One high-tech manufacturer's quest to deliver near-perfect fill rates across its global service organization
Writer Tom Friedman has asserted that "the world is flat," but for companies operating globally and facing unique challenges in each of the markets where they have suppliers or customers, the world is as round as ever. But rather than viewing regional differences as an obstacle to an effective supply chain, innovative companies are embracing the idea of centrally managing disparately structured operations that have been "localized" to take account of the particular environment in a given geography.
Case in point: Network Appliance (NetApp), the Sunnyvale, Calif.-based manufacturer of data storage solutions for large data centers. The 14-year-old company has more than 5,000 employees in 110 offices worldwide, and it generates about $2 billion in annual revenues.
Earlier this year, Bruce Shadmehri, director of global field operations for NetApp, spoke at the Interlog conference regarding his company's six-year-old field service initiative, which has helped NetApp deliver consistent 99.5 percent global fill rates across its service organization. One component of this initiative has involved establishing regionally specific infrastructures to support customers in different geographies, but running the operation with the help of a single planning system.
Due to the vital nature of its customers' data centers, NetApp offers two- and four-hour and next-business day delivery commitments on more than 1,500 parts to keep those centers up and running. "Our products are used in mission-critical applications, and customers stand to lose hundreds of thousands of dollars if there is ever downtime," Shadmehri noted in his presentation. NetApp's field service operation includes one global distribution center serving five regions worldwide through four regional hubs (in Louisville, Ky., Miami, Amsterdam and Singapore) and 200 forward stocking locations (FSLs).
Naturally, beyond meeting its customer commitments, NetApp also has an interest in minimizing the inventory that it needs to hold in those stocking locations, and accomplishing this requires a tight linkage between the stocking model and customer entitlements, according to Shadmehri. That, in turn, requires detailed mapping of the company's installed based to its FSL; the ability to manage criticality and ranking settings by customer, part, product and location; accurate parts usage data; and, in Shadmehri's words, a robust spares planning system.
The planning solution that NetApp uses, from Baxter Planning Systems of Austin, Texas, can automatically map different response codes to different stocking locations, so the company can ensure that a replacement part comes from the most appropriate location a nearby forward stocking location in the case of a four-hour response commitment, for example, or a country hub location in the case of a next business day commitment.
Importantly, the planning system is flexible enough that it allows NetApp to apply different fulfillment strategies appropriate for different regions. For instance, in Europe, with its unified market, NetApp is able to map demand across country borders, while in Asia, the system respects international borders and maps to in-country stocking locations within a given nation.
The flexibility of the system also has allowed NetApp to think strategically in terms of how it builds regional networks to support its field service operation. The company has adapted its multi-echelon network model with the distribution center supporting regional hubs that support country hubs that support smaller country depots to the specifics of different markets.
For China, for instance, it was cost-effective to position inventory in the Singapore regional hub, have Singapore feed Beijing, and then have Beijing take care of the country depots. But through modeling in the planning system, NetApp established that for Japan it made more sense to have inventory go directly from the company's global distribution center straight to the country hub, with no need to go through a regional hub.
Building its field service inventory network has been an extended journey for NetApp. The company began working on this initiative in 1999, when it started working with UPS to integrate its third-party logistics (3PL) globally and when it first started working with Baxter to implement a planning system for the Americas. Through 2002, NetApp continued working with Baxter to extend coverage of the planning system incrementally to Europe and then Asia. Between 2002 and the present, the company began using logistics network modeling capabilities and a new distribution center planning tool from Baxter, and it began working with two additional 3PL providers, Choice Logistics (in South America) and DHL (in Europe and Asia).
According to Shadmehri, one key to NetApp's success has been the company's collaborative approach to working with its solution and service providers to fine-tune and manage the field service network. "It's important to treat your partners as an asset," he said, referring to Baxter Planning Systems, UPS, DHL and Choice Logistics. One aspect of NetApp's partnership with its solution and 3PL providers has been the integration between the planning system and the logistics providers. As orders are placed and fulfilled, and as parts are drawn out of various locations, the planning system immediately communicates the replenishment requirements to, for example, UPS, which can then ensure that the right parts are continuously on their way to the right stocking location.
By employing a unified planning system and taking a flexible supply chain approach to the different regions in which it operates, NetApp has achieved significant results over the duration of the initiative. In addition, NetApp realized a return materials authorization (RMA) fulfillment rate increase to 99.5 percent, the company also reduced its inventory months-of-supply by half with the initial field planning rollout, as well as an inventory to revenue improvement of greater than 25 percent year over year and what Shadmehri described as "substantial indirect cost improvement." Shadmehri also said that NetApp has reduced its missed service costs and been able to achieve "sizeable" savings on expedited shipping and delivery fees.
While Shadmehri attributes much of NetApp's successes in managing its field service operation to such standard factors as senior management commitment to the project, close tracking of measurements and metrics, and a closed-loop corrective action process, he also points to the firepower that the company's planning system is able to bring to bear to address complex replenishments challenges. "It takes a robust planning system to achieve 99.5 percent first time fill rates globally," he said, adding, "Our customers are confident that we can provide the right part at the right place at the right time."