CASELETS ON SUPPLY CHAIN MANAGEMENT

1. Baan

Baan was to be the new SAP and for a time it had high hopes but with
financial irregularities and internal family dynamics it was all over by
2003. Jan Baan started the company in 1978 and by 1993 the company
had an enterprise solution along the same lines as SAP. In 1994, Baan
hooked Boeing as a client and the company was heading towards
knocking off SAP as the number one ERP solution. But Baan was no SAP
and the direction from Jan Baan was not forthcoming and the company
stalled. Jan Baan withdrew from the day to day operations and there
was the discovery of "creative" revenue manipulation. This led to a
decline in share price along with law suits and consecutive quarterly
losses. By 2000 the company was purchased by Invensys for $700
million. The Baan software was aimed at the mid-market, but by 2003,
Invensys pulled the plug and sold the faltering Baan unit to SSA for
paltry $135 million.

2. Webvan

Hailed by CNET as the greatest dotcom disaster, Webvan started in

1998 by Louis Borders, of Borders Bookstore fame, as a business that
would delivery products to a customer in thirty minutes. The idea
attracted big names of industry, such as George Shaheen, the head of
Anderson Consulting, who joined as CEO as well as Goodman Sachs
and Yahoo who both invested large sums of money. The company
started the venture in ten markets a year after HomeGrocer, who by
the time Webvan were starting was already having problems. Webvan
mistakenly decided to get rid of the opposition by purchasing
HomeGrocer in 2000 for $1.2 billion in stock. Despite most media and
industry experts casting doubt on the profitability of a local freight
company, Webvan went ahead with the purchase of delivery trucks,
warehouses costing $30m, computer systems and office equipment
without one cent of profit every being made. By April of 2001, Webvan
announces that it will run out of cash by the fourth quarter of 2001
unless it receives additional funds. However, with the home deliver
market being a tiny percentage of what HomeGrocer and Webvan
believed, the company posted losses of $217 million by the first
quarter of 2001 and declared bankruptcy in July 2001 after spending
$697 million of venture capital.

3. Commerce One

The Commerce One was founded in 1994 and went public in 1999, but
by 2004 it was all over. The company was a darling of the internet
boom and Fortune 500 companies for its introduction of marketplaces
in the electronic commerce sector. Commerce One provided software
and services that enabled electronic collaboration to buy, sell, or make
markets. Its flagship offerings included a procurement application and
a market-making platform. It was courted by SAP and had high-profile
clients such as GM, Ford and Boeing. But it never did manage to
generate enough income from these marketplaces and as the B2B
market declines so did the company.

4. C1rca

One of the most successful companies in this marketplace is C1rca

(pronounced circa), which is a small action sports footwear company
with its U.S. headquarters in San Clemente, Calif. Although its
customers know the company as C1rca, the corporate entity behind
this brand name is Four Star Distribution, a private Swiss company
started in 1991 as a snowboard and apparel business. It sold off the
snowboard business in 2004 and has since focused all of its efforts on
the C1rca brand of skateboard footwear, apparel and accessories. In
fact, its marketing slogan is “we are committed to skateboarding.”.
Four Star has made its C1rca brand thrive in this marketplace by
masterfully managing a complex global supply chain. And the company
itself has distributed its operations around the world. Its financial
center is located in Switzerland, mainly for tax reasons. Design,
development and other operations for the C1rca brand are in San
Clemente, Calif. An office in Hong Kong oversees outsourced
production, vendor payment and shipping. The most important aspect
of this extended management strategy is the reliance on a network of
low-cost suppliers and manufacturers in China. The apparel factories
are in South China and the footwear factories are in the Shanghai area.

