For McCormick & Company, the ubiquitous producer of spices and flavorings, 2011 was one tough year. I'm not talking about financials; McCormick's net sales for the year were up 10.8 percent over 2010, to $3.7bn, while net income rose 5 percent, to $374.2m - not a bad performance in a sluggish economy. I'm referring to the anti-trifecta of disasters and disruptions that severely challenged the company's ability to service its customers.
Even on a good day, it's a complex business. McCormick sources some 40 ingredients from 40 countries. Headquartered in Sparks, Md., it sells under multiple brands and operates business units in the U.S., Canada, Europe, Australia and Central America. Customers hail from the retail, commercial and industrial sectors.
Weather and ever-changing soil conditions are always a concern. So are the political and diplomatic conflicts that can choke off critical lines of supply at a moment's notice. In fact, the spice business has historically been marked by fierce struggles over key trade routes, often deciding the fate of empires. And while things aren't quite so dramatic these days, there are still plenty of hazards out there for supply-chain executives who crave a challenge.
In 2011, McCormick got it in spades. Denise Layfield, vice president of global supply chain planning and customer fulfillment, told the story at the Supply Chain Council's recent Executive Summit in Indian Wells, Calif.
The year kicked off with revolution in Egypt, in the early days of the series of uprisings across the Middle East and Northern Africa that became known as the Arab Spring. Political pundits argued endlessly over the likely outcome of the Egyptian riots. McCormick, meanwhile, wondered whether it was going to keep getting supplies of basil, marjoram, fennel and spearmint.
The problem up front was a lack of basic communications. "We weren't sure how big an issue we were dealing with," said Layfield. "The news media said it was bad. Our suppliers on the ground said it was not so bad." There was no way of telling whether those sources were soft-peddling their scenarios due to fears of being monitored by army or government officials.
One thing McCormick knew for sure: it wasn't a question of business as usual. Suppliers were facing government-mandated curfews, along with restrictions on when they could run their plants. They could apply for operating permits, but the process was lengthy and uncertain. Meanwhile, employees were afraid to come to work, Egyptian ports were paralyzed by dockworker strikes, and the government was shunting aside export shipments in favor of incoming materials. Many ships were departing empty.
McCormick didn't have much time to react. Its first steps, says Layfield, were to form a cross-functional response team, set up a communication plan for linking suppliers with plants in North America, and allocate raw materials to meet the most immediate requirements. At the same time, it undertook a broader supply assessment, both for the short and long term. "We figured we had three to four weeks of supply," said Layfield. The challenge was to stretch those stocks as much as possible, while finding alternative suppliers.
McCormick issued purchase orders to move all finished product from suppliers directly to the port of export, whether it was needed right away or not. Any excess materials could be stored in North America. Even today, said Layfield, the company is pursuing this strategy, despite a long-term commitment to reduce inventory and improve turns. "In all cases," she said, "customer service overrides any of these objectives."
In July of 2011 came the devastating floods in Thailand, reportedly the worst that country had experienced in 50 years. Once again, McCormick's biggest issue was communication. At the outset, it didn't know whether flooding in and around Bangkok was going to hit its facilities, as well as those of co-packers and bottle manufacturers. It was months before the situation clarified. Right away, though, McCormick provided hotel accommodations for employees who were left homeless, and relied on cell phones as the only means of reaching people on the scene.
Another cross-functional team - a recurring theme in all of McCormick's disaster-response efforts - was put into place. High on the list of priorities was the need to certify the facilities that were making food products. At the same time, the team had to ensure that employees weren't inundated with phone calls that would inhibit their ability to get the business up and running.
The third disruption of 2011 was on a smaller scale, far from matching the human cost of revolution and natural disaster. All the same, it had major consequences for McCormick.
This one involved a key supplier defaulting on shipments of capsicum, the source of several varieties of peppers. In July, McCormick was told there would be delays due to a new computer system that the supplier was implementing. A month later came the really bad news: no more product for the rest of the crop year. Turns out that while the supplier was engaged in its IT struggles, Peruvian farmers had halted shipments affecting 85 raw-material SKUS and 1,200 finished-good codes. All of this was happening at the time of year when McCormick should have been building up stocks for the fourth quarter, its peak sales season.
Once again, that familiar cross-functional team stepped up, with a leader identified. But this time around, the communications plan was different. McCormick initiated twice-daily sessions, in the morning with its North American plants to figure out where production was being scheduled, and in the afternoon with suppliers to learn which raw materials were being turned into finished goods. Meanwhile, the procurement group was working on securing longer-term supply, relying on expedited transportation where necessary. All of this required a change in bills of materials, along with the testing of product from new vendors. "The leadership team realized how serious it would have been," says Layfield. "They made this the number-one priority."
Three crises, three rapid responses. Fortunately for McCormick, the company had centralized its supply-planning group the year before. No longer was each business unit vying for scarce product in an emergency. Now the decision about who gets what is made in one location, with customer needs taking precedence. In addition, McCormick set up an company-wide internet site to post updates on crisis situations.
For Layfield, 2011 was one of the most challenging in her 36-year career. For McCormick, it was a chance to prove that preparation, centralization and communication can go a long way toward offsetting the impact of unforeseen disruptions in the supply chain. Surprises are a part of life, but as Layfield says, "you have to be able to react to whatever comes your way."
- Robert J. Bowman, SupplyChainBrain
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