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).

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).

Process-Centric Supply Chain Problems

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.

Black & Decker has long had a channel management strategy in place that relied mainly on pricing management and price exception management for its distribution network. As the balance of power shifted from manufacturers to channel partners and mass merchandisers that dominate the company's distribution network, manufacturers were forced to make more and more information available — eventually in real time. This forced Black & Decker to create a multi-channel management system that could scale across the entire distribution network, while at the same time alleviating channel conflict and providing insights into supply chain status.

Comergent, now acquired by Sterling Commerce, was chosen as the multi-channel management platform specifically for its expertise with channel workflows that could alleviate channel conflict through more advanced approaches to lead management, lead escalation, price exception, and special pricing request workflows. Comergent's contribution to Black & Decker also included giving distribution network partners the flexibility to configure customized products for their specific channels. The product configurator capability allowed Black & Decker to move into the role of offering generic appliances to the largest members of their distribution network, increasing sales and gross margins as a result.

In creating the product configurator, Black & Decker created links to specific subassemblies and provided the inventory positions of each part in real time, so that members of their distribution network would be able to reliably quote delivery times for larger orders of customized products. Black & Decker considered this part of their channel management strategy and made slight variations in product configurations available to distribution network participants, including variations in color, type of power supply, type of mechanism, and attachment. Black & Decker integrated this product configuration functionality into their supply chain systems to ensure that distribution network members who chose to participate in the program would be able to get an accurate measure of customized product availability. Comergent and Black & Decker customized a series of software constraint applications to make this possible. The outcome was that Black & Decker was able to gain more market share among second-tier retailers who had wanted to pursue private labeling of their own products. Walmart had experimented with private-label electronics, appliances, and tools and found that there was too much confusion relative to its core brand.

Integrating Supply Chain Processes with the Distribution Network

Black & Decker learned critical lessons from attempting such an ambitious project, even in its pilot phase. The ability to synchronize orders across a distribution partner's many locations and consolidate them into a single view of all order activity was critical for defining optimal inventory locations on a geographic basis. The optimization techniques learned in supporting a pilot program for private labeling of irons and other products gave Black & Decker insights into how critical inventory optimization, distributed order management, pricing, and current order status were for ensuring the company became more demand-driven at the process level.

The Power Chain Initiative (Manufacturing Business Technology, 2006) was partially named after the inventory optimization systems acquired from software provider Optiant. It was also seen as being highly congruent with Black & Decker's branding strategies, so the internal project over time took on this specific title. As the Power Chain Initiative focused first on streamlining inventory management and optimization, improving safety stock processes and levels, and increasing the accuracy of service-level yields, Black & Decker also instituted distribution network-wide analytics to assess supply chain performance.

In studying the supply chain processes and systems development involved with the Power Chain Initiative, it became apparent how intertwined distributed order management and the broader aspects of Black & Decker's supply chain optimization systems had become as a result of needing to provide real-time responses to distribution network members. As a result, Black & Decker increasingly relied on systems integration with third-party logistics providers through supply chain, Enterprise Resource Planning (ERP), and distributed order management system integrated workflows.

The creation, continual improvement, and optimization of the Distributed Order Management (DOM) system is the catalyst of Black & Decker's competitive advantage, as is apparent in how tightly integrated the elements of this system are and how order accuracy and velocity serve as key performance indicators within this model. The Black & Decker DOM system aligns with the Distributed Order Management (DOM) Hierarchical Model shown in Figure 1 in the Appendix of this study. This model conceptually illustrates how the Black & Decker supply chain, DOM, and distribution networks are integrated with each other (Johnson, 2003, et al.).

The Data Services of Black & Decker, as defined by its customer and shipment history databases, anchor the model, followed by Application Services, Presentation Services, and a separate Presentation Services layer specifically for internal and external constituents of the logistics provider.

The Master Data Services component is where Black & Decker normalizes and synchronizes data on customers, products, accounts, and suppliers — serving as the primary building block of the system. There are several techniques Black & Decker relies on for building a system of record, ranging from database consolidation to the development of virtual objects that are composites of various systems. Regardless of the overall data management strategy, the DOM architecture within Black & Decker is message-centric and employs a metadata-driven data model. These capabilities allow the Black & Decker DOM system to understand where key data resides, how to retrieve it, and how to transform or normalize the data to ensure a high level of order accuracy and sufficient transaction velocity to maintain profitability. In addition to transaction and operational data, Black & Decker uses information systems-based strategies and investments to support the creation of its own logical analytical data models, which feed customer-specific data to a centralized warehouse in order to measure and manage the performance of the entire logistics process and create analytical reporting for all internal teams relying on this data.

In addition to the DOM architecture defined above, Black & Decker has also defined three critical application services that have led IT professionals to call their distributed order management system state-of-the-art in terms of its logistics functions. These three critical components include: event and state logistics management; order brokering and integration framework; and Business Process Management (BPM) support.

The first of these three, event and state logistics management, is a Web Service that monitors the state of any Black & Decker order throughout its lifecycle as it travels between disparate systems, both internal and external. Coupled with the state management engine is event management, which monitors the transport request or order cycle to identify issues related to time and quantity in order to proactively identify and manage exceptions. The order broker or integration framework is designed by Black & Decker to capitalize on technological advancements in messaging found in leading Enterprise Application Integration (EAI) systems (Johnson, 2003, et al.). Black & Decker uses these systems for breaking down all orders into smaller processes that ensure each shipment is managed as optimally as possible. The use of constraint-based technology is pervasive in this area of the Black & Decker DOM platform. The order definition is then connected to the Black & Decker order broker — which can also be its third-party logistics business — based on a standard EAI system or Black & Decker's own messaging layer that prepares instructions for the various parties and defines the format of business documents and communication methods. Finally, the BPM component is used by internal business and systems analysts to graphically design and depict processes and workflows inside and across multiple Black & Decker applications to enable and manage end-to-end processes.