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January 2006 | Feature Stories

Innovation: A Fresh Eye on the Supply

Chain
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By Leslie Hansen Harps
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Innovation is in. Just ask Bill Ford, star of the Ford Motor Company commercials touting the
company's "new missioninnovation."
Innovation is also at the core of IBM, which invests billions of dollars in research and
development every year and has been the leading patent-generating company in the United
States for more than a decade. "Innovation that matters, for our company and the world," is
an IBM core value.
For this global technology leader, "innovation begins at the intersection of invention and
insight," notes Patricia Pepper, director of strategy and innovation for IBM Integrated Supply
Chain (ISC), Raleigh, N.C.

While many companies talk innovation, what's truly important is "achieving the results of
that innovation, according to the standards of your clients, internal employees, or suppliers,"
Pepper says.
Supply chain innovation is important for companies of all sizes. It means looking at the way a
company applies its assets, operating resources, and capabilities to develop new ways to

satisfy customer needs, says Bill Read, Americas supply chain strategy leader, Accenture,
Cleveland, Ohio.
"Companies should measure the value of innovations or improvements by how well they help
meet customer demands," he says.
While a small number of companies are implementing breakthrough or what Read calls
"leapfrog" innovations, nearly every company today is looking to innovate in one way or
another.
And with good reason. "A company with a static supply chain strategy will not be successful
in the future," says Read.
"When evaluating how important innovation is to your organization, ask, 'Will pursuing a
strategy of incremental improvement allow us to meet our business objectives? Can we avoid
having our products and services become commodities?'" says John Langley, professor of
supply chain management at Georgia Institute of Technology, Atlanta. "If they do become
commoditized, the ability to price effectively decreases, and so does profitability."
Organizations are developing innovations across the entire supply chain continuum. Some
key areas of activity include the following:
Adapting. "The 'adaptive supply chain' has been the buzz over the last few years," Read says.
Some organizations have moved beyond talking about an adaptive supply chain to actually
implementing one, putting in place the necessary technology, people, and global operating
models. This means companies will be operating with a global view of demand, "and a
supply chain process enabled throughout the world to satisfy that demand," he explains.
Collaborating. "Collaborating with trading partners is one key area of innovation today,"
says Read. In fact, supply chain collaboration has increased dramatically over the past three
years, according to a recent Accenture survey.
"Companies had been operating within their own borders, whether internally or around the
world," says Read. "Today, they are looking beyond their boundaries, collaborating with their
trading partners to collapse the time between sales and production or replenishment."
Integrating. Breaking down silos and integrating functions helps companies develop creative
solutions. In companies that excel at supply chain innovation, "supply chain managers and Clevel executives usually have a good relationship," Langley says. "Companies that conduct
business in an integrated environment can be more innovative."
"To transform the supply chain, companies need to have a strong desire for internal and
external collaboration," says Sundi Aiyer, principal and Americas supply chain operations
capability leader, Capgemini U.S., Dallas. "Transformation cuts across departments and areas
of focus within a company. It also usually links with the extended enterprise, such as key
suppliers, customers, and channels.
"Some companies talk about innovation; others deliver it," Aiyer adds. IBM is one company
clearly delivering innovation.

Innovation Teamwork
At IBM, innovation isn't only about new technology. The company recognizes that
technology innovation on its own is not enough to achieve breakthrough results. Instead, IBM
makes innovation an integral part of its entire operation.
"Innovation is not just applied to products; we also value process and execution inventions,"
says IBM ISC's Patricia Pepper, who oversees a team of 20 people responsible for strategy,
innovation, and process in ISC's Innovation Program Office, established six months ago.
"We have a six-person strategy team, a four-person innovation team, and a process innovation
team of 10 people," she says. "Their overall mission is to direct and coordinate a growing
portfolio of innovation approaches."
The Innovation Program Office formalizes the innovation process at IBM, encourages new
ideas, and provides resources and a centralized repository of best practices.
"We're getting tremendous results," Pepper says, from focused ideas to changes with broad
impact across the organization.
One new idea the Innovation Program Office developed is ISC's ride-along program, where
an IBM logistics employee rides with product to a customer site, experiencing firsthand the
environment in which the product is received. The ride-along program enables IBM's
logistics team to better understand and meet customer requirements and develop innovative
solutions.
A more far-reaching example of the Innovation Program Office's success is IBM's paperless
import system, which replaces individual papers, faxes, and e-mails. IBM piloted the system
with servers moving from Guadalajara into the United States, and is now expanding to
servers shipping from Ireland.

