Enlist different inter firm coordination issues that can hamper the efficiency of the haus marts supply chain

Exel plc-Supply Chain Management at Haus Mart On August 15, 2004, Perry Watts, the Managing Director of Non-Food Retail at Exel plc, a global leader in supply chain management, returned to his office after a four-hour meeting with Alexander Maier, Exel's Account Director for Haus Mart (HM). Watts was pleased with the progress Maier's team had made with the HM account. Over the course of a two-decade relationship with HM, Exel had demonstrated an ability to execute logistics processes in the best possible way. Moreover, in the private-label home textiles division, Exel was now operating along all parts of the supply chain and had started coordinating product and information flow from manufacturing plants to HM stores. Watts thought this could provide an ideal opportunity for Exel to move into supply chain planning with HM. But not only would he and his team need to provide HM management with compelling economic and strategic arguments for such a change, they would also need to convince their own top management at Exel that they were ready for such a move into planning. Industry Background The Council of Logistics Management defined logistics as the "part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption in order to meet customers' requirements." Many firms did not consider such activities to be a core competency. As a result, outsourcing logistics to third parties was estimated to be a $270 billion industry in 2003. Third-party logistics providers (3PLs) traditionally offered one of two services-freight management or contract logisticswith a handful offering both. Freight Management The term "freight management" was applied to the upstream portion of the supply chain where materials were handled in bulk. Freight management companies took responsibility, on behalf of their customers, for transporting freight by air, sea, ou land, typically securing space with cartiers (such as shipping companies and airlines) at a lower price than their customers could have negotiated on their own, as well as handling all of the administrative work. Economies of scale were crucial, allowing freight management companies to negotiate better prices with transportation carriers. In addition, freight management companies typically offered customs broking and short- term warehouse management services. In 2003, global freight management was estimated to be a $140 billion industry, with an expected annual growth of 5-8% in the medium term. Despite the benefits of scale, the freight management industry was fragmented (Exhibit 1). For example, in the $22.5 billion air freight management industry, the top 10 companies had a market share of only 35.4% in 20022. Contract Logistics Dedicated contract logistics companies offered management of all logistics services with the exception of freight management. These ranged from managing warehouses to servicing manufacturing customers to providing home delivery on behalf of retail customers (see Exhibit 2 for a list of contract logistics services), but the two most commonly used services were local transportation and management of distribution center operations. Contract logistics required a thorough understanding of the customers' businesses. For example, while cost control and efficiency might be of great importance to a grocery store customer, reliability and speed might take precedence over costs for an auto manufacturer. Consequently, several contract logistics companies chose to serve a single industry. For example, TPG focused on the automotive industry and Christian Salvesen focused on fast-moving consumer goods and retail. Others, however, like Exel, served a broad range of industries. In 2003, outsourced contract logistics was a $130 billion industry. Unlike the freight management industry, economies of scale were not seen as playing such a key role in contract logistics. Consequently, the industry was very fragmented, with the top 13 players controlling less than 17% of the industry in 2003 (Exhibit 1). At the time of Perry Watts's meeting with Alexander Maier, a number of outsourced logistics providers were starting to combine freight management with contract logistics in order to provide end-to-end solutions. For example, Kuehne and Nagel, Deutsche Post World Net, and UTI, who were traditionally freight management companies, had made modest efforts to enter the contract logistics market. Christian Salvesen, a contract logistics company, had recently announced that it would develop freight management capabilities to complement its contract logistics and to better meet its customers' needs. Exel plc Exel ple (Exel) was created in 2000 through the merger of MSAS, a freight management company, with Exel Logistics, a contract logistics company. John Allan, the Chief Executive of the merged company, commented: Marrying together international freight management with ground logistics capabilities would enable us to create end-to-end solutions, which we thought would have significant appeal to our customers. We also would be able to cross-sell contract logistics to freight management customers and vice versa. The merged company became the world's largest provider of freight management and contract