Refurnishing the supply chain

When the economy surged in the late 1990s, office furniture maker Haworth rode the wave. A booming demand for new office space plus several acquisitions propelled the 52-year-old company to US$2 billion in sales in 2002, making it the world's second-largest designer and manufacturer of office furniture.

As the recession deepened, Haworth took a double hit: Not only did sales stall as customers retrenched, but a glut of used furniture also hit the market as dot-com companies bombed. Sales plunged 40 percent.

Looking for ways to bring costs back in line with revenue, Haworth in 2002 embarked on an ambitious program to overhaul its supply chain systems. It has completed a $14 million rollout of transportation and warehouse management systems that have slashed freight costs, boosted the efficiency of warehouse workers and produced unexpected qualitative benefits.

Together, these two systems manage the flow of Haworth products from manufacture through delivery to the customer. The Transportation Management System (TMS) consists of an optimization package called NetWorks Transport and a carrier communication module called NetWorks Carrier from Manugistics Group. The system looks at customer orders, factory schedules, carrier rates and availability, and shipping costs and produces optimum, lowest-cost delivery plans. Plans are produced daily and updated every 15 minutes. The system also has an automated interface that lets Haworth negotiate deliveries with its carriers.

The Warehouse Management System (WMS) is a customized version of iristaWarehouse from Irista. It tracks and controls the flow of finished goods from the receiving dock at any of Haworth's three distribution centers to the customer site. Acting on shipping plans from TMS, WMS directs the movement of goods based on real-time conditions of space, equipment, inventory and personnel.

Haworth's objective for TMS was to optimize deliveries from the standpoint of freight cost, says Micheal Moon, vice president for global information services. That required mapping out more efficient routes, minimizing "less-than-truckload" shipments and reducing damage to goods.

The goal for WMS was to reduce labor costs in the warehouse using several methods, including "cross-docking," which lets goods earmarked for a specific customer move directly from the receiving dock to the shipping dock without being checked into the system and then picked from inventory.

It's a tricky environment for a number of reasons, Moon says. For example, a shipment might have to meet a strict 15-minute delivery window on a dock. And, he says, it isn't a simple matter of delivering a monolithic order, like a crate of oranges.

"You take a standard workstation like this," Moon says, waving his arm around his modular office. "You've got the walls, the desk, the overhead files and so forth. All these may come from different manufacturing sites, all coming together at a distribution center and then to the customer site in a sequence that allows them to install it. And maybe the customer wants to install his furniture over the weekend. You can't have missing parts off the truck, or he may not be able to move in on Monday."

TMS replaces a mostly manual system aided by spreadsheets and driven by "tribal knowledge," Moon says. "Tribal knowledge told you that if you are going to Texas, you don't want to stop in Alabama on the way, because it's a little detour." But the optimization software sometimes comes up with counterintuitive solutions, he says, and it just might tell Haworth planners that the freight savings from filling the truck with the Texas and Alabama orders more than offset the cost of the detour.

Moon says Haworth was counting on a 12 percent reduction in freight costs from TMS but is actually seeing 16 percent. The system paid back the initial investment in nine months -- 15 months ahead of schedule. Partial-truckload shipments, which are inefficient and often lead to damaged goods, have been reduced by half. And the labor-cost savings from WMS is "significantly beyond" the 10 percent to 12 percent goal, he says.

Middle Ground

TMS and WMS run on Hewlett-Packard Unix servers. They interface with two sets of order entry, manufacturing planning and shipping systems that service two different furniture markets. One is served by an IBM mainframe system and one by an HP Unix system running an Oracle client/server database. To tie the applications on these systems together, Haworth uses eGate Integrator, an enterprise application integration tool from SeeBeyond Technology. It passes customer orders, shipping plans and shipping notifications among the applications (see diagram).

