Fred Berkheimer serves as vice president of logistics for the Home & Personal Care Products (HPC) division of Unilever, N.A, in Clinton, Conn. He began his professional career as an engineer with Harrisburg Steel Co., then moved to the Miller Brewing Co. before joining Chesebrough-Pond's as a senior project engineer. Following Unilever's acquisition of Chesebrough, Berkheimer was elevated to director of manufacturing during the HPC integration of Lever Brothers, Helene Curtis and Chesebrough Pond. He then was promoted to his current position in logistics.
Q. Unilever has made several key acquisitions in the past 24 months. What progress have you made in integrating the supply chains of these companies?
A. A year ago Unilever structured itself globally into two divisions - home and personal care products (HPC), and food products - as the company found that the previous strategy of trying to run everything by region regardless of the type of business was becoming unmanageable. This had become particularly clear in the wake of the acquisitions of Best Foods and SlimFast. The initial acquisition model called for absorbing Best Foods and SlimFast into the Lipton way of doing things. However, the logistics planners discovered that in many cases Best Foods had better processes and better control, so they ended up looking at processes by function across the companies and picking and choosing to get best-in-class practices. This process paralleled very closely what we did in HPC two years ago when we brought together Chesebrough-Pond's, Helene Curtis and Lever Brothers. Since there was no clear acquirer in the HPC, we had to try to make one synergistic whole out of a bunch of different parts.
Going forward, the food division has put together a phased approach that will lead to joint or common shipping by region. They combined all their warehouses and selected one for each region, and by early this year, they will be shipping the whole country as a combined business from seven regional distribution centers, down from nearly 20. They also have a strategy for third-party operation of these distribution centers, and they phased in that strategy by taking the process to each of the regional distribution centers one by one. The preferred method at each distribution center was to stick with one of the third-party operators they already were using in that region in order to maintain a higher level of continuity. And the logic for doing it in phases was to avoid the possibility of a 'Big Bang' or crash as they move to a new inventory planning process, and secondly, so they could adjust the inventory of goods without killing themselves.
In our case at HPC, we initially tried but were not able to merge together the products of all three companies. Chesebrough-Pond's and Helene Curtis essentially are health and beauty businesses with product lines that included flammables and aerosols that had special storage requirements. Also, the health and beauty sector tends to rack warehouses because of the lower-turn, higher-value nature of the goods. But Lever Brothers is primarily a laundry business that ships full pallets and full truckloads, so operationally it kills you if you put-away in racks; you need to floor-load.
Now, we have finished goods in 28 buildings, down from 36, and we have a plan where we are moving to five large regional million-plus-square-foot distribution centers where we will combine floor loads for fast-turn laundry products as well as racking and case-pick. We are working with ProLogis on a number of build-to-suit facilities: We're under construction in the Northeast, expanding on an existing building in the Southeast, and we're getting ready to roll to the West and Midwest, essentially with a cookie cutter big-building design. We already are shipping together - and have been for two years - but our difficulty is that we have to do the consolidation behind the scenes because we have inventory split between different buildings in the same region. As a result, there's a lot of shuttling associated with orders, which lengthens lead times. Operationally, 83 to 84 percent of our laundry products sell full pallet, full truckload, so it's just a matter of banging them on trucks and send them on. But on the health and beauty side, nobody buys pallet loads of cold cream; it's a case of this and a case of that, and we're trying to fill trucks by building pallets that look like the New York City skyline.
And that's kind of the way we're muddling through right now, but by 2003, we'll have a much more streamlined operation that will give us the capability and flexibility to meet customer requirements then and into the future.
Q. Were your supply-chain operations affected by the 9/11 incidents?
A. Actually, no, the operational impact was very minimal. There certainly has been an impact on business. I've spoken with customers and competitors, and just about everybody experienced a hiccup in business as the nation came to a standstill for a few days. But in terms of changing or impacting our supply chain, we haven't seen it.
Q. Did it give you pause to think about contingency plans?
A. Any good business - and ours is a good business - plans for unexpected events, and we had multiple contingency plans in place within Unilever. I would be foolish to tell you that we didn't pull them out again, blow the dust off and say we hadn't thought about anything this far to the left or the right. That's been a natural consequence of the 9/11 events. We plan for a lot of things, but we've never planned for anything this radical. So we're re-thinking those strategies.
Q. On a more global basis, what do you see as the primary challenges facing supply-chain managers as we move into the new year?
A. I'm going to base my answer on the input we have received from a number of surveys we have done for retail customers, and I would say that there are three key challenges. The first has to do with speeds getting faster in terms of cycle times and lead times. The second has to do with adaptability and flexibility. As our customers work diligently to differentiate themselves to the consumer, that tends to have upstream implications for the supply chain in terms of custom pallets and store-ready displays. In turn, the challenge for us is how to postpone. And the third challenge has to do with efficiency and collaboration. How can we work together with a trading partner to better perform the planning and forecasting function? We want to improve the quality of information, we want greater visibility and greater accuracy, and the trade-off will be greater working capital for both of us.
Those are the big three that keep coming up for us, and those will be the challenges people will be jumping into for the next couple of years.
Q. In light of those challenges, how is the skill set for supply-chain managers changing?
A. The one difference I am seeing is a need for ever-increasing system acumen and breadth of knowledge. It's a process orientation as opposed to a functional view of life. In the supply chain going forward, people need to take a broader, more process-oriented view and look for ways we can really drive out waste across the boundaries.
Q. Is this a time to be aggressive with supply-chain strategies, or a time to retrench?
A. All things being even, it's definitely a time to be aggressive; I wouldn't retrench at all. At HPC, we're using this time to get on with what we know we need to do in terms of process improvement. I wish we were a company sitting here with a completed ERP wall-to-wall or on the top of the world in terms of capability and readiness. But we're not, so we are aggressively seeking to close those gaps we have in our system and striving toward what we hear from our customers in terms of their needs and desires. So my vote would be to stay aggressive and keep going forward, using this time to catch up, get ahead and/or improve position against peers.
