Supply system grows smarter

The old legacy systems at HON Industries were unable to accurately measure the capacity of the manufacturer's warehouses. That lack of understanding led to errors like sending more products to a particular facility than it could store. To address the problem, a new system was designed to be more flexible and to take into account more variables, such as the size of the trucks and warehouse dock schedules.

CIO and Vice President Malcolm C. Fields says the optimization system has cut distribution costs, improved the timeliness of shipments and reduced the amount of finished inventory that the manufacturer carries to "unbelievable lows."

The implementation team achieved its results despite considerable obstacles, including a shake-up in company structure and management and resistance from employees who were wedded to traditional processes.

HON Industries began its advance-planning and scheduling system project in October 1999 and wrapped it up in March 2001 at a cost of about US$2 million. Though the project ran past its original deadline by six months, it also far exceeded the expectations of the project team, says Fields.

Technology

The project, which involved replacing legacy distribution mainframe code, used software from SynQuest, a maker of supply chain management software. The SynQuest application allows HON to take a product order, factor in shipping and scheduling variables, then decide which factory could build and ship the product for the least amount of money.

Business benefits

What's unique about this sort of a rollout is the focus on logistics and transportation factors, says Steve Banker, an analyst at ARC Advisory Group Inc., a Dedham, Mass.-based consultancy. Similar deployments typically focus on different parts of the supply chain, such as sourcing or procurement, he says.

Bottom-line payback

Without offering exact numbers, Fields says the new system has contributed to a drop in freight costs from 6.5 percent to 5.8 percent as part of the firm's overall sales revenue. Scheduling accuracy has improved by 20 percent, and there are now 19 inventory turns a year, up from 16, he says.

Lessons learned

One major challenge to the project was the constant shifting of business processes at HON, which meant projects had "to be implemented in short, intensive phases," says Fields.

For instance, during the middle of the rollout, the company was split into two separate divisions, and the president of the original operating company was replaced. The business executives who signed off on the project were gone, says Fields.

"We had to go out and rewin some hearts and minds," he says. Although work never slowed, for about 30 days the project's fate was uncertain. In the end, project advocates successfully educated the new executive team, and the rollout was a success.

Fields says he learned just how tough it is to persuade people to change their way of thinking. "Never underestimate the difficulty of shifting a paradigm," he says.

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