Achieving 99% service levels through Implementing demand management technology solution
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Caribou's Supply Chain Story
We recently spoke with Karen Francois, Senior Director of Strategic Sourcing, at Caribou Coffee.
But before I decided to write glowingly about their supply chain effectiveness, I had to taste (research after all) for myself and find out whether reindeer really know how to … deliver a good cup of coffee. While on a recent trip to Fargo I took the opportunity. And I have to say, it was a great cup of coffee.
Caribou’s Supply Chain Story
With the sampling complete, it was time to take a look at their supply chain. What stood out to me is how far Caribou has come in the past few years with their supply chain results. As their product offerings and retail outlets grew, so did the volume and complexity of their supply chain. Facing these challenges, the supply chain organization needed to find ways to increase their capabilities and manage costs while growing the brand at the same time!
Four years ago, Caribou’s supply chain was managed with spreadsheets. Their only method of gauging demand was the order-fill numbers of product leaving the warehouse—basic replenishment. The team knew they were missing a big opportunity—accurate visibility to drive a more efficient operation, right-size inventory, improved customer service, as well as the expansion of product sales. The supply chain team also knew they were faced with a lot of risk—could they respond to demand variability? Historically, Caribou managed approximately 200 SKUs. Today, Caribou has more than 600 finished product SKUs. It quickly became apparent they could not manage this level of growth on spreadsheets.
Caribou decided it was time to take the company’s supply chain in a new direction. This included a greater focus on supply chain innovation and investing in supply chain technology. The team decided it was time to acquire a supply chain solution which could help them manage their many supply chain components. They started with demand planning, inventory planning, and replenishment planning, along with all the performance management functionality to drive their success. They evaluated several supply chain solutions and found Logility Voyager Solutions a great fit for their growing company.1
Starting with Demand
Supply chain operations touch so many areas of a corporation that it is important to find the right starting point. Caribou realized that having a clear picture of demand would allow them to understand future market needs—how well they were positioned to serve with available capacity, which products were obsolete, and when inventory would need to be in the warehouse to meet imminent demand without the risk of overstocking.
From this, Caribou would be able to grow the level of sophistication in its supply chain beyond forecasting and into production, promotions, and ultimately, new product introductions. It is quite challenging to get each of these correct without strong analytic software.
Says Karen, “We took a scope that we knew we could manage. We chose to focus on all finished goods—all the salable and supply items in the store—perishables and non-perishables.”
Counting the Beans
So what kind of results did Caribou achieve? “We are now operating at above 99% service levels. And inventory turns, which started at 8-9 turns a year, have accelerated to 11-13 turns. So it’s a tangible impact we achieved very quickly!” says Ms. Francois. Caribou has been live on Logility Voyager Solutions for about 18 months.
“And a more important gain was dealing with our obsolete inventory which was continuing to grow. We have decreased obsolete inventory by a significant percentage in this first year.”
The advanced supply chain technology now at Caribou’s fingertips has allowed the company to manage with more accuracy and responsiveness, “completely transitioning from monthly to weekly demand planning and forecasting.”
“As a retailer with many products in fast-cycle demand, we realized we needed shorter planning cycles to react faster. Weekly cycles provide us the ability to react to short term events like a promotional event, unexpected weather, as well as early or late seasonal changes.” These are essential characteristics, Karen told us, for a responsive supply chain process. A great example she shared was from March 2012 when Minnesota is usually still in full winter mode—cold and snowing. In March of 2012, Minnesota saw 90 degree days. The dramatic shift in the weather caused an equally dramatic change in consumer behavior as customers wanted cool, refreshing beverages. With the new solutions and processes in place, the Caribou supply chain was able to react more quickly to this change. “So that high response capability is what we were looking for.”
Additionally, in the food business, “the last thing you want is short-shelf items sitting around unconsumed that are wasted because we have not planned accurately.”
So how does an organization successfully implement a new system and change its people and business processes?
“The key success factor was honesty and the realization up front of the commitment and time needed,” she told us. “Beside our supply chain buyers, we needed IT to realize we would need their full attention at times. Having firm time commitments was really important for our success.” Often, companies place projects at risk because they underestimate the time commitment.
In addition to technology, the right people are key. “This was a motivated team,” Karen said. “We really wanted it to happen.” The open-mindedness and enthusiasm made the process change easier to overcome. It is not an easy task to end a day with one process and then begin the next day with a new process and “trust the system.”
“We trust the system and our process. The visibility and data from Logility is used to communicate with suppliers, who have come to trust our data.” This is a huge benefit for Caribou and their suppliers, who typically hedge their forecasts.
Caribou’s internal organization dynamics have also changed as the trust factor grew. “Now, the annual operating plan process starts with a partnership between finance and supply chain, with finance asking us what demand will be next year. Now, we can provide a forecast everyone believes in.”
As the supply chain team plans for another phase this year, it must be gratifying to see what they have accomplished in so short a time.
The Caribou Coffee supply chain team with its technology partner Logility has tripled the number of SKUs—launching new products, grown in domestic and international markets; and moved from monthly to weekly forecasting. The team has improved their reaction time, inventory turns, and nailed their customer service levels!
And for Karen, all this “has allowed us to manage an increasingly more complex supply chain more efficiently.” Nothing like supply chain, sales, suppliers, finance, and the executives all on the same sleigh... hmmm... page!