In the forest of commercial paper producers, Mohawk Fine Papers Inc. is a relatively small tree. But in the specialized world of premium paper manufacturing, the company ranks at or near the top in North America. The story of how Mohawk got that way involves a straightforward acquisition, followed by intensive efforts to get both cost and customer service up to optimal levels.
Based in Cohoes, New York, the privately held company sells high-quality paper to merchants and distributors. Formerly known as Mohawk Paper Mills, it purchased the Fine Papers business of International Paper in 2005, taking over such popular brands as Strathmore, Beckett and BriteHue. Overnight, a relatively simple operation became complex.
Previously, Mohawk had served most of the nation from a mill and central warehouse in upstate New York, according to John Angleson, director of logistics and distribution. A satellite operation on the West Coast held a limited number of SKUs, "primarily to bridge any service issues," he says. "But it was certainly not a regional warehouse."
With the Fine Papers acquisition, Mohawk doubled the number of paper machines from three to six, while managing mills in two states and paper-converting operations in multiple locations. A more sophisticated supply chain was essential.
Mohawk might dominate its market, but it isn't the only game in town. When it's out of stock on a particular item, end users will turn to a competitor, often through the same distributor. And buyers want their product quickly. "We wanted to be able to provide next-day service to 85 or 90 percent of our customer base," Angleson says.
To make that happen, the company needed a distribution network that included regional warehouses. At the same time, it had to cut costs and make more efficient use of expensive inventory.
It quickly became evident that Mohawk's enterprise resource planning, the BPICS system from Infor, couldn't handle the task alone. The transactional system couldn't perform the network and inventory optimization exercises that Mohawk needed to ensure that it was making maximum use of its capital investment.
Initially, Mohawk partnered with St. Onge Co., a supply chain and engineering consulting firm, to conduct a network analysis of its warehouses. The task would lead to the closure of six distribution centers inherited from International Paper, and the opening of two others. The whole process took just 90 days, during which time Mohawk also integrated its information systems, planning and scheduling departments, while selecting a third-party entity to run the DCs.
Also playing an instrumental role from the start was Stephen C. Spratt, who was working for St. Onge at the time of the initial engagement, but stayed with the project when he became vice president of Supply Chain Process Improvement Inc. His firm helped to implement the software that Mohawk selected for inventory optimization, Service Optimizer 99+ from ToolsGroup.
Mohawk was simultaneously attacking customer service and inventory levels, elements that are often at odds in a supply chain. Inventory optimization offered new tactical tools that could erase this conflict, by linking inventory levels to the desired level of service, says Joe Shamir, chief executive officer of ToolsGroup in Amsterdam, the Netherlands.
Investing in SI&OP
But Mohawk didn't stop there. It wanted to conduct supply chain planning under the umbrella of a global sales, inventory and operations planning (SI&OP) process. That effort took about a year, says Shamir. The goal was to examine the ever-changing trade-offs between cost and service levels, leading to an optimal inventory mix across all storage locations.
In a later stage of embracing formalized SI&OP, Mohawk began planning the demand itself. "They were using the demand-planning capability and modeling of the suite in order to understand all the flows across the supply chain and their statistical behavior beyond the optimization of the inventory," says Shamir. Those elements were then combined into a third process, the automatic replenishment of all materials at the SKU level.
Mohawk's supply chain continued to mature in 2006. The company saw the need to strengthen its supply chain execution, says Angleson. It took a close look at internal operations, practices and information systems. In the process, it partnered with the Supply Chain Systems Laboratory at Texas A&M University. Laboratory director F. Barry Lawrence evaluated Mohawk's global inventory strategy, safety stocks and supply chain variability. "We basically built the project justification for the purchase of new technology to help us execute better on a day-to-day basis," says Angleson.
Yet another piece of the IT puzzle was S-Plan, a finite capacity-scheduling engine from Greycon Ltd. Mohawk already owned parts of the Greycon suite for scheduling its paper machines, but would now expand use of the software to achieve a broader perspective.
