The Net Best Thing: The Best of Three Worlds

Three different companies on three different continents, each facing diverse challenges and forming unique solutions. It's the supply chain at its very best.


Deppe is joint managing director of Barloworld Energy, part of Barloworld Group, a $2.7 billion company with about 22,000 employees and operations in more than 90 countries, distributing, among other things, agricultural and construction equipment, materials handling machines and vehicle motors. Barloworld Energy is the exclusive distributor in South Africa for industrial-class engines from UK-based Perkins Engine Co., recently acquired by Caterpillar.


Barloworld Energy got into the Perkins engine parts business three years ago when it bought out another distributor, along with its entire stock. Shortly thereafter, Barloworld formed a joint venture with Boeresake (the local Massey Ferguson distributor) to sell and support Perkins engines at locations throughout the country. Within three months of getting into the partnership, Deppe found that his company's $1.5 million inventory of engine parts essentially had a turnover rate of once a year and its service levels were erratic because of the limited capabilities of the joint venture's inventory system.


To address this problem, in 1999 Barloworld Energy implemented inventory optimization software from Atlanta, Ga.-based Ability. The software allows Barloworld to capture  daily sales, stock, order and surplus data from customers, as well as demand histories. Using this software, Deppe's company can determine stock forecast levels at the component level and make better purchasing decisions. As a result, Deppe says Barloworld has reduced its inventory levels by almost half and stabilized service levels at between 94 and 96 percent. Because the inventory system interfaces directly with Boeresake's transactional system, Barloworld Energy has eliminated manual errors and reduced order-processing times from two weeks to one day.


Having ameliorated the inventory situation, Barloworld turned its attention to increasing its market share for Perkins engine parts in South Africa from the current 25 percent level to a target of 50 percent. At a corporate brainstorming session in January 2000, the company set the goal of offering lower prices and better accessibility to its customers. Once again, inventory was key, only this time the solution was distributor-managed inventory (DMI).


Barloworld Energy opted to extend its use of the Ability software to encompass its network of about 50 dealers throughout the country. Rather than the dealers purchasing stock, Barloworld Energy would maintain ownership of the inventory and manage it at the dealers' locations, leaving the dealers to focus on selling and supporting Perkins engines and engine parts. Deppe says Barloworld Energy's modeling indicates this DMI system should reduce costs but increase profits for the dealers, who will now work on commissions. Since Barloworld Energy will manage the inventory throughout the country, the company should be able to shift stock that isn't moving well in one area to another area where it might move better. The company is also working on a system to allow the end customers to order parts from dealers over the Internet.


Looking upstream in Barloworld Energy's supply chain, Deppe says his company may try to move toward a system in which Barloworld Energy would receive parts directly from Perkins' own suppliers. After an order is placed through Perkins, the order and the money would flow through Perkins to the supplier. The part, however, would be shipped directly from the supplier to Barloworld Energy, cutting out inventory and logistics costs. But that idea remains on the drawing board. Everyone agrees it's where we want to go, but there are many steps to take before we get there, Deppe says.


Barloworld Energy's approach to supply chain optimization is notable for its emphasis on avoiding disintermediation, an oft-cited barrier to greater adoption of B2B technologies. We felt that all along the chain, there was some value to be added, Deppe says. Barloworld Energy's value-add was its ability to manage the inventory, while the dealers were best at sales and support in the field.


Last Stop: e-Payments Without Borders


Some 5,400 miles northeast of Johannesburg, in Singapore, Michael Mahon has discovered that, sometimes, if you want your Net Best solution to work just right, you have to build it yourself.


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