaps we were lucky that our talent drive coincided with a downturn in the consulting industry. On the other hand, it might have been the excitement of a turnaround situation that drew the best and brightest to Whirlpool. Finally, I wasnt so arrogant as to believe that my senior team and 1 didnt need development ourselves. We assembled a supply chain advisory board and rent its members to keep challenging us.The host includes academics tire Bowersox of Michigan State and Tom Mentzer of the University of Tennessee, and practitioners Ralph Drayer (the Procter & seek executive who pioneered Efficient Consumer Response) and Larry Sur (who get the hang transportation and warehouse management in a long career at Schneider National and GENCO). Get a group like this together, and you can count on creative sparks flying. These experts keep us on our toes in a way no consulting firm could. Sustai ning Momentum refrigerators, washing machines, and other products that appeal to a broad range of consumers.They are the equivalent of a supermarkets draw and eggs running out of them has a disproportionately negative impact on customers perceptions. Were now formulating a supply chain strategy that allows us to identify these SKUs across all of our trade partners in all of our channels and to ensure that the replenishment system for our regional warehouses keeps them in stock. That constitutes the plan to sell part of the program. At the same time, for our smallest-volume SKUs, we are taking out all the inventory and operating on a complete(a) pull basis, with a new, more flexible build-toorder process. The inventory avings on the small-volume SKUs helps offset the costs of stocking up on the highvolume SKUs. Were also working on the capability to set service levels by SKU. That is, instead of having one availability target for all our products, we are recognizing that some produ cts are of greater strategic importance than others. Some of them, for instance, are more profitable. Some hold a unique place in our brand strategy. Again, its easy to perceive the value of being able to vary service levels accordingly. But in a sprawling business like ours, raptus thousands of different SKUs daily, its a very difficult thing to accomplish.We bide to develop new Web-based tools. Recently, weve been focused on system-to-system transactions, in which our system talks directly to a customers system for purposes of transmitting orders, exchanging sales data, and even submitting and stipendiary invoices. Weve rolled out this capability with a number of trade partners over the then(prenominal) i8 months. At the same time, we keep enhancing our Partner Store, which allows customers to check availability and place orders via the Internet. The place allows them to find near equivalents of models, for those times when a SKU is out of stock or retired. They can even fin d deals on out of date inventory.By the time this article appears in print, well also have implemented event-management technology, which will allow us to be more on top of the movement of goods through the supply chain. An event manager provides an alert whenever an action in the process has taken place-for example, when a washer is loaded into a container in Schomdorf, when that container full of washers is loaded onto a ship in Rotterdam, when the ship departs, when the ship arrives, when the container is deliver from the ship in Norfolk, when the container leaves the port via truck, and, finally, when the washer is unloaded at the Findlay, Ohio, warehouse.The result is that peoples attention is directed to what needs to be done. Well also be further along in our application of HARVARD BUSINESS REVIEW T 120 hree years into the project now, we continue to assign ourselves and deliver three new capabilities per month. This doesnt get simpler over time, either. As I write this, fo r example, were focused on something we call Plan to Sell/Build to Order. Here, the whimsey is that certain high-volume SKUs should never be out of stock. These are the heart-ofthe-line dishwashers. .lading a Supply Chain Turnaround ean techniques (usually associated with manufacturing operations) to our total supply chain. This involves using pull concepts and kanbanlike triggers to speed up processes, reduce inventory, and enhance customer service. On the Hoz4zon W hirlpool has much to show for its supply chain efforts. By the end of 2003, our product availability had reached over 93%, up from 88. 3% in 2001. (Today its more than 95%. ) That allowed us to attain an order fill rate for key trade partners of over 96%. The number of days worth of finished goods we were place in inventory had dropped from 32. 8 to just 26.We drove freight and warehousing total cost productivity from 4% to 7. 2%. From 2002 to 2003, we lowered working capital by almost $100 million and supply chain costs by almost $20 million. Does all this add up to value in excess of the expense our leadership team approved? Absolutely. In fact, total payback on that real investment occurred within the first two years. Still, our work is far from finished. In October 2001, just months after we kicked off our turnaround, we were fortunate in that the new executive vice president brought in to run Whirlpools North America region had deep supply chain knowledge.Dave Swift, who came to us from Kodak, believes strongly in the strategic importance of the supply chain both for building brands and for creating sustainable competitive advantage. nowadays after joining us, he elevated our sales and operations planning process by personally chairing monthly executive S&OP meetings. These meetings have become the model for the company and the basis for much of our just-started global supply chain efforts. In the future, well face greater demands for end-toend accountability. Were already responsible for the resale of any returns. Soon well be accountable for the disassembly of products in Europe.Its only a count of time before similar laws are enacted in the United States. And well be taking an even closer look at the design of the products themselves. If we can redesign a productOCTOBER 2004 make it in a smaller plant, make it with smaller parts, ship it in smaller pieces we can dramatically affect supply chain economics. Its great to improve forecasts, optimize transportation, and speed up our processes with existing SKUs. But what if we could push the end stages of mathematical product closer to the consumer and get higher supplement from those SKUs? Thats the kind of thing that can change the rules of the game.Its a wonderful thing about our business We have fierce competition all over the world, and on top of that we have very smart trade partners who deal with numerous other suppliers. We may be a white goods, big box supplier, but because our customers also buy elec tronics and apparel and so on, were perpetually being challenged by the benchmarks of other, more nimble industries. Technologies continue to evolve, channel power continues to shift, and the bar is constantly being raised. But Im confident that the talent in Whirlpools supply chain organization will be equal to it all. separate RO4IOG To order, see page 159. 121