Heide Wilson, C.P.M., CFPIM
Heide Wilson, C.P.M., CFPIM, CIRM President, Operations Resource Group, Sunnyvale, CA 94086, 408-733-5243.
Todd DuPlessis, Claris Corporation, Santa Clara, CA 408-987-7000.
Christine Yory, Claris Corporation, Santa Clara, CA 408-987-7000.
Overview. In 1995, Claris Corporation, an eight-year-old wholly-owned subsidiary of Apple Computer, developed , produced , and marketed software programs for PC and Macintosh platforms. In late 1995, business more than doubled within 3 months when Apple Computer relinquished control of marketing and producing much of the Apple software. This increased the Claris SKUs (stock keeping units) handled from approximately 250 to 600+.
The Operations Director at Claris, Scott Lewis, was studying purchasing process improvement when Apple made the announcement. Based on the announcement, he decided to evaluate the whole operations department for re-engineering opportunities.
This case study will detail the phases of this re-engineering process, hopefully providing you ideas and insights into supplier management, streamlining processes, and fast response to changes. You will learn about the process from a panel of "change-agents" from Claris and the consultant who worked on the project from the beginning. This case study will examine:
The "Before" Situation. In 1995 the Claris Operations Department was staffed with hard working, talented people who always found a way to "get the job done" regardless of the obstacles; and the obstacles were many. Poor forecasts, poor computer systems, poor communication between functions, and a chaotic marketplace.
In the US, Claris used turnkey service providers to produce their software products. Claris had inventory and order management software, but no Materials Requirement Planning (MRP) software capability, and Bills of Material (BOMs) were kept on a File MakerPro database.
Business processed in this manner: Claris planning produced a master schedule. Purchasing used that schedule to process MRP manually and determined monthly component requirements. Purchasing set up contracts for components used in the finished goods (disks, printed manuals, printed boxes, envelopes, etc.) Purchasing then sent the turnkeys an authorization to buy components and the finished goods requirements. The turnkey had to procure the components and provide a costed BOM to Claris with mark-up, labor costs, and total pricing before Claris could issue POs. When the products arrived at Claris, the Inventory group managed dispersal among distributors, fulfillment center, and direct customers.
The Procurement Process Before Re-Engineering (with 250 SKUs) (graphic included in proceeding)
Problems. Problems with this process were many-fold. It took 1 to 2 weeks to manually compile raw component requirements based on demand. This delayed the turnkeys from procuring needed components or scheduling production. It then took 1 to 3 weeks for the turnkeys to provide the costed BOMs back to Claris to set up the POs. By then, the turnkey's focus was on producing the required products to Claris's schedule within shortened lead-times. Sometimes products were made and shipped before the PO was placed. Also, inventory control was blind as to what products were in process.
This process contained extensive and detailed micro-management work. For example, finished goods costs would fluctuate each month, often by only pennies, and would be tracked and cross-checked completely. As one month's process would be completed, it was time to start again, with no time for problem solving.
Add in the dynamic nature of software, with its demand fluctuations and frequent revisions, what you had was everyone working very hard to provide products to their customers within a complex, time consuming, and expensive process. Claris Operations did an excellent job at serving customers, it just took too much effort. It was obvious that this process would break down with the addition of the Apple SKUs.
Here is the organization chart of the key functions prior to the re-engineering. This organization handled 250 SKUs with 11 full time people. Notice how separate all the functions are, requiring that each step be done sequentially and handed-off to the next, thereby stretching the amount of time required to complete the process. This is always an indication that a process has streamlining potential.
Claris Organization Chart (7/95) with 250 SKUs
(graphic in proceedings)
Re-Engineering. Claris was limited in time, head count resources, and system support with its re-engineering process. Claris could not double the number of employees to handle the integration of the extra Apple SKU workload and no new systems could be added. Additionally, Claris was tasked with a major reduction in Cost of Goods Sold (COGS) during this process.
All the Claris and Apple suppliers were visited, giving them a chance to discuss Claris and the transition of the Apple SKUs. The suppliers were asked for their ideas on ways to improve, simplify, and accomplish the transition process. Claris found the turnkeys all had MRP systems which neither Claris or Apple were utilizing. Plus, they had ideas for product simplification and part standardization which could reduce lead-times, costs, and inventory exposure.
Claris redefined their supplier's role in the procurement process. By having the suppliers run MRP, Claris reduced a major amount of their work and increased results. Procurement cycle time was reduced and visibility was increased.
The Procurement Process After Re-Engineering
(graphic in proceedings)
Claris also changed their organization chart. The new structure integrated scheduling, inventory control, and purchasing functions under one manager. Now scheduling, planning, procurement, and inventory control is accomplished with the same number of people as before. A new function is added, New Product Specialist, to enable smooth transition of products from development into production.
Claris Organization Chart (10/95) with 600 SKUs
(graphic in proceedings)
Implementation. Change is disruptive and somewhat painful in any organization and at Claris it was no different. During the implementation of this new structure several people left Claris, and new people came in. Not everyone agreed with the changes, some feeling that Claris was giving up too much control to the turnkeys to gain speed and efficiencies.
Control vs. Speed & Lower Costs is a common conflict with any re-engineered process. The practicality of control should be measured by the benefit payback for the cost. A classic example from the 1993 "Reengineering the Corporation" by Hammer & Champy of IBM mainframe operations credit checking illustrates this point. Everyone could agree that checking credit-worthiness of customers is probably a good control point. But the cost of delaying all orders for a week and the actual cost of credit checking at IBM was far higher than any bad debts incurred by selling computers to bad credit customers. So, IBM eliminated the whole credit checking step, reducing control but gaining speed and lower costs.
