Perdue Farms and Others: Supply Chain Management Meets the Holiday Season

Although youve got only one turkey to handle at Thanksgiving, in 2003 the folks at Perdue Farms managed to move roughly one million turkeys, each within 24 hours of processing, to reach holiday tables across the nation. The task isnt as tricky as it was before the food and agricultural products company invested $20 million in supply chain management technology five years ago. Using Manugistics forecasting software and supply chain planning tools, Perdue has become more adept at delivering the right number of turkeys to the right customers at the right time, says CIO Don Taylor. As we get to November, we have live information at our fingertips, he says. Before investing in supply chain management and forecasting software, Perdues managers went by the gut feel of its suppliers and customers, as well as the seasonal history of past consumption. It worked well enough; the company Arthur W. Perdue founded in 1920 has grown to reach annual sales of $2.7 billion. With the forecasting and supply chain systems, Taylor says the privately held company monitors its products yearround, checking in more frequently as Thanksgiving approaches. Although the third week of November is Perdues busiest time of year, the companys output doesnt change radically. The big difference is the form the turkeys take. Most of the year, its more food parts and deli meats, while this time of year its whole birds. Getting turkeys from farm to table is a race against time, so Perdue has turned to technology to make sure its products arrive fresh. Each of its delivery trucks is equipped with a global positioning system that allows dispatchers to keep tabs on the turkeys en route from each of the companys four distribution centers to their destinations. If a truck breaks down, a replacement is sent to rescue the palettes of poultry. We know where our trucks are exactly at all times, says Dan DiGrazio, Perdues director of logistics. Perdue uses everything but smoke signals to communicate with customers, staying in touch via telephone, e-mail, and videoconferencing. Were always looking at new technologies as they come along to see what makes sense for us, says Taylor. Black Friday and Cyber Monday sound nothing like the joyous season thats supposed to follow. Theyre more ominous and scary. To many retailers and manufacturers those two pivotal daysand the month or so that followsare just that. These two days are ominous because the holiday shopping crush that happens just after Thanksgiving is a makeor-break time for retailers and consumer goods companies looking to bolster their fourth-quarter revenues with loads of sales. Theyre scary because what sells and what doesnt is just so unpredictable. Nowhere is that uncertainty and accompanying pressure more intense than inside supply chain departments, where seasonal good cheer is replaced with gut-churning anxiety. The holiday season is a completely difficult time for manufacturers and retailers, says Brian Tomlin, an assistant professor of operations, technology, and innovation management at the University of North Carolinas Kenan-Flagler Business School. Theyre making educated guesses and bets on what demand is going to be, and theyre not going to get it right every single time. Indeed, the period from just before Thanksgiving all the way into the New Year is usually the moment of truth for retail and manufacturing supply chain and e-commerce systems. Not all of them are successful. Tomlin says that retailers and manufacturers face a delicate balancing act. If theyre overly optimistic, they can have too much inventory, have to mark down everything and do fire sale prices, he says. If theyre overly pessimistic, theyll have unsatisfied customers and leave a lot of money on the table. There are a number of reasons for this. The first is that consumers tastes can change overnight, especially with toys, consumer electronics, and apparel. The product cycles are so short; whats cool today isnt whats going to be cool tomorrow, says Dave Haskins, CTO of Kinaxis, a vendor that offers on-demand response management for supply chains. Talking about his daughters recent cell phone purchase, he notes: Shes buying a cell phone for reasons of fashion and not function. The consumer today is unbelievably fickle. Another challenge is that sometimes one Christmas gift grabs more worldwide attention than any marketing or operations manager could have ever predicted even in his wildest dreams. The resulting mass hysteria feeds on itself (remember the late 1990s Furby craze?) and becomes wonderful fodder for holiday news. It also leads the general public to think that someone made a mistake, says Tomlin, even though the situation was too difficult to foresee. Although it may seem like a nice problem to have, its a frustrating situation for manufacturers who try to keep up inventory and retailers who try to keep their shelves stocked. So while speed and flexibility are paramount to respond to volatile demand, many retailers and suppliers are stuck because of one big self-inflicted wound: Half of their supply chain is sitting in Asia, Haskins says. Now suppliers have to deal with the fact that their product has to sit five weeks on a boat because the boardroom said, We want it cheaper. The result is that longer travel distances lead to elongated supply chains. That critical cost-versus-flexibility trade-off can rear its ugly head during the holidays, when marketing plans and inventory strategies have to be made far in advance. The challenge is that suppliers need to make sourcing decisions early, and when they do that, demand uncertainty is high, Tomlin says. Yet just overstocking inventory is a mistake companies are typically not foolish enough to make.