Measuring Results
The new import system enables IBM to slash document delivery time from 15 days to 25
hours; reduce the time required to resolve classification errors from one day to two hours; and
eliminate missing documents.
In addition, IBM and its import partners now have complete real-time visibility as goods
move through the supply chain, from supplier to forwarder to customs broker to importer.
Facilitating and tracking such innovations and measuring results is part of the Innovation
Program Office's job. The office also helps would-be innovators with resources and advice on
how to take ideas to the next level, such as assembling a team, developing a plan, and
securing a patent.
Most importantly, the office helps ensure innovations are linked to IBM's strategies, a critical
step in ensuring that innovations deliver desired results.
Here's a look at several other companies enacting innovations across their supply chains.

Harman-izing Inbound Shipments

Company: Harman Consumer Group
Challenge: Optimizing inbound shipments in China
Innovation: Discovering a new strategic location
"Innovation comes from being close to processes, looking ahead strategically, and developing
and evaluating new ideas," says Lalit Panda, vice president of supply chain and information
systems for Harman Consumer Group, a division of Harman International Industries,
Woodbury, N.Y.
"Taking an idea from conception to reality is a lot of work. Innovations require more than
ideas. You also need infrastructure in place to implement ideas properly."
Because of its long supply chain and the dynamic nature of its market, logistics innovations
are particularly important to Harman. The company designs, manufactures, and markets highfidelity audio products and electronics systems, the majority of which are produced in China.
In addition, China offers a growing consumer market for Harman products. The country will
soon liberalize trade regulations, making it possible for foreign manufacturers to ship directly
from their outsourced vendors to the Chinese market, avoiding export and re-import costs.
These developments triggered an innovation in Harman's inbound operation, which
previously revolved around consolidating shipments in Hong Kong.
"We found a customs-bonded free zone on the border of China and Hong Kong in Futian. It is
a strategic location, equidistant from three major ports in the Pearl River Delta," says Lalit.
Consolidating inbound shipments in this free trade zone would allow Harman to move
product through the ports of Yantian in eastern China and Shekou in western China, or
through Hong Kong. Realizing the potential a Futian operation offered, Harman sought a
third-party logistics provider (3PL) to help make this innovation happen.
Harman met with several major 3PLs that were not interested in the move from Yantian to
Futian before finally launching the operation in September 2005 with APL Logistics. Now,
other 3PLs are developing operations in Futian as well.
"We expect the Pearl River region to be a huge area for inbound cost savings," Lalit says. "In
addition, the new location sets the stage for five years from now when China is completely
liberalized and we can ship directly inside the country."
Recognizing that information is a critical requirement for innovation, Harman recently
deployed a vendor extranet that gives supply chain partners visibility of important data.
Harman uses the information as source data for a vendor metrics scorecard that measures
vendors on their ability to execute. It also uses the data to enable root cause analyses.

Lalit works closely with Harman's supply chain partners to explore innovative approaches,
and encourages them to be open to new concepts.
"Carriers, for example, need to find innovative ways to add valuesuch as adopting pricing
models that include performance incentivesin an increasingly commoditized business," he
says.
And commercial shipping companies need to think creatively about guaranteed service levels,
multiple pricing options, and data visibility, he notes.
This type of innovative thinking should touch all aspects of the supply chain, according to
Lalit. Clearly, Harman agrees.

Quenching a Thirst for Data

Company: Evian North America
Challenge: Controlling global logistics and transportation costs
Innovation: Implementing a new technology platform that unifies data
Evian North America, a wholly owned division of Danone, distributes water bottled at the
company's plant in the French Alps.
"The product dictates the supply chain," says Philip Greenfield, vice president of supply
chain for Evian North America. Because bottled water is a heavy-weight, low-price-point
product, the company continually looks for innovative ways to control transportation and
logistics costs.
"We work with all kinds of logistics providers: freight forwarders, customs brokers, export
and import specialists, warehouses, and carriers," Greenfield says. Each shipment involves
multiple parties and must comply with multiple countries' regulations. Time zone differences
further complicate matters.
Like many other companies, Evian grapples with tight ocean shipping conditions. "With
ocean capacity razor thin from Europe to North America, we have to be innovative and
creative," Greenfield says, managing within a band of acceptable freight rates and a range of
available slots.
Evian recognized that it needed an integrated, web-based technology platform to enhance
supply chain management effectiveness, and is implementing hosted software and
information management services from GT Nexus, a logistics technology provider in
Alameda, Calif.
The integration platform will serve as a unified data hub, standardizing logistics processes
and centralizing global product visibilityfrom order to deliveryacross Evian's global
supply chain network.

