Randleman Presentation
- 1. Securing Stakeholder Supportwith a Clearly Defined, Revenue Generating Plan of Action Why didn’t this work the first time? Brian Randleman
- 2. From Idea toApproval Had the idea that would transform the supply chain of your company and save millions of dollars? Knew how to develop a business plan to support the idea’s approval? Has the sole authority to approve this transformative idea by themselves?
- 3. Trane - AftermarketTwo warehouses supporting the same customer base, but very little SKU overlap split shipments Neither warehouse large enough or viable for expansion to assume all operations Developed long-range plan to consolidate to National DC, then add regional DC’s later Designed 500 Ksf DC, consolidation costs, software investment and payback for approval Eventually turned to 3PL for project consideration
- 4. Generac Power SystemsTwo factories and one decrepit warehouse (all within 20 miles) shipping all stock products to same customers. Some SKU overlap Neither factory large enough to take on full shipping operation. Decrepit warehouse not designed for warehousing Followed “Supply Chain Strategy” to develop Customer Service Policy
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- 6. Customer Activity Profiling# Cust. % Cust. % Qty % Sales % Profit % Growth A 258 5.4% 47.5% 61.6% 59.8% 114.6% B 811 14.8% 11.1% 12.4% 14.4% 35.0% C 4,097 79.8% 41.4% 26.1% 25.8% -49.6%
- 7. Our first CustomerService Policy The original formula, stored in a vault with two combinations. Hey! How did that coffee stain get on there?
- 8. Design Comparison TraneProposed single NDC, now 3PL vs. Trane 3PL used modeling and calculation to determine almost same solution and locations 500 KSF, now Memphis or Louisville Generac A single Finished Goods DC No raw materials, engines or RV product Nodal analysis chose SE Wisconsin location Calculation determined 200 KSF for pre-hurricane peak CSP allowed Generac to justify use of TMS up-front and put these results into payback and ROI calculations This made the proposal attractive NOW , and led to project acceptance NOW
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- 10. Measure Comparison TraneOnce the 3PL analysis completed, the can of worms was open Transportation bundling Zone skipping and pooling Consolidate with another Trane division Generac Loved the payback and ROI Culture supported buy vs. lease
- 11. Generac ROI AndPayback
- 12. Project Deliverables BestPractices & Goals Receiving – Streamlined paperless receipt of goods to RF from PC Putaway – Rules based, system directed selection and assignment to RF Shipment Planning – Systematic and repeatable creation of optimized loads Picking – Dispatched via RF terminal to interleaving operators with pick confirmation Cycle Count – Directed, interleaved and verified periodic cycle counts based on product activity, sales or event Storage Density – Store more product in less space, more efficient layout and reduced travel times Transportation – Ship product using optimized methods (Pool, FTL) for greater savings Orders, Value, Weight – Ship more product with less people, more control, more verification and accuracy
- 13. Road Map ToImplementation Systems Requirement Document Master Schedule Site Preparedness Audit Phase 3 - Software Development Software Development Support Systems Requirement Document Master Schedule Site Preparedness Audit Phase 3 - Software Development Software Development Support Vendor Pre - Qualification Functional Specification Document Phase 2 - Vendor Selection Bid Process Management Contract Awarded Evaluation Matrix Vendor Pre - Qualification Functional Specification Document Phase 2 – Vendor Selection Bid Process Management Contract Awarded Evaluation Matrix Site Coordination, Installation And Project Management System Acceptance Testing Application Training On - Going System Evaluation Site Coordination, Installation And Project Management System Acceptance Testing Application Training On - Going System Evaluation Phase 4 - Implementation IT Gap Analysis Activity Profiling Process Maps Phase 1 - LIS Assessment New System Justification Future Business Requirement IT Gap Analysis Activity Profiling Process Maps Phase 1 - LIS Assessment New System Justification Future Business Requirement
