The Tao of Supply Chains
- 08 June, 2005 13:28
The CIO of a national distributor says the lessons he gleaned from a 2500-year-old Taoist philosopher helped him come up with a low-cost inventory system that worked
Sun Tzu was a Taoist philosopher who lived in China about 2500 years ago. He wrote a book called The Art of War. It isn't so much a book about war as it is a book about the art of competition and collaboration - whether in business, politics, the military or even sports. I have puzzled through this book several times, and the concepts that I have taken away have helped me develop and preserve a reputation for IT agility within my company.
My company, Network Services, is a nationwide distribution cooperative that sells food service items, janitorial supplies and printing paper. We are wholly owned by our 86 member companies, each of which has its own facility and internal IT system. They have local customers, and we work together to serve national account customers. Our members' collective revenue is over $US7 billion, and Network's total national account revenue is over $US500 million, growing by double-digit percentages every year. We provide customers with a tailored package of products and supply chain services to lower their overall operating costs.
One of our biggest national account customers is a chain of stores that each holiday season uses specially printed paper items to promote its holiday theme. These items are used in the customer's 4500 stores during November and December, and when January arrives, any remaining inventory has to be written off. The same holiday print designs are never used two years in a row. In years past, there was excess inventory of around 4 percent, amounting to almost $US600,000 in costs that had to be written off by the customer.
This retail chain hired a new purchasing manager who decided we could all do better than that this holiday season. He called us out to the company's headquarters last [northern] summer for a meeting. There, he announced his intention to reduce excess inventory of the specially printed holiday items by 50 percent or more. We still had to maintain 100 percent product availability for all its stores and minimize expensive movements of inventory from one region to another to meet unexpected demand. He asked us how we were going to work with him to make that happen. I told him we understood what he wanted and that we'd be back in touch with the specifics in a few weeks.
As we flew home, our sales director on the account told me this was a high-visibility project with the customer, and we had to figure out how to do it. He reminded me that it was already halfway through the summer, so we had to be ready to go in 90 days because we would begin stocking inventory in our distribution centres by October. And, of course, we couldn't spend lots of money on this because margins are tight. In addition, all the parties in this supply chain used different ERP systems. And even within Network, the 26 member companies that served the account used different ERP systems. Several times on that flight, I experienced a sudden falling sensation in my stomach, and it wasn't due to air turbulence.
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