CASE A3 Atlas Tire and Rubber Company1 Executive Summary Faced with financial and competitive challenges in 200X, Atlas Tire and Rubber Company's new CEO developed a strategic plan that included an initiative to build industry leading supply chain management capabilities. As the organization strives to establish a \"superior supply chain\" in the U.S. tire division, numerous internal changes have been made. Over the last three years, the organization has built a hierarchy of collaborative teams to develop and implement strategies that drive cost, time, and complexity out of the supply chain. Introduction Atlas faced significant financial challenges at the outset of 200X. Founded in 1905, the company was in the midst of a severe downturn. In the prior two years, consecutive losses were posted for the first time in company history. Atlas moved aggressively to reinvigorate profits, but the positive impacts of rationalized operations, noncore business divestitures, and international expansion were largely offset by new challenges. Competition from low-priced import tires, industry consolidation, and a sales slump in the U.S. automotive industry made it impossible for Atlas to gain traction, especially in its flagship U.S. tire division. As Atlas's debt level grew, the stock price tumbled to a 20-year low, and its credit rating was cut to junk-bond status. A major transformation was needed to bring Atlas back to a level of performance befitting one of the most recognizable brand names in the world. A key change was the promotion of Walter V. Harrison to the position chief executive officer in June 200X. Harrison joined Atlas three years earlier as president and chief operating officer after a 20-year career with International Container. Harrison quickly embarked upon on a new direction for the company. His vision of transforming Atlas into a market-focused, cost-competitive company represented a significant departure from the manufacturing orientation that had defined the company for more than a century. Eschewing production-driven strategies and volumebased goals, the new CEO stated in a presentation to more than 1,000 independent tire dealers that Atlas needed to focus on customers, quality, and costs. Harrison told the group: \"Many of our issues are right down to the execution level. We need to work on basic blocking and tackling.\" While sounding straightforward, \"getting back to basics\" represented a major challenge for a company with more than 102 production facilities in 28 countries around the world. Thus, Harrison needed to quickly develop and clearly articulate his plan to Atlas stakeholders. 1 Case developed by Brian J. Gibson of Auburn University. B04433-Coyle_BM_CASE_A3 1 1/7/08 8:28:23pm 1 of 5 S N L 2 Case A3 Supply Chain Management Gains the Spotlight The CEO's intentions were conveyed through a strategic plan titled: \"Seven Principles for Growth.\" The plan formed the foundation of the company's initiative to return to profitability and growth. Improved leadership was the lynchpin of the Atlas turnaround in Harrison's mind. He believed that having the right people with the right skills, experience, and mindset was essential to the execution of the other strategies. Five additional principles focused on familiar turnaround themescash flow improvement, cost reduction, customer relationship enhancement, brand strengthening, and product innovation. These other principles revealed Harrison's unique insight. He believed that a superior supply chain was needed to complete the Atlas turnaround. This integrated supply chain would streamline Atlas's order and fulfillment processes, making them more accurate and simple for customers. The goal of the superior supply chain was to help Atlas deliver \"the right tire to the right place at the right time while keeping costs and inventories low.\" Ultimately, the intention was to create service capabilities that far exceeded those of other tire manufacturers. In the process, a competitive advantage would result for Atlas and its customers. Laying a Foundation for the Advantaged Supply Chain The critical entity in the transformation plan was Atlas's U.S. Tire (UST) business. UST produces and sells over 100 million tires per year, generating roughly half of Atlas's revenues in a typical year. Thus, UST's success with the seven principles was essential for Atlas. Harrison brought in new leadership, with Michael A. Brogan in the UST president role. Brogan had earlier led a successful turnaround at Atlas Chemical. Brogan recognized that UST lacked integrated supply chain capabilities. A disjointed distribution network existed, courtesy of previous acquisitions, in which multiple third-party logistics (3PL) companies were used. The manufacturing organization controlled key inventory processes. And, logistics was viewed as a store and distribute function rather than a strategic supply chain process. The superior supply chain was a vision that existed only on paper. Building the Supply Chain Organization Brogan assembled a team, led by Paul Johnson in the role of vice president of supply chain management, to realign relevant functions into supply chain processes capable of effectively managing customer orders from receipt through delivery and payment. The new U.S. Tire Supply Chain (USTSC) organization was charged with bringing together planning and functional operations. Key USTSC responsibilities included call centers, order management, pricing administration, distribution and delivery, billing, and accounts receivable. S N L USTSC was structured to work across customer verticalsconsumer, commercial, and off highway tiresto enable Atlas to better understand and meet customer needs in each segment. Under the new alignment, supply chain managers facilitate crosscompany collaboration to identify synergies and drive best practices. By broadening its concept of the supply chain and adopting this structure, Atlas established the foundation that would foster visibility and control across the order-to-cash process. B04433-Coyle_BM_CASE_A3 1/7/08 8:28:29pm 2 of 5 3 Atlas Tire and Rubber Company Key USTSC goals included the