Discrete Manufacturing

Case Analysis: Steelcase

Headquartered in Grand Rapids, Michigan, Steelcase is the world’s largest manufacturer of office furniture, with 2002 revenues in excess of 4 billion. The company offers more than 500 product lines—including storage, seating, lighting, and complete office furniture systems—to help its customers create a high-performance workspace. Steelcase’s brands include Leap, Pathways, and Turnstone; its products are manufactured in some 50 facilities around the world and sold through some 800 dealers in more than 120 countries. Steelcase competes with Herman Miller (another world-class company also in Grand Rapids), with HON, and with a multitude of other manufacturers from all over the globe. Let’s apply the Business Alignment Model to Steelcase.

Strategy

The strategic challenges for Steelcase are multiple:

How can we enhance our global presence?
How can we achieve growth and profit in our market segments? What products to evolve? What markets to master? Where must we focus our innovation?
How can we increase dealer effectiveness and efficiencies?
What must we do to maintain our reputation for speed and reliability?
How can we systemically reduce supply chain costs especially material and transportation costs—in order to compete globally?

Every question above must be translated into critical requirements in terms of supply chain execution, flawless business processes, and a foundation of technologies that can support all these strategic aims.

Supply Chain Execution

The fundamental supply chain objectives for Steelcase are managing daily contentions between maximizing customer response and minimizing supply chain costs while leveraging the current asset structure. As we have mentioned before, the shadow ofcost-time-value looms everywhere. It is present in manufacturing, which faces material constraints and capacity constraints, and must prioritize customer orders. It is present in procurement, which has to determine when to buy and how much to buy. It is present in transportation, which must decide how much to ship, when to ship, and how to synchronize backhauls so that the cost-time-distance equation can be managed in an optimal manner. Steelcase must answer specific questions every single day:

When we get a customer order, which plant should make it?
Should we split the order for manufacturing efficiencies?
What criteria must we use to split the order? Should we reduce setup time, idle capacity, the cost-structure differential between different plants, transportation cost from plant location to customer, the time available until shipment due date for the customer, etc?
When will the plants make the products?
Do we make sub-assemblies during idle times and store them, or do we make everything after an order has been received?
How much do we order from our suppliers? When should we order? From whom?
Is procurement driven by plant needs or overall production requirements?
How much to store and for what periods? When to ship?

From where?

Many of these questions can only be answered by optimization software. However, the overarching drivers are minimizing the time-flow from order-entry to delivery, minimizing the time for the product to flow throughout the factory—as they say in the furniture industry,from coil to carton—and being able to ship the perfect order. The perfect order is the goal: correct, completed on time, free from defect or damage, arriving when requested by the customer. One of Steelcase’s core strategic objectives is to minimize material and transportation costs so the company can be competitive in multiple markets. To achieve it, Steelcase must have a clear insight into its constraints, into its ever-changing product mix, into current production loads and their corollary—which is idle capacities. The company must know the promise dates for different customers, and the availability of trucks. Cost reduction does not happen because of a CEO mandate, a policy, and a silky slogan. Supply chain is a daily battle. Cost overruns can occur because of bad decisions anywhere along the supply chain. The subtleties and nuances of daily orderprocessing and scheduling must be understood. That is why the supply chain layer of this four-layer model is critical. Take another strategic objective of Steelcase. The company wants to maintain its reputation for speed and reliability. Simply translated, this strategic objective means minimizing order-to-ship cycle-time. Let’s take another objective: the company is committed to enhancing its global presence—and to do that, the company needs capital. What’s the best means to realize this objective, if not by compressing its order-to-cash cycle! Once again, that is the result of an efficient supply chain. As in any business, reduction of work in process, in raw material inventory, and in the time it takes to correctly quote a customer the exact ship date are all daily requirements for Steelcase as well. To manage this maze of challenges, is it any wonder that the underlying processes must be well designed, smoothly run, and monitored by management and employees on a consistent, committed basis?

