Manufacturers discuss a key service issue.
Fill rate is an issue that is critical for both manufacturers and distributors of material handling equipment. Even with a mistake-free rate of 98 percent, the errors on the remaining two percent of orders can be killers to both bottom line and reputation. The MHEDA Journal sat down with several material handling manufacturers to talk about this important issue. Participants in this roundtable are Gordon Hellberg, vice president of TGW-ERMANCO; Paul Laroia, president of Hyster Company; Bob Lawless, CEO of Creative Storage Systems; Bill LeMeur, executive vice president of Superior Tire & Rubber; and Steve Lippert, executive vice president of Hamilton Caster & Manufacturing Company.
TMJ: What is your current fill rate?
Bob Lawless: On-time deliveries so far this year are at 92% for us at Creative Storage Systems. For completed production packs, the goal is 95%, and we’re at 99%. Our drawing accuracy is 98%, bill of material accuracy 99%, approvals sent 100%, approvals received in the time they’re supposed to be 98% and the engineering scope package review is 100%.
Paul Laroia: We do track that statistic at Hyster Company, though I’m not willing to share it.
Steve Lippert: Hamilton Caster’s error rate is well below one percent of orders.
Gordon Hellberg: Fill rate is one of TGW-ERMANCO’s key metrics. 98% of our parts orders normally go out early. We schedule bigger projects so that we have a little buffer between our date and the actual delivery date.
Steve Lippert: Hamilton Caster tracks errors by error type. The most common error is in order entry. If it’s mistyped in the front office, that’s almost impossible to stop. The plant assumes what they get is what they’re going to build.
Bill LeMeur: Since we’ve been tracking fill rate at Superior Tire, we’ve reduced mistakes by half and gone from 98% accuracy to 99%. Plus, we’ve seen labor savings on the dealer side, though I can’t really quantify that.
Steve Lippert: Our objective is to fill a complete order all at once. Any time an order is broken up, more things can go wrong. We want to reduce the chance of errors and minimize disgruntled customers. Of course, reality sometimes intervenes and we’re forced to break it up into two orders.
What processes do you have to ensure accuracy?
Steve Lippert: Luckily for us, average factory seniority at Hamilton Caster is nearly 20 years. Our people know our products really well. I wish I could say we make zero mistakes, but, in general, we’re pretty reliable on that score.
Bob Lawless: CSS has several processes in place. During the quoting process, we gather information from the distributor about the load, everything about the position and where the system will be used. If possible, one of our salespeople goes there. We then quote the job very thoroughly, telling exactly what we’re going to provide and include drawings for their approval.
Gordon Hellberg: TGW-ERMANCO sends an order confirmation when the order is processed, so there’s a mutual understanding of what was requested. A lot of times we’ll actually do a drawing, send it out and ask the distributor to approve it. Hopefully, distributors do the same thing with their customers.
Paul Laroia: We do that at Hyster Company. When dealers place orders, they receive order acknowledgements from us. We run the specifics of the order against our manufacturing bill of material, and we are then able to give the dealer a reasonably precise indication of when the truck will come off the line.
Steve Lippert: Hamilton Caster does that too. If the distributor takes the time to read that acknowledgement, we could avoid errors of misunderstanding. It’s a good way to confirm that what we’re building is what they ordered.
Do you have any other procedures?
Bill LeMeur: Superior Tire fine-tuned a laser labeling system specifically designed for accuracy in picking. The process makes it easier on our dealers’ eyes and quicker for them to check in items. End-users have responded positively.
Bob Lawless: We ask the distributor to send a pallet to us during the testing process to make sure it works correctly. If they can’t send one, we test the pallet through pictures and measurements. We videotape our tests and send the tape to the customer with the drawing.
Gordon Hellberg: At TGW-ERMANCO, equipment has an ID number of the assembler who made it. When there’s an error, it’s easier for us to identify where the problem occurred. It brings the ownership down to the person who’s doing the work, and that’s where you need to have it. That being said, we have a lot more problems with the quality of purchased parts than with the ones we make ourselves.
Bob Lawless: CSS does not order steel, assembly work or engineering until the customer confirms exactly what they want. Then our engineering department reconfirms what they have told us that they want in a transmittal letter. After the production is done, we re-test it, videotape that and ship it out. In many instances, we will have somebody from our company at the job site at the initial phase of installation.
Bill LeMeur: We also warehouse our product in Los Angeles, a mere 3,000 miles from Superior Tire’s Pennsylvania headquarters, to help us fill nationwide orders more effectively.
How do you handle errors?
