Supply Chain Success Story
Logistics Makes the Difference in Race for the Customer
By Robert J. Bowman
Once considered a cost center, then a tool for cutting costs, logistics today is increasingly being viewed as a means of gaining competitive advantage. Four enterprises show how.
Eddie Jordan burst onto the Formula One racing scene in 1991. The 42-year-old Irishman was a driver in the 1970s, but never in the glamorous yet grueling world of Formula One. Now, going up against big names like Ferrari and McLaren, Jordan assembled a smallish team of drivers and designers. Jordan Grand Prix enjoyed a rapid rise, taking fifth place in its first championship race, and finishing fourth and third in the 1998 and 1999 World Championships. Further victories seemed assured.Then the team started to slip back. In 2000, it fell to sixth in the Championship. A year later, it wasn’t finishing races because of mechanical failures. Eddie Jordan realized that his problems weren’t originating on the racecourse. They were the result of a defective supply chain.Jordan’s revelation came from his ability to straddle two worlds, sports and business. As a veteran racer, he knew that 80 percent of a team’s performance is the result of events happening off the track. His response was that of any CEO who seeks to close the communications gap with key suppliers. In fact, Jordan Grand Prix happens to be the most literal example of an emerging trend throughout the corporate world: businesses employing logistics as a competitive weapon.Up to now, most major improvements in logistics processes, as well as the greater supply chain, have been internally focused. Companies have drastically cut costs, mostly through inventory reductions and more reliable delivery. Information technology has streamlined business processes and allowed for data sharing across the enterprise.But making those improvements visible to the customer is another matter. Today, in order to fuel sales, “logistics has to move away from the opportunity to reduce costs and toward the creation of value,” says Skip Grenoble, executive director of Penn State’s Center for Supply Chain Research. A well-managed logistics program becomes the very reason for winning or retaining customers.
The search for a competitive edge through logistics is also occurring among makers of commodities and raw materials.
Or winning races. Formula One requires the tightest possible integration between a racing team and its suppliers. While the rules specify that teams must design and build their own cars, they are allowed to outsource components. A big, well-funded program like Ferrari fashions almost everything in-house. Jordan, on the other hand, whose staff of around 300 is a third that of Ferrari’s, contracts out between 60 and 70 percent of its parts manufacturing. The strategy saves money and people, but it also creates the potential for error, delays and miscommunication with outside partners. It’s the same equation that every business must calculate, in deciding whether to outsource.At the races and a soccer match, Eddie Jordan crossed paths with Ian Clarkson, a management consultant whose business was similar to that of Jordan Grand Prix in its relative youth and size. Jordan hired Clarkson’s Celerant Consulting, now based in Lexington, Mass., with an office in London, to address the problem.Their priority was speed, both on and off the track. A 36-week Formula One season involves races all around the world, just two weeks apart. In that time, hundreds of modifications to a car might be made. Suppliers must respond quickly, with parts that are perfectly machined.As it happened, defective parts were a big part of the problem. Those failures in the first half of the 2001 season were partly the result of a small, inexpensive component in the hydraulic system that kept breaking. Eventually, after repeated visual inspections revealed nothing wrong, the problem was traced to a series of tiny cracks, caused by a single individual who lacked the training to operate a particular machine. “It’s all too easy to say this looks fine,” says Mark Gallagher, director of marketing with Jordan Grand Prix. “We needed to dig a little deeper.”The successful diagnosis was just one result of an intensive supplier-management program, implemented by Celerant on behalf of Jordan. The team relies on some 400 suppliers, including a dozen or more major ones. They range from small specialty shops to large automotive and even aerospace parts makers. (A Formula One race car, says Gallagher, “is really an inverted aircraft. Only it’s designed to fly into the ground.”) To run its cars this year, Jordan will spend around $70m, of which $30m goes to suppliers.Supplier ManagementOne of Celerant’s first moves was to address the issue of defective or improperly designed parts. A new program put the onus on suppliers for getting it right the first time. The goal was to eliminate rework, which was slowing down the supply chain.A supplier management system, including detailed supplier evaluations, gave Jordan a formal audit process for the first time. A vendor-rating system helped determine the best supplier for a given task. Jordan followed up with diagnostic visits to the place of manufacture, in order to assess progress and head off errors. As a result, it saw a 60-percent reduction in defective components from suppliers, and 50 percent fewer design changes during manufacture. Best of all, says Dereck Clow, Celerant’s head of operations for the U.K., there were no problems attributed to mechanical failures in the second half of the 2001 season. Last season, Jordan had the second most reliable car in Formula One, after Ferrari.Jordan and Celerant were especially keen to improve the flow of information between the team and its many suppliers. “That, to me, is the key point of logistics,” says Clow. Not only did suppliers get a clearer idea of Jordan’s expectations of quality, they were able to deliver the parts faster. During the actual Formula One season, Clow says, suppliers of some critical components sped up the order-cycle time by a race or two. And Jordan reduced supplier lead times by 10 out of 29.5 days. Last winter, says Gallagher, the team was running four weeks ahead of its normal production cycle.Jordan Grand Prix has its own fleet of delivery vehicles, along with three or four drivers, who visit key suppliers each week. In many cases, though, it has become the suppliers’ responsibility to deliver the parts. And that loss of direct control hasn’t hurt the team’s efficiency. A car that was still in the design stage last August was due to be tested by mid-January of this year. Jordan’s engineering group missed the deadline — by an hour and 20 minutes.
