This document contains five case studies which profile the ways specific companies have dealt with the following issues: Perfect Order Process, EDI, Vendor Managed Inventory, Supply Chain Collaboration and Measurement of EDI Cost Savings.

The Executive Councils of both AMD and IPD wish to thank the companies that contributed case studies to this project. As representatives of the PHCP industry, we truly believe your valuable contributions will make a difference in our long-term success.

CASE STUDY: THE PERFECT ORDER

NIBCO, a large manufacturer of valves, fittings and piping, started designing the Perfect Order process about four years ago at the same time they were implementing a new ERP system (SAP). In fact, the Perfect Order process fed into the design of the new system output. They worked with many of their wholesale customers to design the process from the wholesaler perspective. Wholesalers described six areas that were of great importance to them:

1. Order entry
2. Phone response
3. Shipping timeliness
4. Shipping accuracy
5. Product quality
6. Product availability

If NIBCO performed perfectly in these six areas, it would result in the Perfect Order. If they slipped in any one area, the order would be less than perfect. That meant that the measurement of a perfect order had to take into account all six areas on every order so the formula to determine performance had to be multiplicative, i.e. order entry performance time phone response times shipping timeliness, etc. To illustrate, if NIBCO performed at 90% on each of the six items, their score on that order would be 54% (90% X 90% X 90%, etc.) Performing at 90% sounds good until you realize how interrelated each element of the Perfect Order is - if one thing goes wrong, it is damning.

When NIBCO was first able to measure their Perfect Order performance, they were in the 20% to 30% range. They were shocked because they considered themselves to be a pretty good supplier. Today, they are in the high 80% range, which requires 96% to 98% performance in each individual area. How did they get to this point? Step by step.

Step 1 - Order Entry
NIBCO researches every deduction to figure out the root cause, e.g. EDI mismatch of numbers, etc. They found that if there was a mis- shipment for any reason, it took from four to seven phone calls to resolve it. The goal was to put the order into their system exactly like the customer ordered it. After much research and re-engineering of processes, the order entry performance is now at 98.2%

Step 2 - Phone Response
NIBCO benchmarked General Electric when setting their standards. GE's standard is 97% of all phone calls answered live (no voice mail or auto attendants) in 30 seconds. NIBCO upped the bar to 98% in 20 seconds. Their performance to date: 98.9%.

Step 3 - Shipping Timeliness
For the 14,000 SKUs in stock, 98.9% of the time, NIBCO ships in 48 hours. If an order is received at 5:00 on Monday afternoon, it still goes out on Wednesday.

Step 4 - Shipping Accuracy
Shipping accuracy involves picking the right product and packing it securely and getting it on a truck. Shipping problems also contributed to the four to seven calls to resolve a problem. NIBCO is now at 96.6% performance.

Step 5 - Product Quality
With product defects as the measurement, NIBCO's performance is 99.1%. Products rarely fail.

Step 6 - Product Availability
This is probably one of the more amazing numbers given the broad product line. Product availability is at 97.6%.

The benefits of this tremendous investment to NIBCO have been numerous:

The benefits of the Perfect Order system to NIBCO's wholesale customers can be summed up by an Embassy group member: "You are actually measuring the things that are important to us!" In addition to that "big picture" benefit, some specifics include:

NIBCO firmly believes that today supply chain management provides a true competitive advantage but in the future it will simply be an ante to play. But by then, they think the strong relationships they are forging with their supply chain partners will be almost unbreakable.

CASE STUDY: EDI

Company A, a large plumbing supply manufacturer, has a long history of using EDI. It started using EDI in 1987 for two reasons: a heavy workload caused by many orders and requests from customers who were implementing EDI. Until about 4 years ago, Company A received 30% to 40% of their order volume via EDI. Company A went through an activity-based costing exercise and finally had hard numbers on how much money manual order processing was costing. They measured how many minutes it took to manually enter an order, how many transactions a rep handled per day, the cost of a rep, the cost of a "no- touch" order vs. a "touch" order, the number of errors, claims and deductions, the cost of a phone line vs. a VAN, and the length of time to turn around a manual order vs. EDI order. The resulting figures showed manual order processing as a significant workload and cost driver in the business that did not deliver equal value to the customer.