Bob Lawless: Probably 90% of the time, we find that the customer is using a different type of pallet than what the system is designed for, or it has been incorrectly installed. If the problem is because of something Creative Storage Systems did or didn’t do, we take care of it. Sometimes even when it’s not our fault, we still take care of it.
Gordon Hellberg: When TGW-ERMANCO ships the wrong thing or makes something incorrectly, helping our business partner is the highest priority. One of our goals is always providing exceptional customer experience. Distributors have installers and other things to coordinate, and if we show up late, we’ve had it.
Paul Laroia: We do strategic stocking at our Hyster dealerships and at our factory for those customers where missing a deadline is critical. But when there are so many suppliers involved in the supply chain, it is possible that there may be a hiccup along the way. Most times, people can adjust if given sufficient notice.
Bill LeMeur: The response from Superior Tire will depend on what the problem is, but typically we get the item back, warranty it and replace it with the correct item. We hold ourselves accountable. If we made the error, then we make it right however we have to. At all costs, we want to avoid downtime. Downtime is brutal.
Steve Lippert: Hamilton Caster ships the right item immediately and asks the customer to return the wrong item. The customer only ends up paying the original freight. In the event that it’s a special order, we handle that on a situation-by-situation basis.
Bob Lawless: We try to help out any way we can, but we’re not a bank.
What impact do errors have on the bottom line?
Gordon Hellberg: It’s a lot higher than anybody wants to admit, let’s put it that way.
Bob Lawless: We track unbudgeted costs at Creative Storage Systems, and they’re pretty significant. What we don’t know is what impact that has on the future bottom line. A guy who’s dissatisfied is going to talk to somebody else who will talk to somebody else.
Bill LeMeur: We have one OEM account that charges a transaction fee to Superior Tire for every error we make that causes them to make an accounting adjustment. That’s a fee on top of correcting the mistake.
Paul Laroia: We’re dealing with real money here. We’re talking about material and investing labor. We still have flexibility to change an order when the truck is in bits and pieces. However, once material is committed, we are limited in what we can do.
Steve Lippert: It really causes a lot of internal pain. That’s just on the Hamilton Caster side, let alone the fact that our customer didn’t get what they wanted in a timely fashion, and our distributor is ticked at us because we didn’t perform. It’s all bad.
Bill LeMeur: Think of downtime in the warehouse. There’s an operator sitting idle who might be paid $20-25 an hour plus benefits. The opportunity cost to get their product out the door can be pretty staggering. When a truck goes down, turnaround on the maintenance is pretty critical. I would suggest that it’s probably far more costly than the actual cost of the tire or wheel.
Steve Lippert: I agree. The least part of the cost is generally the caster itself. The real cost is in additional phone calls, time in the plant making the right part or shipping the right part. It’s extremely expensive, probably a factor of 10 times an order.
How can you soften that impact?
Paul Laroia: The starting point of the whole process is sales input. It is a collaborative process that starts with a forecast. At Hyster Company, we get input from distributors and validate it, and there’s a little risk involved with that.
Steve Lippert: Technology can help. For instance, EDI or some other software bridge means that an order doesn’t need to be entered twice. However, that’s impractical with most of Hamilton Caster’s current distribution.
Bill LeMeur: We often use dealer’s paperwork to ship product from the Superior Tire & Rubber manufacturing facility directly to the end-user, which cuts transportation time. It certainly saves the dealer a lot of handling and labor costs, and we have more confidence that the customer is getting what we told them they would get.
Do you have any advice for distributors?
Bob Lawless: In a lot of cases, salespeople are like a fisherman who hooks a fish. Just as they start reeling it in, they say, “I hooked it. You reel it in the rest of the way.” Then they throw another baited rod out there. I don’t think that’s a successful approach.
Gordon Hellberg: It seems that distributors are so lean they don’t have time to check acknowledgements, or communicate in some other areas. That’s the toughest thing. Distributors need to have internal process management that will allow them to really become a partner.
Bob Lawless: That’s a great point. Unfortunately, I don’t think distributors have enough procedures in place in many instances to ensure that what their representatives are saying to their customers in the field and what that customer is saying back is the same thing. Sometimes, the salesperson is talking all about apples and the customer is hearing oranges. Salespeople in many cases over-commit and don’t share the drawings with the end-users.
Steve Lippert: The distributor can help us with proofing acknowledgements to make sure we’re going to build what they ordered. After that, the ball’s in our court to execute. We better deliver because there are plenty of other places they can go if we don’t.
Bob Lawless: Mistakes are extremely costly and screw-ups can put us out of business. That’s why salespeople should talk to the people who will actually operate the system to ensure that everything is what it’s supposed to be.
