Rebound Kings The success of the Nike and SAP supply chain technology partnership comes as no surprise to Kevin O’Marah, vice president of research at Boston-based AMR Research. The corporate advisory firm, which focuses on supply chain, enterprise applications, and next-generation infrastructures, named Nike to its 2005 “AMR Research Supply Chain Top 25” report identifying the top 25 manufacturers and retailers that exhibit superior supply chain capabilities and performance. “The business model that Nike represents, and the reason they made this list, is what we call a demand-driven supply network, an increasingly customer-centric approach to building and running supply chains,” O’Marah says. “In a way it is incredibly obvious—of course the customer is supposed to get what the customer wants—yet quite a bit of the supply chain world as it still operates is a push system rather than a pull system.”
Not that Nike didn’t have its bumps in the road. Just as Nike was beginning to leverage SAP technologies in 2000, the company lost approximately $100 million in sales when its i2 demand planning software—a bolt-on system from i2 Technologies—miscalculated the demand for Air Garnett and Air Jordan sneakers, flooding the market with unneeded Air Garnetts and not sending enough Air Jordans to a buying public that was insatiable for the product, effectively pulling Nike’s stock down by 20 percent. “I think the lesson that Nike learned on i2 was about being realistic,” O’Marah says. “Nike’s history with IT is incredibly aggressive. They try to do big, ambitious things—they don’t just tinker around with pilots. They go really big and have been extremely successful managing their SAP implementation as part of their supply chain efforts.” Indeed, even while recoiling from i2, the company was still able to deploy SAP’s AFS system across all of its business units.
O’Marah says Nike’s ongoing SAP implementation, by contrast to i2, has been more about managing demand creation than calculating it. In concert with Nike’s best-in-class brand marketing, the company creates demand for its products and then adjusts manufacturing, procurement, supply, and delivery according to that demand with the help of SAP systems and processes. “Everything from replenishment policies, assortment policies, or even product development where you are trying to bring new products and lines of business to your customers, you want to have that stuff happen on the basis of what people want,” O’Marah says. “Supply-demand balancing isn’t just about whipping the manufacturers and the logistics groups into shape, it’s also having the end buyer adjust their behavior to your strategy, and Nike is extremely good at that.”
As successful as Nike has been with the rebound from its i2 debacle, the achievement pales next to the resurrection of Milwaukee-based motorcycle company Harley-Davidson, which was teetering on the edge of bankruptcy in 1981 until 13 members of management led a leveraged buyout to rescue the operating subsidiary of the American Machine and Foundry Co. that at the time was oversupplying the market with commodity-level products. Much like Nike, Harley has focused the last 25 years on creating an exclusive and premium brand image and generating high market demand that regularly sees customers lining up to get on dealer waitlists for one of Harley’s coveted hogs.
Since its initial public offering (IPO) in 1986, Harley’s concurrent challenge has been to meet investor growth expectations while still maintaining a somewhat tight grip on the throttle of market supply: The company has to sell more motorcycles or otherwise show bottom-line improvement, but not at a rate that floods the market and subsequently lowers the street cred and perceived exclusivity of its products. One of the key drivers of that growth has been a reliance on third-party logistics providers (3PLs) such as UPS and Caterpillar (CAT) Logistics as part of the motorcycle maker’s Corporate Operational Excellence Initiative, which Harley president and CEO Jim Ziemer details in the company’s 2005 annual report as “the relentless drive to eliminate waste in all aspects of our operations and run Harley-Davidson better and more efficiently with each passing day.”
In particular, the annual report highlights the company’s strong performance in Europe in 2005 as a function of re-engineering the motorcycle supply pipeline to provide better product selection and more timely (albeit still exclusive) availability. Since 2001, Harley has been working with 3PL CAT Logistics to launch one central European distribution center that replaces all of the company’s local storage facilities across the continent. As part of the partnership, CAT Logistics assumes all warehouse, transportation, and delivery services and even acts as a customer service interface for European Harley-Davidson distributors and dealers.
The effort is intended to “use logistics as a platform for changing business,” says Paul Barker, director of parts, accessories, and merchandise for Harley-Davidson Europe in a case study on the project provided to PROSALES by CAT Logistics. The consolidation effort has reduced wait times from 28 days to three days. A pull-through sales strategy where customers check out demo models at the dealer but still have to wait for delivery of their own custom bike maintains the perception of sales prestige and the accompanying market demand for product. “This is not groundbreaking stuff, but it shows what you can do when you have a successful platform,” Barker explains in the case study. “You can find efficiencies in your supply chain that have a positive impact in other areas of your company.”
Specifically, CAT Logistics has been able to obtain cost savings through the consolidation of warehousing and transportation, according to Mik Durwael, a CAT client manager who works on the Harley partnership. “The European distribution center has consolidated all inbound and outbound activities and has replaced all local storage hubs, and was supported internally by the launch of a multilingual customer service center,” Durwael says. “These elements helped Harley-Davidson gain better transparency and market control in their European region. From a cost perspective, the consolidation efforts helped reduce overhead cost, and the purchasing power of Caterpillar helped Harley-Davidson in obtaining much more favorable rates in transportation.”
Still, Durwael indicates that supply chain partnership success is just as dependent on a good culture match and an innate trust between supply chain partners, especially in a 3PL situation. “It is only in understanding each other’s culture and how culture reflects on the business and the market as a whole that Harley-Davidson and CAT Logistics have been able to meet each other as trustworthy partners,” Durwael says, adding that the companies have just signed a contract to establish a duplicate 3PL distribution system in Australia.
Stateside, Harley-Davidson has been having similar success using UPS Supply Chain Solutions as a 3PL, most notably in the Midwest, where the companies have partnered to consolidate high-frequency, less-than-truckload inbound parts and materials shipments to a single UPS cross-dock facility in Chicago, where UPS consolidates materials for more efficient delivery to dealers and service centers for product assembly.
According to a UPS case study provided to PROSALES, the companies have further analyzed historical shipping data from Harley suppliers to calculate more optimal shipment frequencies, creating a more efficient supply chain that provides Harley manufacturing facilities with faster access to larger stocks of parts. Currently, the companies are looking at ways to partner in the delivery of finished goods both in the states and on an international level. “UPS Supply Chain Solutions has helped us reduce our transportation costs, improve our delivery speed, keep our inventory lean, and improve service to our internal and external customers,” Harley-Davidson director of transportation logistics David Alamshah says in the case study. “We will continue to leverage the strengths of UPS to help us effectively manage our national and global logistics challenges.”
