All of these pieces — manufacturing, planning, inventory management, etc. — report in to my office. The first area involved in our supply chain operations is our retail business organization, which runs all of our retail stores; we currently own some 1,200 stores. Our retail business operation also supports, through supply chain operations, our international businesses.
The second area of our supply chain operation is our support of specialty sales and marketing. In this function we support major restaurants, United Airlines, Nordstrom’s, etc. These are the specialty accounts that don’t fall under our retail business unit operations.
The third area of our supply chain operations is our direct response. The functions handled here are typically referred to as direct mail. Basically, we have created a centralized supply chain operations organization that supports each of these three areas. The company recognized that there is significant leverage in operating the supply chain operation in this way, as opposed to having three totally separate business units. And as we look at other opportunities in the future, the supply chain will obviously be an integral part of leveraging for those business units or ventures as well.
We believe the whole concept of supply chain can be found in the term "value added." We are in the business of delivering the value. The marketing and the retail organizations develop the value, but we (supply chain operations) deliver it. Every day the objective for every single person working in supply chain operations is: What value have we delivered today to the shareholders and our customers? Each unit of our supply chain is integrated by common objectives. We have a mission statement. But even more important, we have strategic imperatives for each of our business units within supply chain operations. And these imperatives are all shared by the heads of each of those business units to such a degree that much of their financial compensation is based on achieving objectives that cross boundaries. Examples of this can be found in inventory control, inventory levels, inventory investment, service levels, and financial performance as a total delivered cost to our customers and accounts.
This sharing of objectives is set up so that we do not create a silo structure to our business. That’s the value added. We do not maximize transportation at the expense of distribution; we do not make long runs just for the sake of improving the throughputs in manufacturing. Everything is done based on achieving the best total delivered cost out of our facilities.
In the face of the extremely fast growth of your business, what are the biggest hurdles in your supply chain process and how do you overcome them consistently?
The first thing we did to ensure the smoothness of our operations was to go out and find the best talent.
But the biggest challenge in ensuring the smoothness of our supply chain operations you’ve already identified. And that is: How do you support a company that has grown more than 40 percent for eight straight years? The first step was to install integrated supply chain operating systems. We went out and did a best-in-class search. We began with a purchasing piece and then expanded that out to the planning and inventory control systems, which feed into the MRP piece.
From there we went out to find the best-in-class finite scheduling system, which is now in place. All of these pieces are now in place on a worldwide basis, feeding in from each of the business units to us. These pieces alone have taken our forecast variance from 40 percent on a total aggregate basis in 1995 to 0.5 percent in April 1997. And this type of performance is largely due to the linkages we have with each of the business units.
It should also be noted that each of the business units mentioned earlier has teams that are accountable to supply chain operations from a forecasting and communications...
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