- 14. WMS Selection CompetitorA Competitor B Competitor C Background Average Score 3.29 3.43 3.71 Score in % 65.80% 68.60% 74.20% Potential Score 5.00 5.00 5.00 Service & Support Average Score 3.00 3.00 3.67 Score in % 60.00% 60.00% 73.40% Potential Score 5.00 5.00 5.00 General Technical Average Score 3.19 3.06 3.25 Score in % 63.80% 61.20% 65.00% Potential Score 5.00 5.00 5.00 Reference Score Average Score N/A N/A N/A Score in % Potential Percentage 100.00% 100.00% 100.00% Requirement Score Average Score 7.78 7.91 8.04 Score in % 92.18% 93.72% 95.26% Potential Score (Including Weights) 8.44 8.44 8.44 Cost Average Score 5.00 3.12 2.60 Score in % 100.00% 62.50% 52.04% Potential Score 5.00 5.00 5.00 Final Score Average Score in % 76.36% 69.20% 71.98%
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- 18. Training To FunctionalityTraining Needs Receive Putaway Cycle Pick/Stage Ship Prep Load Replenish Supervise Shipping Supervisor Y Y Y Y Y Y Ship Lead Y Y Y Y Y Transportation Clerk Y Y Y Ship Prep Y Y Y Task Management (Put/CC/Rep/Pick) Y Y Y Y Loading Y Y Receiving/Locating Supervisor Y Y Y Y Y Receive Lead Y Y Y Y Receiving/Yard Y Y Y Receiving/Putaway Y Y Putaway Y Y
- 19. Takeaways Design detailsare important by showing preparation and depth of analysis Identify the stakeholders who have real approval power Reduce Logistics Costs subject to the Customer Service Policy Develop functional requirements Have a Customer Service Policy
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- 21. That’s how youget a Distribution Center in 375 days!
- 22. What Questions DoYou Have?
Editor's Notes
- #2 The success of the best-in-class service parts operations have hinged as heavily on the support of the plan for change as much as the quality of the plan itself. Many industry practitioners are still unable to reach the full potential of their service parts operations simply because they are unable to garner the support of key decision-makers who will support and fulfill their vision. Companies then miss out on significant cost saving, revenue-driving opportunities. In this session, you will learn how to: ■ Secure support from top-down through careful internal process analyses ■ Maximize potential of parts and service businesses by finding solutions that deliver immediate cost savings ■ Mitigate ‘paralysis by analysis’ and realize ROI by providing stakeholders with a clearly-defined, short-term timeframe for project completion
- #3 I’d like to have a show of hands if you’ve thought of an idea that would transform the supply chain of your company and save perhaps millions of dollars? OK, put your hands down. Show of hands if you knew how to develop your idea into a business plan that would support getting the idea’s approval? Keep your hand up if you’ve been confident enough to actually propose this idea for approval? OK, put your hands down. Finally, let’s have a show of hands if you have the sole authority to approve entire projects that have the scope to transform your company? OK, if you have your hand up - go get everyone else some coffee, because we’ve got a lot of work to do. Somewhere between an idea being in your head and the idea being completed is a plan. This plan has to be strong enough to convince everyone that it’s worth doing. It has to be strong enough to convince them to make the change from the comfortable to the inconvenient. That this change from inconvenience to transformation can be managed. And finally, that you’re the one to manage the whole thing – turning your idea into reality. Every transformative idea requires the development of a business plan that justifies the expense of the project to stakeholders. I will be comparing my experiences with two companies that had similar transformative goals, and share what kept one of them as just an idea but allowed the other to become a successful project. In order to show you what worked for me, I’ll need to set the stage about the two projects so you can see why it worked.
