Case Study:

Supply Chain Trends The Do-Green Solar Systems case addresses challenges faced by a Canadian manufacturer as a result of the CUSMA trade agreement. As you read through the case, think abou the challenges, risks and complexities in changing their supply chain from North Americanto Internationalmarkets. Do-Green Solar Systems Taylor Douglas, V.P of Do-Green Solar Systems, was evaluating the strategic position of the company. With the new Canada-United States-Mexico (CUSMA) agreement in place and the uncertainty around future trade with the United States Taylor was pondering the future direction of Do-Green. Do-Green's History Taylor grew up in the family business. Established in 2000 Do-Green began as a family run electrical contracting company. Their core business focused on providing residential electrical contracting for new home construction as well as renovations and electrical upgrades to existing homes. As the business grew Taylor began to deal more and more with requests from customers for solar power options for their homes. Taylor realized that the market for residential solar power was growing. Supply agreement/partnership attempts with solar component suppliers proved to be unreliable. It was at that point Taylor decided to purchase a facility to begin manufacturing solar power components for residential use. In 2004 Do-Green Solar Systems was formed. Do-Green was now involved in both the manufacture and installation of solar power systems for residential use. The business saw steady growth through 2006. Do-Green had established a lucrative business niche for itself. New Opportunities At the same time that Do-Green was establishing itself, Canadian's saw the expansion of big box home improvement retailers and the proliferation of the "do-it-yourself" craze. In 2008 Taylor Douglas approached several home improvement retailers and in 2009 Do-Green signed a supply agreement with a big box home improvement retailer to stock their products in 25 stores across Ontario. People could now purchase and install their own residential solar power systems and Do-Green's business profile evolved into that of a manufacturer/distributor. To meet the increased production demands Do-Green acquired a local mid-size manufacturing facility. For the next two years Do-Green settled into its new business model as installer, manufacturer and retail distributor of solar power systems for residential use. Do-Green Becomes Leaner and Looks to New Markets Not one to rest on past successes, Taylor began to look at ways to grow the business. It was now 2011. The Canadian dollar was at par with the U.S. dollar and Taylor wanted to break into the U.S. market. To do that additional capacity needed to be purchased or Do-Green needed to find ways to run their operation more effectively and efficiently. Taylor decided to look within the company for capacity improvement opportunities. Do-Green increased their capacity through several initiatives. They invested in an ERP system which allowed then to increase productivity and fully integrate the ordering and procurement process. Supply chain visibility increased. Do-Green could now receive replenishment orders from retailers directly into their system. This enabled them to reduce raw material, work in process and finished goods inventories by a combined 20%. Do-Green also implemented lean process integration throughout their operation. This accounted for an additional 15% increase in production capacity. Once fully implemented these initiatives accounted additional capacity of 30%. Delivery times were reduced from three days to one. With the newly found capacity Taylor approached the U.S. affiliate of the Canadian home improvement retailer. In 2012 Do-Green signed a contract to supply 30 U.S. based stores throughout the North East states. For the next several years Do-Green established themselves as a major stakeholder in the residential solar power industry. The Canadian Dollar Loses Value In 2014 the Canadian dollar began to lose value against the U.S. dollar. Taylor and the Do-Green management team looked to further streamline their manufacturing and distribution network. Profits began to shrink as the devalued Canadian dollar began to become a real issue for Do-Green shareholders. However, even with the exchange rate being what it was, the company remained strong and profits were steady. Do-Green Goes Green With consistent demand and a reliable and robust supply/distribution system in place in both Canada and the U.S. Taylor began to focus on sustainability issues within the supply chain. Much of the dunnage and packaging Do-Green used to ship their product to retail distributors could be reused. Taylor began to develop a reverse supply chain where packaging and dunnage was returned to the Do-Green manufacturing facility to be used again. This initiative helped to further Do-Greens reputation of being a sustainable and environmentally conscious organization. Cost savings were also realized through the reverse supply chain program which helped offset the ongoing disparity between the Canadian and U.S. dollar. The New Frontier As Taylor Douglas pondered the new strategic direction of Do-Green, Taylor knew the exact date that Do-Green's future was in jeopardy. On November 30, 2018 the (CUSMA) Canada United States Mexico agreement was signed. This new trade agreement took the place of the long standing NAFTA trade agreement. Under the CUSMA agreement Do-Green now faced higher tariffs to export into the U.S. This combined with an even weaker Canadian dollar meant that Do-Green had to change direction. The U.S. market was no longer viable. Taylor and the Do-Green management team knew there were market entry opportunities offshore. With 1.4 billion people and 18% of the world's population, China was the obvious choice. Do-Green had to develop a new international supply strategy if they wanted to do business in China. Issues and Concerns Concerns regarding exporting to China were many. Taylor knew there would be logistical issues. Currently trucks left their facility and delivered directly to retail stores in both Canada and the U.S. International supply chains required multi-tiered distribution systems. There would be currency issues to consider as well as the potential for theft of products, product design and company intelligence. ERP and technology compatibility with Chinese distribution partners was of concern. Do-Green's operational concept of being a lean organization would be taxed. The longer the supply chain the more inventory investment was required. With a longer more diverse supply chain Taylor knew that risk would increase, supply chain visibility would decrease and overall control reduced. As a green company Do-Green would incur added cost to retain its circular supply chain. Taylor knew that reclaiming packaging from China posed significant logistical and cost considerations. Among other things to consider there was the risk of natural disasters, terrorism and labour disputes potentially disrupting the supply chain. Where to go From Here Taylor and the Do-Green management team had some significant strategic planning issues to consider. They understood supply chain trends were heading toward more diverse and complex systems in the delivery of products and services worldwide. They realized that they needed to resolve a significant number of issues if Do-Green wanted to compete in the global supply chain.

