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An overview of the reengineering methodology followed by a case study of order fulfillment in the durable goods industry / by Chuck Birringer.

by Birringer, Chuck.

Order picking systems

Manufacturing processes

Reengineering (Management)

x, 103 leaves : ill. ; 29 cm.

Advisor: Robert Hankes.

Committee Members: Dr. Bruce Thompson, Joseph Papp.

Executive summary -- Introduction -- An overview of the reengineering methodology -- A case study of order fulfillment in the durable goods industry -- Summary.

When the subject of order fulfillment surfaces, one retailer almost always stands out, "Wal-Mart". Wal-Mart redefined the word value as always available with the best quality, at the best price. The supply chain for retailing is traditionally three players, the manufacturer, the wholesaler and the retailer. Wal-Mart is able to achieve the best prices by replacing the wholesaler with the manufacturer as the supplier that stocks the shelves. Sharing real time retail information with the manufacturer creates accurate demand data while providing timely reorder point information.

Wal-Mart has been very successful at this, leaving much of the competition scrambling. The durable goods industry on the other hand is slow to respond to this new way of doing business. Except for the industry leaders such as GE, Whirlpool or GM (Cadillac), other durable goods manufacturers are slow to follow. The dealers in the durable good industry are typically found to be laden with inventory from the manufacturer. As labeled by the manufacturer, a "loaded dealer is considered a loyal dealer."

Not only is the dealer loaded with excess inventory, but also in many cases it is the wrong inventory for their customer needs. Inventory that in the short term is financed through the manufacturer is eventually sold off to consumers as non-current inventory for reduced prices in order to improve the cash flow and prepare for the next onslaught of inventory from the manufacturer. The percentage of losses taken by the dealer on the sale of non-current inventory is typically in the double-digit proportions. The interest rates paid by the manufacturer to maintain the floor plan inventory can be as high as 4 – 8% above the prime rate.

The case study is about one such company in the durable goods industry. The company is experiencing declining profits, sees declining dealer profits and hears customer complaints about the lack of the manufacturers concerns with product availability. The dealers are loaded with an abundance of inventory to sell to their customers. Unfortunately, the inventory is the wrong style, the wrong make or does not meet the customer’s expectations.

So the customer has a choice, accept product that either exceeds one’s expectations or is less than one's expectations, pay a premium in time or money to have the product delivered from another store or another dealer or order the product from the manufacturer direct and wait 4 – 6 weeks for delivery. Through the use of a reengineering methodology a team of individuals from various functions with the company are formed to reengineer the order fulfillment process. The results of the project are a proposed process with these new characteristics. The new process is proactive rather than reactive.

The large inventory that was maintained in the dealerships is now consolidated at the manufacturer. Product sales are recorded at the time of the retail sale rather than at the time of the wholesale sale. Product is allocated to sales orders, not only from finished goods, but also from the doable production schedule. Product demand is recorded at the time of the consumer sale not at the time of the dealer sale. Outstanding receivables are cut in half from 33 days to 15 days. Credit checking is all but eliminated.

Order entry is put in the hands of the dealer. Cash application is automated. Inventory availability that was estimated in the old process, is promised to the customer and backed with a guaranteed delivery. Implementation of the proposed process is completed through the pilot. With the completion of the pilot there are both successes and failures. Successes are prevalent in the logistics and marketing functions. In the logistics area, guaranteed delivery contracts with carriers are in place and operational. Finished goods inventory, that was distributed, is now centralized.

Dealers on the pilot are pulling inventory from segregated stock based on retail demand. Distributors on the pilot are planning inventory using a 13-week forecast. In the marketing area, old contracts and agreements, related to the old push inventory strategy, are replaced with new contracts and agreements that center on a pull inventory strategy and a 13-week forecast. Failures are prevalent in the sales, information systems and finance functions. The sales area began the pilot phase by allowing dealers on the pilot to pull inventory based on retail demand.

However, by the end of the first quarter, the pressures from the parent company to make the wholesale sales numbers, caused the sales function to revert back to the push inventory strategy. Information systems failed to support the needs of the pilot implementation. The customer workstation is not developed. Changes to the existing customer order processing system, i.e., for the new contracts and agreements, the distributor forecasting interface, the production planning interface and the inventory allocation module, never make the IS project list.

The financial area failed to address the change in sales recording from wholesale to retail, where the retail sales are seasonal. What has been learned from the reengineering project? What improvements can be made for the next reengineering project? The selection of the reengineering team is critical to the success of the project. Team members should be managers that are empowered decision-makers, selected from the existing functions within the process that is being reengineered.

A higher degree for success is found when team members are removed from their existing jobs and give a full time commitment to the project. The tendency is to implement the pilot across the entire process with a subset of customers. However, since reengineering creates such dramatic change, and typically involves several functional areas, implementation by functional area can be more successful. What is the next step? The company must evaluate the successes and failures. Then decide whether or not to proceed with the full implementation.

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