- #4 Problem Statement Trane’s largest and oldest distribution center (DC) was out of space and needed updating. However, the facility was incompatible to retrofit due to low ceiling height, poor column spacing, and limited dock doors. A WMS installation and limited automation had kept it viable for a while, while a better located facility floundered – too small to expand and withering away from the bright light of the business unit headquarters. Steadily increasing order volume had pushed both facilities too the edge and made senior management realize something would need to be done in the next few years. Scope-Of-Work Trane commissioned an innovative study, using cutting edge research in strategic network design. It was easily discovered that Trane could realize significant savings in transportation costs by relocating to a single facility. But since they had been focusing on programs to increase distributor sales through inventory availability, lead time and transportation costs improvements the research was allowed to continue. The research was finally able to quantify the optimal number of smaller regional DCs that would deliver this improved customer service, lower logistics costs, AND increase sales to Trane within this high margin channel. And so we began the design of a single National Distribution Center, to be located in the Southeastern U.S., eventually settling on a design of 500,000 sf with limited automation for order priority sortation, and a mechanical assist area for packaging heavy compressors. We asked Tompkins Associates validate the DC sizing and refine the design and project schedule. Their assistance was invaluable and would lead our President to say “I like the design, I wouldn’t change a thing…but I want you to look at outsourcing” So we brought Tompkins back to assist in locating Third-Party Logistics (3PL) vendors that could provide outsourcing services for its ABU. Tompkins helped to identify, solicit, evaluate, and negotiate contracts with potential 3PL companies. A comprehensive Request for Proposal (RFP) was created that identified Trane’s business, distribution, and system requirements. They assisted us in selecting 10 potential 3PL companies with the capability to provide the necessary level of service, market presence, and financial security. After extensive due diligence, the list of bidders was reduced to four. Tompkins provided Trane with the tools and procedures to help analyze the RFP responses from the final four bidders and then assisted in selecting the most suitable 3PL provider. Results We now seemed ready to get project approval since two of the top bidders had competitive solutions that had outstanding ROI, extremely short payback and limited capital investment requirements from Trane. But let’s get familiar now with the Generac situation.
- #5 Problem Statement Generac was operating shipping from two factories and what might generously be called a warehouse. These factories where not able to keep up with rapidly increasing volumes and so could not consolidate orders either within their own facility or across facilities. Using the ERP as an inventory control system meant full annual physical audits, multiple custom programs that hindered future ERP upgrades and no FIFO control. Lack of storage and staging space meant same-day fulfillment was the rationale and necessity for shipments. The warehouse – well let’s just ignore that completely. Need to free up space for future production needs Cheaper to open up factories than expand and deal with DNR Improve Logistics capability to enhance into a core competency Maintain competitive edge by leveraging supply chain Existing practices & facilities are sub-optimal Poorly designed, wrong location Operational constraints $3.45M annual operating costs Scope-Of-Work Generac followed principles from the book entitled Supply Chain Strategies by Dr. Edward Frazelle. By performing the various activity profiles, I was able to show Generac how to minimize total logistics cost SUBJECT to the customer service policy. This meant using the customer and item activity profiles to develop a customer segmentation profile (which they lacked) and design a customer service policy. We learned how to segment our customers based on qty, sales, profitability and growth – objective criteria that each sales channel could agree were important. Criteria that were easy to re-compute annually, review with sales VP for input (begging session) and for the CEO to enforce rationality. Results With a CSP in hand we determined how long orders could be held to make better transportation opportunities. We could now justify the use of a TMS which would drive the cost savings for the project. Without this document in hand, nothing would have changed us from the same day fulfillment rationale that over-delivered on nebulous promises we made to our customers. Over-delivering on a vague promise does not a good CSP make.
