Shaw Industries is the world's largest carpet manufacturer, annually producing more than 600 million square yards of commercial and residential carpeting in more than 25,000 styles and colors. In addition, Shaw also produces and distributes rugs, ceramic, hardwood and laminate floor coverings. Owned by Berkshire Hathaway, the company has annual sales of approximately $6bn and employs some 30,000 workers. It implemented a suite of products from Logility to improve visibility to demand, enable one-number forecasting and gain better control of inventory.
Q: Can you give us a profile of Shaw's supply chain?
Whisenant: We have six major divisions, some of which are vertically integrated to our carpet division, which is the largest. We make broadloom and loop carpets for both commercial and residential uses at 25 U.S. manufacturing facilities that are mainly centered around Dalton. In support of that production, we have 17 major yarn manufacturing facilities and we recently purchased a company that manufactures carpet backing, which will meet all of our backing needs. The yarn and backing divisions are vertically integrated to our carpet division, but we forecast them separately. We also have a division that makes carpet samples. We really do this as a service to our customers-we don't make money on samples-but it is more cost-effective for us to manufacture the samples ourselves, so we have two facilities for that.
We have a hard surfaces division, which includes ceramic tile, laminate and wood flooring. Finally, we have Shaw Living, which is our rug division. It makes Oriental-type rugs and other low-top products. We also make rugs from carpet pieces that are put together in a structured way to give the rug texture and design. That division also includes our small, rubber-backed scatter rugs.
Shaw Living is not as vertically integrated and we do purchase a lot of product from India, mostly finished rugs that we sell through department stores and other retailers. Similarly, in hard flooring we import a lot of ceramic from Italy.
Q: So your supply chain issues vary a lot by division?
Whisenant: Yes, definitely. Since we are so vertically integrated on the carpet side, most of our lead times there are short and we got used to operating that way. We're accustomed to promising customers they can have their orders within five days. In our manufacturing facilities, we can fill most orders within five days even if we don't have it on the shelf. Now that takes some work because in the carpet industry, you are able to run only a little more than half of your machines at any one time. We usually have a low percentage utilization rate simply because a certain percent of the machines are in changeover mode, being switched to new products or new yarns. So we have crews that just rotate on these machines. That's how we get short lead times and also it gives us a lot of flexibility to make sure we get any back orders out.
When we got into hard surfaces like ceramic tile and import rugs we didn't have that. As we started bringing in product from places like Italy and India and China, lead times became a really big challenge for us. Those sometimes have 20-week to 25-week lead times, which meant we needed to do a better job planning our process.
So one of the first things we wanted to address when we implemented the Logility Voyager solution was to get a better feel for the demand stream from our customers. We use the Logility Collaborate tool to link up with the sales force in the field and to exchange information. This is especially important on new products and in markets where we are working with companies that have what are called dÃƒÂ©cor dates. This is where a company like JC Penny will put out a new catalog and revamp everything being offered. If we don't really plan that process, we can end up with back orders and customers that aren't very happy. And of course the reverse side is that if you produce too much inventory, your margins and turns suffer. So we wanted to become more demand driven by better linking our demand process to our customers. We wanted our customers to have more input into our applications and process and be able to give us better and quicker feedback. This would enable us to make sure our customers don't get shortchanged through back orders or that we are not carrying too much inventory.
And, of course, this is also important from a cost savings standpoint because when you are dealing with these big retailers, they are going to ding you if you don't get the product there when they need it. So being better linked with these customers allows us to serve them better and, in the end, to get better terms.
Q: Are you also using Collaborate internally?
Whisenant: Yes, we actually first implemented it to link our carpet planning and our yarn planning groups. On the residential side of our business, the carpet we produce is primarily an un-dyed natural yarn. Then it is tufted and run through a continuous dye range, depending on our demand. We have refined that process to the point that we switch from one shade of a color range to another shade within 10 to 15 feet of carpet. So in that process we have a lot more utility of our yarn. These natural yarns can be tufted into a plush or loop type carpet and dyed to any color. But on the contract division side we mostly deal with pre-dyed yarns that aren't easily changed, so we really need to be precise about our planning. So linking our yarn planning and carpet planning was very important to help us deal with that issue-looking at the raw material needs and trying to make sure that the yarn we were producing matched the demand for finished carpet. Using the Collaborate tool allowed us to get better visibility to our yarn needs and to our excess yarn product, and ultimately to decrease the inventory levels that we want to keep of these products.
Basically, it starts with our sales force-the people in the field who are meeting with the mom-and-pop stores that sell to the residential customer. These sales people give us feedback that comes directly into our Logility forecasting application. That links to carpet planning, which links directly to yarn planning. Once we had that connectivity, we started seeing excesses in our upstream supply chain. So we could say, we need to reduce inventories here or we need to shift those inventories to this other product where we are constantly running low. At the same time, we could see from the customer side when a new catalog was coming out and where we needed to ramp up supply.
We also deployed Voyager Life Cycle planning to help us determine what the life cycle of a product would be, how fast it would catch on and how quickly its popularity would wane. Together, this enabled us to better manage and improve our total process-and that was on our internal, short lead-time products. We then extended the solution to our long lead-time products, because we knew we were struggling there and needed to also link up those customers and end products.
Q: Have these improved forecasts driven changes in other parts of the business?
Whisenant: Yes, the results are felt company-wide because we have used this collaborative ability to formalize a sales and operations planning process. One of the really important issues we had as a company, when we got everyone together for planning, is that we had all these different units of measure. The people in the yarn division talk in terms of pounds. The carpet people talk about square yards. In rugs and ceramics, it is either square feet or pieces. All of these different units of measure made good sense at the detail level, but once you got up to the higher divisional level or the corporate level, dollars were the only measure people wanted to know about. The yards, the square feet, the rugs and pieces all needed to be translated into dollars. With Logility, if the marketing group wants to change the dollar figure because of a big promotion that it believes will increase sales, we can see what that means in terms of yards, pounds, inches and square feet. Then we can assess the impact on capacity within our manufacturing facilities and plan accordingly. So getting the people at the table to be able to understand the numbers in their own terms and to link those numbers back to our capacity constraints was a huge benefit internally.
Now, marketing can tell us what is going to happen in dollars, Logility translates that into yards or whatever and we can say, OK, we will need to change the yarns we have on order or we will need to add this much capacity for these new products coming out in the spring. Basically, the software translates all of the terms into dollars and back again so everyone can communicate. The thing is, some of the machines we buy are over $1m each so the important question this helps us answer is when we need to buy it. I would love to have $1m and leave it in the bank for a month.
Use of the Collaborate tool also has shortened the time it takes to receive feedback from S&OP meetings from three weeks to mere hours. We are now able to work on a plan that is current.
Q: Are there any quantifiable results that you can share?
Whisenant: Well, in our carpet division, we reduced obsolete inventory by 30 percent and improved margins by more than $1m a year as a result of better visibility and better understanding of the product life cycle. And in our hard surfaces division we improved forecast accuracy by 19 percent and decreased inventory by $20m. We also have certainly increased our customer satisfaction levels and added market share opportunities with key customers.
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