logistics services. In 2003, Exel's sales were roughly 5.1 billion (see Exhibit 3 for selected financial data). About 44% of sales came from freight management and 53% from contract logistics. The remaining 3% came from environmental services. Exel's global freight management network, consisting of 675 locations in 112 countries, offered air freight and sea freight services supported by an extensive land transportation network. Exel also offered customs management services in every market of operation. In a typical transaction, Exel would assume responsibility for transporting freight from the supplier to the port of shipment and from the destination port to the buyer, loading and unloading to and from the main carrier, and handling customs clearance and payment at the shipping and destination ports, as well as insurance. In 2003, Exel was the second largest air freight forwarder and one of the top six global sea freight forwarders in the world. With its scale and global reach, Exel was able to offer a variety of routes and schedules to its customers at competitive prices. With its knowledge of different carriers, ports of call and transit times, Exel was able to recommend the best options available to its customers. Moreover, Exel's experience in customs management allowed it to process complex cross-border transactions quickly and accurately, preventing delays and overpayments for its clients. Preventing customs clearance delays significantly reduced variability in transportation lead times for Exel's customers. Exel was also the world's largest contract logistics provider, with over 1,600 facilities in more than 120 countries. Exel provided clients in the consumer, retail, healthcare, technology, automotive, and other industries with services ranging from traditional warehouse/ distribution center management and local transportation to various value-added services such as assembly, kitting, and software installation in the technology sector, to in-store logistics in the retail sector. But the bulk of Exel's business in contract logistics was warehouse operations. By August 2004, Exel operated approximately 170 million square feet of warehouse space around the world. In addition to traditional warehouses, Exel operated multi-user warehouses for manufacturers of consumer products, electronics, and pharmaceuticals. These shared warehouses allowed manufacturers, who might even be competitors, to share space, labor, equipment, and transportation services. Exel also operated a number of campus sites, where multiple customers could be served from different facilities, as well as vendor hubs close to customers' manufacturing plants, where it received goods from suppliers and delivered them to its customers on a just-in-time basis. Exel typically signed four- or five-year contracts with its contract logistics clients. In open-book contracts, clients saw Exel's costs and Exel charged them the costs plus a management fee, depending on the scale and complexity of the contract. Typically, this management fee might run to several hundred thousand pounds sterling per annum. In closed-book contracts, customers paid a fixed price to Exel and did not see its costs. The type of contract depended significantly on the degree of uncertainty perceived by Exel and by the customer, which in turn, depended significantly on their previous experience with each other. New customers were likely to favor the fixed price of the closed-book contract; established customers with confidence in Exel's performance might well prefer the open-book contract. In 2002, 65% of Exel's contracts in contract logistics were open-book contracts. Strategy Evolution Three years after the merger that created Exel, the company's management felt confident about the future. The merger had gone smoothly and Exel had become the largest and most balanced provider of freight management and contract logistics services in the world (Exhibit 4). Its ability to offer a wide range of logistics services and its global reach made Exel an attractive partner for large multinational companies. In 2003, Exel was serving 70% of the world's top 250 non-financial companies. Home Depot, Dell, Unilever, Johnson & Johnson, Ericsson, Haus Mart, Volkswagen, Ford, Fujitsu, Marks & Spencer, and Safeway were among Exel's customers. Maintaining a fairly equal balance of freight management and contract logistics contracts was important to Exel because it kept either one from dominating management's thinking to the detriment of the other. Exel had been successful in keeping its relationships with its customers; over 75% of its contracts in contract logistics were renewed after the initial contract period. Exel was often praised by its customers as well as analysts (Exhibits 5 and 6). Moreover, the company had been able to expand the scope of its relationships with many of its large customers (Exhibit 7). For example, Exel's relationship with Goodyear grew from operating a single logistics center to operating multiple logistics centers as well as services including local transportation, returns processing, labeling, and tire bundling. Similarly, Exel's relationship with Home Depot grew from operating two transit facilities in 2000 to operating nine transit facilities, one overflow distribution center, two