Four Star does all the marketing and sales in-house. It also does its
own product design, development and testing at its San Clemente
location. Using a product lifecycle application, Four Star sends very
detailed specifications to its Chinese manufacturers to include
materials and precise dimensions down to the millimeter. It even
specifies the stitching hangtag location. Based on these specs, the
factories make prototypes that are tested in California.
when the company is satisfied with the product, the factories make a
limited number of sales samples. As the orders come in, POs are issued
to the factories from the Hong Kong office, which maintains close
contact with the factories for compliance with the orders. When the
finished product is ready to ship and has complied with Four Star’s
requirements, the Hong Kong office approves payment to the suppliers
and tracks the goods in transit to their final destination.

For outbound distribution, Four Star relies primarily on freight

forwarders and third-party providers to handle its logistics from China
to wholesale and retail buyers in the U.S, Canada, Asia and most of
Europe. Four Star has one small warehouse in Switzerland, but the vast
majority of order fulfillment and shipping to retail stores is handled by
3PLs. In the U.S., Four Star uses AMS Fulfillment based in Los Angeles.
The same 3PL is expected to soon handle Canadian distribution as well.
In Europe, Munich-based ITG GmbH handles all distribution except for
Switzerland. In the U.S., Canada, Austria, Switzerland and Germany,
Four Star’s sales force sells directly to retail stores. Elsewhere in the
EU, Eastern Europe, the Middle East and Asia, the company sells to
distributors who then sell to shops.

5. Nikon Inc

Nikon Inc. is the world’s leader in precision optics, 35mm and digital
imaging technology. So it’s no surprise that when the company saw
the next big trend in photographic technology digital cameras they
were ready to deliver with some of the most advanced product designs
in the marketplace. But to ensure that retailers could meet the
demand of tech-hungry consumers and professional photographers,
Nikon, with the help of UPS Supply Chain Solutions, reengineered its
distribution network to keep them well supplied. To support the launch
of its new digital cameras, Nikon knew that customer service
capabilities needed to be completely up to speed from the start and
that distributors and retailers would require up-to-the-minute
information about product availability. While the company had
previously handled new product distribution in-house, this time Nikon
realized that burdening its existing infrastructure with a new,
demanding, high-profile product line could impact customer service
performance adversely. For Nikon, that meant applying its well-known
talent for innovation to creating an entirely new distribution strategy
and taking the rare step of outsourcing distribution of an entire
consumer electronics product line. With UPS Supply Chain Solutions on
board, Nikon was able to quickly execute a synchronized supply chain
strategy that moves product to retail stores throughout the United
States, Latin America and the Caribbean and allows Nikon to stay
focused on the business of developing and marketing precision optics.
Starting at Nikon’s manufacturing centers in Korea, Japan and
Indonesia, UPS Supply Chain Solutions manages air and ocean freight
and related customs brokerage. Nikon’s freight is directed to Louisville,
Kentucky, which not only serves as the all-points connection for UPS’s
global operations, but also is home to the UPS Supply Chain Solutions
Logistics Center main campus. Here, merchandise can either be
“kitted” with accessories such as batteries and chargers, or
repackaged to in-store display specifications. Finally, the packages are
distributed to literally thousands of retailers across the U.S., or shipped
for export to Latin American or Caribbean retail outlets and
distributors, using any of UPS’s worldwide transportation services to
provide the final delivery. With the UPS Supply Chain Solutions system
in place, the process calibrates the movement of goods and
information by providing SKU-level visibility within complex distribution
and IT systems. UPS also provides Nikon advance shipment
notifications throughout the U.S., Caribbean and Latin American
markets.

