Smart operations and IT help School Specialty prevent tardy deliveries.
by Fred Sandsmark, February 2011
Singing bells in June announce to millions of American schoolchildren that school’s out for summer. For the 2,000 employees of School Specialty in Greenville, Wisconsin, those bells are more like the starting gun for a sprint—one they’ve trained for all year long.
At School Specialty, staff are responsible for delivering all the supplies a school needs—more than 75,000 products, from pencils and desks to lab equipment, sporting goods, and curricula—to 90,000 schools before the next academic year begins. It’s a huge three-month push: typically teachers write orders before school lets out, and around July 1 (when the school budget year begins) districts begin submitting purchase orders (POs) to School Specialty’s sales team. The supplies need to be in classrooms by August or September.
“It’s like a tsunami,” says Mike Killoren, vice president of purchasing at School Specialty, noting that filled order lines jump from 100,000 per week in December to more than 800,000 per week in July.
Employees at School Specialty use Oracle E-Business Suite to plan for and execute the company’s response to this extreme seasonal fluctuation, both in the back office and the warehouse. Oracle tools are also used after the rush to evaluate performance and refine models and processes. The resulting automated, nimble operation also helps people at the company react to the shrinking budgets affecting many school systems today.
Demand and Supply
School Specialty employees prepare all year for the summer rush. Planning begins with sales data from previous years, pulled weekly from the company’s Oracle Order Management system and passed to a demand-planning application from Logility.
The resulting demand plan estimates how many units of each product School Specialty will sell; this figure is adjusted to account for the 5,000 or so products in School Specialty’s catalog that churn annually (about 20 percent), economic conditions, and other factors. School Specialty buyers also use the demand plan to begin discussions with the company’s 3,000 vendors about needs for the coming season.
“Logility does the math and then passes the information back into Oracle as a forecast,” Killoren explains. “Then we use Oracle MRP [materials resource planning] functionality to calculate what we should buy based on the forecast. We refer to that as a supply plan.” The supply plan incorporates not just projected demand but also current inventory, safety stock levels (inventory on hand for emergencies), and the time it takes to get a product from a vendor.
“Oracle is really a tool that takes any guesswork by the inventory manager out of the process,” explains Killoren. “We let the formula tell us how much to buy.”
The supply plan can address School Specialty’s internal process, but it can’t control vendor performance. Staff constantly interacts with vendors—well before POs are issued—to identify potential bottlenecks and confirm manufacturing capacity. Sources in Asia, India, and Europe, which account for some 20 percent of School Specialty’s sourcing purchases, typically need POs in November to deliver product the following May. Domestic vendors can respond faster; their POs can be issued in February or March for delivery in May or June.
Killoren says School Specialty staff works hard to identify potential supply issues. “We had some real challenges [in 2010] with our international vendors, so some team members got together to look for domestic alternatives,” he recalls. “The whole team works on the ordering process, so they can be confident products will be delivered to our distribution centers in time.”
Going With the Flow
Indeed, School Specialty’s operations are aided by the strategic organization of the company’s workforce. Killoren borrowed a concept from Lean manufacturing, organizing supply chain employees into “flow cells.” On an assembly line, a person completes a process and then hands the product to the next person, who performs the next process; that way, defects are caught and corrected immediately.
In School Specialty’s version of flow cells, all staff related to a product category or vendor—merchandisers, buyers, expediters, and accounts-payable associates—collaborate in an open-office environment. “If a buyer has a question about a vendor, he used to send an e-mail to the merchandising team and might get a response a day or two later,” Killoren says. “Now, that person is sitting right next to him, so he turns around and they talk about it. If they have an issue, they get the vendor on the phone and resolve it.”
Killoren, who is trained in Lean-Six Sigma techniques and led the Oracle implementation at School Specialty, believes technology and human factors can’t be separated. “You can put a process in place, but unless you organize the human side of it, you’re still not optimized,” he explains. “So we’ve greatly reduced the amount of time needed to communicate and coordinate around a set of vendors. Put that on top of systems and processes, and it works pretty well.”
