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Executive Overview
When companies define supply chain excellence, most mean "an efficient supply chain." Seldom do
companies ask, "Is the efficient supply chain effective?" Efficient supply chains will never be agile;
yet leadership teams want agility. The issue? The goals are in opposition.
In a nutshell, operations teams do “ big ” well. The focus is on long manufacturing runs, full trucks, and
discounts for large procurement buys. Growth agendas demand for commercial teams to excel in
doing “ small ” well. This includes localized assortment, new product launch, demand shaping
strategies and customer-centric programs. In today ’ s supply chains big eats small. There is constant
tension.
Figure 1. Current State of Supply Chain Management
The journey for supply chain excellence starts with goal alignment. As shown in Figure 1, today's
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efficient supply chain processes are controlled but largely reactive. As a result, only one in three
companies feels that their supply chains are working well. The path forward is not clear.
Companies want supply chains to be more proactive, agile and aligned. The goal is to move past
supply chain defined as function — deliver, make, source or plan--to build strong supply chain
capabilities, but companies struggle. Most are stuck. The struggle is how to achieve the desired state
shown in Figure 2.
Figure 2. Desired State of Supply Chain Management
Defining the Supply Chain Response Agility is not free. The efficient supply chain minimizes cost. The goal is the lowest cost per unit.
Efficient, responsive and agile supply chains are three distinctly different supply chain designs. The
definition of supply chain excellence requires a choice.
This needs to be defined for each supply chain. Within an organization there are three-to-five flows
each requiring a different goal. The mapping should be from the customer back with the processes fit
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for purpose.
Let’s contrast the differences. A responsive supply chain moves quickly with short lead times. The
response rate is a critical component in the design of supply chains with predictable demand and
non-predictable timing. Which products are these? Items like flu vaccines, bathing suits, toys for the
holidays, seasonal items or disaster relief need to be managed using a responsive supply chain
design. The focus is on cycle reduction and allocation of on hand inventories. If the organization
attempts to manage the supply chain for a responsive product in an efficient design, short shipments
and customer service issues abound.
The responsive and agile supply chain are often confused, but they are different. While a responsive
supply chain is defined by short cycles, an agile supply chain delivers the same cost, quality and
customer service given the level of demand and supply volatility. Business results for items like new
product launch, specialized promotions, custom products and seasonal demand are improved
through the deployment of an agile supply
chain. In this report, we share tactics to
improve agility.
The delivery of new capabilities requires
the challenging of traditional supply chain
paradigms. This direction can be in direct
opposition to Information Technology (IT)
investments targeting the delivery of
efficient supply chain processes. For
example, the tight coupling of functions
and nodes with fixed integration to Enterprise Resource Planning (ERP) improves efficiency but
reduces agility or responsiveness. The take away? In the development of strategy, ask tough
questions. Business processes and IT investments need to align with supply chain goals.
Tactics vary. The approaches for agility cross over demand, supply, and product processes. Few
companies orchestrate agility tactics end-to-end from the customer's customer to the supplier's
supplier. In this report, we want to spark the debate of how to improve agility through holistic thinking.
The case studies in this report, collected over the last decade, demonstrate different supply chain
tactics to improve agility. These are shown in Figure 3.
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Figure 3. Tactics to Improve Agility
In this report, we share case studies and research. Where possible, we support the client case
studies with company financials to help the reader understand the business results.
Sales and Operations Planning At the center of the agility model in Figure 3 is Sales and Operations Planning (S&OP). It is the most
important tactic to improve supply chain agility. Over 80% of companies have a Sales and Operations
(S&OP) planning process, but few are mature. As the organization matures, it becomes more aligned
and agile. This relationship is shown in Figure 4. We have completed five research studies in this
area over the past six years. This relationship is consistent across all the studies.
What is a mature S&OP process? Let's start this discussion with a warning. Hijacked by consultants
attempting to drive self-interest, acronyms abound. To simplify this discussion, let ’ s side-step the
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discussion on abbreviations.
Figure 4. Relationship Between a Mature S&OP Plan and Agility
In our research, we use nine
characteristics to define a
mature S&OP process:
1. Clear Strategy. It is
hard to know where
you are going unless
there is a clear
strategy. S&OP is a
means to actualize the
plan. Without clarity of
the mission, cross-
functional teams
flounder.
2. Balance. Mature
S&OP processes
balance the interests of
“sales” and
“operations” with a
focus on the “&.” In our
research, we find that
75% of companies are
out-of-ba lance reducing the Company’s ability to achi eve alignment or improve agility.
