Separate paths, same result
April 01, 2010
A single logistics provider worked out just fine for American Woodmark Corp. for a while—until it suddenly didn’t. Reliance on a solitary 3PL, even one with global credentials, became a problem when it could not keep growing with this dynamic building materials supplier as it widened its footprint and deepened the complexity of its North American operations.
Today, American Woodmark, the largest independent manufacturer of kitchen and bath cabinets in he United States, uses a mix of 4PLs to service their distribution requirements. This arrangement, which provides outsourcing of its logistics operations to two or more specialist firms, uses another specialist firm (the fourth party) to coordinate the activities of the third parties. This web of providers offers home delivery service for their retail customers, jobsite delivery for their builder customers, and retail delivery for their network of independent distributors nationwide.
American Woodmark, which operates 11 manufacturing facilities and nine service centers across the country, has leveraged the “Theory of Situational Leadership” to strengthen the relationship with their key 4PLs. Developed by Ken Blanchard and Paul Hersey, two well-known business theorists, the theory presumes that different leadership styles are better in different situations.
For ATM giant Diebold, the strategic thrust was placed on a search for a lone logistics provider capable of keeping pace with its international scale and ever changing demands. Here too, a strategic model shared by its partner was crucial.
In Diebold’s case, “Smart Business 200”—an internal initiative aimed at driving millions in costs out of the organization—was embraced by its 4PL to assist in transforming Diebold’s global distribution infrastructure and practices. Today, the partnership is providing integrated solutions in self-service and security technology for financial institutions, government agencies, commercial enterprises, and retail outlets.
While taking two distinctly different paths, both Diebold and American Woodmark have developed critical strategies for ensuring that performance expectations in the supply chain are met and that new visibility has been realized.
According to Mike Feighery, American Woodmark’s director of supply chain services, the company’s major challenge when he was hired in 2006 was to continue to grow its business without the benefit of one true branded, big-box home delivery network in the United States.
“Many household goods manufacturers—be it cabinets, windows, appliances, televisions, spas, generators, fencing, and millwork—have an unmet need for a nationwide network,” he says. “We were all looking for something similar to a UPS or FedEx, but capable of handling heavier freight and providing inside delivery and product placement at a competitive cost.”
The search for such a singular solution was not without frustration, explains Feighery. Before he came aboard, there was a lot of trial and error even when some of the early picks were taken from a deep talent pool. “There are some large players in the country,” he says, “but most of them have strung together networks of company-owned and agent-based facilities, with varying levels of influence over the local operations.”
Feighery adds that many also come from the household goods moving industry and have expanded to include high value product delivery with “white glove” services, but at a price point that’s not commensurate with Woodmark’s product.
Feighery says that they cycled through a number of 4PLs, piecing together solutions for the various regions of the United States and discovered that they were outstripping their previous distribution network’s capacity. American Woodmark then made a tactical change, spending three years in a “reactionary mode” just trying to provide a quality delivery experience for their customers.
“We had a lot of turnover in 4PLs as we assessed their capabilities and better understood our needs,” he adds. “At the very core we were looking for companies that could meet the central tenants of our program—the ability to receive our product that was directly shipped from our assembly plants in full-truckload quantities and then staged in their (4PL) facility. Then they were to schedule a delivery appointment to the customer, meet that commitment, and maintain piece count integrity throughout the process with minimal damage.”
A tall order, Feighery admits, especially considering that the 4PL would also have to help American Woodmark with its service commitment to their retail customers and provide, at minimum, one-day-a-week home delivery service to every market.
“The delivery agent could not hold product to build density for the more remote markets,” he explains. “What we found was that all of the 4PLs sold the services we needed, but at the end, few had the infrastructure—people, systems, and processes—to maintain the degree of consistency and reliability we required.”
That’s when Feighery’s team put together their “Carrier Development Model” based on the Theory of Situational Leadership. The theory presumes that different leadership styles are better in different situations, and that leaders must be flexible enough to adapt their style to a specific situation.
“The team identified the key attributes needed for the 4PL, and ultimately American Woodmark, to succeed,” he says. “Further, they identified demonstrable behaviors they needed to see in order to recognize the 4PLs graduation through the development continuum, allowing them to scale their resources accordingly.
As a consequence, Feighery began to plot the 4PL’s development level in three key categories including field operations, quality, and corporate relations every six months. He also asked the 4PL to plot where they felt they were in the process. Then, they sat down together to discuss how their perceptions matched and differed.
