Porcelain maker Wedgwood has delivered a new approach to supply chain management, allowing it to transform its customer service capabilities. Liz Warren reports
With a heritage stretching back nearly 250 years, Wedgwood is synonymous with luxury ceramics. Yet by the mid-1990s, the company was struggling to match the high quality of its products with an equally with level of service to customers. "We knew from benchmarking done with other companies that we needed to improve our customer service and responsiveness," explains George Stonier, Wedgwood's operations director. "For example, our levels of overdue orders were unacceptably high, even though our inventory levels were also too high."
So Wedgwood embarked on an ambitious overhaul of its supply chain processes as part of a "millennium plan" devised in 1996 by chairman Dr Anthony O'Reilly and new chief executive Brian Patterson. The main objectives were to reduce inventory, cut the supply cycle time and generally improve customer relations. If, as a by-product, costs could be cut, that would be a bonus.
Three areas in its supply chain were identified as giving the greatest customer service problems. The first was order fulfilment or dealings with customers; the second was what the company calls supply, essentially its own manufacturing operations; and the final area was new product introduction. Teams were formed to tackle each area. Each team was asked to look at existing key processes, benchmark them against third parties and then redesign them from the bottom up.
Throughout, the teams were supported by methodology and expertise from the consultancy arm of Texas Instruments. This slightly surprising source of advice was chosen, Stonier explains, because Texas Instruments had just successfully completed its own supply chain re-engineering process, giving Wedgwood the reassurance that it was working with an organisation with first-hand experience of the pains and problems of this kind of project.
Wedgwood quickly identified that it needed to move from its existing inflexible push model, driven by centrally generated monthly forecasts of expected sales, to a pull model driven by real demand from customers. The new process still involves forecasting in order to set inventory levels and capacity, but there are some significant differences. First, forecasts are produced in each market and owned by them. Second, estimates are produced in the language in which sales people see their marketplace: in terms of value at a high level rather than items or stock-keeping units.
Only when these calculations have been created are they converted into forecasts for specific items, using a centrally run tactical planning model. The breakdown of items gives the company the information it needs to create plans for the factories and to identify capacity constraints and opportunities in the production facilities. It also provides input into the calculation of inventory targets for each stock-keeping unit at each stage in the supply chain, including the warehouse and work-in-progress in the factories.
However, nothing is made at the factories until a change in stock levels triggers an order to replenish that stock in line with the inventory targets for that item. This means production is driven by demand - or actual sales - rather than forecasts, with stocks of finished goods acting as a buffer.
This triggered replenishment approach is being cascaded down to Wedgwood's suppliers of raw materials, packaging, and lithographic transfers for producing the patterns that appear on fine bone china and earthenware products. Significant improvements have already been achieved in this latter area. There are thousands of different transfers, each specific to a particular product, and the lead times for them have traditionally been long, often upwards of 13 weeks.
About three-quarters of the transfers come from one supplier, which is now undertaking a form of vendor-managed supply. The supplier is undertaking a joint planning process with Wedgwood to manage its constraints and establish feasible stock levels. When a minimum stock level has been breached a trigger from Wedgwood's systems alerts the supplier, which then has discretion to react with a delivery.
While redesigning the supply chain processes, it became clear that Wedgwood needed to introduce a range of different planning tools if it was to support its new approaches to forecasting and demand-driven tactical or capacity planning. Following the evaluation of a number of planning tools, Wedgwood chose Aspen Technology's Mimi, despite the fact it was a relatively new product and a more risky choice. Mimi offered a greater degree of configurability than the other product on the shortlist.
"We wanted to take a building block approach and put components together to suit our requirements," explains Stonier. "The more established package would have been less risky, we could have adapted our processes to it rather than the other way round and it would have probably been quicker to implement it, but we decided we needed the configurability Mimi offered us."
Wedgwood was also reassured by a visit to see Mimi in action at tobacco giant Philip Morris in North Carolina and it gathered a wider range of customer views on the product by meeting users at the Mimi user group conference.
The system was implemented in two phases, one dealing with Wedgwood's forecasting needs and the other handling the tactical planning requirement. In both cases, the team was headed up by a project manager from Wedgwood, backed up by consultants from Aspen Technology.
The forecasting solution was piloted in one market before being rolled out worldwide to Wedgwood's 13 markets, each of which needed to recruit and train a forecast analyst to allow the system to be operated locally. The tactical planning solution was implemented on a factory-by-factory basis - although the tactical planning team is located centrally - with one model at a time designed and migrated from the old system to Mimi. The first models were for china production, which takes place in two factories; this was followed by models for earthenware production in Wedgwood's other sites.