3. Organizational Discipline. Driving cross-functional teams requires a precise schedule, roles, and
deliverables. Within mature S&OP processes, process discipline is omnipresent.
4. Defined Governance. The process operates outside of order lead times, and the profit center
manager acts as the leader. The focus is on the future. (This is often twelve to eighteen months.) It
is never a focus on the current month or optimization within the order lead time.
5. Balanced Scorecard . Within a mature S&OP process, there is a balanced scorecard that ties to
corporate strategy. Based on our research, we find that market value (either price to tangible book
or market capitalization) is higher when the scorecard balances growth, customer service, inventory
levels, cost, and asset utilization. Strategy drives the weighting of the factors. Results drive
continuous improvement.
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6. Feasible Plan. As organizations mature, the discussions are data-driven. Operational execution
closely links to the S&OP plan. This is possible because the modeling optimizes trade-offs to the
strategy and the decision support technologies are selected and refined to develop a feasible plan.
7. The Process. Planners love planning technologies and push for model improvements. Companies
hold themselves accountable to drive progress in the measurements of Forecast Value Added
(FVA), manufacturing plan adherence, order on-time, and in-full measurements, and inventory
obsolescence (SLOB).
8. Volume-to-Value Discussions. The goal of the plan is to maximize value. In this discussion,
decision support technologies are used to optimize the trade-offs between volume, mix, and cost.
The models enable "what-if analysis."
9. Bi-directional Orchestration. The traditional supply chain focused on functional excellence while
the mature S&OP process targets cross-functional trade-offs to improve a balanced scorecard. The
focus is from the customer's customer to the supplier's supplier analyzing compromises of product
mix, new product launch, alternate supply, product platform rationalization, and cost-to-serve. The
leadership team aggressively drives a dialogue on cross-functional trade-offs.
Demand Networks Despite lots of discussions, few companies build demand networks. We know of two companies
successful in building demand networks. One is Lenovo. The other is confidential. Companies are
supply-centric thinkers; and as a result, miss the opportunity to improve agility through demand
networks.
Let's get clear on definitions. What is a demand network? A demand network decreases demand
latency and improves sense and respond capabilities for a Company. (Demand latency is the time
from channel purchase to demand translation of channel replenishment to drive order to an
upstream trading partner.) While most companies believe that an order is a good predictor of
demand, with product proliferation, globalization, and microsegmentation, demand latency
dramatically increased over the past decade. As a result, the order is not as good of a predictor of
demand as it was ten years ago. Increasingly, it is out of sync with the market.
IBM changed this for their Lenovo brand. IBM named the demand network iBAT. (The IBM Buy
Analysis Tool).
The Problem IBM had too much inventory in the channel driving excess costs. Computers, like bananas,
decreased in value over time, due to price declines, with age. As the Company launched
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products, the value of the inventory plummeted. The "hot potato" was responsible. Who should
pay for the change in value? The distributor? IBM? The discussions were a barrier to growth.
Gaming behavior reigned. No trading partner wanted to be left holding inventory requiring a write-
off. To combat the problem of aging product, IBM price protected sales to the distribution channel
partners for 45 days. It helped, but when the price protection expired, distributors stopped buying.
To boost sales, IBM extended price protection. The company was in a crazy non-win cycle. To
remedy the situation, the Company would try to promote old inventory, only to get it back as a
return. The teams were spending millions to get the inventory out of the channel while the supply
chain pushed products into channel distribution.
At times, IBM would be running out of supply while writing-off inventory. The Company couldn't
seem to get it right. The distributors would have many weeks of sales, but it was the wrong stuff,
and the group would miss market opportunities. It was a constant struggle. The IBM research
team offered to study the situation and make
recommendations.
As a starting point, the IBM research team started with
channel data. The team ran a simple regression on the
channel information to better understand patterns and
determined the rates of sales per channel node based on
historical data. Their work evolved to include lead times
and seasonality, along with insights on the variability of
the product and how the product should sell. The iBAT system recommended supply level for
each distributor. The business partners liked that. They loved it so much that they used the
recommendation from iBAT to beat IBM over the head. Tension mounted between internal sales
teams and distributors to rationalize the channel inventory levels.
Changing Behavior After the implementation of iBAT, things got better. Customer service improved and the write-offs
were fewer. However, basic channel behaviors did not change. The business partners didn't want
to hold inventory, but the IBM salesforce would come in at the end of the quarter and ask the
distributor to load up their warehouses. IBM would always give them an incentive to pre-buy. The
business partners bought on incentives, and then the inventory became poison. In the first years,
the iBAT tool became a good way for communication between the distributors and the IBM sales
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team, but it didn’t change behavior.