warehouses, and two import distribution centers. From 2002 to 2004, Exel's revenue from Home Depot increased from $8 million to an estimated $71 million. There was a considerable growth opportunity in selling more services to existing customers. As of 2003, Exel's share of its top 50 customers' total logistics spend (including in-house and outsourced tasks) was only about 2% (Exhibit 8). In addition, with its operating capabilities and global reach, Exel was now in a position, not only to operate across all elements of a customer's supply chain, but also to manage the coordination of activities, a valuable and profitable service in itself. In 2002, 86% of Exel's revenues came from providing a customer with either a single service or a disaggregated group of services, each service being managed in isolation. Fourteen percent of Exel's revenues, however, came from more integrated logistics services. In integrated logistics relationships, Exel not only provided the traditional services related to moving, storing, and handling the customers' products and information, but also assumed a coordination responsibility, for which it could charge a fee (and provide clients with greater savings/lower costs) in addition to the fees for its traditional services. Exel's relationship with Maxtor, a leading supplier of hard disks for computer manufacturers, provided an example of how an integrated logistics service could add value. Exel's first contract with Maxtor was for managing transportation from Maxtor's facilities in the Far East to its customers in North America, Europe and Asia. Maxtor's expectation was that Exel would consistently transport its products in under 48 hours and with minimum loss and damage. In addition, Maxtor required Exel to provide in-transit visibility. By meeting and even exceeding these expectations, Exel won more of Maxtor's logistics business. As of 2003, Exel was operating Maxtor's entire distribution network. In addition to local transportation and freight management, Exel operated Maxtor's consolidation centers in the Far East and its distribution centers in North America, Europe and Asia, where Exel provided value-added services such as kitting, warranty validation, electro-mechanical assembly, testing, and failure analysis. But in addition, Exel coordinated the entire network. This extended relationship delivered great value to Maxtor. Exel was able to decrease regional transportation costs by 30% through improved visibility. Through tightly controlled product flows, Exel was able to reduce lead times and reduce finished goods inventory by 16%. In the computer industry, where short life cycles meant that prices declined steeply after a product introduction, this reduction in lead times meant that Maxtor could sell its products at a higher price and for a longer time. Lead Logistics Partner The success of integrated logistics relationships with clients such as Maxtor, Goodyear, and Ford in Europe encouraged Exel's management to create a new business model where Exel would become the customer's Lead Logistics Partner (LLP). In this model, Exel and its customer would form a joint team to design and manage a single flow linking together transport, warehousing, manufacturing inventory management, and suppliers. This point team would create a "control tower," ordinarily located on the customer's premises, to oversee all aspects of a customer's supply chain. The control tower would use Exel's basic services in freight management and contract logistics, along with services from other providers when appropriate. Initially, the control tower would coordinate all parts of the supply chain to better execute the customer's own plans. For example, it would make decisions about how to route and schedule shipments and where to hold inventory. But at a more advanced stage, the control tower would move beyond coordination and become involved in supply chain planning. For example, it would forecast demand for products, optimize inventory levels, and create production plans. At this stage, Exel and the client would jointly create value by better matching supply with demand. This model was speculative. Exel was very experienced in coordinating different elements of a supply chain, but it had not engaged in joint supply chain planning before. Although there was tremendous potential value in combining supply chain planning with execution, this approach was on the leading edge of current practice in logistics and not without risk to both Exel and its customer. Exel's Four-Team Approach Over the years, Exel had developed a very effective process for creating, selling, and implementing new services. The process was carried out by a sequence of four teams, focusing in turn on business development, solution design, implementation, and operations. Business Development Teams At Exel, the term "business development" encompassed the full spectrum of activities which would be called "sales" in many other businesses. Selling supply chain services was a particularly complex challenge. Each situation--the customer's products, facilities, processes, relationships, and history-was unique. Extensive problem solving was required in order to propose a solution that would provide a dramatic improvement and immediate significant cost savings. Furthermore, this