Things were pretty quiet for a time at Westinghouse Electric Co., the multi-billion-dollar provider of fuel, technology and equipment to the nuclear power industry. Public skepticism about the sector's long-term viability was dampening demand for services. Then everything changed.
Call it the result of soaring oil prices, the need to lessen the nation's dependence on foreign energy and environmental concerns about coal. Whatever the reasons, Westinghouse suddenly found itself facing a surge in business. In just three years, it would be shipping everything from items weighing a few ounces to 80-foot-long, 700-ton steam generators for nuclear power plants.
Only one problem: the company's logistics department consisted of just two people - "me and a consultant," according to logistics lead Tad Somes. At the annual conference of APICS in Las Vegas, he talked about how Westinghouse Electric ramped up quickly and accurately to meet the demand.
It was more than a question of adding staff. The trick lay in aligning the company's logistics strategy with its broader supply chain. There were fundamental questions to be asked: Who should handle the key processes involved in getting product to the customer? Internal staff? Outside logistics providers? Suppliers? Everything depended on getting the answers right.
Somes called this moment of truth "the first stages of grief." I'm guessing he was only half kidding. He had to draw on 20 years of experience in the military to formulate the basics of a workable logistics program. The effort, he knew, would require "getting people away from what they know and assume."
Step one was coming up with a generic supply-chain model for the company - the kind you see in consultants' PowerPoint presentations, with all those circles and arrows and cartoon factories. But Somes didn't stop there. He had to choose the best entity in the chain to perform critical logistics services. There were four basic possibilities: the supplier, internal staff, a lead logistics provider (or, using one of my least favorite terms, a "4PL"), or some combination of the above.
Somes sought to grade each of those parties against a series of key capabilities. These were grouped under seven principles of logistics, drawn from a document developed by the Joint Chiefs of Staff. They were the obvious choices: Responsiveness, Simplicity, Flexibility, Sustainability, Economy, Attainability and Survivability.
All essential goals, but Somes wasn't done. For each principle, he specified between three and seven capabilities, or 34 in all. Under "Responsiveness," for example, he listed the right item (correct and undamaged), right quantity, right delivery location, right time of delivery and the simultaneous occurrence of those four (our old friend "The Perfect Order"). "Simplicity" was broken down into planning, execution, number of logistics handlers and communications, along with the fostering of efficient planning and execution. And so on.
The company then determined the importance of each capability, based on the "Voice of the Customer." Each was given a grade of 1, 5 or 10, from least to most vital. And here's where some real soul-searching was called for. Any manager's first impulse would be to give every one of those capabilities a "10." Who would dare to say, for example, that a provider's ability to manage risk was "not important"?
The model nevertheless demanded that Westinghouse ask the hard questions. "How badly does it have to be there?" asked Somes. He cited one case where Westinghouse chartered a plane for $20,000 in order to get a critical $150 part to the customer. When a shut-down nuclear plant incurs costs of $1m a day, that's the sort of thing you do without hesitation.
With the key principles laid out and the capabilities ranked, it was time to grade the ability of the four provider categories to perform the services described. Once again, each was subjected to a three-grade scale, this time a 1, 4 or 9. Westinghouse then multiplied each capability ranking by the grade assigned a prospective provider, to come up with sums that told the company exactly who ought to be doing what.
To make it easier to see the truth, providers were highlighted in green, yellow or red, depending on their ability to do the job. Then Somes brought in the logistics vendors themselves, to sit down with some 14 departments within Westinghouse Electric to see how they were ranked individually. External customers, too, were asked to fill out the lengthy form (which looks a bit like a Parcheesi board, by the way). Their conclusions were nearly identical to those of internal staff. "Our actuals never exceeded the theoretical of the straight 4PL," Somes said. "It was extremely enlightening."
The model isn't specific to Westinghouse Electric or the industry it serves; any company can benefit from the process. Keep in mind, though, that there's rarely a one-size-fits-all solution. Answers will differ according to specific products or links of the chain. But the very exercise gives a logistics staff hard numbers with which to sell the case for change to executive leadership.
Which, as Somes was quick to point out, is the hard part.
- Robert J. Bowman, SupplyChainBrain
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