- #6 So what is this profiling that needs to be done for the magical CSP? An Item Activity Profile should look at each SKU in terms of sale quantities, sale dollars and profitability. Generac only considered finished goods, non-service related. The point is to find those items that fit the best characteristics for your network and deserve the special attention of your idea. While the devil might be in the details, the money is in the volume. This ends up being a graphical representation of the Item Activity Profile. Your Item activity profile will almost definitely look the same, if it doesn’t then you probably have the items classified incorrectly. Pareto items on qty sold 80/15/5 to the A/B/C groups and you should get this. The key is to get the items identified into the correct groups. Then you can examine the groups for how you want to handle them – this part will be unique for each company. This is where your idea will start to become bright, and your cost savings will start to be generated from. Notice for the A items (along the left side wall) how the quantity and item value are so high, but from such a limited SKU set. This is common – even for service parts industries. These items deserve, no DEMAND , special attention – storage, scheduling, kanban, JIT, lean, demand planning, consignment. Do something to make these items have the lowest total logistics cost subject to your customer service policy. Evaluate the entire item set regularly to re-set item codes – nothing is a bigger waste than to treat a “C” item with special tactics because it was an “A” two years ago. One thing not on this graph is the profitability distribution – for Generac 52% of profits come from the “A” items, and 35% from the “B” items. Again, this is pretty common across most industries and our challenge is to maintain and improve that high percentage of profits for those limited number of SKU’s that develop them. Just think of that – we only needed to focus on 25% of our products for 87% of our profit. If you can get that focus onto your project, by showing how you’ll make these products more profitable still, you’ll get your stakeholder support. We actually did this type of analysis for Trane as well, and although Trane Aftermarket was a service parts business, the results were very similar. When Trane looked at this graph we saw the “A” items as being the items that our distributors should stock all the time. Our replenishment program geared to that goal, and this second phase of Regional DC was not going to focus on supporting this group. The National DC would “A” items on stocking orders, and Regional DC would provide better support for “B” items instead. The “C” items were the exclusive domain of the National DC where we found they were ordered predominantly on emergency orders (same day fulfillment, overnight shipping). In Generac’s case, “A” items become the focus of the FGDC as their high volume helps to fill trailers. For storage we use a combination of special unit flow racks to speed FIFO picks and bulk stack areas for full pallet picks or replenishing the flow area. “B” items are relegated to the wings, or deep in the central rack area. “C” items are basically made-to-order configured items anyways, and therefore ship directly from the one factory where 80% of these items come from.
- #7 This one was a little more difficult to do, but actually became the key to the Customer Service Policy being developed at all. Sadly this is the step that was never accomplished at Trane, and I feel became one of the principle reasons the project ultimately failed. In order to segment the customers, we basically had to lock the sales VP for each channel in a room with all the other stakeholders and get them to agree that it is possible to segment customers. Agreeing that not everybody is an “A” customer is the first step in recovery as it were. After much debate it was agreed that unit qty, sales dollars, sales profit and year-over-year sales dollar growth were the factors for deciding who was in which segment. I ran the analysis for each of the preceding two years (needed sales year-over-year to get growth). For each of the four categories I performed the normal pareto (80/15/5) and assigned the A, B or C designation. Where a customer had the same assignment in all four categories, they got that assignment – pretty simple. But what if they had different assignment? We agreed that I would rank the customers within each category, and sum them up for a final ranking. And that is how a customer who was first in quantity, sixth in sales, and eighth in profit – was still given a C ranking. Because they were 5,165 out of 5,166 others in terms of growth. Having negative growth turned out to be the death knell for many customers, only seven (7) customers were able to keep a B ranking in spite of it. The other 1661 customers were dragged down to C level because of this – even though 60 were otherwise A customers. These kinds of anomalies were eye openers for Sales VP used to sheltering these customers with preferential treatment; they saw quickly who really deserved the best care and I could point to concrete evidence when the rankings changed. The CFO and CEO backed up the findings 100% because they had been part of the group when deciding the criteria. The real need for this segmentation was not to push channel VP’s around – that was just a bonus. The real goal was to use it to develop the CSP, and decide how long a customer order could sit. This just rationalized the process for deciding that and showed people how the effect would be seen.