A Trio of Benefits

"We're looking to realize savings and improvement from this innovation in three areas,"
Greenfield says. First, the company expects to eliminate costs, such as demurrage charges,
that it incurs as a result of misunderstandings and communication errors.
The ability to reduce inventory around the world is a second benefit the company hopes to
achieve. "Historically, a parallel relationship exists between inventory and service: if you
want high service levels, you need a lot of inventory. We want to switch that, and deliver high
service levels with less inventory," Greenfield explains.
Third, Evian wants to better understand its suppliers' performance. "We have to identify our
best suppliers, know their strengths and weaknesses, and meet with them regularly to share
this information," Greenfield says. "The linchpin is having accurate data and key
performance indicators."
Evian began implementing the new technology platform in August 2005, and expects to be up
and running enterprise-wide in early 2006. In addition to the new technology, Evian is putting
into place innovative processes and methods.
"At the end of the day, the technology is only a tool. If no one uses the tool, we've wasted
time and resources," Greenfield says.
Because the new software eliminates manual work, Greenfield expects the logistics and
supply chain staff will have more time to proactively use the data the tool generates to
develop additional innovations for Evian.

Building a Lean Machine

Company: Bobcat Company
Challenge: Leaning out inventory
Innovation: A new outsourced business model
When Bobcat Company, a Wells Fargo, N.D.-based producer of small loaders, excavators,
and other types of compact construction equipment, began exploring lean manufacturing
concepts, it targeted inventory control as one area for improvement.
The ultimate goal was to set up synchronous material flow that would enable Bobcat to get
the right piece at the right time to the line-side operator, in the optimal part configuration and
presentation. But first, it had to solve the riddle of who could best help it achieve this goal.
"We had to decide whether to hire internal employees or partner with a company offering
expertise in logistics, warehousing, and material flow," says John Mark Shaw, Bobcat's global
production planning and inventory control manager. "We wanted to focus on building Bobcat
machines, and decided to look into working with a third-party logistics provider."

A New Partner

For Bobcat, using an outside partner was an innovative strategy. It issued an RFP to five
3PLs, conducted site visits, and had each 3PL come to its office to meet with Bobcat plant
and business unit managers, and inventory control personnel. The company chose to partner
with Menlo Worldwide Logistics, San Mateo, Calif.
In September 2005, Bobcat began working with Menlo to deploy synchronous material flow
with single pieces flowing to each work cell. Menlo set up an offsite warehouse located seven
miles from Bobcat's manufacturing facility in Bismarck, N.D. The two companies worked
together to design packaging, and the racks that serve as delivery conveyances. They also
developed internal delivery routes for material handlers who travel to assigned work cells.
A four-person engineering readiness operations team from Menlo worked onsite with Bobcat,
acting as an extension of the Bobcat team to put in place the underlying elements that would
enable single piece material flow.
Part of the innovation process involved creating value stream maps of various logistics
functions, then improving processes to enable an effective synchronous material flow
strategy. The effort was successfulin one case, Bobcat cut lead times by nearly two thirds,
and eliminated $100,000 in on-hand inventory.
The team also set up key performance indicators (KPIs), identifying 26 indicators for the
production planning and inventory control departments to manage. Half the KPIs measure
Menlo's performance.
"The KPIs are included in a materials report that we send out daily so everyone can see how
the group and the company is doing on supply chain processes," Shaw says.
Switching to an outsourced business model was a challenge for Bobcat. "It's easy to launch a
customer-supplier relationship. It's more difficult to establish a strategic third-party logistics
partnership" such as the one in place between Bobcat and Menlo, according to Shaw.
"The relationship entails a greater degree of communication and visibility into internal
processes than many companies are comfortable with," he says.
But the new relationship and technology implementation have progressed smoothly. When
issues arise, Bobcat addresses them immediately by analyzing root causes, assigning
employees to make corrections or adjustments, and developing metrics to track progress.
"This allows the team to focus on important issues, instead of fighting fires," Greenfield says.
Because the initiative was successful in the Bismarck facility, Bobcat expects to expand it.
The company plans to set up similar manufacturing support centers to link all Bobcat
facilities, to integrate the facilities so they have single data flow, and to strengthen the supply
chain and supplier alliances, says Shaw.

Mixing Up an Innovative Culture

Company: Noveon Inc.

