By replacing its legacy SCM (supply chain management) solution, Fender Musical Instruments was able to reduce its finished goods inventory by 20%.
"It will be mine. Oh yes, it will be mine!"
(Mike Myers' character Wayne Campbell in Wayne's World, referring to Wayne's dream of one day owning a Fender Stratocaster guitar.)
You don't have to be a professional rock musician to recognize the name Fender Musical Instruments (Scottsdale, AZ). Not only was Fender Musical Instruments Corp. the maker of the first electric guitar, today it still manufactures more guitars than any of its competitors. The company manufactures hundreds of guitars a day (as well as a host of complementary products) from its manufacturing facilities in Ensenada, Mexico and Corona, CA and distributes its products globally to authorized dealers via its various distribution centers (DCs).
Because product demands in Europe differ from North America, Fender Musical Instruments' legacy SCM (supply chain management) solution was unable to provide the company with accurate planning and forecasting functionality. "Our legacy solution did forecasting based on sales metrics obtained from the previous 12 months," says Mike Gilreath, director of supply chain planning for Fender Musical Instruments. "And, the solution used only one algorithm to predict how many items we would need to manufacture and ship, which was insufficient for capturing all the factors that play into the popularity of certain items." For instance, if a rock star becomes famous and that star uses one of Fender Musical Instruments' products, sales for that product could shoot through the roof. Or, if one of Fender's products is featured in a movie (such as Wayne's World), sales for the featured product may spike for a period. Without the help of a supply chain solution that could take all the various factors into account, Fender Musical Instruments was left to its intuition when it came to stocking its DCs. Even though it never experienced an out-of-stock situation, the company did have occasions when it shipped twice as many guitars as were needed to its overseas DC, only to discover a few days later that it could have used those same guitars in the United States.
Tune Your DC
In June 2001, Gilreath went on the Internet to look for a better SCM solution. Based on his company's needs, he was able to narrow his search to about a half dozen vendors. The next step entailed meeting with the vendors and getting demos of their products. "After seeing all the vendors' offerings we chose two applications from Demand Management [St. Louis], based on the overall cost of the applications as well as the level of service they offered," recalls Gilreath. Fender Musical Instruments began rolling out Demand Solutions Forecast Management and Demand Solutions Requirements Planning solutions in October 2001. The two products required only a few minor upgrades such as purchasing a few new PCs with 250 MHz processors and purchasing a server (they use Dell) to host the new applications. "The biggest challenge to the project was migrating data from our legacy system to the new database," says Gilreath. "We had to format fields from our legacy application so everything would transfer properly. For instance, we had to make sure certain fields were designated at the proper length and other fields were comma delimited."
The implementation took three months and went live in January 2002. Right away the company noticed that it received a lot more detailed planning and forecasting information compared to its legacy system. Unlike its legacy solution, the Demand Solutions applications took into account 41 months of history (vs. 12) and incorporated 20 algorithms (vs. 1). "The results were amazing," recalls Gilreath. "Within a year we were able to reduce our finished product inventory by 20%."
Besides giving the guitar manufacturer a better view of its inventory needs, the Demand Solutions applications enabled Fender Musical Instruments to significantly reduce the time it took to put together its production schedule. "We used to spend several days putting together our production schedule. We can now put it together in less than a day," says Gilreath. "With the new level of efficiency our solution offers, it paid for itself twice over within the first six months of deployment." While most skeptics' response to a claim of a three-month return on investment is, "No way," Fender Musical Instruments emphatically says, "Way!"