After making the commitment to increase the volume of orders received via EDI, Company A researched why customers weren't using EDI more and why non-EDI customers were not using it at all. The assignment was given to a field sales person, hired as an EDI Representative, who had a technical aptitude. Adopting the salesmanship approach to selling EDI and using what he learned from customers and from the ABC project, he put together the "why EDI" story. The "why EDI" points used to sell EDI usage were: speed, order accuracy, cost, pricing accuracy, timeliness of order turnaround, and increased communication speed. He determined that the savings that Company A realized were proportionately the same for wholesalers. This made the selling even easier.

He also learned that senior people in the wholesale businesses were on board with EDI but some people further down in the organization were not. Some people were technology adverse. Also, not all wholesalers had the technical expertise to implement EDI. These external issues had to be addressed as well as several internal issues.

The EDI Representative had to educate Company A's external sales force. He developed selling tools for the sales force to use that told the EDI story in terms customers could understand. He identified which customers were the best targets - typically the largest wholesalers who weren't using EDI extensively. Company A designed incentives to encourage the external Sales Representatives to "sell" EDI. Inside Customer Service Agents were also trained to "sell" EDI to those customers who faxed orders in by using the same "why EDI" story.

Some of the larger wholesalers had homegrown systems so Company A offered them system resources enabling the distributors to increase their ordering efficiency. They also worked with individual wholesale branches that were still using paper as well as with headquarters, sometimes asking headquarters to give directives to its branches to use EDI.

The results are impressive. The percentage of Company A's wholesalers using EDI is approaching 85%, with over 80% of total orders coming in via EDI and most of those are "no touch." This means the orders hit the floor immediately. One of its largest wholesalers with multiple branches is almost 100% EDI including stock, special orders and replacement parts. Company A's business is growing but it has not added costs in the order handling area. It was able to re- deploy order-handling reps into higher value order management jobs. The result is a higher fill rate plus decreased cycle time for Company A that results in more business and higher customer satisfaction. Order processing costs are also down dramatically. Company A determined that it cost them $10 to $20 to process an order and the same amount to handle a claim or error (they figured it was even higher for wholesalers because they would have fewer orders to spread over fixed costs). With so many wholesalers now on EDI, all of those $10 and $20 dollar bills are now available to invest in other cost- savings endeavors.

The keys to this type of success are simple. Make it a company-wide effort with goals and incentives, present a compelling case to customers, and assist them with implementation while providing a range of EDI options for both sophisticated and unsophisticated wholesalers.

CASE STUDY: VENDOR MANAGED INVENTORY

This is a case study about the trials and tribulations of two organizations that made a decision to venture into a new (for the PHCP industry) supply chain management tool.

Company Overviews

Beck Manufacturing

Beck Manufacturing, Inc. manufactures pipe fitting products for the plumbing, industrial, electrical and telecommunications markets. Beck continually invests in technology to ensure the most productive and efficient operation. Ed Beck feels strongly about using technology to compete. However, Mr. Beck also believes that you need to take a great "leap of faith" with technology. "It is impossible to know the end result because technology is changing so quickly. You need to stay with it though, be flexible, and be willing to keep up with the technology."

In early 1996 Beck looked to Supply Chain Management (SCM) as an effective technology direction. SCM had become an increasingly important technology direction. Specifically, Beck felt that Vendor Managed Inventory (VMI), the cornerstone of SCM, would be an effective technology direction that could help them improve service to their channel partners and more importantly to help their channel partners improve service to the end customers. The case below describes the questionable results of Beck's first attempt at VMI and the subsequent success of VMI with a higher quality solution.

US Flow

US Flow is headquartered in Grand Rapids, Michigan and operates in 16 states. US Flow is one of Beck's channel partners. US Flow supplies a variety of PVF, plumbing, instrumentation, controls, pumps and sealing devices through 60 locations to primarily industrial and contractor customers.

Craig Geers, Vice President, feels as strongly about technology as Ed Beck. Craig feels that although they try to be technologically aggressive, their industry is still behind the technology curve. To improve further, they had to be more in the forefront even though the paybacks of technology were sometimes unknown. When Craig heard about VMI, he knew that they needed to look at it as a critical initiative. "We need to drive operating costs out of our business, and VMI is the vehicle to do it." US Flow had done Activity Based Costing studies that show all internal costs associated with purchasing, including inventory, receiving, and accounts payable. There is not a lot of margin in the product, so they must try to drive the operating costs down. Experts say that if a distribution company's operating costs are not at 12% or less by 2005, they will be out of business. VMI is the foundation for accomplishing that goal.

