Black & Decker Supply Chain Management and Optimization

Introduction: Black & Decker's Supply Chain Challenges

Relying on a distribution network that was generating the majority of their revenue — and becoming more powerful due to its ability to exert pricing constraints on suppliers — Black & Decker soon found itself being squeezed on pricing on the distribution side of its business and increasingly constrained by the cost efficiencies of its supply chains. Walmart's ability to exert influence on Black & Decker was growing, and the need for more efficient management of its own supply chain was going to make the difference between the tools supplier retaining Walmart as a top channel partner. Kmart, going through extensive restructuring of its store operations, also had significant requirements for better visibility into the Black & Decker supply chain.

In order to regain control of their value chain, Black & Decker had to address the lack of integration among their legacy systems while also drastically overhauling supply chain processes that encompassed order management, inventory optimization, inventory investment ROI, and service-level yields (Galli, 1998). These specific supply chain process areas required intensive overhaul, as they were the most critical for managing and growing selling relationships with indirect channel partners including Kmart, Walmart, and others. Black & Decker found that valuable knowledge of supply chain processes was being lost due to a lack of supply chain analytics and intelligence across the company's global value chain (Sweeney, 1998).

In order to synchronize their supply chain processes and systems, Black & Decker concentrated on how to transform their manufacturing, sourcing, supply chain, and services processes to be more demand-driven. Aligning all internal processes in these functional areas was critical for Black & Decker to sustain selling relationships with all members of their distribution network. The synchronization of supply chain, procurement, manufacturing, logistics, and fulfillment processes to be more demand-driven has been defined by AMR Research as the creation of a Demand Driven Supply Network (DDSN), originally defined by this research firm in 2004 (O'Marah, 2004).

Process-Centric Supply Chain Problems

Competing to sustain and grow sales into their distribution network, Black & Decker began experiencing significant supply chain-related problems. The wrong product orders were ending up at the wrong Walmart and Kmart locations (Weston, 1997); there were unpredictable supply shortages and a lack of control over inventory safety stocks (Manufacturing Business Technology, 2006). Black & Decker was continually experiencing extreme sourcing variability, including a complete lack of seasonality planning and effective supply chain forecasting. This made the coordination of shipments with third-party logistics providers (3PLs) extremely costly and difficult (Drickhamer, 2005), in addition to jeopardizing product quality and forcing a higher reliance on Statistical Process Control (Hill, 2002).

While supply chain processes were not functioning efficiently — if at all at times — distribution network partners including Walmart, Kmart, and others were requiring their suppliers to provide greater levels of visibility into their supply chains, starting with Available-to-Promise (ATP) and Capable-to-Promise (CTP) dates for large, often customized product orders (Sweeney, 1998). The lack of reliability in these figures was initially thought to be purely an information technology (IT) issue stemming from the lack of integration between legacy systems. As Black & Decker's value chain team worked to re-engineer these processes, they found that safety stock inventory levels were not being managed at all (Hoffman, 2006), further underscoring the need for a complete overhaul of their supply chain processes.

The re-engineering of the inventory optimization, safety stock, and service yield processes specifically was necessary for more accurate supply chain planning and optimization to be accomplished (Melbin, 1996). The urgency of getting these processes redefined — and then having the systems that would automate them integrated to the SAP R/3 ERP system — was critical if Black & Decker was going to continually gain market share by selling more through its distribution framework. The catalyst of becoming more demand-driven and accomplishing a more efficient and lean DDSN series of processes had to start at the process level and then progress into systems development and integration.

This approach to refining and re-engineering processes first, and then judiciously applying IT systems to automate them, also gave Black & Decker the added advantage of prioritizing those areas most acutely in need of improvement in order to stay aligned with their distribution network's requirements. For the company to remain demand-driven, there would also need to be significant cultural changes, with a concentration on analytics and performance measures to provide insights into which supply chain strategies were more effective. Using analytics and key performance indicators on dashboards and scorecards gave Black & Decker the ability to effectively manage their entire supply chain at the process level.