Cover Story: Crafting Success in Supply Chain Transformation

Creativity Inc. is a midsize wholesale arts and crafts distribution company based in Van Nuys, Calif. The company's roots stretch back to 1951, when Albert Deitsch founded Western Trimming Corp. to supply sequins and costume jewelry to the movie industry in and around Los Angeles. The family-owned enterprise grew over the next five decades, but the company steadily shifted more of its business toward the crafts industry, riding the wave of popularity of macramé, scrapbooking and other consumer craft trends. The family sold the business to an investment group in 2000, and the subsequent addition of three other craft companies in 2002 (Crop-In-Style, DMD and Blue Moon Beads) and one more company in 2005 (Autumn Leaves) resulted in the formation of Creativity Inc., which now is one of the top five U.S. suppliers in the general crafts sector.

As the company's business has changed, so too has Creativity's customer base, particularly over the last five years. "We have moved from serving the mom-and-pop, independent craft stores to serving the mass merchants that have gotten into arts and crafts products in a very big way," says Chris McLain, CEO of Creativity. The demands that the retailers such as Wal-Mart, Michaels, Target and Jo-Ann Stores put on a supplier like Creativity are considerably more stringent than those of the independents. "You need to have good systems in place, good processes and good procedures to interface with the mass merchants," explains McLain. "Likewise, they hold you to very high standards of fill rates and accuracy in your shipping."

Creativity has responded to these increased demands, as well as its continued growth, by implementing new technologies, such as an enterprise resource planning (ERP) system from Richmond Hill, Ontario-based CMS Software. The new ERP system went live in Creativity's Van Nuys facility in August 2004, followed by a company-wide rollout in early 2005. But even with the new system in place, Creativity was having difficulty meeting its customers' fill rate requirements, prompting the company to increase its inventory in an effort to avoid stock-outs. "I won't say our inventory levels were out of control," says McLain, "but they had reached levels that were disproportionate to the history of the company given the sales."

Looking for Help Outside

By early 2005 senior management and the board of directors at Creativity recognized that the company had to figure out how to better meet its customers' fill rate requirements while also optimizing — that is, reducing — inventory to sustainable levels that did not impose an excessive financial burden. At the same time, management felt that Creativity's very traditional purchasing function, which was handling both demand planning and procurement, did not have the skill set necessary to effect the changes that were needed to identify and fix the company's legacy processes. "I didn't think we had the expertise in-house, nor the time among our people to gain the expertise, to know what processes and procedures were appropriate for a 21st century purchasing function," says McLain.

After surveying its options, Creativity looked to ADR North America, an Ann Arbor, Mich.-based consultancy specializing in supply chain improvement and re-engineering, for assistance. The board invited ADR, in March 2005, to bring in a team to do a baseline study of Creativity and then present a base case, setting forth the "as-is" and a proposed "to-be" state for the company's supply chain. Bill Michels, CEO of ADR North America, brought two colleagues, senior consultants Jim Kiser and Dr. Laura Birou, out to Los Angeles to do the baseline. The three of them conducted separate interviews with executives and staff at various levels within the company and, somewhat to McLain's surprise, identified the critical issues within a day. "They were here literally for less than twenty-four hours before they came in and said they had seen enough to spot the main problems and, most importantly, identify the solution," McLain says.

ADR's assessment matched the conclusions that the board already had reached — trouble meeting fill rates, leading to excess inventory, necessitating a supply chain transformation — and this gave Creativity's senior management a degree of confidence in the consultants' knowledge and abilities, according to Dr. Birou. "We were totally honest about what we observed," she says, "and because our conclusions mirrored what upper management already knew, the CEO and the board of directors trusted us, trusted that we were being honest with them, and that we would have the knowledge of what was really wrong and the vision for what needed to be done."