Challenge: Developing a supply chain from scratch

Innovation: Tapping into people power
Specialty chemical manufacturer Noveon Inc., headquartered in Cleveland, Ohio, was spun
off from parent company BF Goodrich in 2001. The new company designed its supply chain
from scratch, says Alex Spinos, Noveon's global logistics manager.
"The only thing we knew was the company would change drastically, and we had to be
flexible," Spinos recalls.
Running the business in a new environment required ingenuity and inventiveness from the
well-established manufacturer of plastics, performance coatings, and ingredients and
additives for personal care products, pharmaceuticals and the food and beverage industry.
Establishing a culture of innovation paid off when The Lubrizol Corporation acquired
Noveon in June 2004, after three years operating as an independent company.

Recipe for Success

Noveon's success is a result of several innovations: establishing a staff dedicated to fostering
supply chain improvements, working with experienced third-party logistics providers, and
assembling a team of individuals who ensure managers have the data they need to make
effective decisions, according to Spinos.
To foster an innovative environment internally, Noveon established a four-person project
management team. Members act as internal consultants.
"They don't have operational duties; they are tasked only with supply chain and sourcing
process improvement," Spinos explains. "These folks push, poke, and prod a 'Let's do
business a little differently' mentality to the rest of the organization."
Noveon's first-ever global ocean bid is an example of the project management team's success
in generating innovative ideas.
"We used an e-sourcing model for the bid. This allowed us to present one company to the
carrier base as opposed to a fragmented approach," Spinos explains.
As part of the process, the project management team held three global meetings, attended by
every manager in the company involved with ocean transportation. As a result, employees
were able to share best practices and form relationships that are likely to enable future
innovations.
A group of logistics interns also help Noveon drive its innovative culture. Noveon works with
six college interns every year, and the company often hires them after graduation "to infiltrate
the organization with supercharged folks who look at things with a fresh eye," Spinos says.
The interns, from the business school at nearby John Carroll University, are empowered by
project managers to collect and collate data and "make it smart," according to Spinos.

Energized and ingenious, the interns chase down data that provides the foundation for new
ideas and methods.
Working with leading third-party providers is another core element of Noveon's innovative
logistics strategy. "We need partners with the necessary infrastructure and product knowledge
to enable us to react quickly to business demands," Spinos says.

Innovation Enablers
Outsourcing has also helped the company handle its strong growth. As a result, Noveon looks
to its providers to be key innovation enablers. Domestically, the company works with two
3PLs: Ryder manages its transportation, and Kuehne + Nagel provides warehousing services.
"We explain our business needs to our partners, and give them the information necessary to
make recommendations," Spinos says. "They come back with great options."
Ryder, for example, developed a customized transportation solution that gives Noveon
complete visibility of transportation costs, centralizes data reporting and freight bill payment,
improves damage claims management, and reduces freight costs.
When Noveon was evaluating warehousing options in the eastern United States, the company
consulted both providers. Kuehne + Nagel provided information on warehousing costs and
volumes, and Ryder analyzed transportation data and provided feedback on potential
locations. They combined the transportation and warehousing data to identify an optimum
warehouse location, which helped Noveon reduce costs, save time, and improve service.
"We treat our 3PLs the same way we do our own staff; that has a lot to do with our success,"
Spinos says.
Onsite 3PL personnel in Asia and the United States attend Noveon's supply chain meetings
along with its internal employees. In addition, the providers work with Noveon to develop its
strategic plan, which guides warehousing, transportation, and international logistics efforts.
Armed with this information, Noveon works with its providers to develop tactical and
strategic innovations that help the company achieve its mission.

Driving On New Terrain

Company: Suzuki Manufacturing of America Corporation
Challenge: Streamlining inbound logistics processes
Innovation: Sharing resources with a direct competitor
In the constant quest to improve supply chain performance, companies try some surprising
innovations. But leveraging the resources of a direct competitor? It sounds unlikely, but is
exactly the innovation Suzuki Manufacturing of America Corporation chose to streamline its
inbound shipping process and reduce inventory.

