Lennox Residential—a leading manufacturer of heating, ventilation and air conditioning (HVAC) systems for the residential market—recently conducted a massive expansion and transformation of its supply chain, moving from a single national distribution center that served 66 company-owned retail stores to a hub-and-spoke model with eight regional distribution centers and 19 local distribution centers serving 160+ stores (with more on the way).
“Our new supply chain model puts parts and products closer to the customer, enabling us to provide service levels that lead the HVAC industry,” says Keith Nash, Vice President of Supply Chain Logistics at Lennox Residential, and Supply & Demand Chain Executive Pro to Know of the Year for 2015. “Whether our customers live in the sun-belt, the snow-belt, or somewhere in between, if their HVAC system has a problem they want it fixed yesterday. We deliver same day or next morning to almost 98 percent of our demand.
“Of course, achieving those industry leading service levels was a major challenge, especially since HVAC is a highly seasonal business and literally as unpredictable as the weather,” says Nash. “Designing and implementing the new supply chain model was a multi-year undertaking that required tremendous skill and dedication from our transformation team.”
One of the biggest challenges was the sheer size and scope of the effort. In just over four years, Lennox moved to the hub-and-spoke model. This included re-deploying an estimated 1,000 truckloads of material. Along the way, the team also installed TMS & WMS, supply and demand planning. These moves were supported by countless activities that were critical to success. For example, to ensure that planning and deployment calculations were handled correctly the team had to reconfigure an estimated 40 million data elements.
Lennox supply chain leaders and team were tasked with replacing the company’s operational, physical and IT infrastructure, yet most still had full responsibility for doing their normal jobs and keeping the existing supply chain running smoothly. This led to a lot of hard work and stress during the transformation process but it has been worth it.
The supply chain transformation led to a fundamental culture shift. Before, people were called to put out a fire, but went home every night knowing there would be more fires to fight in the morning. Now, the team is focused on permanently fixing problems and improving core processes.
The transformation has enabled Lennox to dramatically improve its service levels. Immediate fill rate is up 15 percent to 93 percent and 98 percent of demand can be delivered by the next morning (up from 35 percent in 2008). Meanwhile, distribution costs as a percentage of sales are down by more than 17 percent. Even more important, the transformational improvements have provided a strong foundation for the company’s overall business strategy. These improvements, including higher safety, less working capital, and smaller carbon footprint across the enterprise, have supported approximately 50 percent revenue growth and more than 20 percent increase in market share.
“The impressive results we’ve achieved to date are a testimony to the incredible talent, hard work and dedication of our supply chain team,” says Nash. ”The new supply chain model is a key enabler of our business strategy and is already driving growth and improved performance across our entire business. From expansion to excellence. Whatever twists and turns the market throws at us, the team will be ready.”