Summer’s coming, and with it comes a fresh crop of poison ivy. While that’s not exactly soothing news to most gardeners, it’s something that energizes managers up and down the supply chain at The Scotts Miracle-Gro Company, which markets Monsanto’s Roundup weed-control and a host of other lawn- and garden-care products.

It’s the job of those managers to ensure that shelves at Home Depot, Wal-Mart, and other retail outlets are amply stocked (but never overstocked), that order fill rates are smooth and predictable, and that transfers from factory to warehouse and warehouse to carrier are right on schedule.

Senior Director of Global Logistics Scott Hendrick is in the thick of it. One of his many responsibilities is overseeing the flow of such products as Roundup, Miracle-Gro plant foods, and Ortho insect controls through a dozen U.S. warehouses. The warehouses are run by seven third-party logistics providers (3PLs):ACME Distribution Centers, A. Duie Pyle Inc., Exel Inc., Holman Distribution Center Company, Mansfield Warehousing and Distribution Inc., Ozburn-Hessey Logistics, and Saddle Creek Corporation.

And therein lies a big part of Hendrick’s challenge. It is tough enough to manage a retail-distribution pipeline in such a competitive market when the channel is under the manufacturer’s direct control. It is far more difficult to get it right month after month when the warehouses are operated by third parties.

That’s one reason why Hendrick and his team have invested so much time over the last four years in developing and fine-tuning a performance management system for collaborating with ScottsMiracle-Gro’s warehousing partners. But it’s not the only reason. “As our company has grown, and as our customers have been reducing their inventories and the complexity of their requirements has increased, we’ve had to make significant continuous improvements,” Hendrick explains.

Just one example of how the company has responded to customers' changing needs: In the mid-1990s, much of what ScottsMiracle-Gro produced moved in full truckloads directly from its manufacturing plants to retailers’ distribution centers and garden centers. The retailers had to place separate orders for, say, a shipment of Miracle-Gro and another for Scotts grass seed, which arrived on separate trucks; as a result, customers sometimes were unable to realize optimal inventory levels. In 2000, the company responded to retailers’ calls for smaller, more frequent deliveries by updating its systems and processes to move to a "mixing warehouse" model that allowed customers to order any combination of products and receive more less-than-truckload (LTL) shipments.

People, Process, Technology

Today, Hendrick and the logistics team track the performance of 10 mixing warehouses ranging from 150,000 square feet to 850,000 square feet in area, along with one reclamation center and a facility dedicated to servicing “club” stores.At the heart of the team is an operations manager whose job is to drive process improvement at the warehouses. Another manager handles the ongoing relationship with the warehouses, visiting the sites and walking the floors to see what’s working well and what’s not, and addressing performance accordingly. Also on the team: several business analysts and a manager who focuses on integration with internal departments, network changes, and reverse logistics.

Working together, the team has developed a 12-point performance management program for its 3PLs. “One big theme we’ve pushed a lot is that we want the warehouses to act no differently than if ScottsMiracle-Gro owned them,” says Hendrick. Eight of those points emphasize improvements in staff behaviors and practices while only one spotlights technology. The remaining three focus on processes. Although each has a specific focus, in practice many of the points are integrated with others to ensure that ScottsMiracle-Gro and the 3PLs focus on both short-term and long-term performance and are managing with an eye toward integrating their people, processes, and technology. (See Figure 1.)

In the first phase of its program, the warehouse management team developed specific expectations, procedures, and metrics, some of them based on what Hendrick had learned from the work of behavioral-analysis expert Aubrey C. Daniels and the teachings of motivational experts such as Zig Ziglar. (See "Applying the Lessons of the Masters.") The second phase of the company's initiative focused on the compliance aspect of the 3PLs’ performance.

Here’s a close-up of the 12 elements, starting with the nine that relate to getting the best from both the 3PLs' warehouse staff and the company’s own employees:

1) Provider scorecards. ScottsMiracle-Gro publishes a formal 3PL performance scorecard each month, with year-to-date rankings of individual warehouses on 23 metrics that represent key goals such as planning, transportation, environmental, quality, safety, and risk management. Each metric is weighted based on the location’s performance against site-specific meet/exceed goals (typically 50 percent of a metric score), as well as the location’s ranking for that same metric compared to other locations (the remaining 50 percent). The totals for each metric are weighted based on the importance of each, and then all of the metrics are added to get an overall performance score that determines a location’s overall ranking compared to its peers. The goals and weightings for each metric are adjusted annually to align with what is important to the company.

