If You Build It Properly, They Will Come

Globalization has created an entirely new paradigm for organizations across all aspects of their operations. On the demand side, companies now have access to new markets throughout the world. Never before have companies had the ability to access the sheer scale of the consumer base as quickly or as easily as they can today. On the supply side, truly global manufacturing and distribution operations are creating multi-enterprise value chain ecosystems that are built on a completely new generation of supply chain management best practices. In this environment, complexity proliferates.

While this new generation of supply chain management presents a unique set of challenges, it has also bred new solutions that enable best practices and simplify the management of this complexity. A close look at today’s leading companies reveals a common thread—all of them successfully leverage their supply chains as a competitive weapon to improve margins, avoid risk, grow top-line revenue, and to satisfy ever-demanding customers who have many alternative buying options. This is a story of a company that transformed itself from ninth in its market into one of those leaders.

When a manufacturer took a majority stake of its formal rival in 2004, it was instantly transformed from the ninth-largest manufacturer of its product in the world to the third-largest. Prior to the acquisition, this company had established a strong presence its home market, with an approximate 40% share of the domestic market, but had limited success outside of it. The agreement extended this company’s global capabilities and added more than 27,000 employees across 60 countries. With this expansion came accelerated access to markets that the company had not successfully developed before. In one bold move, this organization had transformed itself into a formidable global player. It now faced the daunting task of aligning the people and the processes that would support the demands of its new growth.

The management team set forth the objective of increasing revenue in the US direct market channel by 400% within eight quarters. Management understood that achieving the significant growth targets required significant changes within the fundamental processes on both the supply and the demand sides of their business. They needed to increase the velocity and control capabilities across their supply chain to establish operational flexibility, synchronize sales and operations processes, and grow the business while maximizing profitability. They also recognized that they needed an end-to-end vision to establish the business processes that would enable it to achieve its growth targets.

These ambitious growth targets challenged this organization to not only reengineer its processes but to also implement the best solution rapidly. With the peak sales season approaching, the entire project faced a firm deadline. The company needed to implement a solution that would span from the point of order capture all the way through to fulfillment. Given the significant work ahead of it, the management team knew it must focus on the core components that would drive change and success —all of which resided within the supply chain.

This company’s first step was to develop a process and technology platform that would create and sustain the ability to grow market share. This would be supported by best-practice operations that streamline business processes, enable greater collaboration, and manage risk effectively and efficiently. The dynamic nature of their market dictated that the solution have the ability to adapt quickly to align and control the distributed global operations to ensure the right products were in the right locations at the right time. Management knew this kind of agility would be the key element in enabling the company to better control the impact of variability.

According to their Vice President of Global ecommerce “We recognized the need for a highly flexible and robust e2e platform as a critical first step in deploying a best-of-class eCommerce customer experience. Additionally, it was clear that any solution delivered needed to leverage a broader set of processes within other cross-functional areas to achieve efficiencies and scale, and it had to be done quickly.”

Enhanced visibility, collaboration, and control ensured that changes in demand were dampened as they flowed backward into the supply network. As a result, the organization could steer demand toward the available supply while ensuring popular products were available. These improvements would also provide the company with reduced order-to-delivery cycle time and drive increased revenue by streamlining operations. At the same time, they could enhance the customer-facing experience to grow market share, improve margins, and increase customer conversion with its internet sales channel.

Simplifying Complexity

Next, they transformed their fulfillment model to simplify inventory management across the entire supply chain. The company traditionally used preconfigured SKUs based on a build-to-stock model. Prior to this transformation project, supply and demand were managed across 175,000 SKUs that complicated processes, introduced enormous inefficiencies, and eroded margin and revenue growth.

Product selection was limited and based on manageable part numbers. This restricted both the choices available to the customer as well as the profitability potential of the operation itself. Customers would configure their product, which would then be assigned its own unique SKU. This SKU was then communicated downstream to the EMS partners who were forced to decipher a proliferation of part numbers, complicating their ability to collaborate and perform efficiently.

Order management processes were cumbersome and rigid, which made efforts to act on and shape demand less meaningful. Without clear visibility or the ability to act quickly, promotions and merchandising suffered. Neither sales nor operations could take advantage of the day-to-day demand/supply balancing to maximize revenue and operate more efficiently.

