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Supply Chain Security & Risk Mgmt.

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Let's Hear It for the Imperfect Supply Chain

"All happy supply chains are alike," Tolstoy wrote; "each unhappy supply chain is unhappy in its own way." Actually, he never said that, although I wish he had. With all this talk of "the perfect order," it's good to remember that global supply chains are far from perfect. So let us take a passing look at several that are striving for that elusive goal, even as they cope with the vagaries of the real world.

The brave individuals quoted here were speakers at a recent meeting of the San Francisco Roundtable of the Council of Supply Chain Management Professionals. They were responding to a question from moderator Steven Nahmias, professor of operations and management information systems at Santa Clara University's Leavey School of Business. He asked: "What is the most important issue your company faces in supply-chain planning?"

Kim Peterson is corporate distribution manager for Specialized Bicycle Components, a Morgan Hill, Calif.-based maker of high-performance bicycles and equipment. Its bikes were ridden by the first- and second-place winners of the Tour de France, among other major racers. The company's slogan, said Peterson, is "innovate or die."

Day-to-day concerns are more prosaic. Peterson says the company has a tough time coming up with accurate demand forecasts. With most of its product manufactured in Asia, Specialized struggles with long lead times. "We don't know ahead of time what's going to be hot," he says. Then, when it identifies a big seller, it has to gear up to make enough of that product to capture the fleeting demand. "If we forecast wrong," Peterson says, "it's difficult to recover."

Distribution labors to work closely with the supplier side to get the right product to market as quickly as possible. Frequently, however, the traffic department is called upon "to make up for the sins of delays in procurement," Peterson said, adding that Specialized still faces big issues in communicating properly with vendors. It hopes to solve the problem with the recent hiring of a lead logistics provider, Century Distribution Systems, Inc., which will create a single database and point of contact in its dealings with vendors.

Peet's Coffee & Tea is the Berkeley, Calif.-based pioneer of the modern-day gourmet coffee craze. Industry veteran Alfred H. Peet hired and trained the individuals who went on to found Starbucks. Today, Peet's does a strong business at 193 retail locations in six states, in addition to servicing nearly 9,000 grocery stores with fresh coffee between one and three times a week.

Peet's doesn't make its life easy. It supplies the whole network out of a single roasting facility in Alameda, Calif., producing 32 types of beans each day. The time from roasting to store shelf is just seven to 14 days, said director of logistics Neil Rowe. Relying on direct store delivery (DSD), Peet's maintains some 300 routes, servicing 30 to 50 stores in a given area with the help of less-than-truckload carriers. Ninety percent of the stores receive same- or next-day coffee deliveries, some in the dead of night. The DSD model "gives us better control of inventory in transit, ensuring freshness," says Rowe.

Sounds like a decent system, but there are always complications. About a year ago, Peet's faced a "tremendous challenge" in implementing a new enterprise resource planning (ERP) system. (Sound familiar, dear reader?) On top of that, the company has struggled with electronic data interchange (EDI), especially with respect to its rapid expansion. "We're kind of famous at Peet's for getting the business, then figuring out how to do it," said Rowe. Recently the company created a two-pound coffee bag for Sam's Club without having the machine on site to produce it. "It's coming in from Italy in two weeks," Rowe promised. A similar challenge arose when Peet's realized that it lacked the EDI capability to support its high-volume roast-to-order model for supplying Target Stores.

A couple of years ago, some college students were touring Peet's Alameda roasting plant. Everything they observed, Rowe recalls, was contrary to what they had been taught about proper business processes. He told them: "If you want to do your thesis on product efficiency, you might not want to look at this as a model."

Corporate acquisitions are never smooth, a lesson being learned these days by Data Domain, the maker of space-saving storage disks for critical data. In July 2009, the company was bought by Hopkinton, Mass.-based EMC Corp., a vendor of systems for network storage, data recovery and information management. Full integration is supposed to be wrapped up by January. In the meantime, the merged operation is trying to get two separate ERP systems - Oracle Corp. for EMC and SAP AG for Data Domain - to play nicely together, according to Paul Goodman, director of global logistics. The plan is to go to a common ERP from Oracle, creating one system of record for all trade documentation, although the setup for handling spares and services will remain with Data Domain. For now, says Goodman, the situation "plays havoc in creating the right document sets."

Less easily reconciled are the differing manufacturing philosophies of EMC and Data Domain. The first runs three large factories of its own, two in the U.S. and one in Ireland. The second purchases "white" parts and assemblies, then relies on outsourced manufacturing partners to create finished product. The strategy makes for excellent margins, says Goodman, and Data Domain is understandably reluctant to give it up in favor of the parent company's asset-heavy manufacturing model, despite pressure to do so. "We need to stay with our core competency," he says.

A common theme among the three companies is the need for agility. All are forced to respond quickly to true demand, in the absence of a time machine or crystal ball that provides a solid picture of future customer behavior. Moreover, all accept the necessity for constant change - an attitude that makes hash out of the notion of "perfection." On paper, Rowe noted, Peet's has enough capacity at its one roasting plant to serve customer needs for the next 10 years. "But that doesn't mean we'll continue to do what we're doing."

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