Leading Supply Chain Turn Around

Five age ago, gross salespeople at vortex said the companys provision scope staff were sales dis adaptedrs presently, Whirlpool excels at acquire the right overlap to the right place at the right beat-while obtaining account low. What make the departure? by Reuben C Slone a hand over drawing string policy change eading T hings would be very antithetical today-for me, my colleagues, and my company if the votes of Whirlpools uniting the Statesn leader displace team had swung in a distinct charterion on May 3,cc1.It was a move I hadnt expected Mike Todman, our exe fartheste alongive vice prexy at the magazine, decided to go around the elude and ask each(prenominal) member of his staff for a thumbs-up or thumbs-d proclaim on the investiture that capital of Minnesota Dittmann and I had on the dot form ally proposed. Did I visit worried? I cant imagine I didnt, charge though wed spent hours in individual reachings with each of them, getting their ideas and buy-in. We thought we had everyones support. vindicatory at one time the facts remained Our task had a bigger price tag than any grant strand of mountains investment in the companys history. We were asking for tens of millions during a period of global belt-tightening. slightly of it was slated for immature hires, even as cutbacks were taking place elsewhere in the company. And Paul and I, the people doing the asking, were coming from the sum up range brass section. Let me be excrete The supply ambit organization was the part of the transaction that Whirlpools salespeople were in the economic consumption of vociferateing the sales disablers in 2000. We were perpetually behind the eight ball, tying up too over such(prenominal) capital in finished goods inventory yet failing to provide the produce avail exponent our customers infallible. Our availability hovered around 87%. Our colleagues grimly joked that in contemplates on the delivery deed f the four bigges t appliance manufacturers in the U. S. , we came in fifth. 114 HARVARD BUSINESS REVIEW OCTOBER 200 U HBR The 2Xst-Century Supply Chain. spotlight And here, with all the credibility that get over learn conferred on us, we were proposing an ambitious unused suite of IT solutions any(prenominal) intimacy, too, for which the company had little appetite. It had been ripe 20 months since Whirlpool vernalton America had flipped the switch on a massive impudently ERP system, with less than desired effect. Normally, Whirlpool ships close to 70,000 appliances a day to North American customers.The day after we went live with SAP, we were able to ship somewhat 2,000. A barrage of bad press followed. correct though the situation was soon righted (SAP remains a valued partner), the beget of being treated as a sort of poster kidskin for ERP folly had left scars. So imagine our relief when we heard the stolon voice say yes. It was the decision maker who headed up sales to Sears. Pa ul and I timbered anxiously to the next face, and the next. The heads of our KitchenAid, Whirlpool, and value brands followed suit-a watershed, assumption that the funding would have to get it on from their budgets.I could see that J. C. Anderson, my boss and senior vice president of operations, was happy, too. He had well-tried to voice his support at the beginning of the meeting, just now Mike Todman had asked him to wait. kayoedright that it was his turn to vote, he did it with a fiourishI am fully committed,he said,to moving our supply set up from a liability to a recognised competitive advantage. Only after Todman had heard from everyone in the room brands, sales, finance, homosexual resources, and operations-did he cast his vote. costs. Sales had risen to record levels in 2000 as our launch of many nnovative products coincided with an uptick in housing starts. With the rest of the company chugging on all cylinders, at that place was only one thing holding us back our supply chain. Jeff called me into his withdrawice and gave me a 2-word prepargon Fix it. If that constitutes a mandate, we had one. plainly it was up to us to figure bring off what fixing the supply chain would entail. At the happen level, of course, its a simpleton formulation getting the right product to the right place at the right time all the time. That gets complicated very quickly, however, when you consider the scale of the challenge.Whirlpool makes a versatile line of washers, dryers, refrigerators, dishwashers, and ovens, with manufacturing facilities in 13 countries. We sell those appliances in lOO countries, through with(predicate) retailers big and small and to the construction companies and developers that build new-fashioned photographic plates. In the linked States alone, our logistics network consists of eight factory distri merelyion centers, ten regional distribution centers, 60 local distribution centers, and nearly 20,000 retail and contract c ustomers. M We carryed to formulate a battle intention that would include new tuition technology, processes, roles, and geniuss.But before we could begin to imagine those, we needed to define our strategy. flavor to the emerging, what would it mean to be world-class in supply chain implementation? The decision we made at this very early point in the process was, 1 think, a pivotal one. We decided that we could answer that incertitude only by focusing on customer With that last yes, the tenseness broke, and everyone was requirements first. Our approach to evolution our supsmiling and nodding. Paul and I had a sense of triumphply chain strategy would be to start with the last link-the but too trepidation.Because now, we knew, there could consumer-and proceed backward. be no excuses. We were on the hook to deliver some serious value. Its an obvious thought, isnt it? Fxcept that it wasnt. The overwhelming t nullifyency in a manufacturing organization is to think roughly the supply chain as something Devising the dodge that originates with the supply base and moves forward. Its understandable This is the part of the chain over y responsibility at Whirlpool today is for the which the company has control. But the roofless performance of the global supply 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 truly point. and I was absolutely new to the supply chain organization. Whether or not they make customers lives easier be(I had amount into the company a few years earlier to lead comes an afterthought. its e- avocation organisation perspirations. ) By contrast, Paul Dittmann, the vice president of supply chain strategy, was a Whirlpool vetUnderstanding Customers Needs. If you start with the eran with a tenure spanning a quarter century. ustomer, the customer cant be an afterthought. The way I expressed this to my colleagues was to say,Str ategic relOur lots were cast in concert 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 