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American Woodmark Corp.
Dick Bower is vice president of logistics for American Woodmark Corp., a manufacturer and distributor of kitchen cabinets and vanities for the remodeling and new home construction markets. In his 12 years with the Winchester, Va.-based company, Bower has managed local and regional distribution centers, and served as director of logistics. He also has managed an assembly plant. Prior to joining American Woodmark, Bower worked for Marquest Medical Products of Englewood, Colo., and Storage Technology of Louisville, Colo.
Q. In light of the events of Sept. 11 and the impact we've seen on the supply chain, what are companies advised to do to protect the integrity of supply chains in the event of some catastrophe in the future?
A. We are a very U.S.-oriented company, first of all. We're not impacted by air cargo disruptions that we saw immediately after Sept. 11. There's very little impact from the seaport security measures that would be affecting a lot of other suppliers. Nor are we affected very much by border issues -- the Mexico and Canada border-crossing security checks.
Our main concern is the interstate systems, the highway system primarily. And in the aftermath of 9/11, one of the things we immediately focused on, particularly around the Washington-New York area - not knowing the extent of network impacts at that time - was to look at contingency plans relative to product and material movements through those areas, and if indeed there was going to be a serious infrastructure change.
That is not something we have spent a lot of time on in the past, and probably other people relying on truck traffic to move goods and materials probably haven't spent a whole lot of time thinking about it. But it's definitely reared its head in the aftermath of Sept. 11, and is something that we have to give thought to.
Q. So what are the effects that such disruptions are likely to cause?
A. The first impact, the most practical impact, that we're going to see - maybe not by intentional design but by the natural outflow of things -- is more inventory in the pipeline. There will be higher safety stock levels as a means of some insurance for a just-in-time supply chain, as we saw here with this recent situation. I think the immediate thing we're going to see is some swelling of the inventory levels just to insulate against the immediate impact of change or disruption in supply-chain flow.
Q. But there is a penalty there in that additional inventory costs more money, isn't there?
A. Yes, sir, there is going to be a cost. And I think that one thing we 're having to come to grips with, internalize and understand is just what the impact of the change from Sept. 11 really means to us in terms of costs, and where those costs are going to ultimately reside. Inventory is going to bring a cost. Look at the airports, seaports, border crossings, the additional highway inspection processes that are going on. The challenge that I see in this whole thing is that there will be more delays in shipping, the turnaround of shipments will be extended, and there will be additional surcharges by carriers to help absorb some of those costs. Suppliers and customers alike are going to be facing higher costs to offset that. There's going to be an escalation to some degree. I'm sure it's quite early in the game to totally understand what the total impact of that is going to be, but there will be cost impacts for the security, for inventory builds, and for extending the time element in the supply-chain flow.
And one of the big challenges we're going to have is, how are we going to provide the heightened security that I think all of us truly desire and yet to not impact, or at least to minimize the impact on, the flow of materials? In other words, how to get a more intensive security and yet keep the process moving at a faster clip than it is today? That's another cost that comes back into the picture.
Q. We're used to speaking about technology, such as planning, sourcing, management and execution software, as a means to optimizing the supply chain. Does technology have a role in providing security as well as keeping costs down?
A. I think one of the answers is, I sure would like to think so. But that is a very large arena to tackle to just say technology is the answer for that. Certainly, I think one of the opportunities we have out there on the technology front is to try to get a different look at supply-chain visibility. Take movement of materials, for example, going from validated secure site to validated secure site in ways that we aren't really seeing today. We generate bills of lading, but as the trucks roll across the weight scales, there probably should be another technology-supported security process that would know the movement of that vehicle from its source for that day throughout its entire route, which would be able to detect deviations from its scheduled route and be able to issue alerts. We don't have anything like that necessarily in a security-type blanket that we can truly use on a national security or state security type platform. That may be an avenue that comes to the fore.
Q. Will 9/11 in any way further stimulate outsourcing of logistics and other operations in an effort to shift expenses to third-parties rather than keeping them in-house?
A. The import/export players in the marketplace in particular would be strongly stimulated in that direction. I'm not sure we've seen the events of Sept. 11 driving a strong move in that direction on the national front. Now, there are still a lot of concerns in the field: the concern about the potential for terrorists getting hazardous materials licenses and being able to drive vehicles that could turn into destructive devices, and that kind of thing. If that type of terrorist activity were to suddenly come to the forefront, I think the private fleet people, and people who rely on their own transportation and distribution networks, would certainly have a different mindset about the value and risk associated with private fleet ownership and management. I can imagine those thoughts are starting to cross people's minds.
Q. How is internet technology factoring into your operations or thinking about supply-chain efficiencies?
A. The internet impact on our business has been in the background. We've certainly had some vision in that regard. I think the area that's going to come into fruition for us is in the distribution end of our business, having more to do with the track-and-trace capabilities of a multiple- customer platform, basically addressing the customer's question of "where's my stuff." To be able to do that from a web-based system that integrates multiple third-party players and truckload carriers into a common platform - that would be useful for our transportation management, our customer service, and even the customers themselves in accessing information relative to their shipment. That would be the major area where we see that affecting our business.
We still primarily are vertically integrated and do not do a great deal of internet purchasing. We are not an e-business or dotcom marketer. So the impact of the internet, from my point of view - apart from its value on the research and information supply side - is that it's going to affect our delivery visibility in the future much more so than it is today. We're designing the systems now that probably in the next year will elevate our distribution and information visibility several rungs up the ladder from where it is today.
Q. Your manufacturing facilities are spread pretty much across the country.
A. Actually, we have 11 and we have two more being planned. We're going to have 13 by mid-year.
Q. So, given your needs, do you feel there are transportation solutions out there that would be of benefit to you?
A. Yes, and we are looking at several options as we speak. To enhance the visibility of our system, to enhance network design, network modeling, again, the whole track/trace distribution side of things, load tendering. Those are all applications and enhancement that have great significance for our network and we're looking at several of those right now.