Questions:

1.Detail some of the major macro trends that are taking place in the world of supply chain today that you can identify in the case study.

2.Do-Green has evolved over time. As a brand in the solar market, what has made this company unique? This unique selling proposition has helped or hinder its international efforts? Come up with a marketing slogan representing what are the best attributes of Do-Green. (15%)

3.Name and explain at least three risks the company faces and what dimensions of supply chain risk these fall under. (25%)

4.From a purely logistics perspective, what unique challenges does Do-Green face while building in Canada and distributing worldwide? Please explain these challenges in detail and how to overcome them. (35%)

Section B.

Case Study Questions 1. Cisco Systems went from a "push" to a "pull" approach to its supply chain after the dot- com debacle. How are these two approaches different? Does it depend on the state of the economy which one should be used? Why? 2. What are the different elements that need to come together to bring supply chains to the optimal levels needed by these companies? What role does IT play? 3. How are the approaches to inventory management taken by O'Reilly Auto Parts, on one hand, and Cisco Systems and Black & Decker, on the other, different? 9wants to run out. If there's too little, customers won't get orders in a timely manner and market opportunities will be missed. Yet if a company carries too much and demand drops, then the inventory must be "bled down," or reduced in price, until it has a buyer. During a strong economy and when cash flow is loosened, many companies can get by without rigorous inventory management practices, says Larry Lapide, director of demand management at the MIT Center for Transportation & Logistics in Cambridge, Massachusetts. But during a recession, he adds, "companies had better bleed down inventory to reflect the downturn in sales. If they don't, it just sits there." Inventory optimization is so critical now because of its impact on available cash, Lapide says. In accounting terms, inventory is an asset. So inventory that is on the books through manufacturing, assembly, and distribution represents credit-funded inventory. With credit at a premium, it's in a company's best interest not only to keep inventory levels tight, but also to sell goods as soon as possible. Reducing costs and squeezing maximum utility out of fixed assets is nothing new to Black & Decker Corp.'s Hardware and Home Improvement Group in Lake Forest, California. The unit supplies hardware to big-box retailers that have responded to the economic downturn with new low-price strategies. It now falls on Scott Strickland, vice president of IS, to help the group squeeze down its own costs and maintain profit margins. "We had been loath to drive inventory down to this level," Strickland says. However, the company had gained invaluable experience by deploying an integrated inventory- management system prior to the downturn. The result was that the key decision makers throughout its supply chain were operating with the same information, planners focused only on exceptions, and supplier and material issues were quickly resolved. The system, Strickland says, does the heavy lifting, and as a result, the unit has cut planning cycles from weeks to days and improved forecast accuracy by 10.4 percent. "If someone had told us nine months ago that we could lower inventory as fast as we could to address a sales decline, we would not have believed it was possible," Strickland says. However, "because of the impetus on freeing up working capital, we have been focused on lowering our inventory and levels. We figured we could do this, and it turned out to not be the bad experience we had imagined." The effort to lower inventory levels to free up working capital has proved so effective that the Black & Decker unit and its partners are jointly considering making it standard practice even after the economy recovers, Strickland says. O'Reilly Auto Parts Inc., in Springfield, Missouri, uses inventory as a competitive differentiator, says Greg Beck, vice president of purchasing. One of the largest specialty retailers of automotive aftermarket parts, tools, supplies, and accessories in the United States, O'Reilly is responding to the recession differently than many other companies. "Business is increasing because of the downturn," Beck says. "People aren't buying new cars but instead are putting more money into fixing old cars." This isn't to say that O'Reilly lacks supply chain challenges or that it can let down its guard. As the result of an acquisition last year, the company increased its total store count to moreCASE 2: Cisco Systems, Black & Decker, and O'Reilly Auto Parts: Adapting Supply Chains to Tough Times Whether it's a truck, a tsunami, or an economic downturn, the same general rule applies: You're better off if you can see it coming from a safe distance. There aren't many companies that understand this notion better than Cisco Systems Inc. White-hot during the 90s, the company was pummeled after its vaunted inventory forecasting system could not, or did not, predict the dot-com bubble's collapse. The result of this miscalculation was that sales were halved, the company lost 25 percent of its customers in a matter of weeks, and it ultimately wrote off more than $2 billion in inventory. After