Simplification was the first critical step in streamlining operations. The company transitioned from a SKU/build-to-stock (BTS) model to a configure-to-order (CTO) model to simplify the part number nomenclature and collaborate more clearly and more effectively with its EMS providers. This allowed operations to address its order entry to release times—historically eight times greater than best-in-class benchmarks—to fulfill orders at an average of 6-8 days, as opposed to the prior average of 14 or more.

The simplification process also enabled management to re-construct its contracts with suppliers and service providers, enhancing collaborative efficiencies and enabling clearer shared visibility. The transformation from SKU to CTO enabled both sales and operations to work with a more meaningful and manageable data set, which further improved collaboration between the organization and all of its supply chain partners.

The next challenge was to create “perfect” part availability to ensure that parts are available when orders drop from manufacturing. Operations was able to establish a “sell to plan” control process and gain a clearer view of actual supply chain information and demand variability to minimize the forecast variability and ensure that part availability was in line with actual demand. As a result, the organization gained the ability to balance supply with demand on a daily basis, which fed profit-boosting processes such as demand shaping, as well as pricing and promotions.

This also worked to improve the customer experience. Having a clear understanding of supply and its result on actual lead times, managers were able to institute predictability and consequently increase sales and customer confidence. Standard lead times could be quoted for orders whose supply was available; longer lead times would be quoted if a particular configuration contained components that were not on hand. Alternative configurations and components were recommended to the consumer at the same price level as well as above and below so that they could make their own decision based on cost, performance and delivery speed. This gave customers the information and the incentives needed to choose their final configuration accordingly.

Secondary customer side benefits were substantial. The customer conversion rate—how many customers visit the website versus buy—increased significantly. The holiday season alone saw an increase in website conversion of over 70%. By providing customers with clearer information that they could then use to design their own products, the company saw the average order value increase. The average “stickiness”—or the time the customer spent on each web page—increased by more than 25%.

Their Vice President of Global eCommerce attributes their ability to achieve and surpass the strategic objectives of this project to the proven tools, processes and methodologies of their best in class supply chain solutions provider. “i2’s industry-leading solutions and supply chain domain expertise enabled us to transform our processes and supply chain to a configure-to-order (CTO) model. The ability to leverage core service-oriented architecture components around configuration management, merchandising, and marketing features helped us to drive higher purchase consideration, increase relevant up-sell/cross-sell, and ultimately better close rates on the site very rapidly. All of this was completed while addressing the response times needed in a high availability and high performance environment. Overall, i2 delivered a world-class solution—in record time—that allowed us to keep our focus on our end customers.”

Implementing Continuous Improvement

Management took the final and most important step of institutionalizing these changes into a continuous improvement process. This process was multi-organizational in composition to ensure that every level of the operation was being monitored, and therefore executed in accordance with this strategic project. A cross-functional team comprised of representatives from supply chain, finance, operations and legal created a “Center of Excellence” to ensure the strategy is being implemented correctly every day.

The Center of Excellence enables transparency to identify and correct bottlenecks within the process quickly to minimize disruptions and maximize success. It allows the entire organization to understand the leverage points across the supply chain and focus on delivering value to the customer and to the shareholders through continuous improvements of operations and sales.

Supply Chain Collaboration Drives an Entirely New Generation of Value

Supply chain innovators work backward from the market into their value chain. Aligning operations from the point of sale enables the creation of lean, agile and demand-based supply chain networks. These networks link the variables of liability, finance and logistics to ensure that the proper balance of profitability and performance is achieved.

Through this critical transformation, this organization successfully integrated two very different supply chain networks while at the same time reengineered its processes in a way that allowed it to collaborate more closely with both the consumer as well as with its supply chain partners. By adopting best-practice supply chain processes, The company was able to transform itself in ways that enabled growth in margins and overall revenue. They created a more valuable and simplified customer experience, ensuring increased satisfaction, and established a transparent, synchronized operations network, enabling operational efficiencies and decreased risk.

The organization instituted a touchless order flow, which made it possible to greatly reduce the order-to-delivery cycle time across a supply chain environment that was growing by orders of magnitude. By converting to a CTO model, The company was able to simplify its inventory processes, allowing for cleaner and clearer collaboration with its supply chain partners and its customers. Through demand shaping, management was able to establish profit boosters within its sales and operations planning, while at the same time enhancing the customer experience.

Going forward, management intends to replicate the processes and successes it has realized through this first step of this strategic project. The combination of simplification, automation and collaboration has enabled the company to be on target to achieve the four-times growth it has set forth as its goal— and they will achieve this while also establishing best-practice operational efficiency.