problem solving involved a complex tradeoff between Exel's desire to leverage a set of proven structures and procedures (thus benefiting from economies of scale) and the need to customize these components to each unique situation Exel's sales process was mainly divided into (a) account management-building a comprehensive understanding of the customer and creating a climate in which to provide added value, and (b) opportunity management using that understanding to recognize, articulate, research, and pursue specific business opportunities as they arose. Solution Design Teams (more likely to occur in the Contract Logistics and LLP opportunities) After Exel and its customer had mutually agreed that Exel would bid on a business opportunity, a detailed proposal had to be prepared. This would frequently provide an in-depth analysis of the customer's supply chain and suggest an iterative process to provide an improved, remodeled version of all or part of that supply chain that would benefit the customer and provide more business for Exel. The crafting of such a process was referred to as "solution design"; it included a broad range of disciplines from computer simulation to financial modeling. Historically, solutions had frequently been tailored to each customer. More recently, Exel realized that the best solutions were often those that were quick to implement, well proven, and flexible. Hence, solution design came to mean customizing Exel's proven "off-the-shelf supply chain components to fit the customer's needs. These components included performance measurement tools, warehouse stocking algorithms, standardized quality control methods, and operating organizational structures and procedures for training and motivating employees and tracking improvement. Implementation Teams (more likely to occur in the Contract Logistics and LLP opportunities) This team was responsible for all that happened between the customer placing a piece of business with Exel (that is, once the business development and solution design teams had done their work) and the agreed solution (e.g., warehouse or delivery network) becoming fully operational and achieving the agreed steady-state performance levels. Exel was well aware that this phase was where the best laid plans could go terribly wrong. For example, Exel typically created savings for a customer by restructuring a distribution network which had been created back when most freight traveled by sea, when in-transit information was scarce and imprecise, and when excess product could still be sold at a reasonable price. While there was much to be gained by bringing such a network up to date, a poorly implemented warehouse reorganization could result in a disastrous labor confrontation and serious losses. Although Exel was relying mainly on its vast experience, it also invested heavily in project management tools and techniques to ensure that it delivered on its promises. Operations Teams In the end, the task of the previous three teams was to prepare "smooth sailing" for the Operations Team, whose task was to run all warehouses, delivery fleets, freight management stations, call centers, and other services contracted to Exel on an ongoing basis. The vast majority of Exel's 109,000 employees were employed in operations. Exel had a comprehensive approach to the management and delivery of day-to-day operations, epitomized by a documented set of standard operating procedures called the Exel Operating Management and Methodology (EOMM) System. This not only helped hourly associates and their supervisors carry out their tasks, but also enabled the company to develop operational metrics, measure operating performance in detail, and use these measures to compare the performance of individual sites and to identify improvement opportunities (Exhibit 9 shows a balanced score card Exel used for warehouse operations.) Exel also regularly conducted special workshops to share best practices across the firm. Process improvement teams regularly visited facilities and identified opportunities for improvement, using a customized approach called "Process Improvement Methodology." Exel's Operations teams not only managed and improved customers' day-to-day operations, but at times were the source of service innovations and expanded solutions for their customers. Stefan Patterson, the project manager of the Haus Mart account, recalled one example: On occasion we have sent merchandise to retail stores and the next day the stock would still be in the backroom, not put away. During one Christmas peak, one of our contract logistics clients' major stores in Berlin was about to fall over. The store manager phoned the Exel- managed distribution center and asked if there was any way the distribution center could help Exel sent a team to the store and within 24 hours completely changed the backroom and corrected the problems in the store. When the word got around and Exel evaluated the model, the result was the creation of a new service in-store logistics. Today Exel does backroom replenishment and returns processing for several retailers such as Toys"R" Us, Haus Mart, House of Fraser, and Marks & Spencer Global Account Teams In addition to these four project management teams, Exel had dedicated global account teams for its larger clients. Each