6. NIKE-i2

In February, 2001, athletic gear maker Nike went live with a new – and
complex –
supply chain planning system. A myriad of issues, including software
bugs and
integration problems, complexity and change for planners, lack of
training, etc., lead
to major challenges forecasting demand and deploying inventory. At a
quarterly conference call, the company publicly cites “software
problems” for causing a $100 million revenue shortfall. CEO Phil Knight
said the supply problems had created significant inventory shortages
and excesses. In certain cases, Nike would have to slash prices to get
rid of the additional inventory, putting pressure on margins and profits.
Wall Street reacts strongly, quickly knocking 20% off the company’s
stock price. The Nike saga is another one blamed on a “big bang”
approach to deployment,
rather than a more phased implementation. The software provider says
Nike didn’t implement the software the way it recommended.
Resultantly, Nike's production facilities around the world ended up
manufacturing a far greater number of a less popular shoe model and
not enough of those models that were in high demand. Two years after
announcing its plan to build a state-of-the-art $400 million supply
chain, Nike (NKE) cuts its earnings outlook for the current quarter by
more than $50 million, citing problems caused by supply-chain
software supplied by i2 (ITWO). Nike CEO Philip Knight tells analysts, "I
guess my immediate reaction is 'This is what we get for $400 million?'"
i2 counters that the problem was Nike's implementation of its system;
meanwhile, i2 shareholders sue the company for failing to promptly
disclose its Nike troubles. In February 2001, Phil Knight (Knight), the
co-founder and CEO of Nike Inc (Nike), announced that the company's
profits for the third quarter of the fiscal year ending May 2001 would
fall short of expectations by almost 24 percent. The reason for the
shortfall was a failure in the supply chain software that Nike had
implemented in June 2000. The supply chain software, implemented by
i2 Technologies Inc (i2) had fallen prey to technical glitches that
affected the company's inventory systems adversely, leading to a
supply chain failure.

7. Accenture is helping Siemens forecast and plan for high

performance.

As a leader in one of the world's most competitive and cost-intensive

industries, Siemens Networks is under constant pressure to keep costs
down while enhancing service. A proven way to reach these twin goals
is with high-quality forecasting. In fact, Accenture research shows that
companies committed to high performance are usually the biggest and
smartest investors in technology that helps them align supply with
demand, and maximize enterprise-wide visibility of forecast data.
Strongly committed to the above goals, Siemens Networks has
invested heavily in planning and forecasting tools, and is constantly
measuring the value that these applications provide. However, the
company recently determined that its traditional approach—combining
homegrown, Web-based tools with a best-of-breed demand planning
solution—was not producing the functional fit or user acceptance that
the organization needed. The core weakness was low forecast
accuracy that, in Siemens' builds to- order environment, was causing
component-supply problems, delaying deliveries and upsetting
customers. Clearly, the company's forecasting technologies and
processes needed an overhaul. Accenture was selected to help
Siemens Networks achieve high performance through improved
planning and forecasting. Figuring most prominently in the choice was
the supply chain planning expertise Accenture demonstrated during an
initial blueprint phase, and its ability to leverage cost optimized local
and remote resources, split evenly between Germany and its Supply
Chain Center of Excellence in Barcelona. Another factor was
Accenture's Global Delivery Network-large-scale, multi-purpose
facilities in diverse locations, complemented by specialized centers
such as the Supply Chain Center of Excellence in Barcelona. Use of
Accenture Delivery Centers have been shown to reduce service-
delivery costs by up to 25 percent, while increasing overall quality and
reducing risk.

8. Apple Misses Power Mac Demand

Apple was introducing its new line of Power Mac PCs, to be launched
just before the Christmas season in 1995. Just two years before,
however, the company had been burned by excess inventories and
production capacity during a similar launch for its Power Book laptops.
So this time, it played things very conservatively. That turned out to be
the expensive option. When demand for Power Macs exploded, Apple
was caught short for the critical Christmas season. Forecasts were too
low, there wasn’t enough flex in the supply chain, and some parts
suppliers developed additional delivery issues. At one point, Apple has
$1 billion dollars in unfilled orders in its system. Unable to capitalize on
the market opportunity it had been handed, the stock price was soon
cut in half, the CEO was shown the door, shareholder lawsuits came
pouring in, and Apple’s market position in PCs took a permanent hit
such that it took the IPOD years later to lead a recovery in the
company.