- #8 The original formula, stored in a vault with two combinations. Hey! How did that coffee stain get on there? The final result became “A” = order entry + two days “B” = order entry + three days “C” = order entry + five days
- #9 Let’s come back to the designs, and see what happened next. Trane was working to qualify and short list eventually four 3PL bidders to develop an RFP for comparison against the concept of Trane running the DC. A qualification meeting was held within Trane to determine the scope of the bid – a crucial question being whether to allow the 3PL to manage the transportation. Trane felt a 3PL could not get more competitive contracts than theirs and so this was left out. When the RFPs were presented two 3PLs stood out, but showed only marginal savings over the Trane solution albeit with low capital cost to Trane. Despite the Aftermarket teams support for the 3PL solution, American Standard senior executives (the real stakeholders who weren’t involved in defining the project objectives up-front) were hesitant to move forward with the limited payback offered by 3PL. Without a clear CSP that allowed order consolidation the project was in danger of dying – as a warehouse only play, the project had lost valuable momentum. Generac Location: Whitewater Nodal analysis For 21 cities, rate 48,000 outbound shipments and required inter-plant transfers Whitewater optimizes outbound transportation and inter-plant freight costs Sizing: 200,000 sq. ft. Calculation method Determine inventory stocking levels by SKU while accounting for volume growth over time, seasonality, turns, product size and stackability. Designed to handle peak volumes in June. 3PL vs. Generac TNT Logistics Run Whitewater location using best-in-class system & processes Net cash flows are very comparable to Generac solution Also considered Kenco Logistics and UPS Supply Chain Solutions Local Public Warehouses Olson Companies Tie goes to Generac solution Technology Invest in WMS for ability to manage FGDC using best practices, efficiency, manpower control and task verification Invest in TMS for transportations savings from mode selection and freight damage reduction Buy vs. Lease Recommend buy FGDC Maintain ownership culture and control of development
- #10 Returning to some design details, we can see that continued activity profiling is an extremely powerful tool when it comes to determining the key fundamentals of warehouse design, function, WMS selection and justification of the entire project. These profiles when used and results studied help to guide the development of the idea into a tangible plan, with data to back up your design elements. How better to answer questions about design choices than with a stunning array of data from an official sounding piece of research. “ Mr. Randleman, why should we pay for these carton flow lanes adjacent to those racks?” “ Well Mr. CEO, the carton flow lanes put our highest volume products next to the bulk items that complete 47% of all orders. These item combinations were determined when I ran the item order completion profile to find the most common items that shipped together. This combination reduces travel times for picking, speeding up throughput and reducing labor expense.” “ OK, well .. Umm … thanks.”
- #11 Here is where the Trane got stuck – paralysis by analysis and a chase for the ever better bargain. With the underwhelming results of the 3PL warehouse offerings, Trane decided to give the two remaining 3PL candidates an opportunity to manage transportation by making up a CSP ex nihlio. With access to better tools for transportation management and consolidation, 3PLs were able to return stunning cost savings results for the project. By using pooling and zone skipping, the 3PL’s were able to show transportation savings of 25% on freight bills of $15M+ annually. Against a capital project cost of $2.5M, the project seemed like a clear winner and if approved would clearly be outsourced now. But Trane wanted more so negotiations began to reduce the capital outlay to $1M or less, even at the expense of reduced longer-term savings and ROI/payback. While the 3PLs were preparing their offers, another “white knight” came in holding the Trane banner. The residential equipment division in St. Louis entered with a proposal to merge operations or possibly merge transportation moves. Aftermarket and Residential shared a customer base (wholesalers) that was about 50% of the Aftermarket customer base, about 35% of volume. Eventually these competing proposals were put to the American Standard at a bad time, just months after the 9/11 attacks when many companies were cutting back. The opportunity had basically disappeared and the project was shelved because ASD was unwilling to spend $1-$2M in capital on a project that was going to pay back in one to two years, with ongoing savings of 2.5 to 3 million annually. Ultimately Trane did complete something, consolidating the warehouses in June 2008 to a 370,000 sf property in Southaven, MS. The closing eliminated 130 jobs at the LaCrosse DC, and transferred 60 jobs from Memphis across the border. Generac on the other hand had committed to the project because the ROI and payback were competitive and the solution provided so many dramatic improvements in fulfillment that it couldn’t be ignored.
- #12 Here’s the table showing each of the Generac scenarios examined and the payback and ROI numbers. Generac would ultimately fall back on it’s comfort zone of owning structures in making the decision to buy the building and operate internally. Although the option of using a 3PL was considered, it seemed more of an exercise than serious consideration.
- #13 Receiving – Streamlined paperless receipt of goods via RF terminal 84% more receipts per clerk Putaway – Rules based, system directed selection and assignment to RF 35% more putaways per driver Shipment Planning – Systematic and repeatable creation of optimized loads 525% more loads planned per planner Picking – Dispatched via RF terminal to interleaving operators with pick confirmation 9% more picks per driver, ∞ verifiable accuracy Cycle Count – Directed, interleaved and verified periodic cycle counts based on product activity, sales or event 128% more counts per driver Storage Density – Store more product in less space, more efficient layout and reduced travel times 60% less total square footage used Transportation – Ship product using optimized methods (Pool, FTL) for greater savings Orders, Value, Weight – Ship more product with less people, more control, more verification and accuracy Orders 39% more orders per driver Value 22% more $$ per employee Weight 17% more weight per employee
- #14 Generac actually followed this process; working directly with IT collaboratively (gasp!). Determined what we needed to perform the business based on the principles of the customer service policy and the inventory control goals of the company. By the time the gap analysis was complete, it was easy to justify the new systems – notice the plural, we got WMS and TMS. Spent over $500K which for Generac was unheard of for something non-tangible.