According to Feighery, Woodmark also asked the 4PL to challenge them if they are not demonstrating the proper leadership style given their development level. “This has provided a wonderfully constructive tool to facilitate discussions and grow our mutual capabilities,” he adds.
As a consequence, each of American Woodmark’s three 4PLs handle specified geographic regions of the country, and they all execute the program very well, says Feighery. “In fact,” he adds, “we now have the most flexible, consistent, and reliable delivery network in the history of our company—and I would contend in our industry.”
He admits that the housing recession has been tough on many building material suppliers, but at the same time he adds that investment in all aspects of American Woodmark’s future operations is critical in order to fully participate in the recovery.
Diebold’s single-player partnership
Diebold is no less enthusiastic over its decision to go with one mega 4PL rather than the several 3PLs it had been using for its international operations. Four years ago, when it incorporated the initial phase of its “Smart Business 200,” an initiative aimed at driving millions in costs out of the organization, it defined supply chain optimization as a key component of that effort. According to Chris Kushmaul, the company’s director of global logistics, the initiative was untested, but promising.
“We were looking for a holistic solution,” recalls Kushmaul. “This was especially important to us as we began penetrating more emerging markets in Latin America and elsewhere in the world. We wanted to manage what we could measure, irrespective of cross-cultural challenges.”
According to Kushmaul this “change management” was done by leveraging a strategic partnership with Menlo Worldwide Logistics. At the heart of this approach has been a focus on supply chain visibility, not only to material at motion and at rest, but also visibility into costs and metrics that track supply chain performance at multiple levels.
Another key element, says Kushmaul, is a philosophy based on “balanced scorecards” that measure service provider partners against cost thresholds and minimum service levels or performance expectations. “This has been a critical tool for ensuring that performance expectations in the supply chain are met as well as for early identification and resolution of failure points,” he says. “Information has played a key supporting role, and has been most effective in providing visibility and insight into performance metrics.”
However, Kushmaul’s view of information technology is that it’s only as good as the process it supports. Technology, no matter how cutting edge it may be, is not compensation for weak or ineffective processes, or the people managing those processes, he says. Kushmaul also had his colleagues adapt and use “lean tools” such as value stream mapping to highlight opportunities for improvement and model how the supply chain would operate with different changes in place.
“The process stressed both collaboration and accountability, with team members continuously challenging the conventional wisdom and clearly demonstrating the value of new ideas to multiple stakeholders,” he says.
According to Kushmaul, value stream mapping has also allowed him to present key third-party providers with the full picture of Diebold’s materials flow and hone their roles within that system.
Kushmaul says that a recent trip to Russia also confirmed his decision to use a single 4PL with a track record dealing with multiple nations in the supply chain.
“I was attending a logistics conference and studying how other companies were sourcing and shipping raw parts with countries like China and India. In those countries, it’s very important to use local people for the day-to-day management and transactions.”
These companies were doing a lot of the same things Diebold was doing with its 4PL in terms of measuring objectives with a critical focus on service levels, observes Kushmaul. He also notes that a page on reverse logistics can be taken out of the same book. “Reverse logistics is definitely an area we plan to attack more aggressively in the future,” he says. “Other manufacturing industries understand how much efficiency can still be squeezed out of returns.”
Benefits to Diebold
Diebold’s close collaboration with its 4PL began with a focus on simple value creation that evolved into supply chain innovation and, over time, actual business transformation.
According to Kushmaul, the advanced processes utilized by the Diebold/4PL team have driven changes not only in the way the company moves materials but in the way it operates as an organization—from sales and order management to final customer delivery.
“Savings, control, leverage, and speed—these are the key benefits of Diebold’s adoption of the lean 4PL model,” says Kushmaul. He adds that the company is measurably driving down costs through the dynamic optimization of all modes of transportation, continued application of value stream mapping, global sourcing, and real logistics engineering.
Benefits from these innovations include a more than 50 percent reduction in distribution infrastructure and low double-digit reduction in annual supply chain spend while lowering lead times and improving delivery to its customers.
From a performance perspective, Kushmaul adds, Diebold has increased visibility of inventory both at rest and in motion, and established real-time metrics for operations and supplier compliance. Using Web-based tools, it has gained greater control over material and product flow.
“The company has mitigated risk by working with an established 4PL and employing regular communications as standard operating procedures,” he says.
“All of these results are being realized more quickly, as well. In fact, lead times have been reduced by nearly 25 percent due to reduced process variability and logistics engineering.”
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