Suzuki manufactures all-terrain vehicles (ATVs) at its manufacturing plant in Rome, Ga.
Seeking to lean out on-hand inventory and better manage inbound logistics, Suzuki turned to
its 3PL transportation partner, Tipp City, Ohio-based Transfreight, which had been managing
Suzuki's inbound logistics, to develop a new approach.
"We try to model ourselves after Dellwhatever inventory comes in the front door in the
morning goes out the back door in the evening," explains Thomas J. Willig, supply chain
manager for Suzuki. "My goal is to turn the lights off at 5 p.m., and have no inventory left in
the building."
Thanks to changes made during the past yearand the company's surprising alliance with a
fellow ATV manufacturerWillig is on the way to achieving his goal.
Originally, Suzuki brought all inbound materials into its manufacturing facility. But with
limited space, the yard quickly became congested, and the company suffered from poor
inbound shipment visibility.
To streamline receiving and improve visibility, Suzuki opened a warehouse to handle inbound
truck shipments of parts. A second warehouse received international shipments brought in via
rail. Production lots were assembled at the warehouse, then delivered to the Rome plant.
As inventory began to build up at the warehouses, however, it became clear Suzuki wasn't
getting the results it wanted by taking this approach. Willig turned to Transfreight for a
solution.
"We put together a plan to bring material in sequence by lot number to Transfreight service
centers, and have Transfreight deliver it to us," Willig explains.
Transfreight, which specializes in supply chain solutions based on lean logistics, Six Sigma,
and best practices, suggested using integrated routesa new innovation for Suzuki. The
routes would combine Suzuki shipments with shipments from other Transfreight customers.
That's when Suzuki's competitor entered the picture.
The Transfreight team analyzed its networkwhich includes customers with suppliers
located throughout the Midwest and East Coast, where many Suzuki suppliers are located
and began building the integrated routes.
During this analytical phase, Aurelie Doucette, a Transfreight contract manager, contacted a
Transfreight colleague who worked with Yamaha Motor Corporation of Americaanother
Transfreight customerto explore the potential for consolidating loads from Suzuki and
Yamaha suppliers. The companies, which compete in the same marketplaceshare many
common suppliers.
Doucette previously worked with Yamaha, so she knew Yamaha and Suzuki suppliers were
complementary, and that integrating shipments from the two competitors would result in
improved service and reduced cost for both companies. Suppliers would also benefit from the
efficiency of consistent, standardized pickups, and a single truck picking up for two
customers.

Transfreight put together a proposal outlining the benefits of using integrated inbound routes
and submitted it to Suzuki and Yamaha. The innovative plan was approved by the two rivals
and successfully implemented. In September 2005, Suzuki began shutting down its
warehouses.

Coordinated Pickups
Today, Transfreight picks up inbound materials at Suzuki and Yamaha suppliers and
transports them to service centers in Tipp City, Ohio, and Calhoun, Ga. There, materials are
sequenced by production lot number and delivered to Suzuki's Rome plant. The Georgia
service center delivers two shipments per day; the Dayton facility sends a shipment once a
day.
"We asked Transfreight to assemble a network of suppliers stretching from Nebraska to
Georgia to New Jersey, deliver parts to our facility at 6 a.m., and move the empty containers
back to suppliers every morningnot an easy task," Willig says.
Suzuki's on-hand inventory has dropped from a high of four to five days of domestic parts
inventory to one day of inventory.
"The total pipeline may be three days including product in-transit from our suppliers, but we
never have more than one day of inventory on our floor," Willig says.
The Suzuki plant has moved from an operation with two warehouses and a manufacturing
facility, to one streamlined plant. This transition has sharpened Suzuki's focus on accuracy
and precision.
"We don't have a 200,000-square-foot warehouse full of parts to fall back on," Willig
explains. "Suppliers know they must ship the right parts at the right time, every time, to avoid
shutting down the line."
The new lean approach and innovative shipping arrangement have improved performance
throughout Suzuki's ATV operation. Getting rid of excess inventory enabled it to uncover and
eliminate problems it didn't see previously "because the inventory covered them up,"
according to Willig.
"The lower the water, the more the rocks stick out," he explains. "We found a few 'rocks' to
handle along the waysome internal, and some external."
Suzuki expects its third-party logistics provider to suggest innovations. "I want my 3PL to
come to me with ideas on how to cut costs, have parts delivered cheaper and faster, and keep
more product off the floor," Willig says.
Suzuki and Transfreight have a strategic, rather than a transactional partnership, and work
together to achieve continuous improvement. Three of Transfreight's employees work onsite
at the Rome plant. In fact, Doucette's desk is directly behind Willig's, which facilitates a close
working relationship.

Teamwork Pays Off

The 3PL employees working with Suzuki are included in Suzuki's daily production meeting,
and sometimes attend its monthly sales and operations planning meetings as well.
In addition, "Transfreight is the only supplier to make presentations at our supplier
conference every year," Willig says.
This close relationship makes it easier for the partners to continue to innovate. The key to the
partnership is a solid foundation of trust. Because of its innovative approach to manufacturing
and inbound shipping, both partners know that "we need to have total trust," Willig says. "If
any major problems occur, manufacturing shuts down."
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