The Reorg

The first step that ADR recommended was promoting Nick Lazarou to the newly created position of vice president of supply chain management, recognizing his analytical background and replacing the then-head of purchasing, whose experience did not include the skills needed for the new position. Lazarou previously was vice president of product sourcing and planning at Creativity, working on vendor relations and performing a variety of analytics employing the ERP system and a business intelligence tool from Cognos. In short, unlike the former head of purchasing who had a background more in operations, Lazarou already had a supply chain orientation and an analytical mindset, and he seemed a natural fit to head up a reorganized supply chain function at Creativity.

Under the new organizational chart that ADR proposed, the supply chain organization came to encompass four functional areas: forecast management, product analytics, replenishment planning and new product development planning. Previously, the company's buyers ostensibly worked as demand planners, too, but in fact they had little time to devote to the forecasting side of their job, according to Lazarou. Under the reorganization, staff had dedicated roles focused on one of the four functional areas. "That would allow our team members to emphasize their strengths and rely on others to supplement their weaknesses," Lazarou says. In addition, to support the forecasters, Creativity implemented a forecasting software package recommended by ADR and called SmartForecast Enterprise, from Belmont, Mass.-based Smart Software Corp.

ADR's consultants helped Creativity craft the job descriptions for each position in the reorganized supply chain function and assisted in assessing current skill levels and training the company's staff for their new roles. Much of the training focused on adopting a new mindset, moving away from the old ad hoc, "reactive" purchasing process toward a metrics-driven supply chain approach that made use of data from the company's own ERP system (particularly the manufacturing resource planning module) and customer systems (such as Wal-Mart's RetailLink), as well as the insights provided by the SmartForecast solution. The new approach also required significant collaboration, both internally — among product development, sales and purchasing staff — and externally with suppliers and customers. ADR helped map out the internal collaboration within Creativity, and the consultants offered advice on how to handle relations with suppliers and customers, although Creativity's staff handled those external contacts themselves.

Successes — and Success Factors

Creativity announced the supply chain reorganization in mid-April, and within four months the company already was seeing the results of the new approach: fill rates for key customers were approaching 100 percent, while Creativity's inventory levels had fallen by nearly 20 percent at the same time that Creativity was experiencing a double-digit increase in sales. The rapid turnaround impressed ADR's Jim Kiser. "They did a whole remake of the business, with a redefinition of their responsibilities, and the way that they adapted to their new roles was just amazing," he says. Creativity CEO McLain acknowledges that the transition to the new supply chain organization in such a short time was not without its challenges, but the rapid pace of change also had some advantages. "We had to keep running with the old system while we trained and identified people to fill various positions," he says. "We had to ask people to come in on Saturdays and to work late hours. But they were up to the challenge because they saw, almost immediately, the benefits that could be reaped from the changes."

High-level executive sponsorship was an obvious success factor for the project. From the start, McLain made it clear throughout the company that the supply chain transformation was a top priority. "The initial notice that went throughout the company came from me," he says. "I don't typically do that, but I wanted to indicate to everybody the importance of getting this up and running smoothly and correctly." McLain also gives Lazarou a great deal of credit for successfully leading the rapid transformation. "He hit the ground running and brought the group along with him," says McLain.

Dr. Birou says that Lazarou played an important role in championing the many changes that ADR's consultants were recommending. That's critical, says Dr. Birou, when a consultancy, acting as an external change agent, is calling for significant transformation within an established organization. "Nick could see the bigger picture, he could see the vision," she says, "and you need somebody like that who has internal connections. He had relationships throughout the company, including sales, operations, product development and in purchasing, and people within the company both liked and respected him." Adds Kiser: "We're the ones that come in and stir up the bee's nest. We're really turning people's world upside-down. But then Nick can say to them, ‘OK, we know these guys are really challenging us, but here's what we need to do.' So people will come to rely more on their leaders, and that helps the organization to bond together."