global account team consisted of a senior director, who had the ultimate accountability for the success of the relationship with the customer; a project manager, who planned projects with the customer and tracked progress; an operations owner, who was accountable for project implementation, operational performance, and continuous improvement; and a development manager, whose main responsibilities were to develop the account plan strategy and to pursue future growth and relationships. Information Technology IT played an important role in Exel's business. For example, in freight management, IT systems allowed Exel to maintain accurate data on transportation carriers' routes, schedules, and prices. Exel uses that data to quote prices for customers, ensure adequate capacity, access the status of shipments, and handle direct payments with transportation carriers and customers. Similarly, in distribution center operations, IT systems allowed Exel to have accurate data on what was available at the distribution centers and where it was located, data which it used to facilitate the movement of material in the distribution center. All IT systems used by Exel connected to Exel's Supply Chain Integrator (SCI2), a system developed in-house to provide information on the location of inventory in the supply chain and the delivery status of shipments and to notify management of delays and other delivery problems. SCI2 was a Web-based application, customers could access it with a user ID and a password. Moreover, SCI2 had the ability to link into customers' ERP systems. Maintaining the accuracy of data stored in SCI2 was crucial and required strict process discipline. As Exel Chief Executive John Allan noted: You can have the best systems in the world, but if the data that people are entering to the systern is of poor quality you'll get garbage in, garbage out. Very often when people believe that they are encountering problems with their systems, the real issue is the data quality. Part of Exel's strength was the effort it put into training all employees who used its IT systems and insisting on a high level of accuracy. The data had to be trustworthy. When they were, Exel customers didn't have to carry extra inventory just to make sure they really had what their numbers said they had. They could confidently make delivery promises to their own customers based on the data stored in their systems. Furthermore, warehouse employees were more productive when they spent less time-very little, in fact-searching for misplaced or nonexistent stock. This, in turn, not only increased their morale, as they knew they were now working in a first-rate warehouse, but added significantly to their productivity. Haus Mart Haus Mart (HM) was one of Germany's leading retailers of home textiles, housewares, and home accessories. HM stores carried a wide range of products from bedding and towels to small kitchen appliances. In home textiles, the company offered a selection of brand names as well as private-label merchandise. Haus Mart's total sales in 2003 were 3.5 billion, with an operating profit of 6318 million. Thirty percent of the company's total sales came from its private-label merchandise and 70% came from brand-name merchandise. Haus Mart's Supply Chain In 2002, HM owned and operated over 350 stores in Germany. An average HM store carried over 5,000 stock-keeping units (SKU). Approximately 85% of these SKUs were brand-name products, manufactured by vendors such as Wamsutta, Engelbert, and Cuisinart, the remaining 15% were private-label products. HM stores received daily delivery from one of the retailer's six distribution centers (DCs). The DCs received the brand-name products from over 650 manufacturers worldwide and the private-label products from HM's consolidation center in Istanbul, Turkey. The private-label products were manufactured in approximately 300 factories in Turkey. Most supply chain planning decisions at HM were made by merchants and planners. Merchants were responsible for the design and manufacture of private-label home textiles products. Planners made purchasing and store allocation decisions for all products. In making these decisions, planners worked closely with manufacturers of brand-name products as well as with the merchants at HM. A typical planner was responsible for a single product category, such as towels, comforters, or coffee machines. Exel's Relationship with Haus Mart HM worked with several third-party logistics providers. All of its DGs, as well as its consolidation center in Istanbul, were operated by 3PLS. Exel's first contract with HM had been in 1980 and involved regional transportation of goods from HM's DC in Hamburg to its stores. As the HM supply chain evolved, so did the company's relationship with Exel. (See Exhibit 10 for a list of services Exel provided for HM in 2003.) While freight management for brand-name products was handled by the suppliers themselves, freight management for private-label products as well as transportation in Germany was handled by Exel. At the end of 2002, HM's DCs were operated by four different contract logistics companies, with varying operational performance. Believing that there was an opportunity to improve the performance of these DCS, HM issued a request for proposal (RFP) to