2) Weekly metrics management and feedback. Many of the metrics results are pulled from ScottsMiracle-Gro’s SAP enterprise resource planning (ERP) system; the results are recorded centrally and are then pushed out to the network, which includes the 3PLs’ management teams.  Each location is then expected to report root-cause issues for any metric that is below the “Exceeds Expectations” level that week. Management reviews that information in an effort to ensure that the 3PLs are appropriately managing key aspects of the business.

3) Annual logistics conference. Near the start of each fiscal year, the company hosts a two-day conference that brings more than 100 senior managers from ScottsMiracle-Gro's carriers, warehouse providers, and its own associates to review past performance, next year's goals, metrics, procedures, and expectations, as well as longer-term initiatives. “It’s an excellent opportunity to ensure that everyone understands and is aligned with our programs,” says Hendrick. After dinner the first evening, he and his team host an awards ceremony in which every warehouse location receives a plaque recognizing its team’s performance for the prior year. Awards include recognition for every metric in which the warehouses exceeded ScottsMiracle-Gro’s goals and every metric in which they scored best in the warehouse network. Additionally, ScottsMiracle-Gro presents a Warehouse of the Year trophy to the 3PL provider that ranked Number 1 on the year’s provider scorecard.

4) Updates to the six-quarter strategic plan. Twice a year, each location updates a six-quarter strategic plan that links to ScottsMiracle-Gro’s own six-quarter warehousing strategic plan. The plan includes such topics as: base provider information (key customer, years in service, locations served, etc.); base warehousing information (floor area, number of docks, ceiling heights, etc.); organizational charts; schedules; and plans related to capacity, training, succession, safety, environment, service, cost, and so forth. The updates help to ensure that the warehouse locations' leaders are in sync with ScottsMiracle-Gro’s plans and timing over the longer term. These updates become part of each location’s "easy-to-do-business-with" score, which is included in the overall scorecard.

5) Warehouse collaboration meetings. Several times a year, the company has a formal meeting with each warehouse location to go over performance, plans, and opportunities. This includes walk-throughs to review compliance with expectations; management of slow-moving, obsolete, and available inventory; crewing plans; key communications over the prior period; throughput history and plans; provider scorecard results and improvement opportunities; customer-feedback reviews; safety and security plans; environmental-compliance plans; training plans; and more. “These meetings are key to ensuring we are working together closely as partners throughout the year,” notes Hendrick.

As a result of the close relationship, the company has been able to help some of the 3PLs to improve their storage density – an important efficiency measure. For instance, by gathering feedback about which products could be configured or packaged differently to increase stacking heights, ScottsMiracle-Gro’s warehouse logistics team was able to take ideas back to the package designers, who reworked the packaging material for several products. 

6) Updated expectations. Each year Hendrick formally updates ScottsMiracle-Gro’s expectations for 3PLs relative to every important facet of warehousing operations, including management of expectations, goods receipt, inventory management, key products management, housekeeping, storage density, picking, outbound shipping, customer compliance, returns management, succession and training programs, continuous improvement, billing performance, and reporting. That way, management maintains consistent expectations and has a structured way to ensure that every warehouse location understands its role in managing those expectations. Several of those measures influence the 3PLs' easy-to-do-business-with score.

A primary reason for setting expectations is to get the 3PLs to recognize and start to resolve issues before they become major problems. Hendrick believes this approach has paid off, citing the improvement and consistent results in many areas, including on-time transfers, timely goods receipts, timely shipment postings, and environmental compliance to the high 90th percentile.  

7) Celebrations of performance management. Each year, Scotts runs performance management celebration programs – focused efforts to drive improvement in specific areas such as inventory control or outbound shipping. “We recognize our 3PLs’ associates for reaching sub-goals throughout the year as well as final goals,” says Hendrick. 

8) Formal feedback to each location. Twice a year, Hendrick and his group provide formal feedback to each warehouse in the form of behavior-related ratings. The ratings give specific explanations about how each location performed on the easy-to-do-business-with score in areas such as communication, self-management, strategic partnering, training, succession planning, and invoicing. This has given the company a way to provide feedback that is appropriate for all levels (corporate management, warehouse leadership, and associate) about areas that are difficult to gauge with metrics.