By Robert J. Bowman
Once considered a cost center, then a tool for cutting costs, logistics today is increasingly being viewed as a means of gaining competitive advantage. Four enterprises show how.
Eddie Jordan burst onto the Formula One racing scene in 1991. The 42-year-old Irishman was a driver in the 1970s, but never in the glamorous yet grueling world of Formula One. Now, going up against big names like Ferrari and McLaren, Jordan assembled a smallish team of drivers and designers. Jordan Grand Prix enjoyed a rapid rise, taking fifth place in its first championship race, and finishing fourth and third in the 1998 and 1999 World Championships. Further victories seemed assured.Then the team started to slip back. In 2000, it fell to sixth in the Championship. A year later, it wasn’t finishing races because of mechanical failures. Eddie Jordan realized that his problems weren’t originating on the racecourse. They were the result of a defective supply chain.Jordan’s revelation came from his ability to straddle two worlds, sports and business. As a veteran racer, he knew that 80 percent of a team’s performance is the result of events happening off the track. His response was that of any CEO who seeks to close the communications gap with key suppliers. In fact, Jordan Grand Prix happens to be the most literal example of an emerging trend throughout the corporate world: businesses employing logistics as a competitive weapon.Up to now, most major improvements in logistics processes, as well as the greater supply chain, have been internally focused. Companies have drastically cut costs, mostly through inventory reductions and more reliable delivery. Information technology has streamlined business processes and allowed for data sharing across the enterprise.But making those improvements visible to the customer is another matter. Today, in order to fuel sales, “logistics has to move away from the opportunity to reduce costs and toward the creation of value,” says Skip Grenoble, executive director of Penn State’s Center for Supply Chain Research. A well-managed logistics program becomes the very reason for winning or retaining customers.
The search for a competitive edge through logistics is also occurring among makers of commodities and raw materials.
Or winning races. Formula One requires the tightest possible integration between a racing team and its suppliers. While the rules specify that teams must design and build their own cars, they are allowed to outsource components. A big, well-funded program like Ferrari fashions almost everything in-house. Jordan, on the other hand, whose staff of around 300 is a third that of Ferrari’s, contracts out between 60 and 70 percent of its parts manufacturing. The strategy saves money and people, but it also creates the potential for error, delays and miscommunication with outside partners. It’s the same equation that every business must calculate, in deciding whether to outsource.At the races and a soccer match, Eddie Jordan crossed paths with Ian Clarkson, a management consultant whose business was similar to that of Jordan Grand Prix in its relative youth and size. Jordan hired Clarkson’s Celerant Consulting, now based in Lexington, Mass., with an office in London, to address the problem.Their priority was speed, both on and off the track. A 36-week Formula One season involves races all around the world, just two weeks apart. In that time, hundreds of modifications to a car might be made. Suppliers must respond quickly, with parts that are perfectly machined.As it happened, defective parts were a big part of the problem. Those failures in the first half of the 2001 season were partly the result of a small, inexpensive component in the hydraulic system that kept breaking. Eventually, after repeated visual inspections revealed nothing wrong, the problem was traced to a series of tiny cracks, caused by a single individual who lacked the training to operate a particular machine. “It’s all too easy to say this looks fine,” says Mark Gallagher, director of marketing with Jordan Grand Prix. “We needed to dig a little deeper.”The successful diagnosis was just one result of an intensive supplier-management program, implemented by Celerant on behalf of Jordan. The team relies on some 400 suppliers, including a dozen or more major ones. They range from small specialty shops to large automotive and even aerospace parts makers. (A Formula One race car, says Gallagher, “is really an inverted aircraft. Only it’s designed to fly into the ground.”) To run its cars this year, Jordan will spend around $70m, of which $30m goes to suppliers.Supplier ManagementOne of Celerant’s first moves was to address the issue of defective or improperly designed parts. A new program put the onus on suppliers for getting it right the first time. The goal was to eliminate rework, which was slowing down the supply chain.A supplier management system, including detailed supplier evaluations, gave Jordan a formal audit process for the first time. A vendor-rating system helped determine the best supplier for a given task. Jordan followed up with diagnostic visits to the place of manufacture, in order to assess progress and head off errors. As a result, it saw a 60-percent reduction in defective components from suppliers, and 50 percent fewer design changes during manufacture. Best of all, says Dereck Clow, Celerant’s head of operations for the U.K., there were no problems attributed to mechanical failures in the second half of the 2001 season. Last season, Jordan had the second most reliable car in Formula One, after Ferrari.Jordan and Celerant were especially keen to improve the flow of information between the team and its many suppliers. “That, to me, is the key point of logistics,” says Clow. Not only did suppliers get a clearer idea of Jordan’s expectations of quality, they were able to deliver the parts faster. During the actual Formula One season, Clow says, suppliers of some critical components sped up the order-cycle time by a race or two. And Jordan reduced supplier lead times by 10 out of 29.5 days. Last winter, says Gallagher, the team was running four weeks ahead of its normal production cycle.Jordan Grand Prix has its own fleet of delivery vehicles, along with three or four drivers, who visit key suppliers each week. In many cases, though, it has become the suppliers’ responsibility to deliver the parts. And that loss of direct control hasn’t hurt the team’s efficiency. A car that was still in the design stage last August was due to be tested by mid-January of this year. Jordan’s engineering group missed the deadline — by an hour and 20 minutes.
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