that experience, Cisco's supply chain team vowed that it would never get blindsided again. "There is a huge difference cutting head count between now and 2001," says Karl Braitberg, Cisco's vice president of customer value chain management. Back then, Cisco's supply chain model was built on a "push" system, where products were made, and inventory was built up in anticipation of market demand based on best guess forecasts. "Then, when demand dropped, the supply chain froze. Nothing happened," Braitberg says. "We knew we had to build a new system that reacts better than just 'push." Every company must match its supply to consumer demand. In a normal business cycle, how well that job is accomplished determines whether the company is profitable. But this current economic downturn is anything but normal, and businesses are struggling just to stay liquid. There are various strategies to help preserve working capital, including cutting head count, outlets, and manufacturing lines. But for most companies, the key to capital preservation will be how well they can reduce their inventory levels. Largely, companies are in survival mode, and they're looking to their supply chain management team to free up precious capital to help them do that. While it may not fall directly on IT executives to make that happen, their role in the equation is very strategic. With globalization, outsourcing, and increased compliance and security concerns, managing supply chain operations becomes increasingly complex. Shorter, more frequent product cycles that target more sophisticated markets create a need to manage more products and parts from remote locations. Add the pressure of shorter cash-to-cash cycles-the time a business extends credit to build inventory until the time it gets paid-to the equation, and the need for an intelligent, nimble, and timely flow of information becomes critical. To have visibility as well as command and control, supply chain operations must be tightly integrated with the IT infrastructure. That isn't the case at many companies, and yet it may be the factor that determines success or failure as they endure and emerge from this downturn. Like bloodletting, reducing inventory is a delicate matter that most people would prefer to avoid. Inventory can range from materials, to parts, to fully assembled products. Nobody 6than 3,300 and now operates in 38 states. To bolster its competitive advantage, O'Reilly's strategy is to increase customer service levels and replenish inventory on a nightly basis, while at the same time managing an increasing number of products. The partnership between the supply chain operation and IT was critical to O'Reilly's strategy. The company is using Manhattan Associates Inc.'s replenishment software to collect product data information on the half hour, while updates from the distribution centers are transmitted nightly. The replenishment system uses these data to determine the forecast for these products. As a result, O'Reilly has increased inventory turns by 44 percent, and it still manages to fulfill 97 percent of customer requests immediately, with 3 percent handled through separate channels. At the same time, the company reduced its inventory levels, freeing up $60 million. Companies say that driving costs out of the supply chain is an important goal, but the big question is whether they can afford to invest in their supply chain IT infrastructures to help make that happen, especially during a recession. Dwight Klappich, an analyst at Gartner Group, calls that a short-sighted and, in the long term, costly approach. "If this trend continues," Klappich stated in a report, "this myopic focus on short-term tactical issues, while necessary for many businesses, could widen the gap between the best-performing organizations and lower performing organizations." Cisco understands this. After the 2001 downturn, it made major system investments to transform its "push driven," siloed supply chain model into an integrated "pull system" that can extract timely data from suppliers and downstream partners. These reorder data are sent to Cisco after being triggered by specified parameters and algorithms, to shape "demand signals." The system doesn't operate in a vacuum. Cisco has optimized its forecasting algorithms by bringing together representatives from its marketing, finance, sales, supply chain, and IT departments, and from key customers, as part of its sales and operations planning process. This group collaborates to create a common view of demand signals. This input drives an agreed-upon plan of action to align manufacturing capacity and inventory deployment and meet customer service levels. In short, they work together with the same data to optimally match supply and demand "Now, if there are no pull signals, nothing gets brought into the system," says Cisco's Braitberg. Manufacturers don't continue to source and build inventory that may sit in some warehouse waiting for customers who may never buy it. Cash is freed up for other purposes. While Braitberg acknowledges that even past history can't be used as a template for this downturn, Cisco is confident that it has better visibility into market demand when it goes down, and that it will be ready when the green shoots emerge. "We now have the techniques in place to be hypersensitive to demand changes," Braitberg says, "and we can manage our way through a downturn." 8