The first step to drive adoption was to define a minimum and maximum target (reasonable range)
by item. In the process, the Company changed price protection terms. IBM told distributors that if
they had inventory, and the item was within the min-max range of iBAT, the Company would price
protect the product forever. When this new policy was implemented in 2018, IBM salespeople
struggled. It was summer 2008; and, in 2008, there was a major macroeconomic event. As the
recession happened, the distributors were scared. The economic downturn helped drive iBAT
adoption. The project reduced the channel inventories from a six- month supply down to the min-
max levels.
At the time of implementation, IBM had
$160M of inventory in the channel, and 40%
was the old product. By the time second
quarter of 2009 occurred, the IBat program
reduced inventory by 50% resulting in the
reduction of obsolescence from 40% to 5%.
These savings translated to $5M. Due to the
improvement in agility, the Company hit
service levels, and the complaints about
having the right stuff in the channel went down dramatically.
With the US economic stimulus money in September 2009, the IBM business came back with a
vengeance. The result? IBM took market share. The network tool iBAT consistently rationalized
the required replenishment levels improving agility. When the sales team pushed partners to
inventory load the channel, distributors pushed back. Data-driven discussions drove alignment
and balance. The iBAT replenishment approach stopped a dangerous behavior that stemmed
from sales-driven behavior. iBAT was a voice of truth that enabled everyone to succeed together
in the network.
The implementation and the results took time. In Figure 5, we share the five-year project
schedule.
Figure 5. The Roll-out of the iBAT Project by IBM
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At IBM, the use of iBAT helped teams to work better cross-functionally to improve inventory ordering,
increase sales and eliminate customer service issues. The results? An improvement in agility driving
impressive business outcomes.
Value-Stream Mapping
Most companies know that there is not one, but many supply chains within a Company. The question
is how to align the supply chain processes to the business. The answer? Value Stream Mapping.
At Clorox, the value stream mapping work started in 2006. Supply chain segmentation — designing a
fit for purpose supply chain — was the focus. At that time, Clorox was moving from being a regional
manufacturer of bleach products to manufacturing and selling a wider product portfolio globally. The
revenue was slightly more than 1B$.
The work on value-stream mapping helped Clorox build the right infrastructure to support a multi-
national supply chain team. Today, the story is quite different. Today, the company has sales of 6B$,
manufacturers 40+ brands in 24 countries and sells products in 100 countries.
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A Closer Look at Clorox
Over the course of the last decade (2006-2017), each vertical industry has operated within a well-
defined pattern of performance. As shown in Figure 6, the margins for retail averaged 7%, while
personal products were 10% and consumer products household goods were 16%. While many in the
industry believe that there was significant improvement in data sharing and collaboration within the
consumer value chain over the past decade, this was not the case. Instead, each industry operated
on its own effective frontier. Clorox was attempting to build a value network of products from personal
products and household products while driving growth with retail.
Figure 6. Orbit Chart Comparison of Personal Products, Household Companies and Broadline Retailers (Period of
2006-2017)
The addition of product portfolios in segments with lower margin and turns affected the overall Clorox
results, as the company drove a growth strategy. Using value stream mapping, the company
remained competitive against the peer set within household products.
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Table 1. Clorox Performance Compared to Competitors (Supply Chain Index is a relative metric of growth.)
Figure 7. Clorox Orbit Charts Versus Household Products Peer Group Along with Procter & Gamble for the
Period of 2006-2017
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Implementing value Stream Mapping
This work required consistent and strong leadership. If you look at acquired businesses-- Burt’s Bees,
Glad Trash Bags, Probiotic Digestive Health, water filtration — these were very different businesses
requiring different supply chain designs. The degree of change was profound requiring
personalization of the network to deliver results for the consumer. James Foster, now retired, was the
driving force behind the project.
The goal was to design from the customer back. A lot of the new business/acquisitions were shipped
direct to customer versus moving through the Regional Distribution Network (RDC). In this time
period, the bleach business did not change. It was a low cost and highly efficient business. James
knew that we needed a fit-for-purpose supply chain that matched the needs of the customer.
James sold the concept to CEO and other senior leaders of the Company. His goal was to match
supply chain capabilities with the needs of the market. General Managers needed product supply to
be quicker and more responsive, and James wanted to deliver.
Figure 8. Segmentation Map
If the
Company
operated an
efficient, a
low-cost
supply chain
like the early
days as a
bleach
supply
chain, they
were not
going to be
able to
support the
business requirements.
He started by helping the General Managers understand the trade- offs. His pitch was, “If you focus on
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speed, cost will be good, but not the best.” What made the process powerful was that James forced
the conversation. He used the diagram in Figure 8 to illustrate the trade-offs.