The SeeBeyond middleware is crucial because of all the disparate systems Haworth has inherited through acquisitions, Moon says. "It really is the magic. We found that the ability to plug into that black box anyplace you need to -- Baan, Oracle, legacy systems and many others working together -- has really been a key to success. It's allowed us to move a lot faster than if we'd had to build all these single interfaces."

Another key piece of middleware is MetaFrame virtual user interface software from Citrix Systems. That allowed Haworth to move most of the TMS client code from the remote distribution centers to a central Citrix server in Michigan, freeing up network bandwidth and simplifying software-distribution chores.

"The volume of data going back to (TMS) was quite extensive, and if we had to go to local desktops, that would really increase network traffic," says Brian Kovatch, manager of information systems applications design.

The TMS project went smoothly, partly because the system went in with no customizations and partly because Manugistics had two full-time consultants on-site for a year.

WMS was a bit more problematic. "In the case of WMS, there were some performance concerns, and our database administrators worked closely with the Irista people to help them understand where some of the flaws were," Kovatch says. Haworth's staff helped Irista tune some SQL statements that were inappropriately coded, he says, adding that "the vendor wasn't accustomed to our volumes and need for response time." WMS processes some 17,500 transactions per day.

Haworth also considered warehouse management products from Optum and Provia Software but stayed with Irista because of "the functionality and their willingness to work with us," says project manager Tim Boak. Asked if Haworth considered developing a system in-house, he says, "I think the view was that's what we already had."

Jim Rohrer, a business applications process manager and the key liaison between IT and the supply operations at Haworth, says the new systems haven't just optimized business processes; they've also fundamentally transformed them. "The distribution centers were accustomed to getting information on labels or on screens, then deciding what to do with it and then reporting back what they did. I call that a 'signpost' system," he says.

Now it's more of a "directed" system, Rohrer explains. "TMS sets up a plan and feeds it to WMS, and WMS says, 'Here's what's to be done; here's your task list.' It greatly reduces the amount of time it takes a new employee to get productive," he adds.

Additional Payoffs

Senior project leader John Stewart says that while many software vendors have supply chain systems, relatively few of the packages include optimization -- the ability to evaluate a huge number of order, carrier and route combinations and come up with the lowest-cost ones.

Haworth looked at five companies and narrowed it down to Manugistics, Optum and i2 Technologies. It chose Manugistics because of its "great references and product features," Stewart says. TMS was able to handle Haworth's complex requirements without a single modification, he notes.

Reductions in freight costs and warehouse labor have been the most easily measured benefits from the new systems, but Haworth has also seen other payoffs. TMS sends carriers "tenders" -- requests to bid on a shipment -- via electronic data interchange or the Web and gets bids back automatically. That process used to require two phone calls. Now, if an answer isn't received within a specified time, the system automatically tries another carrier, says Lydia Knowles, delivery service center supervisor.

TMS has improved customer service in other, more subtle ways, Knowles says. "One of the major benefits of TMS is the connectivity between the expertise we have in-house and our customer needs," she notes. "Our awareness of cause and effect increased dramatically."

Indeed, says Joseph Bardowski, director of logistics, "visibility and optimization are equally important." Forty percent of the total system benefits can be attributed to things such as the ability to project scheduled shipments further into the future and the ability to get previously unavailable performance metrics out of the system, he says.

Haworth's Supply Chain Project

Objectives: Cut costs and boost efficiency by moving to new warehouse and transportation management systems that:

- Deliver multipart product shipments requiring assembly in correct sequence.

- Accommodate shipping volumes that can vary by factor of 10 from one day to the next.

- Is flexible enough to accommodate last-minute customer order changes.

Challenges: The warehouse management system, built on a customized version of iristaWarehouse, couldn't keep up with Haworth's high transaction volumes. But Haworth's database administrators were able to work with the vendor to resolve the problem.

Payoff: Productivity of warehouse workers increased 35 percent, freight costs were reduced 16 percent, and "less-than-truckload" shipments declined 50 percent. Damage to goods in-transit was also reduced by half. The transportation management system paid for itself in nine months.

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