Setting Goals, Building Trust

For his part, Lazarou says the key to getting the supply chain team to adapt so quickly to new technology, new processes and a new organizational structure was empowering employees to do what they were good at, while at the same time setting clear goals. "I made the team part of the solution," he says. "Once we identified who would do what role and everyone's strengths were being emphasized, I gave them ownership immediately. Once they had an objective, strengths and ownership, we started to see improvements. I was there as a mentor, and my responsibility was to mitigate risks." Lazarou also notes as a point of pride that Creativity was able to re-engineer its supply chain function with zero attrition.

ADR's most important contribution, as Lazarou sees it, was in helping Creativity to take a more strategic view of its supply chain. "They have actually helped us to view our purchasing functions as a supply chain continuum that starts from the factory and ends with the retail consumer," Lazarou says of the consultants, "and they have been very instrumental in the education process of how to transform a supply chain." Lazarou adds that good consultants must balance politesse with doggedness. "They were very respectful of our time and our dynamic, and they had a tremendous degree of professional courtesy. But they were highly motivational and tenacious — they knew we had a huge hill to climb, and they didn't let up on us."

Dr. Birou emphasizes that consultants, to be successful with this type of major transformation, must take the time to build trust within the organization that they are seeking to change. "We talk about trust a lot in supply chain, but trust doesn't just happen; it's something you have to earn." Dr. Birou talks about two levels of trust: professional and personal. Professional trust involves demonstrating the ability to deliver on what you say you are going to do — and then delivering it, on time and at a high level of quality. Personal trust, on the other hand, involves a more emotional, human-to-human connection with the people with whom you are working, whether colleagues or customers. Both are necessary to ensure the success of a major transformation project, particularly one with such a short timeline. The professional trust gives you the confidence that all the players will make their contribution, while the personal trust is what prompts you to stay late at work to help a coworker avoid falling behind, thereby ensuring the success of the overall project.

With the issue assessment and supply chain transformation completed, Creativity has moved into a third phase of its project with ADR, focusing now on cost containment. The consultancy has been assisting Creativity in identifying products and product components where cost savings might be possible, and then helping to craft strategies for collaborating with vendors to optimize processes and share in the savings. This effort already has yielded significant cost reductions for the company, and Creativity is pursuing further savings, with double-digit containment goals for select categories in 2006. In addition, Lazarou says that Creativity will be looking to further reduce its inventory and to increase its collaboration with customers for shared benefit.

Reflecting on the factors that contributed to the success in the transformation of his company's supply chain, McLain points to the ability of the team in place within the organization to accept change despite the usual apprehensions about how the change would affect their individual jobs. "Everybody's scared of change, but they got over that very quickly and jumped in, saw the benefits and then really led the change." Asked if, in hindsight, he would have done anything different, McLain concludes, "Other than to call ADR a year earlier, not really."

Sidebar: Communication Lines

Success in a consulting engagement involving significant transformation can depend to a large degree on the lines of communication established between the consultancy and its client, according to Jim Kiser, senior consultant with ADR.

In its engagement with Creativity, ADR established communication at three levels. Bill Michels, ADR's CEO, handled interactions with the topmost executives at the company, while Kiser worked with the senior functional executives, and ADR consultant Dr. Laura Birou worked at the staff level within the function. This allowed ADR to present a uniform message to all levels within Creativity. "We're all in synch," Kiser says, "so there's never a miscue as to what going on."

This strategy also ensures that if a potential roadblock develops while a project is underway, or if a change in tactics is warranted, the issue can be identified, communicated up the chain of command and addressed before it affects the other components of the transformation. "You have to give the top layer of management, whether it's a chairman or a CEO, visibility into what's happening with the project," Kiser explains. "They have to know that so they can make adjustments as to what is best for the company." Below senior management, these lines of communication help assure staff members that they're on the right track and that they have the backing of their top executives. "In the case of Creativity, it helped empower the staff, helped them step up and do things they've never done," Kiser says.

Loading