S U P P LY C H A I N
Better BY S C OT T T. B A R R E L L A , C P I M
Reducing total delivered cost through
upply chain professionals of finished goods or selling unit ally with projects addressing lead time
constantly study new and loads into the distribution chain reductions; increasing product fresh-
traditional ways to add value until delivery of goods to the ness; and stockkeeping unit (SKU)-
and reduce total delivered cost (TDC), customer’s receiving dock. value-based variety management.
the amount of money it takes for a When considering supply opti- Leaders at Nestlé USA Logistics
company to manufacture and deliver mization, professionals need to be focus on renovation and innovation
a product. TDC involves the ability conscious of the possibility that asso- to generate low-cost, highly efficient
to analyze and predict supply chain ciated improvement in one area may operations in our plants, as well as
spending from the original source to cause inefficiencies and incremental through our vendor network. We have
final point of distribution. At Nestlé, costs in others. For example, selecting seen great examples of collaborative
we have had great success emphasizing a cheaper corrugate can cause down- teamwork toward the goal of reducing
worker collaboration in conjunction time due to additional changeovers. total delivered costs.
with TDC. Another example is a knee-jerk reac- In general, Nestlé’s supply chain
tion to add safety stock during an continuous improvement efforts keep
TDC in a nutshell order cut situation. to the following path:
TDC’s components are At Nestlé, we manage our risk by 1. Define infrastructure to align the
■ total manufacturing cost, which is categories—supply chain, quality and industrial and distribution networks
incurred up to, and inclusive of, food safety, and technical product and toward reducing TDC.
the production of finished goods process support. Our overall busi- 2. Assess the trade-off between
■ product supply nonmanufacturing ness objective is to serve consumers stock levels and manufacturing
expenses, which encompass through product and logistics innova- flexibility.
administrative and develop- tions. A supply chain values model 3. Define the new stock policy,
mental spending associated with incorporating new and traditional ensuring that the assumptions related
the purchase of materials, engi- values provides the platform for to demand planning accuracy and
neering, design of product, and meeting the “triple bottom line” objec- expected customer service levels are
management tives of environmental impacts, social consistent.
■ finished product logistics costs, implications, and financial targets. 4. Identify the required improve-
which are incurred from the entry (See Figure 1.) We improve operation- ments in the areas of SKU-value-based
32 January 2008 APICS magazine
variety management, manufacturing relationships. There are many leaders within a defined business culture,
flexibility, and reducing replenish- who can analyze critical data in order creating alignment, influencing
ment lead time in an effort to control to conclude a directional path or others, and advocating change. This
costs. comprehend tremendously intricate skill set is gaining in recognition
One key metric is to ensure the information. However, these people and importance. Nestlé’s focus on
accuracy of the original expectations may lack empathy; sabotage relation- inner work, prototyping, suspending
of the savings with calculations of assumptions, synchronicity, and
actual delivered costs. Uncovering seeing from the whole all play a part
additional miscellaneous costs (re-
engineering, business travel for emer-
Our overall in dynamic leadership development.
It is critical to answer questions such
gencies, rework projects, air freight of
product or parts, and so on) need to
business as the following: Who do you know?
Who knows you? Who can you call
be factored into calculations to assess
true program success. objective is to upon for insight and solutions both
within and outside of your orga-
nization? Are you called upon as a
Workers for continuous serve consumers resource for others?
improvement These education efforts contrib-
Collaboration is an important element through product uted to effective reduction of TDC by
in our TDC efforts. Functional enabling workers to more cohesively
groups, such as factory engineers, and logistics identify possible challenges, listen
factory planners, supply planners, to feedback, acknowledge others’
and quality assurance professionals,
must work together to effectively
innovations. concerns, willingly change points
of view, and empathize with fellow
reduce TDC. To this end, it made team members.
sense to train employees in the areas ships; and, ultimately, fail to “rally For instance, Nestlé’s supply
of dynamic leadership. Training the troops” in order to implement chain maps course emphasizes how
included information about under- desired changes. We implemented every staff member can have a posi-
standing IQ, emotional intelligence training to enable professionals to tive impact on achieving supply
(EI), and networking intelligence improve their soft skills. With more chain goals. One example of this
(NI). companies downsizing, integrating, enhanced collaboration is a recent
For our purposes, EI could be and promoting team solutions, EI project to reduce costs by decreasing
defined as the innate dimension of skills are critical. finished goods inventory to cover for
intelligence responsible for a person’s Similarly, NI represents a person’s long quality testing and release times.