research to consult on the subject of contime he was president and COO and he was good and sumer needs. Whirlpool and Sears had recently engaged fatigue of hearing about spotty service and high logistics Boston Consulting aggroup to study consumers desires Reuben E.Slone emailprotected com) is the with regard to appliance delivery. The top-line finding vice president of orbiculate Supply Chain at Whirlpool Corpo- was that people value what I call delivery with integrity. That is, your ability to get it there fast is important, but ration in Benton Harbor, stat mi. 116 HARVARD BUSINESS REVIEW Leading a Supply Chain 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 familiar to me, coming from the automotive industry.In my foregoing range at General Motors, Id been abstruse in several studies that emphasized the psychology of delivery date commitments. Identifying Trade Partners Priorities. Moving upstream, we needed to understand the desires of our direct customers better. We conducted our own interviews to define requirements by segment. As well as feeling at littler retailers versus larger ones, we focused individually on Sears, Lowes, and vanquish Buy, our three biggest customers. And within the contract-builder food market, we studied many subdivisions, from contract distributors and apartment developers to ingle-family-home builders. We asked about their overall availability requirements, their preferences in communicating with us, and what they would like to see on the lines of e-business. We asked about inventory forethought and how they might want Whirlpool to economic aid in it. In all, we discovered 27 different proportionalitys on which our perfor mance was being judged, each varying in importance according to the customer. Benchmarking the Competition. Naturally, our customers expectations and perceptions were molded in large part by what differents in our industry were doing.So we benchmarked our competitors-primarily GE, which was our biggest rival. We obtained cross-industry information and competitive intelligence from AMR, Gartner, and Forrester Research to make accepted we had a panoptic and objective assessment of supply chain capabilities. Then we mapped out what would be considered world-class (versus sufficient or transitional) performance for each of the 27 capabilities and how much it would cost us to reach that top level. It turned out that to consort on every front would require a correspond investment of more than(prenominal) 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 Fo r each capability, what correctment could we accomplish at a low investOCTOBER 2004 ment level, and at a medium level? We quickly staked out the atomic publication 18as where a relatively small investment would yield supremacy, usually ascribable to an existing strength. A few areas we simply decided to cede. Our plan was to meet or beat the competition in most areas, at minimum cost. Building for the Future. Strategy, of course, does not simply address the needs of the moment.It anticipates the challenges of the future. A net component of our supply chain strategy was identifying the probable range of future run scenarios based on industry, economic, and technological trends. The point was to as sure enough ourselves that our plan 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 continue evolving in the same basic direction. exchange the Revolut ion I ts always a difficult decision-when to involve your midland customers in the planning of a major capital investment.Their time is scarce, and they typically 117 HBR T h e Spotlight Chain. dont want to be drag in the details of what you, after all, are getting paid to do. You must have your act together and have a solid plan to which they can respond. On the other hand, you cant be so far along in the process that youve become in flexible. You need to maintain a thrifty balance between seeking their guidance and selling your vision. Paul and 1 liked to think we had that mandate from Jeff Fettig to get the supply chain fixed. But it wasnt the kind of mandate that comes with a blank check.Like most well-managed companies, Whirlpool leave not undertake a capital investment without a compel business case. As a cost center in the company, we had to apologize our run across wholly on depreciate reductions and working capital improvements. eve if we believed that better prod uct 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 recall telling Paul, If they wont let us in the door, well go through the window.And if they charter the window, theres always the air vent. Along the way, wed been particularly concerned about cherry-picking. We knew that, in a company of smart businesspeople, the first reaction to a multimillion-dollar price tag would be, OK, what can I get for 80% of that natural? And indeed, from a project perplexity 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 supporting and relying on two-fold other parts.What overhauled here was our competitive analysi s, in which we had plotted our capability levels against others. We charted our accredited position against our number one competitor on each dimension valued by customers, then extrapolated to pose how, depending on the level We staked out the areas where a relatively small investment would yield supremacy, usually imputable to an existing strength. affected by the changes we were proposing. The Japanese call this kind of consensus-building nemawashi (literally, it style root binding), and it is impossible to overstate its importance.Yet it is often neglected in the midst of a complex project. Note that, at the same time we needed to be meeting with key decision makers, we were also in the thick of the analysis and design of the solution. In those early months, the project needed leadership in two directions the kind of work people typically refer to as needing a Mr. Inside 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 inter face up with the trade, 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 leave circumspection, half blow us off. But wed get some input. In a second meeting, wed show 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 ternary meeting, reactions were mixed. People were more or less on board, but some felt another meeting wasnt 118 of investment, we could overtake that company or depart the gap 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 turnaround of Whirlpools supply chain was the rollout of a new sales and operations planning (S&OP) process. Our previous planning environment had be en inadequate. What passed for planning tools didnt go far beyond outperform spreadsheets. Now, we had the ability to pull together the long-term and short-term perspectives of marketing, sales, finance, and manufacturing and produce forecasts that all the participants could base their game plans on.We soon pushed our forecasting capability further by launching a CPFR pilot. The acronym stands for collaborative planning, forecasting, and successor, with the collaboration happening across different companies within a supply chain. The idea is straightforward. Traditionally, we forecast how many appliances we ordain sell through a trade 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 share the sensitive data behind them), and we collaborate on the exceptions. As simple as it sounds, it isnt late to pull off. But we have, and its been a real home run. Within 30 days of launch, our forecast accuracy error was cut in half. Where we had close to nose candy% 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 reduces our supply 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 absolutely critical to keeping them all on track a highly disciplined project commission office and sloshed performance metrics. 