Business Magazine

How a Consumer Brand Implemented Lean Principles to Avert an Operational Crisis

Posted on the 16 April 2014 by Ryderexchange

From complexity and chaos to stability and synergy

Few industries are as sensitive to the vagaries of consumer demand, mercurial market conditions, and supply chain complexity as the consumer brands industry which satisfies multiple retail segments. The business environment is volatile. Supply chains are long, dynamic and complex. New retail formats and distribution channels are constantly emerging. In addition, brands wrestle with managing ever-changing portfolios of suppliers, products and sourcing locations.

Clearly, accommodating this level of volatility takes an agile supply chain that can adapt to constant change. Unfortunately, many consumer brands and most retailers have yet to build Lean principles into their supply chain organizations – thus they lack infrastructure and built-in flexibility – and problems can reach a crisis of egregious proportions.

supply chain crisis management

Change on five fronts creates chaos and 1,000% spike in customer complaints
That’s exactly where this leading hardgoods brand found itself when confronted with runaway change on five fronts:

  • Market conditions: Globalization reduced barriers of entry of new low cost competition putting downward pressure on price. Coupled with high infrastructure cost resulted in significant lost revenue.
  • Customer expectations: Globalization also reduced product differentiation and increased customer expectations on actual and perceived quality.
  • Financial issues: Drastic reduction in volume sensitive revenue exacerbated by high operations infrastructure and large one time reorganizational cost weakened the retailer’s cash position.
  • Internal organization: President, VP of Operations, and CFO were all replaced.
  • Product complexity: (Went from one product line to seven in a month.)

The problems started when one of their manufacturing suppliers, implemented a network plan based on flawed assumptions about what the market would bear: finances and customer expectations. Formerly, the supplier used a single distribution center to support a single product line. However, based on recommendations made by a third-party consultant, the supplier decided to bring six additional product lines into the facility… in a month. When the distribution center’s project team, operational processes, and network plan, couldn’t support the surge in volume and complexity, the DC buckled under the pressure. Soon, a once stable & profitable operation was in danger of imploding.

Safety declined, and in the first nine months 15 OSHA injuries were recorded (on average, one every 18 days). Employees routinely put in 12-14 hour days, overtime surpassed 10%, eventually resulting in a 340% turnover. Five salaried employees left; service levels dropped to the extent of potential contract breach.

When the brand couldn’t align its financial and operational goals, the wheels started coming off the bus. Not surprisingly, the people on the bus (retail accounts) began complaining about the ride. Complaints reached epic proportions, rising from 17 to 110 in less than 60 days. That’s a 1,000% increase! Meanwhile, the brand’s cash reserves were dwindling.

The turnaround begins with triage: stabilizing the patient
Clearly, returning the distribution center and overall retail operation to profitability called for serious action. That action required a philosophical shift in the prevailing culture and top-down transformation. My team and I were brought in to “stabilize the patient.” The first step? We had to agree on common goals. Triage meant staunching the flow of additional product lines into the DC.

Once the decision was made, a new supply chain team swung into action, infusing Lean principles into the culture and operations. New managers, supply chain engineers and operations teams were engaged to put those principles into motion, establish a current-state model, and from there… a path forward.

By focusing on priorities, holding detailed weekly reviews and bringing in talent from the outside, the supply chain team was able to alleviate issues and focus on improving service levels. Interested in finding out what happened next and the amazing results that Lean can deliver? Stay tuned for my next post. In the meantime –Muda, Mura, Muri…Stay effective, not efficient!


About the Author

Written by Mr. Jimmy Fitzpatrick, Group Director of Operations at Ryder. He is a Lean Operations professional with 15 years of experience in distribution management, manufacturing operations, and behavior based Lean philosophy. Throughout his career, Mr. Fitzpatrick has played an active role in network optimization, talent growth and operational excellence turnarounds for Ryder customers across numerous industry segments.

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