Company Profile

The client is a product manufacturer supplying the construction market.  Number three in market share in its industry, the client sells through multiple distributors across the United States (four of which stock the client’s products at their own warehouses).  Due to the highly seasonal nature of its end customers’ business, the client’s success is based primarily on operational flexibility and responsiveness—the ability to provide the proper “mix” of products in the hands of construction distributors/construction sites quickly when needed is the primary competitive differentiator in this market.

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The Business Challenge

Construction companies’ work is often driven by the weather:  When conditions are favorable, they mobilize to get as much done, as quickly as possible, before the weather turns.  That means companies supplying them must be equally nimble, able to have product at the ready to accommodate surges in demand.  

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However, while it recognized this obvious key to success, SCE’s client often fell short of what its customers needed.  On average, the company’s overall SKU fill rate had dropped below 90 percent while customer order fill rate (FPY) had dropped to below 50%; and, the company typically required more than six days for 100% order completion.  The preponderance of SKU fill rate issues were with “A” item shortages resulting from the lack of a “pull” system for linking the daily/weekly SKU order demand to the production schedule.

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Making matters worse were the challenges of being third in its market as the client’s top two competitors are much larger and can make far greater investments in inventory.  They also have multiple warehouses that give them an advantage in providing product on short notice.  This means the client could ill afford to continue lagging in customer responsiveness.

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Company executives knew they had to act to change the organization’s current trajectory.  They therefore set ambitious goals to boost the company’s average customer order fill rate to 85% and to cut its time to complete an order in half—to three days.  To help it achieve those goals, the company hired SCE to identify the process issues causing the current problems from order receipt to order shipment, determine the barriers prohibiting fill rate improvement, and recommend actions for eliminating those barriers. 

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How Supply Chain Edge Helped

SCE began its work by conducting an initial assessment of the client’s operations across both production and order fulfillment.  Although SCE discovered a variety of shortcomings in both areas, difficulties tended to be concentrated in production scheduling, dropping “unclean” Wave orders to the DC, back order management, and the DC/WMS/RF order fulfillment processes.

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For instance, SCE identified several broad categories containing more than 55 specific barriers, gaps or obstacles to best practice order fulfillment performance:

1. Orders took too long to process: Open orders averaged 150 to 200 daily, and more than 20 percent of line items required more than one shipment to fill completely.

2. There was simply not enough inventory on hand to satisfy orders:  The client was averaging an Order Fill Rate FPY of less than 50 percent and a Line Item fill rate of less than 90 percent. Furthermore, orders that were not “clean” were being dropped (Wave) to the DC transportation clerk who was tasked with managing/tracking/processing the back orders through a complicated system of spreadsheets and emails.

3. The less than 50% FPY on customer orders was being exacerbated by a dysfunctional “MRP SKU Reservation” system:  The system allowed available stock to be allocated/committed to new orders when there were back orders waiting for the stock.

4. The Event Warehouse Location error rate was an unacceptably high 31%:  Part of this problem being that the WMS cycle counting was so cumbersome (manual versus RF) that the manual counting/editing process had been abandoned for more than a year.

5. Picking/staging took too long to initiate shipments because of numerous WMS RF process and methodology issues:  Typically, there was a two- to four-day backlog.

6. Shipments took too long to arrive to the customer:  Orders typically were staged on the dock 16-24 hours before the carrier picked up, and time to deliver after pick up averaged well over three days.

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Further SCE analysis revealed some of the principal drivers of these issues, one of the biggest of which were process shortcomings.  SCE found that inefficient or outdated order management, transportation and warehousing processes, as well as a lack of proper business rules, made it difficult for the client to not only complete orders, but also to more accurately forecast and meet demand. 

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This last point was especially relevant:  Because the client builds to stock and inventory levels based on recent sales history and forecasted demand using a “wheel” system for actual production planning, determining the inventory levels (and periodic adjustments to those levels) is crucial to having the right product available when customer requests are received.

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SCE also discovered the client’s transportation function was making it difficult to fulfill orders.  At the time of SCE’s assessment, the client used three primary freight carriers, and a total of five to 10 each month on average, to handle its shipments—10 percent of which were less-than-truckload, and the majority of which were full truckload (but frequently involved multiple stops).  Unfortunately, these carriers were neither of the highest quality nor consistently reliable, which caused shipment delays and errors. 

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At the highest level, the client lacked both ownership of the broader supply chain function and a proper set of metrics that enabled decision makers to measure variability in performance and identify relevant interventions.

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Based on the findings of its assessment, SCE concluded the client could address these shortcomings—and, in the process, take major strides toward achieving its goals—by embracing three broad initiatives:  implementing a disciplined and formal Sales, Inventory and Operations Planning (SIOP) Process to synchronize inventory with demand; more fully leveraging the client’s existing ERP/WMS systems (especially its Transportation Management System functionality), as well as outsourcing the carrier selection process to streamline/improve shipping performance and costs; and developing a more formal supply chain function, including people and processes, to provide vital, active “Dashboard” oversight of supply chain activities.

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SCE also developed a 16-week project plan designed to help the client build or strengthen the capabilities key to executing these initiatives. 

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Results and Benefits

Taking SCE’s recommendations to heart, the client has begun working with SCE to implement them.  And those efforts already are bearing fruit.  For instance, through training, new processes, and new business rules, the client has significantly reduced the time to process an incoming order, the backlog of incoming orders, and the number of customer backorders.  By establishing a functional wave planning and stock reservation process, the client has improved fill rate.  Coupling a new warehouse slot location/layout utilizing LP functionality and improved pick/pack process with the implementation of a number of best practices has enabled the client to streamline warehouse operations and reduce backlogs.  By rationalizing and consolidating carriers and improving its daily carrier selection process, the client has significantly reduced shipping delays as well as freight costs.

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All told, the client has significantly “moved the needle” on order fulfillment and is well on its way to achieving the goals it set for this effort.

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Meeting demand is critical to all successful businesses.  It’s even more critical, not to mention difficult, when that demand is urgent and unpredictable.  With SCE’s help, this client now has the operational prowess to be much more responsive to its customers’ needs—and is better positioned to compete with the bigger players in its market.