The goal as to define required capabilities. There is more capacity and the focus on flexibility in a
responsive supply chain. In this segmentation model, the more responsive supply chains depended
on greater collaboration with trading partners. In contrast, in an efficient supply chain, the focus is on
the lowest cost and trading partner communication is not as essential.
Figure 9. Designing Supply Chain Segmentation
The secret for Clorox was to start with strategy. Each year, The Company held an annual strategy
planning process. At this meeting, business units and General Managers (GMs) share plans. The
focus is to develop clear objectives: how to win, how to play and how to configure. Within the supply
chain organization these strategies translate to supply chain design requirements. Where there are
gaps, the supply chain team develops plans. It happens annually. The process is led by the Supply
Chain Strategy group: a team of five people. There are no special technologies. The GM is active
throughout the process. The focus is on the next five years.
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Figure 10. Defining the Strategy
Value chain segmentation is now part of the culture. As shown in Figure 11, if the product moves in
the lifecycle, it is signal to rethink the supply chain.
Figure 11. Shifts in Strategy Through the Product Lifecycle
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The process helped the team to align different businesses. The focus, for Clorox, is always on the
customer through value segmentation. Clorox is one of few companies to initiate and maintain value
chain mapping as a systemic program. It was initiated by a visionary leader and reinforced by GM
training and review programs. In this process, Clorox has been able to successfully manage the
rhythms and cycles of multiple businesses while maximizing scale. A true testimonial supply chain
agility driven by a visionary leader.
Managing Finished Goods Complexity Appliances within the kitchen today need to make a fashion statement. Increasingly it is about form
and function. It was in this world that World Kitchen
entered public markets with the spin-off from Corning in
1998. Today the Company operates as Corelle
Brands, LLC. This case study from 2004 outlines a
process to manage complexity and improve agility. The
process helped World Kitchen manage inventories
through bankruptcy filing in 2002.
World Kitchen's supply chain-- with significant
manufacturing and distribution operations throughout North America and Asia-- was complex.
Selling well-known brands including Bakers Secret, Chicago Cutlery, CorningWare, Corelle, EKco,
Pyrex, and Revere, the company sold products to mass retailers and specialty stores in the United
States and Canada with extreme demand volatility.
The issue? Product complexity. Product portfolio discipline was critical to the company turnaround. In
2002, World Kitchen implemented a disciplined process for managing item proliferation. In this
process, a cross-functional team composed of senior marketing, finance, sales, and supply chain
leaders reviewed all products in a systemic and disciplined process. The focus? The group worked
together to gain an understanding of the right fit of products with low volume and profit.
In the management of complexity, there are many good reasons for products with low volume and
profit to stay in the product line. Examples include micro-segmentation, a new release of a product for
a target market, or the release of a new platform. The key is management ownership and discipline to
manage the product portfolio.
In the World Kitchen Company turnaround, the product stayed in the product line market if the
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marketing team could justify the need for the item in the portfolio. In contrast, an item was killed if
they could not make the business argument.
The start of the process was the determination of a of sales rating/item. To assess a rating, items
were plotted by percent of sales on a monthly basis and grouped into three categories. In category
three were products with monthly cumulative sales contribution of greater than $200,000/item/month.
While items categorized in area two contributed gross sales of $200,000 and $30,000/item/month.
Category one products formed the long tail contributing sales of less than $30,000/item/month. More
than 50% of the items were long tail items with small contribution to total sales. This pattern is shown
in Figure 12.
Figure 12. Determination of Sales Rating by World Kitchen to Assess Item Contribution
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World Kitchen Methodology:
1. Calculate SEVA. The SEVA analysis is a derivative of Economic Value Add (EVA) methodology. The
financial team calculated the EVA by each stock keeping unit (SKU). (An item is a product sold at a
location.) The SEVA defined SKU profitability after adjustments for associated inventory, manufacturing,
distribution and financial assets used to make, deliver and distribute the item. While the team knew that
the analysis was directional, they did not let perfection stand in the way of progress.
2. Analyze. Plot the SEVA rating by Gross Sales for each item in the product line at a SKU level.
3. Categorize. Plot SEVA by the number of products and group the product line into three categories.
Category one products are high volume products, and the category three products are slow-moving
products.
Figure 13. Categorization of Items for Review
In the process, the cross-functional group assigns a SEVA value/item and then classifies products
into a nine-box model as shown in Figure 13. A decision to keep an item is easy if it scores six or five.
The group discussion in these product categories focuses on driving more sales. When products fall
into the "review" categories, the marketing teams were challenged to develop product action plans.
