Despite major advancements due to automation in recent years, forecasting remains a weakness for most manufacturers and their suppliers and customers. For years, office products manufacturer The Smead Manufacturing Co. suffered common forecasting woes: overly optimistic estimates in advance of promotions and depleted safety stock when demand came in higher than expected. It all added up to one thing: increased inventory.
"Our inventories kept growing," says Sandy Webb, forecast manager for Smead, which was founded more than 50 years ago by Ebba Hoffman and is now run by her daughter, Sharon Hoffman Avent. "Business managers couldn't get enough information to plan better. If we increased business by 20%, we would probably see at least a 10% increase in inventory." And the factory often had to wait for materials to be transferred among warehouses, which added to lead times, increasing cost and decreasing customer value.
All planning and replenishment was done on Excel spreadsheets and a homegrown application that had long outlived its usefulness. Smead management was beginning to evaluate adding more warehouses to its five existing ones. Not surprisingly, the prospect was not appealing.
The inability to plan was a particularly thorny problem because Smead's customer base had changed significantly during the late 1990s and early 21st century. Whereas the previous generation of customers had been mostly B2B contract customers or wholesalers, the new crop comprised large office product retailers, such as Office Depot, which had notoriously unpredictable buying habits. Promotions and an early-year busy season would send order quantities rocketing skyward and then plummeting just as rapidly.
"Retail customers have much more erratic purchasing patterns. If anyone makes a move, it has a big impact at the demand level," Webb says. "We needed to put more information into the planning system so the factory floor wasn't getting surprised by orders three or four times bigger than what they expected." Smead also needed to work more closely with its customers to plan for demand spikes, such as filling end caps in stores. "We needed to spread out the demand so we didn't overwhelm the factory."
Better Forecasting
In the late 1990s, Smead began to shore up its forecasting and replenishment capabilities by implementing a package from American Software, which in subsequent years became Voyager Solutions Collaborative Planning Forecasting and Replenishment (CPFR) software from Logility Inc.
In 1998, Smead built the first interface between its PeopleSoft ERP platform (now Oracle) and the Logility software. Integrating the two systems meant that ERP production data could be fed automatically into the planning and forecasting system rather than having a business analyst input the data by hand. It took a couple of months to build and test the interface. PeopleSoft and Logility staffers lent their expertise to the development project, which was led by Smead's IS team.
Now, out-of-stocks are all in the past. "We have superior fill rates. We are considered to be one of the best suppliers to our major vendors," Webb says.
Voyager Demand Planning has enabled Smead to improve its forecast accuracy by 15%, even during demand spikes. Smead also uses the system to schedule a plethora of details — from promotional displays and end caps down to planning supplies shipments and setting up machine times.
As a result, Smead has been able to boost service levels nearly 100% on all brands with targeted customers. Its customers have responded in kind. In 2003, Office Max selected Smead to receive its Strategic Vendor Partnership Award. The company has clearly succeeded in meeting the demands of its challenging new customer segment.
In recognition of these accomplishments, Smead received the High Achiever award in Supply Network Mastery in Managing Automation's 2007 Progressive Manufacturing awards competition.
"In order to stay profitable, we have to keep our costs down. And we have to be new and innovative," Webb says. Toward that end, Smead has people working closely with customers on category management, helping them to determine what product mix they should offer to generate more sales.
Smead's ability to maintain its brand, product quality, and corporate culture while confronting change is admirable, according to Maureen Steinwall, a Progressive Manufacturing judge and president of Steinwall Inc., the High Achiever winner in the 2006 Training & Education Mastery category. Using technology, "Smead masterfully navigated the challenge and surfaced as a survivor. This is not simple to do and many companies fail when confronted with the same challenge," she says.
Smead is not a huge player, but it has mobilized its resources to meet the demands of an ever more demanding marketplace. "Our people work well together. We have achieved a lot of recognition for providing value to our customers," Webb says.