RP Turner Corp.

RP Turner Corp. makes pipeline valves for the oil industry in Western Canada. It buys materials from Japan, the USA and eastern Canada, manufactures valves in Edmonton, Alberta and ships the finished products to oil fields in the North. The company grew by emphasizing the high quality of its products, which work reliably in the harsh weather conditions of the Arctic. Transport to remote customers is expensive, and in 2000 the company looked for ways of reducing the cost of logistics. It soon found that separate functions worked more or less independently. This was sometimes all too obvious when the three main departments Marketing, Production and Finance were in different locations. Production was in Edmonton, as the nearest major city to the oil fields; Marketing was in Calgary near to oil company headquarters; Finance (including procurement) was in Vancouver near the port and financial centre. To appreciate the potential problems, you have to remember that Canada is a big country, so Production was a thousand kilometres away from Finance, 500 kilometres away from Marketing and over two thousand kilometres from delivery points. The company was rewarding different departments for different types of performance. Not surprisingly, when the departments were asked for their priorities, they had different views. Marketing wanted: high stocks of finished goods to satisfy customer demands quickly. a wide range of finished goods always held in stock locations near to customers to allow delivery with short lead times

production to vary output in response to customer orders emphasis on an efficient distribution system an optimistic sales forecast to ensure production was geared up for actual demand.

Production wanted high stocks of raw materials and work in progress to safeguard operations a narrow range of finished goods to give long production runs locations near to suppliers so that they could get raw materials quickly stable production to give efficient operations emphasis on the efficient movement of materials through operations realistic sales forecasts that allowed efficient planning Finance wanted low stocks everywhere few locations to give economies of scale and minimize overall costs large batch sizes to reduce unit costs make-to-order operations Pessimistic sales forecasts that discourage underused facilities Despite good communications, the company felt that it was too widely spread out. It decided to centralize operations as its main plant in Edmonton. This brought the logistics functions geographically closer together, and major reorganization over the next two years brought a unified view of the supply chain. Sources: Ray Turner and Internal Company Reports.

Perman Frre

Perman Frre is a small manufacturer based in Brussels. It exports most of its products and has a finished goods warehouse near the port of Ostende. Van Rijn is one of its customers, also based in Brussels. It imports most of its materials and has a raw materials warehouse near the port of Rotterdam. The two companies have traded for many years and in 2001 they started looking for ways of increasing co-operation. It was soon obvious that they could make a number of small adjustments to improve logistics. As an example, some parts were made by Perman Frre in Brussels, sent to their warehouse in Ostende, delivered to Van Rijns warehouse in Rotterdam, and then brought back to Brussels. It was fairly easy to organize deliveries

directly between the companies. This gave a much shorter journey across Brussels, reduced transport and handling costs, removed excess stocks, simplified administration, and reduced the lead time from five days to three hours. They also co-ordinated deliveries to towns in northern France, so that one vehicle could delvier products from both companies. Both companies benefited from these changes. When they were introduced people in both companies said that they had been aware of the problems for a long time, but could not find any mechanism for overcoming them. Sources: Georges Perman and Internal Company Reports.

Petro-Canada
Petro-Canada (PC) is the largest oil company in Canada, with 4500 employees and over $6 billion in sales. It owns 750 millions barrels of proved reserves, but its main income comes from 1700 retail petrol stations. The Canadian government originally founded PC to compete with major international companies, and it still owns 18% of the shares. In the 1990s PC started to form strategic alliances with its major suppliers. It was looking for ways of reducing costs, and supplier partnerships were a clear option for a company that spent over $2billion a year on materials other than oil. To find the best way of forming strategic alliances, PC benchmarked other companies who reported a history of successful partnerships, including Motorola and Dow Chemicals. In practice, growing pressure to improve performance meant that PC had to get results quickly, and they developed their own approach. This had targets of reducing costs by 15% in a first phase, and eventually by 25%. PC quickly realized that without guaranteed product quality it could make no further progress, so it consolidated its use of total quality management. This included Demings 14 principles which advise organizations not to buy products on the basis of cost alone, but to include a range of factors such as quality, reliability, timing, features, trust and so on. Now it had done the preparation, PC could start talking to prospective partners. It chose these from companies that it currently did most business with, and those whose products were critical. There were already long-standing, informal relationships with many of these, and PC extended them to create more formal alliances. Important considerations were that the suppliers were committed to high quality, emphasized customer satisfaction, and had the potential to become the best of the best. This gave PC its likely partners, and the next stage was to form joint development teams, including representatives from the purchasing and user departments. Because of the time pressure, this team looked for quick improvements. Their aim was to get the initiative moving, get some quick returns, generate enthusiasm for the ideas, and then move the

partnership forward over the longer term. We can summarize PCs approach to developing partnerships in the following stages: 1. prepare the organization for alliances with research, training, systems and practices 2. assess the risk and benefits of partnerships, setting aims and targets

3. benchmark

other partnership arrangements 4. select qualified suppliers 5. form joint teams to manage the imitative and move it forward 6. Confirm the partnerships principles, commitments, relationships and obligations 7. formalize the terms and conditions 8. continue training and improving Sources: Internal reports and website at www.petro-canada.com

GZ REXAM
In 1996 Rexam Pharmaceutical Packaging and Grafica Zannini formed a joint venture called GZ Rexam. Its primary aim is to supply packaging to the pharmaceutical industry in Europe. This is an important area, as over 50% of pharmaceutical companies product recalls are caused by faults in printed materials, and each recall costs several millions pounds. GZ Rexam looks for the benefits of partnerships with its customers. John Stevenson, the Sales and Marketing Director, says, The days of the conventional supply chain where everyone existed as an independent entityare no longer. He quotes three reasons for partnerships: Lower costs due to better coordination, elimination of duplicated effort, less bureaucracy, quantity discounts, and economies of scale. GZ Rexam estimates that it can save up to 60% of packaging costs through partnerships. Shorter leadtimes from improved coordination, procedures and administration. With Eli Lilly they reduced lead times from six to two weeks, with just in time deliveries for specific orders. Higher quality with uniform standards, collaboration in quality initiatives, less reliance on inspections and a commitment on long-term improvements. Once the objectives of a partnership have been agreed, the two key factors for success at GZ, Rexam are commitment to the long-term success of the partnership and good communication between every one concerned. Source: Stevenson J. (1999) Partnering Improving the Supply Chain, Logistics Focus, 7(2) 9-11.