InformationWeek

November 9, 1998

Killer Supply Chains

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Rollins says Ford Motor Co. saved about $2 million in initial procurement costs by using its Premier Page. "With information technology, the value of inventory is quickly being replaced by the value of information," he says.

Eastman Chemical
To hear software vendors talk, supply chains are all about technology. But Eastman Chemical Co. says that managing the relationships between itself and its suppliers is just as important as the software that ties the relationships together.

Eastman, a Kingsport, Tenn., manufacturer of plastics, fibers, and chemicals for other manufacturers, has the technology--such as the Voyager forecasting engine from supply-chain vendor Logility Inc., which pulls sales data from Eastman's SAP R/3 system, then generates forecasts showing seasonal and general trends by product, customer, and the entire company. That helps Eastman determine demand for its products, which has a ripple effect on the organization--including manufacturing, logistics, and procurement.

"The truer the picture you have of the demand, the better the decisions you can make about what it takes to best serve your customer," says Matt Stevens, Eastman Chemical director of demand fulfillment.

But for the forecasting to benefit other parts of the business, the pieces of technology must talk to each other. "You can do forecasting and not gain one cent of value," says John Hewson, manager of forecasting. "It's when you tie it into other systems that you start to reap the benefits."

Eastman's demand forecasts are fed into R/3. All the sales and forecast data is stored in a central database, so users in one part of the supply chain can see information from other areas. Eastman has also set up an intranet that lets salespeople access the supply chain from the road and update forecasts with new information.

At the back end, most of Eastman's connections with its suppliers are via EDI, but the company is evaluating E-commerce options. Eastman says it would like to use Internet connections to let some of its suppliers look at Eastman's production schedules and replenish according to the production plan, and go to suppliers' Web sites and trace logistics movements.

While that technology isn't yet in place, Eastman has already laid the groundwork for the working relationships with its suppliers. For instance, its suppliers are involved in developing the company's supply chain, and they share final product data, schedules, forecast information, and production campaigns--all information that was once jealously guarded.

Rayonier Inc., a Stamford, Conn., provider of chemical cellulose for acetate, has been an Eastman supplier for 60 years. But Rayonier's relationship with its biggest customer has changed radically in the past few years as the two companies have broken down communications barriers and started sharing supply-chain information such as forecast data and production schedules. That lets both companies react better to changes. "Accurate forecasting from customers such as Eastman is really key to smooth performance of our production schedule," says Charlie Spell, Rayonier's director of marketing. It also lets the partners work around planned downtime or unplanned outages.

The openness makes the supply chain a sharing of interests, not just a schedule of demands. "We don't want this to be one way, to have this be just 'gimme, gimme, gimme,'" says Michael Berry, Eastman's manager of chemical procurement. To motivate its suppliers to streamline their processes, Eastman offers annual excellence awards for on-time shipment and specifications conformance, improvement, and innovation. The notion is that the suppliers, not just Eastman, can offer innovative ideas for the supply chain.

One of Eastman's own innovations is to organize its procurement efforts, and corresponding suppliers, into distinct channels: A items, which are strategic and require the most urgency to procure; B items, which are important but can wait a little longer; and C items, which are sold by the smallest companies and which Eastman runs through a distributor channel. The channels help Eastman focus its resources on the most strategic things first.