Is “good enough” ever good enough?
Bill LeMeur: Good enough in my mind is a bad way to look at it. The best thing Superior Tire can do is strive to continually improve. If we set an artificial line of demarcation as an organization and we reach that line, then we get sloppy and our competitors will chew us up. We have to set goals and then keep inching them up as we achieve them.
Bob Lawless: If CSS settles for “good enough,” we’ll settle for mediocrity. There’s always something more you can do—another phone call you can make, refinements to your transmittal letter or redoing your quote program to give more detail.
Paul Laroia: I agree. The people who are creating demand in the marketplace are becoming much more astute and smart about their anticipated needs. That helps, because the quality of the output of this planning process is a derivative of the quality of the input.
So how do you determine “success”?
Gordon Hellberg: It’s a moving target. TGW-ERMANCO must have the systems in place to help us produce the same level of quality even when things are different. For instance, we recently promoted eight of our top assemblers to work on a new conveyor, which opened up eight assembly positions at our facility. After that, we had more field issues because of things that weren’t done quite right.
Bill LeMeur: It’s funny what we find here at Superior Tire. The more we improve, the more we see where we can further improve. So, for sure, you can’t rest on your laurels.
Gordon Hellberg: True. Even though we have all these systems in place, there are well-hidden things that can have an effect. For a few weeks this summer, it was really hot here, and TGW-ERMANCO’s manufacturing facilities are not air-conditioned. Even though we had the workload, we had to back off or the quality would have suffered.
Steve Lippert: Customer service is so core to us at Hamilton Caster that our success rate has got to be 100%. We can’t afford in this competitive environment to give somebody a justifiable reason to be disappointed in our performance. It’s a daily battle.
Bill LeMeur: That competition makes me come to work every day with nervous excitement. The exciting part is that we get to prove ourselves each day against the market. The nervousness comes in because there are no guarantees. A great idea or great hustle on somebody else’s part could threaten to put Superior Tire out of business. There is no resting.
How are you trying to improve fill rates?
Paul Laroia: There is a logarithmic increase in the amount of communication taking place between the people who create demand and the people who create supply. We must continue that trend between Hyster and our dealer network.
Gordon Hellberg: TGW-ERMANCO holds production meetings every day. One of the key reasons why our on-time hit rate is so good is that we have daily visibility between shifts. We have good internal communication and communication with the customer.
Steve Lippert: We work on systems to try to make them failsafe. Ultimately, though, there’s no substitute for experience because that covers a lot of sins. Errors at Hamilton Caster are often caught in the plant because our people are sharp enough to recognize that something doesn’t make sense or doesn’t seem right.
What other programs are there?
Bill LeMeur: Accuracy doesn’t get you squat if you deliver two weeks after everybody else can deliver. Responsiveness is just as important, and it can be an expensive investment. At Superior Tire, we use our Express Wheel program to maximize our responsiveness to dealers’ tire and wheel requirements. If we fail to have our Express Wheels in stock for our dealer for same-day or next-day shipment, we pay the freight.
Bob Lawless: A lot of managers now are putting systems in place within their own organizations because they recognize the high cost of screw-ups. There aren’t the hefty returns that were there in the past, so people are looking at the bottom line for their stakeholders and doing whatever possible to eliminate mistakes.
Bill LeMeur: The bottom line at Superior Tire is knowing the market and having a good stock of the high-demand items in inventory. Being able to respond to a customer’s need in the aftermarket is really a high priority for Superior Tire. It’s not so much the offer of the free freight; it’s our way of saying we take this seriously.
What is the most important thing to keep in mind regarding fill rates?
Gordon Hellberg: When it comes down to it, it doesn’t matter how big a machine you have. Manufacturers and distributors have to figure out how to take care of their customers and meet their needs.
Paul Laroia: Unfortunately, when a delay occurs, you must scramble to serve everybody. To avoid that, it behooves me to understand the implications of delays and errors on my own capabilities and share that knowledge with my dealer, who in turn should share it with his end-user customer so that everybody can adjust.
Steve Lippert: Quite honestly, as much as you like to say you’ve fool-proofed the problem, it’s still human beings interfacing with each process. Humans can be subject to error.
Bill LeMeur: We’ve already mentioned accuracy and responsiveness, and there is really a third leg to fill rate—shortening the supply chain. At Superior Tire, that does not mean cutting out the distributor! When we use that term, we are talking about how to get product into the hands of the end-user more quickly in partnership with the dealer.
Bob Lawless: If we’re going to try to eliminate errors, there must be a joint effort from both the material handling manufacturer and the distributor. We start at our end, and it’s got to go all the way to the end-user.