Domain Processes and Decision Structures

Let’s look at domain processes and decision structures that underscore the whole business. We list below some key areas and what is required for their success.

Product design

Cut the design time to a bare minimum.
Modularize design and reuse modules so as to compose

Order management

Make transparent an entire order with all its details and its disposition at any given time.
Aggregate orders for efficient fulfillment—using meaningful criteria.

Product configuration

Configure the product correctly with its features and options.
Prevent impossible combinations from occurring.

Pricing

Make the pricing formulation clearly understood by customers as well as by appropriate internal personnel.
Reflect any price changes immediately.

Forecasting

Allow all key stakeholders to see for each product the relationship between supply and demand and the effect of constraints on them.
Make appropriate adjustments and communicate them in a timely manner.

Planning

Master plan to aggregate production—distributed across factories—and then individually plan and sequence orders by factory, taking into account all necessary constraints.
Correctly and concurrently plan material and capacity and resource requirements in the face of supply/demand fluctuations.

Supplier cultivation and material coordination

Create and communicate clear purchasing requirements. Coordinate receipts, monitor quality of supplies, and correct aberrations.

Freight planning and cost-effective transportation—inbound and outbound

Determine freight requirements, sources, destinations, load-bearing capacities, delivery times, constraints, and delivery requirements by customers and sister plants.
Extract efficiencies for consolidation, backhaul, timing, and load-splitting so that freight costs are kept to a minimum.

Billing and invoicing customers

Ensure that what was ordered, what was shipped, and what is being billed are all congruent.
Ensure correct, timely billing and create invoices that are easy to understand.
Collect money owed from customers on time.

Payments and reconciliation

Establish a clear audit trail for revenues, costs, profits, and margins by order, by product, and by customer.
Highlight customer profitability and supplier costs.
Alert management regarding any aberrations.

Handling complaints and resolution

Establish the transparency of the complaint and its root cause.
Initiate prompt resolution of complaints.

All the above processes are interrelated; they are like a spider’s web but not all neatly concentric and geometric. What spells success is the streamlining of all these processes so that there is no duplication and double entry, and no delayed flow of critical information. Let’s take another strategic objective of Steelcase the company’s desire to increase dealer effectiveness and efficiency. The daily drama of invoices, orders, shipments, inventory levels, product specifications, promise dates, in-transit inventory, returns and refunds, exchanges, status notification, etc., will be a successful play only when every step in a process propels the product close to the customer. Every process must make it easy for dealers to know exactly where they stand vis-à-vis their orders.

IT Infrastructure

Every process listed above is a constant flow of transactions. These transactions lead to innumerable decisions, and decisions lead back to transactions. Both must have an audit trail. There must be visibility, viability, and validity to the ongoing pattern of decision making. Consider these questions:

Does senior management at any given time know exactly how the company is doing? Where it is going?
What kind of decisions are made? By whom? What specialized reports do they need?
How should systems support quick reconfiguration of engineering changes, customer-requested changes, price changes, product changes, design changes, and manufacturing changes?
How quickly can replanning be done, given the assault of daily disruptions?
What should be the reliability of the systems?
What operating standards should be set for all communication and transactions with dealers?
How can Steelcase make itself easy to do business with?

From Grand Rapids to its dealers to its manufacturing plants to its transporters Steelcase is making sure that all these people can connect, communicate, and collaborate. The sole purpose of IT infrastructure is to minimize the information cycle-time for everyone. Hardware, software, speed of data transfer, format and frequency required by stake holders, reliability of systems, interoperability of geographically far-flung systems are all considerations but only to answer constantly the questions at the heart of the business: How can we know if we are making money? Where we are losing money? How do we know we can promise correctly? Process orders flawlessly? Produce efficiently? Parcel economically? Please customers consistently? Preserve our brand value daily? For every business is in business to make money and every business must ask these questions all the time.