Q. That sounds like you are not looking to design in-house?
A. We're looking primarily outside.
Q. Can you describe present operations and how they work?
A. From our manufacturing platform, we basically are a build-to-order company. We've redesigned our supply chain over the past 10 years. We used to offer a few lines of products that were mass-produced and stuffed into distribution centers. Now we essentially build to order and distribute a significant portion of our product, about 2/3 of our product, directly to a home or job site. So our distribution requirements are very heavily weighted toward delivery efficiency, not necessarily to the business- to-business delivery side of things, going into stores and dealerships and distributors, but really taking that product directly from our factory to a consumer's home or giving it to a builder's job site. That process has evolved over 10 years. It used to be handled primarily from a private fleet out of distribution centers. Today, our factories really service distribution points, and we use a network of third-party players to accomplish the delivery end of it.
Q. What systems are you using to optimize your build-to-order processes?
A. Those systems are all proprietary, in-house designed systems that we pretty much have evolved over the past 15 years.
Two of your main selling points seem to be Lowe's and Home Depot.
Those two customers pretty much dominate that side of the business, the home center channel. There are some other home center chains, regionally, around the country, but they are dominant nationally, and are main customers of ours.
Q. Are you getting point-of-sale data from them to help you plan production?
A. Our orders from Home Depot and Lowe's are primarily point-of-sale requirements because they are special order sales. We turn those orders into finished product in a matter of days. In addition, sales forecasting information is developed off of models that we've built in-house over a number of years. The process factors in such things as seasonality, product mixes and trends, and that is balanced off in terms of what is really happening in various regions around the country and is reviewed on a monthly basis. We just watch what's going on and balance that off from models that we've developed from a historical database.
Q. Do you think collaborative commerce is more wishful thinking that a reality?
A. I'm very much interested in the direction of that discussion. As part of our network, we're using an appliance delivery system. And there has been some visionary thinking there in terms of whether it makes sense to pursue some collaborative dialog about a blending of cabinets and appliances, and creating a marketing thrust that may be mutually beneficial. I think the same may be true throughout the kitchen and bath industry whether it be tubs, showers, sinks, lighting. There are a lot of product categories in the home kitchen and bath industry, and I would think there are tremendous leverage points to gain by collaborative thinking on how to develop systems to bundle some of those products. Some of our major competitors - look at Masco, for example - have a number of cabinet companies under their umbrella. They also have faucets and sinks with the Delta brand and so on. From inside their own company mega-infrastructure, they have created ways of approaching the marketplace by bundling. Now, the real question is, can players such as ourselves in our specific industry truly collaborate and put our heads together in high-level marketing plans. More specifically, in operational terms, can we find ways in which collaboration increases market visibility, market share and provides the platform that enhances growth for multiple parties?
I think there is tremendous opportunity there to develop those platforms.
Q. In these difficult economic times, it seems easier to talk about collaborative strategies and the software to make them go than to get permission to purchase the technology. Is that your experience?
A. That's what we hear. But what we're experiencing is a very strong market position, at record-level sales, at record-level and growing shipments, so as a company we are not experiencing what the economy in general has been going through in the past several months. We have continued to stay on our five-year growth plan target. We've not pulled in our horns. We are continuing to pursue what makes sense for our particular growth strategy. Now, the question is, if the economy continues its slide, when is it going to catch up with us, and are we going to see a pulling back on the reins as others have, and the answer is yeah, we'll probably see that.
I think on the technology purchasing side of things, the big mega-systems, the ERP systems, for instance -- there has been a slowing down of the aggressive implementations of systems, such as the kind that was spurred by the Y2K burst. But I think there is still an active market out there for specific applications that continue to drive costs down and enhance performance, particularly if there's a rather short implementation and a quick return on investment.
Q. So, assuming the economy stays flat or worsens, is there a supply-chain technology or service that you consider so essential that one has to have it to survive?
A. Survival ammunition? I think in downturn situations what really happens is that companies that are surviving these things are innovators to begin with; they tend to have a degree of flexibility. They tend to have high tolerance for change. I hesitate to say there is anything that everybody needs to have in order to survive. I'm not sure it's the technology as much as it's the change management capability, the flexibility, and the continuing desire to innovate and improve. Those are the drivers that are the underpinnings of a company surviving in difficult times.
Q. That addresses the human side. Do you see the need for new kinds of training and skills to address the change management issue?
A. Yes, I think one of the waves of the late 1990s and into this decade that has become a reality in the business world, is that we are going to have change, and the change curve is heightening: There's faster change, more radical change, more far reaching change in the American business place today than ever before. And the ability to understand trajectories throughout that environment of change, or in other words, the ability to predict certain key indicators and prepare for making the appropriate change is going to be key to business success. Having the ability to adapt to the requirements necessary to succeed is going to be the mark of a successful company in the future. Of course, it has been in the past as well, but I think even more so in the future.
Q. What do you see as the weakest link in supply chain today, and what is the most important task before the supply-chain executive today?
A. The weakest link is probably end-to-end visibility in the supply chain in terms of coordinating the material flow for maximum efficiency. I know that's the biggest challenge, but I also think that's probably where the overall major weakness still is. There's probably a lot of opportunity for us as a business community to tackle that one.
The most important task of the supply chain-executive is to drive his or her organization toward continuous improvement. Underneath that is a whole array of tasks that are critical. But one of them is having clear direction, another one would be attracting and retaining talented, prepared, capable people. Then there is setting clear goals. Probably another task is getting out of the way. Allowing your people to do the tasks that are aligned with accomplishing the relevant vision and goals of the organization.
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