SKUs falling into the "kill categories" were either discontinued or the marketing team was given two
months to drive a turnaround in business performance.
The results were dramatic. The team reduced 42% of the poorly performing items in the product line.
In the process, a key lesson was learned. The team needs clear roles, and there needs to be a final
arbitrator of the process. In the World Kitchen case study, the Chief Marketing Officer was the
tiebreaker. Less than 5% of companies in any industry, have a disciplined process to rationalize
product complexity or product profitability. Product rationalization is essential to drive agility.
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Connecting Planning to the Factory Floor
Rockwell Automation is the world's largest company dedicated to industrial automation and
information. Headquartered in Milwaukee, Wisconsin, Rockwell Automation employs approximately
23,000 people serving customers in more than 80 countries. As a B2B company, procurement
management is essential. The company has over 7,000 suppliers and provides industrial automation
and information products to a variety of industries in over 80 countries. The company’s sales totaled
$6.3B in 2017.
Rockwell’s finished products fall into three categories: components, control, and visualizat ion. Some
products--push buttons, relays, and switches--turn very quickly with high volume sales. Configured
products include panel views, industrial monitors and computers, and drivers turn more slowly. At the
core, Rockwell Automation produces logic controls. The company also offers engineered-to-order
solutions, such as control centers and medium-voltage drives. From a manufacturing perspective,
products vary significantly in complexity. Some items take very little processing time while others
have a quite an extended lead time. Solutions, for example, can take from 12 to 16 weeks to
manufacture.
Figure 14: Organizational Overview
The company understands global manufacturers’ problems because they are one. Like most
industrial manufacturers, they manage a profoundly diverse portfolio of products. In this environment,
complexity is both an opportunity and a challenge. Rockwell Automation has more than 400,000
items in its catalog. A typical order is about 200 SKUs, and an average product life cycle is 20 years.
Value creation and a value-driven approach are the pillars of the Rockwell Automation model. The
company’s current strategy is to bring a Connected Enterprise to life. This starts with defining value,
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and then combining processes, and simplifying t he complex. It’s about understanding and delivering
on the company’s customer's requirements.
In 2008, redesigned of manufacturing operations and the supply chain. At the time, the vision of the
Connected Enterprise is the convergence of informational technology (IT) and operational
technologies (OT). The idea is to vertically connect the shop floor to the executive suite. The focus
was a faster time to market, to lower total cost of ownership, improve asset utilization, and reduce
risk. The Factory Top Production Center (FTPC) is the essential core of the Rockwell Automation
supply chain.
To drive change, Rockwell Automation invested in design thinking. The team created global supply
chain personas of essential roles. Supply chain personas guided the global manufacturing re-foot
printing efforts and landed the company at the very top of the Supply Chains to Admire ranking.
Figure 13 . Rockwell’s Automation Journey
Historically, the Rockwell Automation supply chain organization included materials planning and
engineering of new products but did not include strategic sourcing. to change this, the company
chose to take engineers out of design function and trained them on the fundamentals of supply chain
and strategic sourcing. The company also taught them to understand the basics of negotiation and
risk management. The goal was to generate scale while ensuring that they leveraged their preferred
suppliers, and taking some of the products’ cost upfront. That was a significant shift in the Roc kwell
Automation previous approach to a supply chain.
In 2013, the company drove scale for finished goods. They started to preferred metric availability and
preferred utilization through sales to better understand order tracking along with the analysis of customers ’ orders were using preferred products. Rockwell Automation provided incentives sales to
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help motivate their sales team.
The company also started to localize order fulfillment. Looking back, one strategic the Company
questions is “localizing to localize” without ques tioning whether it was the best fit for sourcing.
However, localized sourcing shortened lead times and improve responsiveness.
Bringing It All Together: The Connected Supply Chain
In 2015, the company began focusing on total cost of ownership, order cycle time, and Sales and
Operations planning (S&OP).
The company needed to ensure they were balancing everything appropriately, not only considering
just purchase price variance or cost down but all the elements of the source-plan-make-deliver cycle.
(In the case of Rockwell Au tomation, it’s plan -source-make-deliver because of the structure of the
organization.) Ultimately, the company made sure they were taking into consideration all the various
elements and the impact they will have on different functions of the process supply chain.
Total order cycle time was about going back to the cash and thinking about ways to reduce the time.
This methodology was especially crucial for Rockwell Automation global customers, whose impact
was notable sinc e it didn’t have th e benefit of their distribution network. The company focused on
sales and operations planning comprising one supply chain. They also focused on lowering the walls
of the silos: getting logistics, sourcing, supply chain planning to work on being globally inclusive. The
company embraced cross-functional thinking, became much more end-to-end, and leveraged its
cross-functional talent. All of these steps led to the final push: the introduction of the connected
supply chain.