potential to manage opportunities and sense of networking savvy, working For this to be successful, information
must flow from demand and supply
planning at our U.S. headquarters to
Figure 1 Supply chain value drivers
various plants that order the raw and
pack, plan daily factory production,
Traditional areas New focus areas manufacture the product, deploy it,
and eventually release it for commer-
Cost Speed to Internal Our master production schedule
effectiveness customer alignment Flexibility Adaptability
is shared weekly via systems, and
it is clarified with meetings. Based
on regional forecasts, finished goods
■ Total ■ Lead time ■ With ■ Response to ■ Anticipating
delivered technical unexpected customer inventory is deployed immedi-
cost ■ Customer demand expectations ately after production to distribu-
optimization service ■ With shifts tion centers, where it awaits final
distribution ■ Sustainability release.
■ Working ■ Delivery ■ Managing Additionally, our emphasis on EI
capital frequency ■ With supply ■ Designed from and NI enabled enhanced informa-
commercial issues the shelf back tion flow from quality assurance to
supply planners regarding pending
■ With ■ Contingency ■ Value and batch release information. Now, batch
suppliers planning growth status is tracked between production
date and final release date. The plant
quality assurance group adds batch
APICS magazine January 2008 33
facts (such as SKU, production date,
cases, target release, and comments)
This tool has proposed. Then, we agree on options
for implementation. After that, we
that provide critical timing informa- revise the supply chain process.
tion regarding commercial release. been applied to Lastly, we track improvements and
Analytical tests are run concur- confirm results.
rently with our micro testing, while dozens of This tool has been applied to
batch auditing documentation is dozens of divisional projects and
completed. divisional projects yielded savings in the millions. We
Staff members strive to reduce use the START tool to reach eight
lead times associated with releases.
Upon completion of testing, batches
and yielded goals—attack inventory, eliminate
defects, implement batch-size solu-
are released and the status change
is noted, updated on all databases,
savings in the tions, add value to processing, limit
movements, reduce transportation
and released at our distribution
centers. The database also is a key
millions. expenses, cut idle time, and improve
reference for assessing true release Nestlé used START for its pallet
lead time. These data enabled us to utilization programs across several
reduce overall cycle time and cut our achieved, first, with collaboration divisions. Better pallet usage translates
finished goods stock cover by nearly and education efforts to develop a into reduced pallet throughput in the
15 percent. A significant working clear understanding of each func- Nestlé USA Logistics network, which
capital savings has been realized. tional groups’ goals. Next, we held also means more efficient throughput
In order to achieve substantial weekly meetings to ensure ongoing in our customers’ networks.
dollar savings, representatives from focus on milestone achievements and By studying the footprint of cases
the logistics, commercial, manufac- clear communication. on the pallets, we reconfigured some
turing, and technical groups must pallets to fully use the surface space,
collaborate and establish alignment One tool, millions in savings thus adding more cases per layer.
on performance, priorities, and go- Nestlé USA Logistics developed the This also minimized underhang and
to-market approaches. Therefore, key START model to strategically attack created a sturdier pallet that yielded
performance indicators are debated categories of waste. (See Figure 2.) less damage in transit. This program
and then locked in. START stands for seek, test, agree, also saved on storage, packaging
Collaborative continuous improve- revise, and track. First, we seek materials, material handling, and
ment efforts guaranteed the successful performance improvement opportuni- transportation costs.
launch of the Good Start Infant ties with various technical staff. Next, Pallet utilization worked in conjunc-
Formula Natural Cultures. This was we test the validity of the change tion with our payload program, which
sought to mix lightweight product with
heavier product to fill loads. Both proj-
Figure 2 The START model
ects lead to significant transportation
and storage cost savings.
Seek All of the described operational
performance improvement programs demonstrate
improvement collaborative teamwork toward the
opportunities goal of reducing TDC. Overall, Nestlé
working capital programs and the
Track leveraging of existing organizations
performance omer ser v Test
st as shared services has helped Nestlé
and validate Cu opportunities
using models reduce TDC and build internal and
to Scott T. Barrella, CPIM, is a supply chain
f pe e
r fo r m a nc leader for Nestlé USA. He has held key
supply chain leadership roles at Disney,
Revise Agree Amgen, and 3M. He may be contacted at
supply chain on options for email@example.com or (805) 624-0168.
To comment on this article, send a
message to firstname.lastname@example.org.
34 January 2008 APICS magazine