The various applications work closely together. ToolsGroup's system generates a high-level plan that can be passed to Greycon for scheduling and execution on the shop floor. The resulting feedback data can then be conveyed back to the planning system.
Supporting the implementation of SI&OP was "a strong central governing process," says Spratt. Kevin P. Richard, Mohawk's chief operating officer, oversaw a company-wide effort which required weekly participation and review by executives in finance, sales, marketing, manufacturing and IT.
In the end, says Angleson, the business-process change required to make the whole thing work took much longer than actual implementation of the software. The ToolsGroup application was up and running within 60 days, for purposes of forecasting and replenishment planning. But the task of getting managers up to speed on the new technology and related processes continued for months after that.
Benefits of the project were substantial. Employing the core metric of line availability, Mohawk now can fill 92 percent of all orders within five days. Previously, says Angleson, performance had hovered in the low 80s. Customers today are served out of regional DCs in Washington, California, Ohio and New York. Inventory deployment among those sites can be adjusted on a monthly basis. "We've recognized the power of having [product] on the floor and available to ship," he says.
Concurrent with the service bump was a 25-percent decrease in inventories- from 40,000 to 30,000 tons-over two years. That allowed Mohawk to delay the capital investment on construction of new buildings. At one point the company had determined that it needed another 100,000 square feet of warehouse space to support growth. "They drove inventory down instead," says Spratt. Moreover, sales during the same period rose 8 percent, in part because of higher levels of order fulfillment.
A Two-Pronged Operation
The network supports a business that's anything but commodity-driven. Mohawk maintains some 4,000 active stock items, with 65 percent of product made to stock and the remaining 35 percent made to order. The company, which supplies electricity to the distribution centers entirely from wind power, even has a "green" option, in the form of carbon-neutral paper.
Total sales average 135,000 tons a year, Angleson says. And while cost remains a vital factor, "service is more important in this business in many cases. Oftentimes it's availability first, then price."
Higher service levels on the make-to-stock side allow Mohawk aggressively to pursue the make-to-order market, says Spratt. At the same time, the company can manage and reduce paper machine operating cycles. Switching over the machines to make a different product can be cumbersome and expensive if it's not handled in an efficient manner, he says. With SI&OP and scheduling systems in place, Mohawk can more easily mix the two types of business, making better use of its machines. "With the modeling tools we now own and use on a regular basis, we're able to use what-if scenarios, and look forward 26 to 30 months," Angleson says.
More work remains to be done. Greycon's S-Plan is being augmented with a Campaign Manager feature, to realize further efficiencies in scheduling and allow for exception-based monitoring. The technology essentially automates the planning and scheduling of Mohawk's stock business, Spratt says.
The key, says Shamir, lies in adopting processes that will allow for the best response in the shortest possible time. "Typically, supply chains are driven by overreaction, and are designed to buffer those uncertainties," he says. Through better planning, inventory optimization and demand modeling, companies can "reduce the noise and keep the supply chain stable."
Frank Smith, Mohawk's director of planning and scheduling, says the company is experimenting with ways to bring more visibility to the planning system. "We're looking to move replenishment from the [Service Optimizer 99+] product to the Greycon package, to give our schedules visibility to the total replenishment plan." Both applications are tied directly into the Infor ERP system.
Shamir was impressed by how rapidly Mohawk came up to speed on SI&OP. In many cases, he says, "mid-sized companies can actually move faster." Because the ToolsGroup software required no customization, Mohawk was able quickly to achieve weekly and daily monitoring of inventory levels. "I expect there will be further improvements in the next year or two," he says. "They will be able to go beyond 95 percent [in order fulfillment]."
Angleson confirms that goal. In the coming year, he says, the company will aim for another 10-percent reduction in inventory and a 96-percent service level. As it matures, the SI&OP process should allow for further product rationalization, offering improved guidance to planners and buyers alike.
"I think we're well-positioned to deliver the business results that we expect in 2008," Angleson says.
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