The next step was modernization. At this point Rockwell Automation was ready to redesign supply
chain hordes, to fundamentally change its business process, and to leverage technology.
The Result: Show Me the Money
The journey started with realistic expectations: a sustainable return, a reduction in cost, and improved
supplier performance. As Rockwell Automation learned and understood their capacity and segmented
their data, they saw significant improvement in on-time fulfillment rates, product lead time drops by
50%, and past due orders (ten-fold improvement). In Figure 14, we share the results from the journey.
Figure 14 . Quantifiable Results of Rockwell’s Automation Journey
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Annual productivity numbers climbed steadily since 2011. This resulted in steady improvement in
orbit chart performance as shown in Figure 15 and outperforming competitors as shown in Table 2.
Figure 15. Orbit Chart of Rockwell Automation for the Period of 2006-2017
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Table 2. Performance for Diversified Industries for the Period of 2010-2017
Rockwell Automation is a case study of a company working a long-term plan to improve flows for the
customer. The focus on design-thinking and supply chain personas grounded the process to ensure
delivery of results through vertical integration with a focus on digital manufacturing drove agility.
Digital Manufacturing AGCO's culture of innovation policy deployment enabled employees to pioneer a technology solution
for manufacturing. AGCO Corp. is a publicly held $7B global corporation focused on the
manufacturing and distribution of high-tech solutions — tractors, harvest equipment, and implements--
for professional farmers. The company makes highly complex machines at a low-volume. They are an
innovator in agricultural equipment industry.
Table 3. Performance for Heavy Equipment Manufacturers for the Period of 2010-2017
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With a focus on high-performance work teams and principle-based leadership, the AGCO production
teams work together to solve problems. The culture is one of solution-oriented thinking using Kaizen
Action Sheets to dissect the step-by-step process of problem-solving. The steps are simple but
profound:
Figure out the problem
Determine the root cause of the problem
Develop possible solutions.
The approach works. In 2017, AGCO’s Jackson, TN operations team saved around 750K using this
methodology.
The Wearable Journey The final factory inspection quality teams disliked having to get off of the large pieces of equipment to
complete inspection lists on a computer. In 2012, this turned into an IT problem: dropped tablets had
no warranty. The rugged tablet for inspection cost $3,000 to replace. At a Kaizen event of the quality
team, IT came up with using Google Glass as an alternative.
Google Glass in its original form was not very useful on the floor since it did not allow for typing,
connecting to current tools, or storing passwords. To solve these problems, AGCO partnered with a
small innovative company to develop an application for manufacturing. Next, the IT department
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worked on the issues of infrastructure, risk, data security, cloud storage, and data sharing.
The company stuck to a no-tether policy – no battery pack or phone attached to the device. The goal
was to have the independent application running on the Glass, enabling users to pick up right where
they had left off.
At this point, the AGCO team was at the ground level pioneering the solution. They had to test
ergonomics and wear-ability of the solution, including addressing such issues as the lack of safety
wear, potential headaches, overheating, and insufficient battery life.
Figure 16: Classes of Smart Eyewear
The use of wearable glasses replaced tablets. Glass-equipped operators now follow quality check-
lists that are tailor-made for the type of unit they are inspecting. Recording of pictures and videos is
accomplished in a hands-free environment via voice comm ands and tied directly to the unit’s
documentation through the use of wearables. When operators detect an issue, they can assign an
action within the system to an appropriate party to have it promptly addressed.
Results AGCO ‘s initial goal was limited to replacing fragile tablets and enhancing safety on the warehouse
floor by freeing up both hands for the workers to climb on and off the unit. The new technology
solution, however, led to other, quite remarkable, unintended results:
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Improved Cycles. A 30% Initial Reduction in Processing Time. Automated real-time information
sharing cut the processing time and reduced a multi-layer inspection process to one tool.
Figure 17. Improvement in Finished Factory Inspection
Touchless: Creation of a paperless Environment. A "decline" voice command from an operator
opens a non-conform message for a quick resolution.
Quality of Conformance. Built-In Assembly Work Instructions. Glass usage expanded from quality
control to assembly process support. Employees used to have to walk from the tractors and sprayers
that they were assembling to the monitors displaying information, including billing material for lineside
hardware. AGCO estimated the walks to average twenty-five trips a day per employee and include 36
steps to the monitor in assembly operations with high complexity. Wearables enabled the streamlining
of tasks and the elimination of unnecessary motion. AGCO also took the standard instruction images:
sequenced instructions, bills and materials, and torque settings, and made them visible on the glass.
