As my regular readers know (hi, mom!), one of my favorite pet topics is how people and processes play a key part of making any technological initiative work. A few months ago I cited a nice illustration of how process tweaks helped improve the supply chain at Cricket Communications. I particularly liked it because it focused on good, old process improvement rather than stressing technology such as RFID or advanced analytics, as many stories about supply chain management invariably do.
Process played an equally central role in Whirlpool's four-year, $600 million effort to retool its supply chain, as reported by The Wall Street Journal. Sure, technology was important. The story mentions "high-tech warehouse management systems and upgraded vehicles that could handle a variety of products," as well as software that delivers orders to warehouse workers in their vehicles so they don't have to track down supervisors.
Yet much of the improvement is attributable to straightforward process changes. Ordering and delivery functions are now located in the same division, which has resulted in reductions of costly inventory. Whirlpool consolidated 41 distribution centers into 10 larger and better-organized ones, where layouts now feature quadrants with products arranged in identical order four times in the same building so drivers can access everything they need without traversing long distances. Another change: Merchandise is sorted based on how quickly it sells, so slower-moving products are located in the center of buildings while fast sellers are on the periphery.
The results are impressive. The company has reduced its annual inventory by some $250 million a year, now delivers products in 48 to 72 hours rather than the five to 10 days it often took under the old system, and says increased efficiency is generating annual savings of $100 million.
According to a Deloitte & Touche consultant interviewed in the article, a downturn is a great time to make such investments, because it can give companies an edge over competitors that can't spare the money for these kinds of improvements. Boston Consulting Group made a similar observation in a report I wrote about earlier this year, suggesting companies should allocate some of their dollars to take advantage of innovation opportunities.
This seems to be Whirlpool's strategy, though it's too soon to tell whether it'll pay off in revenue increases. The article quotes Chairman and CEO Jeff Fettig:
This [supply chain project] and investment in product innovation are the only areas that we're spending the same on as we did four years ago when we had record demand.