Leon R. Raath CA (SA), C.P.M.
Leon R. Raath CA (SA), C.P.M., Chief Executive, Promat P.O. Box 32607, Braamfontein, South Africa 2000, Tel. ++27-11-773-8191 Fax ++27-11-773-7722.
Abstract. This paper is a case study of the Promat Clothing organisation in South Africa and the transformation process towards becoming World-class. The case study centres mainly around Supply Chain Management and Purchasing; and the need for transformation of both to create Supply Chain synergy.
This presentation focuses on the bottom line benefits achieved in reducing Total Logistics Cost (TLC) in Promat's category management area of clothing. Leading research shows that skillful contact negotiations extract an average 1-5% reduction in cost. Our re-engineering reduces cost by more than double this percentage i.e. 12% of turnover viewed differently. Total Logistics cost are reduced by 50%.
Four areas are covered :
The Promat Clothing is a division of the larger Promat organisation. It forms part of one of South Africa's largest parastatals called Transnet, incorporating diverse transportation- related businesses. Transnet itself has 110 000 employees and its major divisions are:
Promat has a turnover of South African Rands 2 billion, which is equivalent to approximately $500 million; The clothing division within Promat has a turnover of approximately $10 million and employs 100 people which are spread in 8 geographically dispersed warehouses all over South Africa. The main clients are Spoornet (Railways), Metro (Commuter rail service) and Portnet. The 80 000 clothing customers of Promat are employees of the above businesses.
2.NEED FOR CHANGE
Promat had to change its business operations
A number of warning lights were flashing, which made it clear that Promat had to adapt or face an ever-shrinking market. A number or major clients had opted to have their clothing sourced from elsewhere; and the remaining clients were demanding better service. This included the provision of customer choices, i.e. every end user should be given the possibility of choosing a clothing "kit" most suited to his or her needs from a pre-determined catalogue. Before the purchasing function was obliged to purchase the wrong items due to insufficient client guidelines.
The total Logistic Cost of the overall operation pointed to considerable inefficiencies in various elements of the Supply Chain and Purchasing.
Numerous indicators pointed to unsatisfactory business and operations results. The high inventory level, (six months inventory) coupled with a low delivery reliability and poor on-time deliveries were regarded as the Price of Non-conformance of a sub-optimal overall system. In addition, the organisation and culture was also lacking, marked by poor moral and a lacking service ethic.
Promat's vision of enhancing customer value (client service levels) and reducing the cost of clothing and specifically also its total logistics cost serves as a vital link between the current state and the desired end-state. The vision therefore also drives the strategies and focus points which make up the transition. A joint project team was formed between the IBM Consulting Group and Promat Clothing. The transformation would focus on the whole supply chain and would look at the main leverage points of any organisation : People, Processes, Technology. A transition was to be break away from the current sub-optimal focus on functional silos to a process orientation. A global Supply Chain optimum is always better than optima of the various links or elements.
A four-phase transformation approach
A four-phase transformation approach is used to cross the gap from the current to envisaged end-state. The phases are:
Each phase deals with different issues aims to create a Customer Value Management framework. This means that an infrastructure
During the Understand phase, one tries to get to grips with the current problems in order to be able to make sure they are dealt with in the subsequent phases. The elements that are dealt with in this phase are:
The Design phase starts dealing with the issues of the envisaged end state. Elements that are dealt with here include:
The Create phase deals with establishing the basic elements of the new design, being:
This is the phase of classic Business Process Reengineering.
The Implementation phase puts all theory into practice. It puts into practice all elements surrounding:
Supply chain links
Various supplier development initiatives and performance improvement actions were taken. Cooperative partnershipping was adopted and an infrastructure was set up to develop newly emerging Small business and Black Economic Empowerment in line with South Africa's Reconstruction and Development Programme.
Initiatives related to suppliers included:
Initiatives related to distribution and customers:
The Distribution network
The Central Distribution Centre (CDC) being the hub and most important component of the re-designed Supply chain, most effort was spent here. A World-class facility was designed, which would have a healthy balance between technology and manual flexibility. A revolutionary picking principle was adopted which would allow for very high picking efficiencies to be attained. As all warehouses would be consolidated into one CDC, this allowed for greater investments to be made here than would have been otherwise the case. A new distribution network was devised whereby all stockkeeping is restricted to the CDC and distribution is driven by entities called Local Distribution Depots (LDD's). These serve as permanently manned customer interface points.
The warehouse implementation phase deals with all operational issues of the CDC:
Total Logistic Cost (TLC) reduction
The new system will reduce the TLC by more than 55%. It will allow for the most important design specifications to be met:
4."GOLDEN NUGGETS" OR KEY LEARNING POINTS
4.1 The Total Logistic Cost (TLC) principle was used as a decision support mechanism in finding the most suitable supply chain configuration for Promat. The current TLC was calculated by looking at the most significant cost categories. This model was used as the base line in the subsequent phase to see what the relative TLC would be of a number of Supply chain options. A selection was made of the most suitable Supply chain configuration and a "Stretch TLC" was calculated, i.e. taking all cost savings into account. Finally a "compromise TLC" was established which would be a realistic goal for the new Supply chain in terms of cost.
4.2 Joint Application Development (JAD) allows for IT and other critical elements to be taken into account during the process re-design state. The most significant 8 processes were selected for re-design. The 8 key processes identified were:
A Joint Application Development (JAD) approach was adopted which allowed for a cross-functional IBM and Promat team to come up with the best solution. The methodology adopted, allowed for not only the design of new processes, but also IT and people implications. It also facilitated the buy-in of various Promat employees.
4.3 At least three options exist on how to integrate your business requirements with an enterprise resource planning system (ERP) or smaller integrated software solutions:
Option 1 was our preferred choice because it would deliver the best results.
4.4 An intermediate layer between SAP and the barcoding system allows for additional functionality through a warehouse control system (WCS) while catering for transaction buffering.
This layer gave us the benefits of:
4.5 When re-engineering processes; it is critical that possible future compatibility with an Electronic Supply chain be taken into account; especially for "express" processes.
The primary focus is our normal processes where physical material (inventory) and/or information flows from client to planning to supplier to the CDC to LDD's and finally to the client. An additional focus is required where electronic commence is to facilitate express orders.
4.6 The level of internal and external involvement varies in the respective state of the transformation process.
The first three stages require higher levels of external (consultants) involvement whereafter internal involvement is higher:
4.7 How to "hard-circuit" changes (making the changes in your supply chain stick). There are different ratings of success depending on the approach. "Hard-circuiting" can be achieved though: