Companies looking to "lean out" their supply chains while maintaining, if not increasing, customer service levels are challenged to continuously re-evaluate their supply networks to ensure they are achieving maximum efficiency. Boston-based consumer products company Gillette, for example, has spent the last few years working to optimize its network of warehouses to best serve its retail customers while keeping costs down. Along the way, Gillette learned that the crux step in building an in-house competency in supply network design was building confidence in the company's new planning process.
The Decision to Go In-house
Back in 2002 Gillette (which was acquired last year by Procter & Gamble) made a strategic decision to fundamentally change its approach to warehouse-location decision-making. In the past, the company had relied either on the market knowledge and intuition of its own staff, who could make educated guesses as to where warehouses should be placed, or on pricey external consultants who could do the number-crunching necessary to justify the location of a warehouse in one city or another. Now the company wanted to build an internal competency in supply chain network design.
Gillette's motivations were straightforward, according to Louise Knabe, solutions manager with the Global Warehousing and Transportation Group within the company's Value Chain Center of Expertise, a corporate-wide best practices group. "Because the number and location of warehouses directly affect both cost and customer service, Gillette wanted a process to ensure it was making the best decisions for the company and its customers," says Knabe, who joined the company in September 2002 with a charge to lead the new network design competency.
Selecting the Right Tool
Knabe's first assignment at Gillette was to select a software tool to support the design process. With a background in operations research and master's degree focused on optimization, Knabe spent eight years working in the software industry, specifically on optimization applications for the transportation industry. So she was quite familiar with the various solution packages available in the marketplace. Knabe worked with an advisory board within Gillette to review the company's options, and ultimately tapped an application called SAILS, from a solution provider called INSIGHT Inc., based in Manassas, Va.
SAILS, which is INSIGHT's flagship product, is intended to help companies design optimal supply chain networks, including facility location and size, capacity planning and budgeting, and distribution methods and policies, among other capabilities. Essentially, an analyst plugs data describing a company's current supply network into the desktop software, and the solution formulates optimal supply chain scenarios. SAILS also allows the end user to model various "what-if" scenarios to alter or augment the supply chain. In this way, SAILS can help an analyst derive cost-benefit figures for the different scenarios, thereby giving executives concrete figures on which to base their supply chain infrastructure decisions.
In selecting among the various network design solutions, Knabe says that Gillette opted to purchase SAILS in part because of the software company's experience in the field — INIGHT was founded in 1978. In addition, the level of customer support that INSIGHT could offer was critical, since Gillette had no internal resources trained in the software, and Knabe would need to rely on the solution provider's support staff.
Gillette bought the SAILS solution in January 2003 and immediately began working on its first project with the system. However, Knabe says she realized that installing the software on her computer was just the start of the implementation for the new network design process. "The biggest mistake you can make," she says, "is to assume that you can load data into a software system and hit ‘the big red button,' and out will come the answers. Because you'll have no confidence in the answer unless you go through a process of building trust and checking the software."
With the software installed, Knabe and a project team set about validating the solution by creating a baseline. The project team was led by a representative from the company's distribution group, with Knabe acting as a supporting analyst. This team structure ensured that those functional specialists who intimately know the business came onboard with the solution early on and had the opportunity to see that the software was capable of producing accurate results.
Using data representing Gillette's current supply network, the project team ran the application to estimate what the company's as-is supply chain costs should be, based on those data. They then compared the software's results with the actuals coming out of Gillette's financial system. "You're not going to get it down to the penny," Knabe says. "But the financials and the software should come out pretty close, within a few percentage points. That gives the software some credibility." Where the variances were significant, the project team would drill down into the results to determine what needed to be fixed in the data they were loading into the system, then re-run the results and repeat the process until the software accurately reflected Gillette's business. "That process of working toward intuitive results with the project team is a major step in building confidence in the results," Knabe explains.
Sometimes, however, even when the team was certain that the data were correct, the system still came out with counterintuitive results. "That's where it gets really interesting," Knabe says, "because you start to gain an understanding of the drivers of your own network and what's causing the counterintuitive results." For example, corporate intuition might suggest that Massachusetts would be a good site for a warehouse because shipping freight out of the Northeast is relatively inexpensive since few manufacturers have production facilities in the region. But the system might suggest that high labor costs make the Northeast a less attractive site for a facility after all. By gaining an understanding of these types of insights, the project team gains both new corporate intuition and increased confidence in the solution's ability to produce accurate results.
That comfort level with the system became vitally important, Knabe says, when the project team started actually applying the solution to run what-if scenarios, planning the future location of facilities and affecting, potentially, millions of dollars in future costs. "You have to be open to learning from those counterintuitive results," Knabe explains. "If you know that you want a warehouse in New Jersey — and if you're going to say that every solution that suggests you don't have a warehouse in New Jersey is wrong — then you don't need to go through this process. But if you're open to the idea that maybe your warehouse should be in Cleveland — which is counterintuitive — you might find that you can actually get to the East Coast pretty fast from Eastern Ohio, and it's a lot less expensive. Then, because the project team has representatives from the Distribution group, once they are confident in the system's results, they can communicate the results and the recommendation effectively to upper management."
Gillette's first project using the software delivered initial results in March 2003 and final results in May of that year. Since then, Gillette has continued to use the software to support analyses around the globe, completing a total of eight projects that, Knabe says, have helped the company improve its customer service, reduce distribution costs or both. Although she was unable to share precise return on investment figures, she did note that the results of one North American project showed decisively that Gillette was able to achieve much higher on-time rates when it shipped using truckload versus less-than-truckload (LTL), indicating that the company should continue to build its supply network in a way that increases truckload frequency. (At the time of the interview for this article, Knabe was working on an analysis to understand the impact that the modeling software has had on a key metric for Gillette: percent of deliveries on time.)
Reflecting on Gillette's experience with the SAILS solution, Knabe reaffirms that the real work on an implementation begins only after the software has been deployed. "The ‘implementation' simply consists of installing the software on a local PC, which does not even need to be connected to the network or any other live systems," she says. "The challenging part of an implementation is not the technical integration. Rather, it is learning how to get value from it."
Sidebar: Four Steps to Gaining Value
Louise Knabe, solutions manager with the Global Warehousing and Transportation Group at Gillette, offers this advice when implementing a supply chain network design solution:
1. The first few projects take much more time than you would expect, so it is best not to buy a system in the middle of a major project that has a tight deadline.
2. Do a small project first to learn to use the software and to learn about the data collection and analysis process. Key learnings from a small project can help a large project that follows to be more successful.
3. To help the project be successful, it is important for employees from the business/region to lead, own and champion the project. The analysts who do the quantitative work should support the project leader, not be the project leader.
4. The real value of doing a quantitative analysis comes when you get results that surprise the company. To get the full value from the system and the analysis, the company needs to be open to counterintuitive solutions.