Q. Do you see signs that the economy is turning?
A. Which way?
A. No. The last thing I saw or read was that for the rest of this quarter and into the first half of next year that we would see flat or slightly down GDP. Our indications are, in terms of day-to-day business, that we're not too far off of our pre-Sept. 11 numbers right now. But I do not see a huge swell of consumer confidence, given all the cutbacks and layoffs, that would give any indication that the Christmas boom would be anything other than normal to real soft. And I don't think that things are going to recover quickly here. As a result, we're going to be working on our competitiveness against the other guys out there, so we get a bigger share of whatever is sold. And that's all you can do to offset the downtown in the economy: You do a better job at what you're doing, so while the total pie gets smaller, your piece gets bigger.
Q. What are some of the more promising technologies you see on the horizon?
A. Clearly we expect progress in the area of collaborative planning, forecasting and replenishment (CPFR) as people focus on the numbers and analysis engines within CPFR. Most of what I've seen so far in CPFR technology is really about how you collaborate using a bulletin board manner of sharing and comparing numbers, but there's really nothing that works on refining the quality of the quantitative numbers in the output. Now, some people are diving into that space.
Additionally, there are some interesting things going on relative to e-cataloging and how can we best utilize information that is there both for manufacturers and retailers. There's also activity around promotional planning and evaluation and how people can do a better job of leveraging this information forward, I think that will go to a new level as companies finally begin to share databases. When that happens, you will be able to dive into granularity by customer or by category or by product type.
It will be interesting to see how the exchanges and various hubs and portals will, in the end, help people actually determine if and how they are going to collaborate. For example, CPG companies have linked up with Transora, and everyone's lobbying to prevent their information from going to anyone else, as there's this great fear of losing competitive advantage by sharing data with someone other than your chosen partner, to the point where it is actually holding up any real gains from collaboration.
It's just a matter of time before this all breaks through. There's a subtle move here on the part of retailers to try and all jump on UCC.net, and I think they have wooed UCC.net into being a retailer/catalog approach for exchanges. The retailers are joining that for free, and they're saying 'lets get all the manufacturers to pay for all this stuff.' So they send out a letter to their trading partners, advising them that joining UCC.net will be a condition of doing business. It's another example of maneuvering for how this collaborative data sharing is actually going to work, and who is going to be able to add value, and who is going to pick up the tab for what has to happen. All that will evolve and work itself out, but I couldn't ever predict how it will end up. The key is many companies, us included, go to work on basic things such as formats, then build the tools so they can be ready when time comes. In the meantime, let's hope the dust settles on how we're going to actually look to each other and benefit.
I also expect to see a lot of strides in customer relationship management work. And lastly, there are some really exciting things happening around the transportation. Between the dotcoms and other companies in this space, I think we'll see tremendous efficiency gains as the system is streamlined. That may have an adverse effect on the transportation industry itself, I'm not sure, but I expect it to promote more quickly the ongoing consolidation as the small go under and the big get bigger.
Q. Do you think that 2002 will be the year when real collaboration actually begins to happen?
A. I think so. At Unilever, we're past the pilot stage and now are collaborating with our top customers and rolling out strategically with a well thought-out plan. Clearly by the end of 2002, we will be fairly deeply collaborating with our major strategic customers. We're getting there in a hurry. We're not sure how the value will be defined yet, but we'll see.
Q. How will this translate into greater customer satisfaction?
A. At the risk of boring you here, from the initial work we have been doing with our customers on collaboration, I'm learning that my definition of collaboration and theirs aren't always the same. The one element that is most interesting is that retail customers want to collaborate with us at the point of sale, or consumer level. And while I agree that's where it all needs to start, many of the retailers view that as the end-all. For any real value to be achieved, my view is that we must come to a point where we are collaborating on - depending on the side of the fence you are on - either orders or shipments, so that we can actually develop and improve accuracy on the forecast at a shipment level from the manufacturer's perspective or an order or receipt from the retailer's perspective. That's the only way it will ever shake out to supply-chain savings and inventory reductions and hence, value and better shelf presence and better stock available to the consumer, to answer your question. If we're working with POS data, we are helping retailers define some of their pickups in areas where they have been hurting the consumer for both of us, but I'm not sure there will be any upstream supply-chain benefits there. We have to get to that next level, between the retailer and manufacturer, and try to forecast that better.
The big change I have seen in the past three years is the openness to collaboration among competitors. It blows my mind. There were days - most of my career, in fact - where the thought of being in the same room with my competitors was beyond comprehension. We wouldn't even sit in the same room. But now, we routinely talk about process.
Q. What do you see happening in the logistics outsourcing arena?
A. I don't see it slowing down. Increases in technology is making this much more attractive, especially in a distribution market where managers, affected by the economic slowdown, can move towards variable pricing and away from a fixed internal expense.
Q. How about the logistics exchanges; do they play a part in your supply chain ?
A. To be honest, right now they do not. We're a founding member of Transora and are looking carefully at a variety of these exchanges and how we might leverage them. But the initial hype is gone and we're in the trough of reality. We haven't seen much value generated, although some of the transportation exchanges are demonstrating value. It tends to be kind of ironic, as those exchanges that were simpler and more narrow in scope - not trying to do much in the way of super-technology and bells and whistles - are actually out there generating value for folks. And most of these companies are being used in a broker mode for capacity, or they are doing simple things like continuous movements for shipments that are steady and reliable. All these other guys who are going to take on the world are still trying to figure out where to put their first step.
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