With Wedgwood producing over 20,000 products, ranging from small boxed items to complete dinner services - a total of some 125,000 inventory items once specialist packaging, pre-printed items and other related materials are taken into account - and with 13 markets and 10 planning periods, the first pass at the plan is one of the biggest linear programming problems ever addressed by Mimi.
This led to initial technical difficulties, with the first models taking too long to process. These limitations have now been overcome and the initial run for each monthly planning period can be completed in four to six hours. Once the initial run has been completed, running alternative scenarios to fine tune the planning process then takes just a few minutes.
However, a new system was not the only development needed to support Wedgwood's new supply chain processes. Wedgwood is now an organisation with a radically different structure. In the past, the company had one central planning group which handled all its planning needs, liaising with the factories and markets. Now, that planning function has been split into two. Sales planning takes place in each market, carried out by the managers who understand the market best, while at the centre, a warehouse-out group is responsible for supporting the markets, with each market having a dedicated supply manager.
The warehouse-out group includes an expediting team which tracks short-term supply and replenishment issues. A separate group focuses on planning in the factories, producing tactical capacity plans and generating stock targets. This group issues daily production requirements to the factories based on how stock targets move.
Other areas have also been reorganised, with order fulfilment staff moving from a number of separate specialist departments into multidisciplinary customer-focused groups.
"Anyone in the team can handle customer requirements from taking orders to fulfilling them, arranging shipping, collecting payments or arranging credit limits," Stonier explains.
Bringing people out of their specialist roles into these multiskilled teams involved considerable cross-training and team development.
"For example, people who had been lifelong finance staff had to learn to deal with shipping; people who had concentrated on a single customer now had to deal with multiple customers; and, because we're an international business, a lot of language skills had to be introduced," Stonier explains. "That was a significant culture change and involved a lot of training, but it has paid off and been an outstanding success."
At the same time, Wedgwood has replaced half a dozen traditional warehouses with a new outsourced dispatch centre which makes use of the latest warehouse technologies. Staff were transferred to the outsourcer's operation and have seen the nature of their roles change because the new warehouse provides a pack-to-order service of goods held loose rather than simple dispatch of already packed goods.
"Given the complexity of our product range, that probably makes it one of the most complex warehouse in the country," Stonier points out.
Wedgwood has also created a team to handle new product introduction. This had been previously been delivered in a rather haphazard fashion in various parts of its factories, but now a process has been developed which brings together all the functions involved in planning and executing the introduction of new items. As with other areas of the business, new people and new skills were required.
Finally, to ensure the company remains focused on the goal of improved customer service, it has introduced a number of new key performance indicators. Unlike the traditional indicators which were internally focused, these track the business seen through the customer's eyes and include measures such as replenishment time and stock-out rates.
As with any major change process, the transition has not been easy, but Wedgwood has been rewarded with some spectacular improvements in its supply chain operations. The most significant difference is a dramatic reduction in lead times, with replenishment times to market typically being halved. For instance, replenishment lead times to the US have fallen from 51 to 21 days. At the same time, stock-outs have been minimised and back-orders reduced, while Wedgwood is now managing its supply chain with 20% to 25% fewer people.
The impact of these changes is now being felt in Wedgwood's factories, where production teams have had to accept the loss of the certainties provided by the forecast-driven push planning process and have needed to become more flexible and responsive. Further investment is being made to allow the factories to respond to these challenges.
On top of that, Wedgwood is looking to move the same approach into peripheral product areas, such as figurines, and plans to work with suppliers to apply the same demand-driven triggers now used in its own factories to its raw materials inventory.
"I think the processes we have put in place are right for our business," says Stonier, "but they also represent what is now best practice in supply chain management thinking, by moving away from relying on forecasts to responding to demand."
Wedgwood and its challenges
Founded by Josiah Wedgwood in 1759 and now part of the Irish-owned Waterford Wedgwood group, Wedgwood is one of the world's leading manufacturers of quality ceramics, including tableware and the renowned blue-and-white Jasper ware. Wedgwood's headquarters and four main factories can still be found a few miles from the original factory in Stoke on Trent. Today, the company employs about 2,900 staff in the area, around 600 more elsewhere in the UK and some 900 overseas, and boasts annual revenues of about £200m.
Wedgwood was struggling to deliver a flexible and responsive service to its customers. A project to re-engineer the company's supply chain identified the need to move from a push supply chain driven by centrally generated forecasts to a pull model driven by real demand from customers.
To support this new approach, Wedgwood installed a supply chain planning tool which not only met its planning needs, but was flexible enough to integrate with existing operations and be moulded to work with existing processes.