Employees could zoom, freeze, and it did not inhibit the employees' movements, easing neck and eye
pain. The move led to an additional 30% - 35% reduction in process time. This is shown in Figure 18.
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Figure 18. View of the Inspection Instructions as Seen by an AGCO employee.
Time to Value. Improved On-The-Job Training. AGCO envisioned employing 3x3 training metrics:
every operation would have three people able to execute it, and every person would be able to do three
operations. In the pre-Glass era, the company was never able to execute this approach because of the
high complexity of the tasks involved. The new tool cut the learning curve in half. Any operator can now
move from one work station to another, as long as they have instructions with them.
Improvement in Digital Manufacturing. The project became a means to an end to define drive data-
driven processes. Every small task in operation and assembly is timed and monitored, moving AGCO to
a predictive analysis stage.
Agco improved agility through digital manufacturing. The focused effort improved quality, and drove
cost improvements. What started as a journey to minimize IT costs of breaking tablets paid big
dividends for the company.
Product Platform Rationalization Over the last decade, Campbell Soup Company drove improvement faster than their peers. decade.
One of the reasons was material rationalization and product simplification.
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Table 3. Campbell Soup Performance and Improvement
Eight years ago, Campbell’s started a focus on Total Delivered Cost (TDC). The Company took a
holistic approach to accomplish this goal by developing training programs and tools to ensure that all
employees had an accurate picture of total cost and how to drive improvements.
This work was organized under an Operations Excellence program, a pillared approach supported
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with clear leadership and matrix teams. The focus was to introduce produce-to-demand as an
operating strategy and implement demand-driven concepts. The Company simplified the Supply
Chain strategy and communicated in a straightforward, one-page document that laid out primary goal
areas. The intention was to maintain constancy of purpose and continuity.
Through the common platform/postponement initiative, the Company simplified product designs by
eliminating non-value-added flavors or ingredient dice sizes. In this effort, they improved the
consistency of our product quality, reduced costs and inventory, and enabled improved reliability
through the resulting simplified process. This is challenging work because it is highly dependent on
cross-functional collaboration. The work was successful due to a team effort across R&D, the
business leaders, and the Supply Chain disciplines of engineering, procurement, and manufacturing.
This dedicated team of twenty, a majority being R&D resources, was self-funded through cost
savings. A principle for the work was that quality was more important to the Company than cost. This
meant that every change made had to result in equal or better quality at equal or lower cost.
The Soup Common Platform used these steps:
• Start with Formula (Recipe) Simplification . The team removed unnecessary processes,
which not only made it easier and more cost effective to make the product, but also improved
quality by minimizing the impact on ingredients through the process.
• Equipment and Plant Design. The focus was on the plant of the future. We reduced 40
percent of assets and still make the same amount of product with greater flexibility.
• Focus. We started these improvement efforts in the center of the supply chain with an emphasis
on building manufacturing capability, reliability and flexibility. The Company now has the ability
to focus more on materials management and suppliers upstream, and distribution and customer
solutions downstream, to drive optimization.
Seven consecutive years of constant improvement in our supply chain at Campbell, across virtually
every result area drove improvement, while the material rationalization effort drove agility.
Redefining Material Planning Shell’s leadership team strongly believes that it is insufficient to drive supply chain improvement
through incrementalism. The meaning? It is just not enough to do a software upgrade or slowly push
continuous improvement projects. The Company struggled with incrementality.
The Company first implemented demand sensing and then Demand-Driven Materials Requirements
Planning (DDMRP) in 2017. Shell’s demand-driven journey was a combination of demand sensing,
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demand translation, and demand orchestration. Changing an organization paradigm to move from a
supply-centric mindset to accept a demand-driven vision is a significant change management issue.
To our knowledge, Shell is the only company globally to have used both demand sensing and
DDMRP capabilities.
Figure 15. Components of a Demand-Driven Journey
Shell is the sixth largest company in the world and the market share leader in lubricants. While the
lubricants business is a small sector within the vertically integrated conglomerate of Shell, it is crucial
for growth and margin. There are 92,000 employees within Shell with 3,000 working in the lubricants
business. The lubricant business supply chain acts similarly to a mix-and-pack consumer products
supply chain.
The lubricants are oils and greases to reduce friction and prevent moving machine parts from
grinding. Ubiquitous, motor engines, machines in a factory, or a turbine on a wind farm run easily
based on lubrication from companies like Shell.