9. Aris Isotoner’s Sourcing Calamity in 1994

In 1993, Aris Isotoner was a highly successful division of Sara Lee Corp.
A manufacturer of gloves and slippers, it was one of the most well-
known brands in the U.S., made famous in part by commercials
featuring NFL quarterback Dan Marino. It was very profitable, with
sales of $220 million, 15% net profit, and high growth. Isotoner’s plant
in Manila, Philippines, was a crown jewel of the business. Highly skilled
labor there had been turning out 27 million pairs of gloves a year at
such low cost that even factories in China couldn't compete. Said one
company executive later: "The plant in the Philippines couldn't be
duplicated. So many of the people had been there 15 years; they were
so skilled. It was the low-cost producer in the world." Trying to chase
even low costs, however, a new Aris Isotoner executive shutters the
Manila plant and sources production to other Asian locales. In-house
production ended up costing between 10% and 20% more. Managers
found they couldn't turn around orders as quickly as before. Product
quality plummeted. Aris Isotoner's sales also plunged. Three presidents
later, the glove maker’s sales had fallen in half, to $110 million. By
1997 operating losses had totaled $120 million

10. Internet Retailer Outsources Logistics to Sustain Success

The Buncefield oil depot explosion damaged the ASOS warehouse so

badly it had to be shut and the web site stopped taking orders. The
devastation happened in a Christmas peak while the company was
facing rapidly growing demand for their high fashion. With sales up
around 80% each year, CEO Nick Robertson stated; “Logistics was the
biggest drain of effort and worry.” The ASOS.com web site is
acknowledged to be at the leading edge of performance. So the
company called on outside expertise to bring the fulfilment operation
up to the same standard and spoke to Unipart Logistics. “From the
early discussions it became obvious that this could be an ideal
partnership,” commented Robertson. That fulfilment operation is
located in a 52,000 square foot warehouse in Hemel Hempstead and
Unipart Logistics took over the running of the facility. This included
transferring the workforce under TUPE, giving them access to new
levels of training and expertise. “The staff have been very positive. It
has been an instant win for them,” added Robertson. “Within one
week, all negative thoughts had disappeared. Many of the staff have
been with us since day one and now they really see a difference in
their lives and think they’ve got a savior.” Using tools and techniques
developed as part of the Unipart Way, operational improvements
started with high level process mapping. Monitoring through Key
Performance Indicators (KPIs) and regular communications were also
started, to drive continuous service improvement. Elements of the
Unipart Way have been enthusiastically taken up by both the staff
transferred and other parts of the ASOS.com business. “One change
has been the introduction of project management,” observes
Robertson. “Unipart Logistics has shown us the value of it and given us
the people to do it. This skill set is absolutely vital.” Quick wins were
identified in inbound goods and customer returns, both of which were
quickly remodeled to deliver significant improvement. Unipart Logistics
Worked with people in the wider ASOS.com company, incorporating
buyers and merchandisers into the planning process. The summer sale
was also changed when Unipart Logistics identified a need to reduce
warehouse inventory. All this had to be achieved while repairs
continued at the operating warehouse. The roof, for example, had been
badly damaged and a phased scheme was devised to ensure that both
repair and fulfillment activities could continue simultaneously. With
sales continuing to increase, the operation is now managing a greater
level of sales than the year before. During the summer months of
2006, sales were regularly higher than the peak week in 2005. The
reorganization has also led to efficiency gains, including a 32%
reduction in costs per unit, even before a new warehouse management
system was installed. Robertson added; “Everything started working a
lot more smoothly.” Receipt to location times have been reduced by
approximately 80%, including confirming that goods received exactly
match the images on the web
site. Once picked, goods are checked against the customer order,
packed and ready for delivery in time to meet the Next Day promise.
Handling of returns and crediting
customers is now a same-day operation, whereas previously two to
three days was the norm. Also, a saving of 5% on transport and
delivery costs was achieved.