The Quest to Add Value

Beck undertook the steps necessary to develop a VMI solution. They purchased a forecasting system and had some outside consulting work done for the next year. Although this initial VMI attempt was not a complete failure, Rosina A. Novak, Beck's then Vice President of Information Systems and Frank A. Muffeny, then Vice President of Sales and Marketing, say there were "mixed results" by the end of the first year.

At US Flow, Craig Geers saw similar disappointing results with the first VMI solution. "It was not very pretty. I didn't know about the software itself, but I did know that the shelves were empty." The fact that it worked as poorly as it did resulted in sacrifices to their customers.

After spending a very significant sum to get a less-than-perfect solution, Rosina and Frank knew that they had to do something quickly. Frank could still see the commercial value of the process, "Piping equipment has been around a long time. The challenge of a commodity product that is made to industry specs is to differentiate yourself. I knew that VMI is the ultimate in differentiation." He felt that even with their less-than- perfect solution, Beck had "enhanced our reputation and identification with our customers 200-fold" because of VMI. In Frank's words, "We knew the return was there, and we had tasted the return, but it just wasn't happening as smoothly as we needed."

Fortunately Rosina knew Tom Kozak from industry committees. At that time, Tom was the Director of Pan-Link Products at Panduit Corp., a $400 million electrical products manufacturer. Tom was the driving force behind Panduit's creation of EDI standards and helped to lay the groundwork for EDI standardization among members of the National Association of Electrical Distributors (NAED). Further, he had built Panduit an enviable position as the manufacturer with the best performing VMI system in the industry. Rosina called Tom to see if he could make suggestions for Beck to improve their fledgling VMI process. Tom's new company, Pan-Pro LLC, was just organizing to offer a packaged VMI solution. As the President and CEO of Pan-Pro, Tom's VMI philosophy was simple: "You need to have the right inventory at the right place at the right time. And to succeed longer term, you need to do it at the lowest total cost to the supply chain."

The Solution

Rosina and Frank now had the unpleasant task of approaching Ed Beck to ask for the support to change their VMI solution. Fortunately, because of Mr. Beck's forward thinking philosophy concerning technology, Rosina and Frank were successful in getting his support. Mr. Beck feels that you do not always see an immediate return on investment with technology. "If you don't pursue it though, someone will put you out of business." As a result, Beck installed Pan-Pro in March of 2000 with one distributor, US Flow, in one branch. Within three months, the measured fill rate to the end customer in that branch was improved from 93.5% to 99.5%. At the same time, turns had a 20% improvement.

Today the results for US Flow are even more impressive. The first branch to install VMI has had a 32% increase in turns in Beck's product line and a 49% reduction in non-moving inventory. Since the first installation, US Flow and Beck have installed Pan-Pro's VMI solution in additional US Flow locations with even more impressive results: a 60% improvement in inventory turns, a 3.3% improvement in measured fill rate to the end customer and an 18% reduction in non- moving inventory which was already low to begin with.

Beck is able to take the burden off of the distributor, adding value to their operation and thereby saving them money. Distributors typically have multiple suppliers for a given product line. With pure commodity products, such as Beck's, not only are there multiple suppliers, but the distributor does not segregate stock by supplier. Regardless of supplier, the stock of an item is kept in one bin, and recorded and tracked under one part number on the distributor business system. The distributor can and does use this situation in price negotiations with commodity suppliers. Because a VMI solution requires one supplier to one item relationship, this situation creates a special challenge.

Beck created appropriate marketing guidelines to address the pricing issue. Essentially, Rosina boils this down to one question; "If VMI is of strategic importance to my company and my best channel partners, why would I do anything that would make them non- competitive in the marketplace?" The answer is "of course we want our best channel partners competitive."

The results for Beck: Beck is the sole source for Beck's types of products for US Flow.