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, rolling out monthly-some on the supply side, some on the demand side.The job of the project management office was to ensure the bound of projects on time, on budget, and on benefit. Paul oversaw this for me. Also keeping us honest were new metrics and the man 1 brought in to visit them. My colleague butt Kerr, now general manager of quality 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 both John and the North American leadership team, before he was freed up and allowed to gift 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 ho ne our problem-solving skills. By the ternion quarter of 2001, we had already done a lot to stabilize product availability and reduce overall supply chain costs.And, after a challenging fourth quarter, we took a huge step forward by implementing a suite of software products from i2, which specializes in supply chain integrating tools. That was in January 2002. Six months later. Whirlpool had historic low inventories and a sustained high service level. Before the year was out, we were delivering very near our stigma 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 total 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 af ter these results came out, our VP of sales said, Youre good nowbut more important, youre consistently good. It was a turning point in the trades perception of Whirlpool. agreeable 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. More 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 years 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 enterprise systems in our industry (SAP and other vendors got their start with process-manufacturing concerns like industrial che micals).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 innovation and fell behind. As a newcomer, I tried to inject some fresh null into the organization and give people a reason to be cocksure Paul Dittmann told me this project gave him a second career wind. Hes a bright guy, with a PhD in operations research and industrial engineering, and suddenly, he had the opportunity to innovate in ways he had only dreamed 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 Production and Inventory Control corporation (APICS), we positive a supply chain competency model. 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 ne w 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 management capabilities. I wanted as many supply chain professionals as possible to become PMI-certified, and not just because of the glut 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 discharge an operation and running a project is the cod date of the deliverable. Over time, my operating staff stopped dismissing project management as a lot of overhead from a former manage ment consultant and car guy. Now theyre the ones insisting on things like project charters and weekly project reviews. Meanwhile, we hired at least 13 new people on the business side and at least 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 new-fashioned people from companies with strong supply chains and from premier 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 overbearing as to believe that my senior team and 1 didnt need using ourselves. We assembled a supply chain advisory board and chartered its members to keep challenging us.The group includes academics Don Bowersox of Michigan State an d Tom Mentzer of the University of Tennessee, and practitioners Ralph Drayer (the Procter & adventure executive who pioneered Efficient Consumer Response) and Larry Sur (who mastered transportation and warehouse management in a long career at Schneider National and GENCO). micturate a group like this together, and you can count on fanciful sparks flying. These experts keep us on our toes in a way no consulting firm could. Sustaining Momentum refrigerators, washing machines, and other products that appeal to a immense range of consumers.They are the equivalent of a supermarkets milk 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 pure 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 products 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 grasp the value of being able to vary service levels accordingly. But in a sprawling business like ours, shipping thousands of different SKUs daily, its a very difficult thing to accomplish.We continue 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, exchangi ng sales data, and even submitting and paying invoices. Weve rolled out this capability with a number of trade partners over the past 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 website allows them to find near equivalents of models, for those times when a SKU is out of stock or retired. They can even find deals on obsolete inventory.By the time this phrase 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 interpreted place-for example, when a washer is nonsensical 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 unloaded from the ship in Norfolk, when the container leaves t he 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, for example, were focused on something we call Plan to Sell/Build to Order. Here, the notion 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 lift 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 re ached 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 holding 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 original 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. Immediately 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 matter 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 stage s of production closer to the consumer and get higher leverage 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 electronics and apparel and so on, were unendingly 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. Reprint RO4IOG To order, see pageboy 159. 121