Shell’s g oal is to provide a variety of products to enable usage in multiple applications. The company
sells product globally through both B2B and B2C channels. The Company also has franchised
aftermarket services in automotive repair shops, retail outlets, and ev erything in between. Shell’s
current shift to the global supply chain is impacting North America, Latin America, Europe, Middle
East, Asia, Russia, and China. The variety of products coupled with channel proliferation results in
complexity in the global supply chain.
Shell operates as a single-instance of SAP Enterprise Resource Planning (ERP). Completed in 2012,
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the ERP project forced the company to standardize organizational design, roles, and metrics.
However, the value of a single integrated ERP system with the embedded functionality and modules
did not materialize was never achieved. The reason? While the company leadership expected
everyone to follow one process, it did not happen. The Company implemented SAP Advanced
Planner and Optimizer (APO) including the standard functionality of Demand Planning (DP), Supply
Network Planning (SNP), and Production Planning and Detailed Scheduling (PPDS), yet many
planners also used Excel. What can often look like compliance in APO (SAP Supply Chain Planning)
were calculated in Excel and pasted into the SAP system.
The Demand-Driven Journey Begins
In 2010-2011 Shell partnered with a Best-of-Breed solution provider to roll-out demand sensing as a
bolt-on to SAP ERP. The implementation was successful with a steady drop in inventory resulting in a
50% reduction in working capital between 2011 and 2015.
Figure 16. Impact of Demand Sensing and Impact on Inventory Levels
The project enabled improvements in Sales and Operations Planning. To drive adoption of S&OP, the
process was renamed Integrated Business Value (IBV). The team knew Integrated Business
Planning (IBP) tools were in the market, but he couldn’t sell IBP w ithin the organization. As soon as
his sales and finance managers heard the word “Planning,” they switche d off resisting change. The
change in name improved collaboration. By emphasizing value instead of planning, the group was
able to move the conversations forward. By leveraging demand sensing and the Multi-tier Inventory
Optimization (MEIO) platform-- using machine learning and some cognitive technologies-- on top of
SAP APO, Shell successfully launched an analytics platform initiative to improve the demand signal
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and reduce safety stock.
Over this period of 2013-2014 Shell made good progress on inventory, but faced unprecedented
supply price volatility. When the price of oil dropped from $120 per barrel in 2012 to the staggering
$29 per barrel in 2015, everyone in the oil and gas industry felt the impact. It intensified the
company’s fo cus on performance: business benefits, cost platforms, value delivery, and balancing
upstream spending, such as digging wells and searching for oil reserves, with money-making
downstream activities. In the new business environment, the nine-digit numbers of financial
improvements in 2011-2015 from implementing IBV were now not sufficient. The first project was well
done, but not enough.
The single instance of ERP within the vertically integrated Shell supply chain exacerbated the
bullwhip effect causing Shell to suffer from shifts in oil prices to a greater degree than their
competitors as shown in Figure 17.
Figure 17. Orbit Chart of Shell versus Industry Averages of the Oil & Gas Sector of the Period of 2010-2016 for
Inventory Turns and Operating Margin
Planting the Seeds for Change Reducing inventory to the lower levels within lubricants drove a subsequent increase in risk.
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Consequently, Shell experienced service level hits, resulting in firefighting. The block chart in Figure
18 tracks the relationship between the stable, forecastable product, the variable product, and the
unpredictable product.
As Shell’s sales volume, excess stock, the number of SKUs sold grew, and the re venue over a long
enough period, there was a disturbing picture: the areas for growth in the company’s business were
the hardest to forecast. Nick recognized that he was running out of levers to drive improvement. The
regions running the business were finding it harder and harder to stay on the projects. He needed to
find new solutions. This quest led to the consideration of the adoption of Demand-Driven MRP.
Figure 18. Product Portfolio Analysis
By definition, in traditional MRP, the forecast translates into supply chain requirements. In the
process, the initial forecast number first becomes a finished goods requirement, then a planned order,
and finally a materials requirement – all based on the initial forecast. The problem is that a forecast is
not an absolute number. Instead, it is a set of probabilities. As demand error increases, a focus on
inventory buffers and push/pull decoupling methods increases in importance. Previously, Shell was
only looking at safety stock levels and not the form and function of inventory. The adoption of DDMRP
enabled the building of buffer inventories to reduce the ‘nervousness’ of the system.
In early 2015, three senior regional planning managers discussed the concept of demand-driven
planning. To prove the concept, Shell, with help from consultants, built a simulation model and tested
the potential benefits for the North America market. In Figure 19, we show the results of the
simulation. The red line of DDMRP was a substantial improvement to traditional MRP output shown
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