following: Lowering supply chain costs Boosting customer service Improving inventory management and associated working capital Simplifying supply chain processes and management of the business The creation of a supply chain organization and a general set of responsibilities was the first step taken toward an advantaged supply chain. The organization still needed to link key activities, build critical capabilities, and collaborate across organizations in order to pursue Harrison's strategy. Supply Chain Expertise The newly formed USTSC faced a major talent challenge. Years of headcount reduction had taken a toll on internal supply chain analytical and execution capabilities. In addition, with five different 3PL providers under contract, efforts focused on managing suppliers rather than operations. USTSC leadership realized that from a planning and operational perspective, supply chain management (SCM) was not a core competency of Atlas. Rather than take the time to develop capabilities in house, USTSC sought assistance from organizations with expertise in planning and managing complex supply chains. After considering multiple options, USTSC chose Global over a competitor to help facilitate the development of the superior supply chain. The two companies also had a decade-long relationship in Europe. Team-Based Strategic Collaboration To achieve maximum benefit from Global's expanded responsibilities, it was imperative that the organizations build ongoing relationships among senior executives and managers. Active collaboration in supply chain planning, process development, and service execution was needed. The results would be mutually beneficialAtlas would be able to better leverage Global's supply chain expertise while Global would gain greater insight into Atlas's requirements and internal supply chain capabilities. The organizations developed team-focused, strategy-driven relationships that are unique to the 3PL industry. The two organizations maintain active, coordinated participation across the supply chain spectrum. Three interactive teams facilitate the planning, development, and execution of key activities in pursuit of the superior supply chain. Figure A3-1 highlights the primary responsibilities and interdependent nature of the teams. For example, the SCM team works with the steering committee to brainstorm new supply chain initiatives, while the operations teams and the SCM team collaborate to ensure that potential projects are feasible and can be implemented effectively. Collectively, the Atlas-Global teams were intended to have a synergistic effect on the USTSC. These cohesive relationships went far beyond the traditional customersupplier 3PL working model. In theory, they would enable the Atlas-Global teams to do the following: Effectively synchronize strategies with process design and execution. Efficiently allocate resources to well-defined opportunities. Create industry leading supply chain capabilities. B04433-Coyle_BM_CASE_A3 1/7/08 8:28:29pm S N L 3 of 5 4 Case A3 Figure A3-1 j Atlas-Global USTSC Teams Steering Committee SCM Team Develop solutions and improve processes Establish strategy and accountability Operations Teams Implement new processes Manage day-to-day business When combined with Atlas's process integration efforts and Global's core competency in SCM, these synergistic teams established a solid foundation upon which greater USTSC performance could be achieved. The Task: Help Atlas Build upon the Foundation With the groundwork laid, the superior supply chain initiative was ready to roll. The challenge was to streamline and link supply chain processes in a manner that would minimize the cost to serve customers while maintaining Atlas's market strategy. The steering committee stressed three goalsdecreasing supply chain process costs, decreasing working capital investment, and increasing customer serviceto the teams developing optimal inventory location projects and customer fulfillment initiatives. Padraig O'Brien, a supply chain consultant from Langley, Gibson, and Novack LLC, was hired to serve as coordinator of an Atlas-Global inventory management and fulfillment quality improvement team. During the initial phase of the project, O'Brien identified the following characteristics and challenges regarding the Atlas distribution network: 33 company-owned regional distribution centers operate throughout North America. Distribution centers are brand specific (e.g., Champion Tire and Atlas Tire are handled by different facilities) and carry the full line of tires for the brand. Distribution centers are run by four different third-party logistics providers. Forecasts are prepared by Atlas's sales group, while production scheduling is handled by Atlas's manufacturing group. Inventory policy focuses on treating all stock-keeping units (SKUs) equally with no focus on velocity. Inventory analysis is conducted using spreadsheets and database tools. Information technology lacks visibility tools, the ability to access sales data in a timely fashion, or support advanced data mining and analysis. S N L B04433-Coyle_BM_CASE_A3 1/7/08 8:28:29pm 4 of 5 5 Atlas Tire and Rubber Company A decentralized approach is taken in transportation management. Though rates are negotiated centrally, compliance with the corporate routing guide is inconsistent in the field. Company-defined service parameters are being circumvented to accommodate customer delivery exception requests. Frequent mismatches occur between product demand and inventory availability. Atlas's Wingfoot Fleet Delivery Service provides private fleet-like service to customers based on request rather than need or qualification, which creates inefficiencies. O'Brien's key SCM challenge is to address supply chain design and control flaws that affect the organization's ability to maximize customer service while minimizing inventory investment. To accomplish this dual goal, Atlas has asked O'Brien to recommend and explain strategies that will help it: (1) gain greater control over inventory and (2) optimize the flow of products in the supply chain. S N L B04433-Coyle_BM_CASE_A3 1/7/08 8:28:29pm 5 of 5