several 3PL companies and asked them to respond to a number of scenarios regarding the German DC network, such as differing numbers and locations of DCs, and to estimate the cost of changing and operating the network on behalf of HM. Between March 2002 and March 2003, Exel's business development and solutions design teams spent 978 person-days preparing their proposal. In March 2003, HM awarded the management of five of its six DCs to Exel; another 3PL company would continue to manage the sixth DC. The contract awarded to Exel was a five-year open-book contract with an innovative value-share arrangement on projected savings (The case writers estimated that these projected savings could be in excess of 25 Million). Exel Takes Over Haus Mart's Distribution Centers By June 2003, the implementation team had started working on the transfer of the four DCs to Exel. On the human resources front, the implementation team had to transfer 1,500 staff members, from three different companies, with different compensation schemes, different insurance policies, and different unions to Exel under strict government regulations covering the transfer of employees. On the IT front, Exel would continue to use the HM warehouse management system (WMS). However, all the physical equipmentincluding the printers, PCs, and servers-had to be changed so that there were no conflicts caused by mismatched hardware, operating systems, and so on. Moreover, the computers had to be linked to Exel's system, the WMS had to be linked to Exel's mainframe systems and the Supply Chain Integrator, and people would need to be trained to use Exel's e-mail system. In addition, the implementation team was responsible for taking over the physical sites. This involved transferring contracts with utility providers, suppliers, and any other parties who supported the sites. The implementation team executed the transfer of all four sites during two weekends between July 21st and August 1st. HM had hired a change management consulting firm, Accenture, to help facilitate the massive transfer and to make sure that there was no drop in performance at the DCS. HM had intended to keep Accenture on during the first 12 months of the transfer, but it went so much more smoothly than HM had expected that the Accenture team was disbanded after only six weeks. Exel's management team did not share HM's surprise at the ease of transfer. Stefan Patterson, the project manager of the Haus Mart account, commented: Our implementation teams do this day in and day out. We have become very consistent in our execution, whether we're building a new distribution center or taking over an existing one. So the actual physical infrastructure change went without any problem at all. What subsequently took a couple of weeks to work out was just getting the training up to speed. With a whole new e-mail system, and a whole new way of working for the staff, there was a lot of retraining for all of them. Once the implementation was complete, the operations team took over. They began by training employees on the Exel Operating Management and Methodology (EOMM) System. After a few weeks of operations, Exel performed an analysis of all five of its DC sites. The first finding was that some DCs had their own unique way of measuring things. For example, Exel had a "box put away" function, which included several steps. Some DCs were including steps that were not qualified to be in the "box put away" function, so the productivity numbers that were being reported by each DC were not comparable. Exel spent three months fixing this problem. Once all the sites agreed on what should be included in each of the functions, they had a clean and accurate way of measuring each site on each function and of comparing productivity numbers, highlighting improvements, and sharing ideas. Exel also implemented a well-defined and proven management program. For example, it created clear roles and responsibilities for the employees. At each DC, Exel posted a skills matrix chart, which listed all the functions performed in the DC and showed which functions each employee was trained to perform. A team of twelve trainers regularly assessed employees' skills by asking them to perform specific functions. In the first seven months, Exel achieved almost 10% of the projected five-year savings, which came from reductions in variable and fixed labor cost, reductions in overhead, reductions in management fees, and various indirect cost savings. Some of these savings were the result of restructuring the organization of the staff and its work; others came from implementing more efficient work practices. The case writers estimated that reductions in variable labor cost, resulting from the implementation of EOMM and the reduction of sickness and overtime hours, provided almost one third of these improvements in productivity. Exel also achieved improvement in pick accuracy (the percentage of orders for merchandise from the DCs that were filled accurately), a key measure used by HM to evaluate the performance of the DGs. Achieving pick accuracy required that (a) the inventory data stored in the WMS had to be accurate and (b) the inventory in the warehouse had to be in the right location so that the pickers could find it. This is one example of how Exel's attention to