BuyIT's tips for business process redesign
- Put your best people on the team to redesign your business processes and involve key stakeholders
- Nothing about your existing operations should be sacred: allow the process design team to start from blank
- Benchmark your operations against other companies - not only in your own sector - and look for examples of best practice that relevant to your business
- Use consultants who have been through the pain of process redesign themselves
- Make sure you understand the relative risks and benefits of using immature products. Take up product references, visit existing user sites and talk to as many users as possible
- Pilot implementations in one market or area before rolling out across the company. Short pilots teach you valuable lessons, usually about the hidden problems you will encounter
- Put real effort into making sure staff understand and accept the new processes and have adequate training for new roles and responsibilities
- Introduce management measures which keep staff focused on the original objectives and confirm to them the improvement once the processes have been introduced
- Continue to strive for improvements in individual processes - you should now have the culture to cope with this
- Make sure other parts of the business have the necessary investment to support the new processes (including their own process redesign projects, if necessary).
How it boosted customer service
- Moved from a push model driven by forecasts to a pull model triggered by real demand from customers
- Reorganised and outsourced its warehouse to create a pack-to-order service giving flexibility in allocating available stock
- Devolved responsibility for planning to the people who are best placed to understand the conditions and constraints
- Created multidisciplinary teams who can deal with every aspect of a customer's needs
- Created a short-term expediting team to keep managers informed of problems and to help find ways to resolve them
- Created a new team to handle the functions involved in new product introduction
- Introduced new key performance indicators tracking the business from the customer's view.
What the BuyIT experts say...
Chairman, BuyIT and president, CSSA
Wedgwood's new CEO faced a demanding challenge: a total revamp of the company and its financial performance, reduced inventory, shorter supply cycle times and improved customer relations. Quite a task for a traditional company whose origins go back 250 years and whose inventory was so complex that it required probably the world's largest Windows NT-based linear programme to solve the problem.
We picked the Wedgwood case study because it illustrated some of the best practices other companies would do well to emulate. We particularly liked the way that Wedgwood recognised the power of the winning system to drive the integration of its business processes, breaking down the traditional functional barriers between departments that were a feature of the company until then.
They involved all the stakeholders in the process redesign project which gave them a strong sense of ownership of the solution - vital to ease acceptance of the new system and valuable in establishing real benefits to each group. For example, the system allows the planners to have visibility of the results of their work on a day-to-day basis for the first time and suppliers now enjoy a true partnership relationship based on timely information that enables them to make improvements in their own processes.
Director of professional practice, CIPS
The Chartered Institute of Purchasing and Supply (CIPS) would congratulate Wedgwood in two respects: it recognised the strategic importance and impact of modern supply chain management and it adopted best practice in its project management and procurement of Aspen Technology's Mimi.
Wedgwood was successful in reorganising its supply network to optimum effect because it did the right actions in the correct order. It recognised and acknowledged weaknesses and was aspirational in objectives. It was perceptive in its appreciation of existing problems, ie outdated push systems and inefficient supply processes. It was clever in identifying another firm in Texas Instruments, not in competition with Wedgwood, which had gone through the pain of change and was prepared to share its experiences. This, coupled with a cross-functional and ambitious project management team, was half the battle.
Wedgwood was also careful in its choice of Mimi. CIPS would encourage any firm procuring such an investment to visit sites as Wedgwood did to Philip Morris in North Carolina, US. Wedgwood's approach to project management was correct too; in phasing and piloting and that it was supported by consultants from Aspen.
Director of marketing, MRO Software
Manufacturers are operating under the pressure of intense competition. One area where they can gain critical advantage is from improved supply chain management and purchasing operations. Companies must embrace new work practices and technologies to survive. Key to that survival is having greater speed and efficiency than other businesses, which stems from improved management of supply chain operations.
Wedgwood is an excellent illustration of a business that has faced a serious challenge from a competitive market and has combated this through successful implementation of a supply chain management strategy.
There are significant benefits to be gained by organisations that streamline management, control and acquisition of goods and services. Technological innovations have brought changes to inventory management and fulfilment that should see an end to stock-outs and back-orders, ensuring only a minimum of stock need be held, yet always have the part needed to hand. Demand planning tools can be linked to an electronic buying application that connects to electronically enabled suppliers, reducing the transaction cost through more effective procurement processes.
Supply chain planning practices can lower costs and raise the standard of service. The benefits are clear: a well-organised supply chain can help reduce inventory levels, significantly cut the supply cycle time and improve the level of service to customers by offering them the products they want, when they want them.