Remember continuous improvement? A decade or so ago, it was all the rage. Companies were rushing to embrace the concept under a trendy Japanese term, kaizen. Continuous-improvement techniques were applied with some success to manufacturing, as part of the quality craze.
More recently, the term has faded from management playbooks. The very notion seems to have left companies exhausted. Some have turned instead to finite projects with clear objectives.
The move away from continuous improvement, at least under that name, is understandable. The idea isn't tied to a single set of technological tools. It can't be reduced to an easy series of steps for implementation. Continuous improvement isn't a program; it's an attitude. Some might view that as a shaky foundation for a comprehensive quality initiative.
On closer examination, though, continuous improvement hasn't really gone away. It thrives today in concepts such as Six Sigma and Lean. It covers a wide range of software applications, including executive dashboards, supply chain event management systems and other business intelligence tools. And it has transcended the original goal of eliminating waste in the assembly line to involve nearly every aspect of the supply chain. Most of all, it is focusing on the ever-important goal of pleasing the customer.
Procter & Gamble has instilled a culture of continuous improvement throughout the organization, says Lora Cecere, research director with AMR Research Inc. The company employs a handful of key metrics to monitor supply chain performance. Then it uses the data to enact further improvements. All efforts are focused on "the moment of truth"-the presence of product on the shelf, when the customer wants it.
One of P&G's many projects addressed the issue of on-time delivery. The company's performance in that area had slipped from 96 percent to 94.5 percent-an unacceptable level for one of the world's largest producers of consumer goods. Lost sales were the result.
The problem, P&G knew, lay in its inability to seamlessly track a load from order placement all the way to proof of delivery. Multiple legacy systems and manual processes were needed to follow goods through the various stages of the supply chain.
Considering that P&G was shipping around 1,200 loads a day from 35 plants in the U.S. and Canada, that was no easy task. What was needed was a means of achieving shipment visibility through a single system. P&G turned to Supply Chain Monitor (SCM), supply chain event management software from Holland, Mich.-based LeanLogistics Inc.
Part of LeanLogistics' transportation management suite, SCM pulls together data from P&G and its many trading partners. Elements include order and loading information, trailer assignments, preferred carriers, scheduled pickup times, status of shipment en route, and delivery to the customer. Using predefined business rules and milestones, the system alerts users when anomalies pop up. As a result, P&G can take action to head off any disruptions.
"P&G wants to do everything it can to save a load," says Pete Stiles, vice president of marketing and strategy at LeanLogistics. For a shipment that was loaded late, that might involve the hiring of team drivers to cut down on transit time. In cases where a delay can't be avoided, P&G notifies the customer so that it can make alternative arrangements.
The system boosted P&G's on-time delivery rate to 97 percent, two percentage points better than expected, says Stiles. It has also resulted in longer-term benefits. With better visibility of orders, P&G can reduce inventory carrying costs while improving on order fill rates. And it can use the information about supply chain anomalies to detect and solve chronic problems. Prior to implementation of SCM, about half the glitches that occurred were the fault of P&G's carriers and other external partners, while half were internal in nature, says Stiles. Report cards generated by SCM and similar systems can be used as leverage to reduce carrier misbehavior, such as a pattern of rejecting shipments.
When Growth Brings Chaos
Smaller companies can adopt a attitude of continuous improvement as well. In fact, rapid growth may force them into the proper mindset. Overstock.com, the Salt Lake City-based online seller of discounted and closeout merchandise, has experienced a dizzying rise in business over the past few years. Revenues were up by 63 percent in 2005, and gross profits by 83 percent, although the company posted a net loss of $25m.
Overstock ran into problems trying to replace "shopworn" systems, chief executive officer and president Patrick M. Byrne said in a statement accompanying the results. The company also experienced "the maddest of scrambles" during the peak fourth-quarter shipping season. Byrne promised shareholders that things would improve this year.
The embattled company is employing a combination of Six Sigma quality and business intelligence systems to get the job done. Overstock ships most of its merchandise out of a single distribution center in Salt Lake City, consisting of 700,000 square feet over two facilities. One is devoted entirely to returns processing and repair.
In the past, Overstock has struggled to "scrap together improvements to scale for next year's volume," says Dave Galgon, director of outbound fulfillment. "There are a lot of Band-Aids in place." Recently, however, the company began to apply the rigorous principles of Six Sigma and Lean to boost productivity and order accuracy. With the additional help of a business intelligence application from HighJump Software, it has reduced the rate of exceptions to the manifest by 95 percent, while doubling the packing rate per person in the warehouse.
Overstock took a close look at the receiving process. One approach was to do a better job of distinguishing between product groups as they arrived at the warehouse, Galgon says. Today, the facility is set up like a department store, divided into separate areas for items such as bedding, apparel, footwear and consumer electronics.
|"We swim in an ocean of data. One of the most important things we do is filter that data and alert the user."|
- Morris Cohen of MCA Solutions
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