What smart companies do is figure out how best to use information as a substitute for inventory, he says, because inventory is an expensive strategy. Haskins, whose company sells supply chain demand software, notes that many manufacturers supply chain systems work on monthly planning cycles, which dont give enough information. There can also be a vast gap between the retailers systems and the point of sale (POS) data that they can send to their suppliers and what the suppliers can actually do with it. The distribution signalsmeaning whats actually selling and the actual inventoryneed to be coordinated on a continuous basis. Most organizations are still struggling to do that, he says. The holiday shopping season will expose any supply chain weaknesses. Thats because the window to respond to fluctuations is so much shorter, Haskins says, adding that companies with better systems typically perform better during the holidays, and do better throughout the year. Haskins advises retailers and their suppliers to ask themselves these questions right now: How quickly can I respond to something that happens in my supply chain? Am I providing good, actionable information to my suppliers and filling in any gaps in the data? Am I acting on up-to-date point-of sale data that Im getting from my retailer? Do I understand exactly what is being sold every day? The first questionflexible, fast response to supply chain eventsis a key tactic that can help both retailers and manufacturers move more product. For example, if demand for a manufacturers product is hot in the eastern part of the United States but not the West, companies have to make sure they have the right systems in place to see that, detect the trend, and share that information, and the right processes and logistics to adjust and remedy the situation. Companies have to err on the side of flexibility rather than forcing in rigidity, Haskins says. Of course, picking up on the supply chain signals, interpreting them, and reacting is still a monumental personnel and technical challenge for many manufacturers and retailers. If youre waiting for the store to tell you theres a stock out, youre way too late, he says. Another trend that retailers and manufacturers need to be aware of is the exploding financial girth of the gift-card season, which has seen multibillion-dollar gains in the last several years. A 2006 report from AMR Research noted the trend and its substantial effect on inventory and staffing decisions for the months of January and February, when many people who received gift cards redeem them. Data from Ellen Davis, a communications director at the National Retail Federation, back that up: Only 20 percent of all gift cards are redeemed within the week after Christmas; the remaining 80 percent is spread over January and February. To match the spirit of the holiday season, Haskins offers a practical piece of advice for retailers and manufacturers that need each other more during the holidays than ever. Remember, he says, youre only as good as your suppliers supply chain and your suppliers ability to have a quick, integrated view of total demand and supply.
Source: Adapted from Sharron Luttrell, Perdue CIO Talks Supply Chain Management, CIO Magazine, November 1, 2003; and Thomas Wailgum, The High-Stakes Search for Supply Chain Excellence during the Holiday Rush, CIOMagazine, November 16, 2007.

CASE STUDY QUESTIONS

1. What are the key factors that determine the success or failure of supply chains during the holiday season? Which of these are or could be under the control of companies, and which are inherent in the endconsumer business? Provide several examples. 2. Consider the increasing use of gift cards in lieu of gifts during the holiday season. What effects does this new practice introduce into demand planning and supply chain management? Consider the fact that virtually nothing is known about the recipients of gift cards. What strategies can retailers and their suppliers consider to accommodate these effects? 3. Prof. Brian Tomlin says that smart companies substitute information for inventory. What do you think he means by this statement? How do you think companies can take advantage of more extensive and accurate information to improve their inventory and logistic practices? Provide some examples.

Sumber: Introduction to Information Systems - fifteenth edition - 2010, page 308-309 James A.O'Brien, George M.Marakas - McGraw-Hill Irwin