process details at the DCs paid off. Overall, for this initial seven-month period, the DCs run by Exel all experienced dramatic performance improvement, significantly eclipsing the performance of HM's other DC, which was supervised by another logistics provider. Moving from Execution to Planning A week after Perry Watts's meeting with Alexander Maier and his team about their progress with the Haus Mart account, Watts found himself summing up the case for a move into supply chain planning to his fellow Exel executives (see Exhibit 11): "HM has been one of our largest accounts. We are now operating most parts of HM's supply chain. In the private-label home textiles division, we are operating the whole thing. Through our traditional activities, we have lowered the cost of moving and storing products and have been able to improve the speed of delivery for HM. But, as we discussed during our strategy meeting last year, these represent only a portion of our customers' supply chain costs and improvement opportunities. The largest costs and opportunities are those that are associated with the matching of supply with demand. That's where the biggest payoff is for HM and for us. So I think it is time that we moved into joint planning with HM. As we have discussed before, combining planning with execution has incredible potential." This didn't come entirely as a surprise to the others at the meeting. They had all become increasingly aware of the potential value of adding their operational expertise to the customer's own planning function. For example, at Haus Mart, planners made all the purchasing and allocation decisions, but often didn't really trust that execution would go well. In their experience, there were so many things that could go wrong with their supply chain for reasons they didn't understand. As a result, they resorted to inefficient "just in case" behaviors such as ordering extra inventory or asking Exel to make sure that products were shipped a week before they were supposed to be shipped, just in case something went wrong. Exel's executives believed that if planning and execution were carried out jointly by Haus Mart and Exel, Haus Mart planners would have the benefit of Exel's much deeper knowledge of the supply chain and would no longer feel the need for such behavior. This would translate into immediate, significant savings for Haus Mart. Perry Watts and others at Exel had also noticed that Haus Mart planners, because of their incomplete knowledge of their supply chain, failed to take advantage of certain efficiencies. For example, they might not take maximum advantage of the cost savings from consolidating trucks, simply because it wasn't their job to know about transportation economics. Or they might not realize that they could save a lot of money by shipping a day earlier or a day later. Exel could inject that kind of expertise into the planning stage. "But what about the risks?" asked John Coghlan, Deputy Chief Executive and Group Finance Director. "As we expand our relationship with many of our leading customers, those customers have negotiated for us to have more 'skin in the game' in exchange for a greater stake in their activities and performance. A couple of technology firms have asked us to finance a portion of their supply chain inventory, but we have been reluctant to do so because of the financial costs and risks. And what about the potential risk to the integrity of our reputation? We have all witnessed retailers going out of business because of poor planning decisions. Do we even want to be involved in those decisions?" These, too, were very serious concerns. Exel frequently negotiated contracts which stipulated that, if they delivered even higher savings than they had contracted to do, they would receive a share of those savings. Exel was confident in its ability to exceed expectations, at least at the tasks which it had been performing successfully during recent years. But the prospect of contracting to cover or share in part of a customer's losses because Exel had been involved in a decision which lost the customer money could be extremely castly, given the thin profit margins of the third-party logistics industry. Clifford Herbertson, Group Business Development Director, was more optimistic. "We have always been an innovator in supply chain management. Sure, there are risks involved, but the potential is huge! If we get this right we will create clear blue water between us and the competition." Chief Executive John Allan listened to these arguments carefully and decided to take more time before making a final decision. He was very impressed with the successes of Watts's team. However, Exel was still managing mast parts of the HM supply chain on separate contracts with clear roles and responsibilities for each party. Exel knew how to manage each of these elements and it had earned its reputation by meeting and even exceeding its promises to its customers. Was Exel ready to move into supply chain planning? Did they have the capabilities and skills to manage an entire supply chain, from planning to execution? Did they have the necessary management bandwidth for this project and for other customers who could well request the same service? And finally, was HM the right setting for a test of this new strategy