As orders arrive in late spring, flow cells shift from strategic to tactical mode. But supply plans must adjust quickly, both in the offices and at School Specialty’s six distribution centers (DCs). “At that point, the forecasting system doesn’t help much because things are happening too fast,” Killoren says. “So we rely on supply planning to look at options. We adjust our purchase cycles, we adjust our safety stock, and we escalate certain POs and make sure that vendors are able to deliver.”
POs are generated electronically by Oracle Purchasing; about 60 percent are transmitted via electronic data interchange (EDI), which increases accuracy and speed. Killoren hopes to raise that figure to 80 percent in the next few years by encouraging midtier vendors to adopt EDI-capable systems.
As customer orders hit the DCs, management’s goal is to deliver high “fill rates”—the percentage of products shipped to the customer on the first attempt. The easiest way to increase fill rate is to buy more inventory. But while this increases the likelihood a product will be available, it also increases the cost of inventory as overstock sits in a warehouse. “We’ve done the opposite,” says Killoren. “We reduced our inventory while we increased fill rate. That means we have become much better at planning, at having the inventory there at the right time.”
School Specialty managers do not want inventory on hand too early, and they also don’t want to fill orders earlier than the dates requested by customers. So products rotate through the DCs with careful timing. “The Oracle system is designed to say, ‘What is the exact time I need that inventory, based on the plan?’ and works to have it there,” Killoren explains. “It actually tells us to delay [a delivery from a vendor] if we try to plan it too soon.”
Although the flow cells monitor and control inventory levels using Oracle Inventory, the DCs determine their own capacity. “It’s kind of a balance,” Killoren says. “The DCs have to build enough capacity to handle all the orders coming to them, but they also get a chance to control how many orders come to them at any point in time. So we built a system in Oracle that lets them say, ‘I need 50,000 lines today; give me the best 50,000 lines, based on the nearest delivery dates.’”
About 30 percent of customer orders specify a delivery date, so those are plugged into the DCs’ work schedules first; the rest are chosen based on inventory levels, geography, and other factors. “We always try to ship from the closest DC to the customer—that’s built into Oracle’s sourcing rules,” Killoren says, but orders are sometimes split between multiple DCs if doing so will help get them to customers on time.
As orders leave the DCs—most of the more than 4 million annual volume ships between May and September—Oracle E-Business Suite applications automatically generate invoices. School Specialty’s accounts receivable department implemented Oracle Advanced Collections in 2008 and created a centralized collections group based on Lean practices—improvements that paid dividends even as the economy sagged. “We’ve been able to improve our collections pretty significantly and drive cash into the business,” Killoren says.
When the first bell of the new school year rings, School Specialty’s summer rush is mostly over and the flow cells focus attention on refining their processes and formulas, using value stream analysis. “We look at the data in the areas that were most challenging and put in place projects that will address those areas,” Killoren says. Process owners themselves are charged with managing the projects, because they’ll be the ones implementing and using them.
This continuous improvement—driven by management’s technology decisions, in place since Oracle applications were implemented in 2007—has yielded impressive results. Fill rates have increased from 92.6 percent in FY 2009 to 95.6 percent in FY 2010. More than 80 percent of orders were shipped complete in FY 2010, compared with 72.8 percent in FY 2009. Inventory costs decreased by US$3.96 million, and freight costs decreased by US$3.3 million. “In all, we saved [US]$10.5 million in 2010 because of that 3 percent fill rate improvement,” Killoren says.
Oracle will also play a role in future improvements. One top priority is Oracle Advanced Supply Chain Planning, which will be operational in March 2011. “That’s going to give us the next level of visibility into supply planning,” Killoren says. “We’ll move from monthly forecast buckets to weekly forecast buckets, which will help us look at demand more granularly, track changes more quickly, and respond better to changes in demand.”
All of which will help School Specialty’s employees satisfy their customers and grow the company as the school market rebounds with the overall economy. “The fact that schools can now get 95.6 percent of their lines when they order is very important to them,” Killoren says, “and those types of basics will help us grow as schools start to recover their funding.”