CASE STUDY - SUPPLY CHAIN COLLABORATION

Several years ago, Moen pondered three big questions:

1. How do we develop a competitive advantage in larger wholesaler accounts?
2. How do we take costs out of our business as well as the wholesaler's business?
3. How do we strengthen relationships with key accounts?

They thought of many possibilities - bigger projects like VMI and smaller projects like improving error rates. They decided to follow a phased in approach, start smaller, and by having positive results, the small projects would add up to a large competitive advantage with a lower cost structure.

The key to the project started with a simple but powerful concept: not every wholesaler is the same so one program will not fit everyone. With that as the guiding principal, a multi-disciplinary team was put together: distribution, customer service, business planning, sales and logistics. Logistics has evolved to a supply chain management function and now leads the effort with strong support from the sales organization.

The team has designed and refined the Collaborative Planning process to where it is today:

Step One - The sales department identifies wholesaler candidates for the
Collaborative Planning team. Sales management has a prioritization process to define customers to be included in the program. A key is to work with a manageable group to avoid losing the focus. Most often it is large customers involved in the program, but Moen has found that they are often already ahead of the game. In many cases the wholesalers who are most interested in the Collaborative Planning process are those who don't have all the processes and systems in place that the largest wholesalers have. An important variable is how willing the customer is to work for win-win initiatives.

Step Two - The team then visits that wholesaler and spends several hours assessing various parts of the business that Moen impacts or could impact. They look closely at four areas:

Step Three - After the Moen team has had some time to assess the wholesaler's business, the team and the wholesaler meet to discuss the results of the analysis and what activities Moen and the wholesaler could jointly undertake to improve customer service and/or decrease costs. The inter company team chooses from a CUSTOMIZED "menu" of possibilities. Some examples from actual menus:

Step Four - Moen and the wholesaler formally establish their respective expectations and determine performance measures. The measures are captured on a Wholesaler/Moen Shared Report Card. The report card captures the following monthly metrics:

Step Five - The fun begins - changes start happening as both sides start implementing their plans. They typically run a pilot first to make sure both sides are getting the results expected and then institutionalize the changes.

Step Six - To make sure that expectations are being met and the measurements are confirming the efforts are worth it, there are monthly / quarterly follow-up meetings using the Wholesaler/Moen Shared Report Card. Moen notes that this is an important step. With their proactive attitude, they hear about things (good and bad) much faster than if they waited for the information to filter up through the sales or customer service organization.

And what has all of this effort meant to wholesalers and Moen? Is Moen meeting their objectives of reducing costs and strengthening relationships via a meaningful competitive advantage?

The Moen team believes this is only the "tip of the iceberg" on integrating the entire value chain. True collaboration is still a vision. By testing and piloting different customer-focused initiatives, they are moving in the right direction.

Supply chain collaboration at its best!

CASE STUDY: EDI COST SAVINGS

Company B, a large-sized PVF manufacturer, has been using EDI for just a few years and just started to measure the cost savings in the Fall of 2001. Previous to then, they, like most other manufacturers in the PHCP industry, knew it saved money but didn't undertake the tedious effort to measure the savings. This is what they've learned in about 30 days of effort.

Company B receives about 10% of their orders via EDI, which amounts to about 15% of their line items. The average EDI order has 21 lines. They calculated that it would take between 12 and 15 minutes if an order entry clerk entered those 21 lines manually without any distractions. Company B calculated they would save 3,466 hours of order entry time per year if the number of transactions stayed the same. In other words, they are already saving 3,466 hours a year just on order entry time. They are just starting to calculate the costs of errors from manual entry. The early numbers indicate that another 10% will be saved.

They have just started electronic invoicing with their EDI customers this summer. Less than 10% of invoices are delivered electronically at this point. The early number (and the easiest to measure) is postage: they have already saved $15,000 in postage. They have yet to calculate the cost of printing, paper, envelopes, stuffing envelopes, etc. And they have already seen a large decrease in the number of re-issued invoices when wholesalers misplace them. They plan to try to calculate the value of turning receivables more often because invoices are now delivered instantaneously.

Company B has also just started using advanced ship notices so the numbers are too small to calculate at this point. They assume there will be a labor savings because of reduced phone calls to customer service requesting shipping information.

If you have any questions or would like to discuss this article, please call 321-956-8617, or send us an email at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .

Please contact Sandie Stewart at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it for republishing permission.