- #15 Selecting the vendor was actually pretty simple since I was allowed to short list to four candidates – and then I found out one went bankrupt. I was given leeway since Generac wanted the project to move quickly. We selected a vendor in only four months after the first on-site visits. During vendor selection we were able to also tune-up our cost reductions estimates and validate some assumptions. Our evaluation team was a mixture of Logistics, IT, Accounting, Inventory Management departments with representation from Supervisor all the way up to Senior Vice Presidents. There were seven members.
- #16 This is our post-configuration workshop document that details specifics about how Generac will use the WMS and our processes. At 43 pages, it’s surprisingly sparse most would say. But since we bought to the requirement, the WMS was expected to work without major changes or tweaks. The document really focuses on the various settings we’ve decided on and why. It also serves as a reference document for the integration between the ERP and WMS – did I mention they were both from the same company? Receiving Factories send ASN with unit level detail. Scan serial number as license plate; master tag for ATS pallets. Receive and immediate putaway or to surge. Item based rules for putaway (consumption, weight, dims). Inventory Control Daily Cycle Counts based on ABC method. Can maintain ownership level for consigned inventory. Transportation Planning Main focus of DC operations is to save freight. Use TMS to create consolidated loads of single, multi-stop, or pool truckloads. Account for customer requirements in planning. Ship by date based on Customer Service Policy. Picking Loads passed to WMS for execution via wave planning Picking waves staged at dock or trailer loaded in reverse stop order. Paperwork prints at operator or dock printer. Kitting area near dock for ATS insertions.
- #17 A major reason for the success of the project was this steering committee and the high representation of the stakeholders. An example of the is that all four of the steering committee members were involved in my hiring. I told them the exact principles I would follow in developing the business plan for this project and with their support I followed the plan exactly and the project was a success. The managers of each section of the project met together on a twice weekly basis to stay in synch with the project plans and make sure tasks were getting accomplished. It really was a race to get everything done in time for a June 1 start date.
- #18 This project plan was last updated on 11/30 after the WMS/TMS selection had been completed. The project plan was aggressive but we managed to get everything done and meet our goal of occupancy and functionality on June 1 st . The final IT integration test only passed on 5/25, racking labels didn’t arrive until 5/15, but couldn’t be put up since racks didn’t start installation until 5/22. On June 1 st , laborers were still caulking cracks in the floor and dropping decking into the 50% of the racks that were actually vertical. We joked that our goal was just to receive one pallet – receiving five pallets made it feel like winning the Boston Marathon.
- #19 An on-site trainer said this was the easiest training session she ever had since it mirrored the product exactly. By developing the WMS/TMS requirements ahead of time, and buying to those requirements, we did not have to spend time with operations to write the processes. Change management was deceptively easy since everything we were doing was such a change operationally. Stop what you’re doing and do it completely differently – once employees were trained on the different way, the operational change was complete. By following the principles of gap analysis and functional spec, we actually implemented the WMS solution with no code modifications – all the necessary changes where handled in the interface. We didn’t have to train to the differences – we simply trained to the better process and left everything else behind. The TMS was the only thing modified - it expanded the logic of pooling to allow to drop points in the same region, and some operator interface macros to speed up the process. Once we solved our order date management issues, it’s been very easy to use the TMS.
- #21 No project would be complete without pictures. Construction began the week after Thanksgiving, which meant another winter of pouring foundations. Steel columns, tilt-up panels and a small internal office voila, your Finished Goods Distribution Center is ready. Because of our products there is no need for conveyors and the material handling interface headaches that brings. The coolest things in our FGDC are the vertical dock levelers and fast-charge lift trucks.
- #22 Plus this – the world’s first angled aisle distribution center.