Claris was able to complete the re-engineering effort and absorb all the new Apple software SKUs in time for the new fiscal year on 10/1/96. Of course, bumps happened along the way, but the suppliers who provided products for both Apple and Claris did a great job keeping product flowing to customers and assisted in transferring their knowledge and information to Claris. The Claris people also became more open to their supplier's input and performed tremendous amounts of work under the new organization structure to make the integration happen on time. Claris operations took personal pride in their ability to perform smoothly on the new Apple products, and they accomplished their goal.
Problem Solving/Fine Tuning Re-Engineering. As with any major organizational change, re-engineering should be evaluated and fine-tuned after it is implemented. While you should be careful to let any new organization settle in before you change it, implementation often brings new information or issues which need to be addressed. At Claris, two items came to light:
1. The Supplier Quality function was removed from purchasing, which became awkward.
2. The Print Production group (2 people) had been under Marketing, and really seemed to belong as part of Operations, based on their daily tasks and responsibilities. This vital function had been left out of the first re-engineering effort since it was outside the scope of Operations.
After analysis of skill sets, current and future work loads for supplier interface and print production work, Claris decided to move Print Production into Operations, and eliminate the separate supplier quality position. The Supplier Quality responsibility was moved under the Print Production Manager and Demand Fulfillment Manager. Both of these managers were already doing some supplier quality work in their daily jobs, so the fit was natural. Here is the fine-tuned organization chart after this change.
Organization Chart after Fine-Tuning (1/96)
(graphic in proceedings)
Supplier Analysis - Vendor Based Management. Since Claris now had 2 supply bases to merge, more than twice the business of before, and a charter to reduce COGS, a major supplier analysis and review was in order. With the new organization chart came the position of Vendor Base Manager, who headed up this effort with consulting assistance.
The first step was to ask current turnkey suppliers and component suppliers to evaluate Claris as a customer and the functioning of the supply chain. At the same time, Claris did a small evaluation of their suppliers. Everyone in the Operations department participated, as they had experience with, and knowledge of, different suppliers.
Results of the surveys showed parts of the supply chain were not operating smoothly, some Claris practices as a customer were disruptive to suppliers, and little agreement on rating supplier performance existed at Claris. It was interesting that the suppliers Claris knew the most about were ranked poorly. These results indicated that Claris had some major supply chain work to do.
The next step was to analyze and rank the Claris/Apple software business needs and then determine the corresponding requirements of the "ideal" supplier. As Claris looked at their business, they saw very different volumes and variety between the Apple and Claris products. Claris saw they had conflicting needs as a customer. Some small quantity, highly complex products were needed along with some large volume, simple products. Usually, this is best handled by different suppliers.
The Supplier Selection Process. The Claris supplier selection process was opened to allow all interested turnkey providers to bid on the business. Previously, Claris had a closed supplier policy which did not allow for consideration of many new suppliers. Claris developed a supplier selection time-line to manage the project through to completion.
Supplier Selection Time-Line
(graphic in proceedings)
Turnkey Communication Meeting. The time line called for a Turnkey Communication Meeting on 2/29/96 to roll out the RFP to all interested suppliers. This meeting was crucial to Claris's new Vendor Base Management concept: Be very clear about your needs and requirements, starting open and honest communication from the beginning. Claris had decided to select 2.5 turnkey suppliers and told everyone about the selection process in this meeting. (2.5 suppliers meant 2 full providers and one partial or back-up supplier) This meeting brought all the suppliers to Claris for a half-day session, with lunch included, to explain in detail about the business available, the requirements, and the RFP process. Claris knew this process was successful based on positive feedback from suppliers, and that 2 potential bidders decided to "no-bid" based on the full requirements, saving them and Claris valuable time.
The RFP & Survey. Developing the RFP was a major project, since every effort was made to be fair to all suppliers and to make a "level playing field" for all. As with all successful RFPs, clear instructions and complete communication and information were provided. When the RFP's were returned, they were ranked and evaluated by each member of the Supplier Team. Results were charted and a short list was selected for an on-site supplier visit.
During the RFP process, Claris continued definition of their supplier requirements until a complete list and definition of performance factors and weightings was developed. From this came the detailed supplier on-site-survey process used to evaluate and select suppliers. Claris sent two-person survey teams to the top 7 bidders. Feedback from the suppliers was they never had such a thorough survey before, and felt Claris had done an excellent job in the process.
Survey results were evaluated, charted, and then discussed by the team. In the end, 4 suppliers stood out on top, so close calls were made by the whole team. 3 turnkey suppliers were selected which represented a very large change for Claris, with 2 out of 3 suppliers being new. This new supplier base provided more than a 20% reduction in costs for Claris, along with increased responsiveness to help make Claris more competitive and customer responsive.
Conclusions. Claris wants to thank all the Apple and Claris suppliers and bidders for their honesty and integrity during this whole process. Without their extensive professionalism, help, and assistance, the transition of Apple software SKUs and the ensuing transition from existing suppliers to new suppliers would not have gone so smoothly. If this case can teach any lesson, let it be the lesson that suppliers can truly be your partners if you trust them, communicate honestly and frequently with them, and let them participate fairly in the process.
Results as of Today - 1997. The Claris suppliers have overall performed well, able to absorb major increases in demand caused by successful Apple and Claris software products. Fall 1996 saw the first Supplier Review sessions, where each supplier met with Claris and went over results, issues, and future improvements together. This review process will continue to make sure Claris maintains an open communication channel with their suppliers to provide the critical feedback Claris needs to improve and grow.
Hammer, Michael, and James Champy, Reengineering the Corporation. New York: Harper Business, 1993.