9) Procedures for growing accounts. There are roughly 30 defined procedures that instruct each location in how to manage the ScottsMiracle-Gro account. “This has been key to ensuring that we have consistent practices across the network, which delivers excellent service to our customers while meeting ScottsMiracle-Gro’s standards,” says the global logistics chief. For instance, it has helped guarantee that new associates can be trained effectively and efficiently and made sure that the company clearly articulates its expectations when it talks about processes.

10) Contract management. ScottsMiracle-Gro works to simplify its 3PL contracts – for example, pushing for simpler invoicing processes, clarifying expectations between both parties regarding costs, and exploring long-term relationships in an effort to improve service and to reduce costs. Several years ago, many contracts were year-to-year, but most are now five-year contracts, which the company believes helps to improve service to customers, enables the 3PLs to provide the lowest rates possible, and encourages all parties to focus on managing the business rather than on conducting annual negotiations.

11) Process-quality audit. Each year, ScottsMiracle-Gro performs a formal process-quality audit of the 3PLs’ management of metrics, procedures, and expectations. That way, the company can tell whether or not all levels of associates at each site understand how they are performing in these areas and are aware of their opportunities. The score from this audit is included in the provider scorecard and heavily influences the total score.

12) Leverage of the ERP system. In 2000, ScottsMiracle-Gro went live with an SAP enterprise resource planning system that includes warehouse management technologies. Since then, the company continues to leverage the system to further drive process and reporting improvements so it can: provide more transparency of order status and warehouse inventory levels; automate invoicing processes; support management of obsolete product, slow movers, and available inventory; help customer delivery expectations and present information to 3PLs in an easy-to-manage format; and enable efficient management of the metrics by capturing the input and reporting on performance. 

The ERP system has helped on many fronts. Just one example: “Previously, if we learned that a shipment was going to be late, we might not be able to communicate that to the customer in time. It was very phone call-based – very hit-and-miss. Now we have immediate communication,” says Hendrick. The system has also allowed his team to streamline expediting processes.

ScottsMiracle-Gro has seen big improvements across many facets of its business – improvements in terms of environmental compliance, service levels, cost management, risk management, inventory control, not to mention the company’s relationships with its 3PLs. To date, the program has been implemented in the United States for warehouses that handle distribution of ScottsMiracle-Gro’s Lawns, Plant Foods, Ortho, and Roundup products. Next steps: Hendrick is now rolling out the program in Canada and the U.K., and will soon expand it to other areas.

ScottsMiracle-Gro’s approach is a textbook example of how to manage 3PLs well. “As we went down this path, it became more and more apparent that the responsibility was really on us to define very well what we expected from our 3PLs,” says Hendrick. “It put the focus on us to position them to be successful. The big opportunity was in how we managed the processes and systems.”

One point that evidences the value of this approach is that every 3PL has remained a partner, despite the company's rigorous requirements and very specific expectations. But the real proof is in ScottsMiracle-Gro’s corporate success: Fiscal 2006 was another record year, with sales of $2.7 billion—14 percent higher than 2005 and adjusted net income gaining 20 percent–-and in the prime shelf placements the company gets from retailers such as Wal-Mart.

None of this is a surprise to Hendrick. “Our passion is not just to be best in class at managing our distribution pipeline,” he says. “We want to be the standard.”

Passion To Be the Best
ScottsMiracle-Gro has seen big improvements across many facets of its business in terms of environmental compliance, service levels, cost management, risk management, and inventory control, not to mention its relationships with its 3PLs. To date, the program has been implemented only in the United States, but Hendrick is now rolling it out in Canada and the U.K. and will soon expand it to other areas.

ScottsMiracle-Gro’s approach is a textbook example of how to manage 3PLs well. “As we went down this path, it became more and more apparent that the responsibility was really on us to define very well what we expected from our 3PLs,” Hendrick explains. “It put the focus on us to position them to be successful. The big opportunity was in how we managed the processes and systems.”

One point that evidences the value of this approach is that every 3PL has remained a partner, despite the company’s rigorous requirements and expectations. But the real proof is in ScottsMiracle-Gro’s success: Fiscal 2006 was another record year, with sales of $2.7 billion — 14 percent higher than 2005 — and in the prime shelf placements the company gets from retailers.

None of this is a surprise to Hendrick. “Our passion is not just to be best in class at managing our distribution pipeline,” he says. “We want to be the standard.”