TaylorMade Drives Supply-Chain Efficiency With 24-Hour Club

It's not often that a UPS delivery man gets applauded when he walks into the room. But it happened last spring at AMR Research's executive conference in Scottsdale, Ariz.
This particular agent of Big Brown was delivering a golf club that had been manufactured to the precise specifications of its new owner, selected at random from the audience and measured for the equipment just 24 hours earlier. It was a demonstration of the recently revamped supply chain of TaylorMade-adidas Golf Co. Inc.

Publicity stunt? Of course. But Mark Leposky, vice president of global operations for TaylorMade, was eager to show off the company's newfound ability to turn around customer orders in record time. Intent on curing a sick supply chain, TaylorMade had become the first sporting-goods maker to embrace the practice of mass customization.

Carlsbad, Calif.-based TaylorMade-adidas has never feared innovation. Founder Gary Adams started the company in 1979 by making metal drivers which hit the ball much farther than traditional woods. TaylorMade made a big leap in size when it was acquired by Germany's adidas-Salomon AG, a leader in sportswear and ski equipment, in 1998. Today, it is the number-two maker of clubs, after Callaway Golf, with worldwide revenues of more than $600m. That compares with just $280m at the time of the merger with adidas.

But clearly there were problems to be solved. TaylorMade was struggling in an industry with near-zero growth. Any improvement in sales had to come at the expense of its competition, which was more agile and efficient. Rivals were delivering custom clubs in just five days.

TaylorMade, meanwhile, had one of the most sluggish supply chains around. Leposky ticks off the time and steps involved: between 30 and 90 days to recognize demand changes at the retail level. Five more to update the forecast. Seven to convert it to a materials plan. Five to release assembly or purchase orders. A 60-day lead-time with vendors. And eight days for converting to a required shipment. Total supply-chain reaction time: an achingly slow 115 to 175 days.

	Custom-made clubs, only a fraction of production, are important for company image.

What's more, TaylorMade could neither promise nor control orders. It was meeting customer commitments through stockpiling of inventory. On-time delivery from vendors was no better than 60 percent. And forget about accurate sales forecasting. The company lacked the most basic information to achieve that crucial goal. "We had great products," Leposky recalls, "but we couldn't get them to market."

In a three-year program costing close to $10m, TaylorMade attacked the problem on multiple fronts. It stabilized and improved basic business processes. It developed enhanced supply-chain capabilities, including fast delivery of customized product. It purchased a rash of new software applications. Underlying the entire project was a desire to integrate supply-chain strategy with that of the organization as a whole. In Leposky's words, TaylorMade's supply chain was transformed into "a competitive weapon."

Even before it installed a single piece of new software, the company needed to change its whole attitude toward doing business. The system had to be built around the customer, not blind production schedules. That meant breaking down the traditional walls between functions, Leposky says, "so you can't tell where sales and operations start and stop."

Supply-chain executives speak of the challenge of getting "buy-in" from their employees, but that doesn't appear to have been a major problem for TaylorMade. With Leposky overseeing the entire supply chain, the project wasn't exactly top-heavy with management. And those who reported to him were sufficiently motivated. "People were tired of being just cogs," he says. "They wanted to be active participants in moving the business forward."

Realizing that garbage in means garbage out, Leposky strove to clean up the data on customer demand and configuration of product. "Before," he says, "we couldn't do a bill of materials on the fly." Custom clubs were treated as a deviation from standard finished goods. He needed to capture data for planning purposes at the level of individual components, not end product. At the same time, he spurred development of a master production schedule that would be shared by all participants.

Enabled by IT
Only then did TaylorMade address the issue of information technology. Leposky calls it "a key enabler" in the company's push for results. Areas of focus included supply-chain management, for demand, inventory and master planning; demand-chain management, for allocation planning, distributed order management and order promising; supplier relationship management, for design and procurement collaboration; and sales force automation, for inventory capture, order management and replenishment planning.

At the heart of TaylorMade's IT strategy is Dallas-based i2 Technologies Inc. The companies began working together in 1999, says Jim Stramm, i2's director of software goods. First, TaylorMade purchased the vendor's Supply Chain Strategist, in order to input data and determine what its plants needed to turn out product. The aim was to optimize the network at a high level, setting the right number of distribution centers, manufacturing sites and suppliers.

By the middle of 2000, TaylorMade had committed to a whole series of i2 applications, including Demand Planner, Supply Chain Collaborator, Forecasting Netting, Inventory Planning, Master Planning and Demand Fulfillment. TaylorMade would later add Sales Force Automation and Demand Chain Management.

The problem, says Stramm, begins at the time an order is placed. The supplier must know whether it can make and deliver the product in question, within the time specified by the customer. And it must anticipate demand at the component level - something that can be devilishly hard to do, even for companies without multiple product configurations.

All of this, of course, has to take place against a backdrop of minimal inventories. "In a high-velocity environment, you don't have [large] finished-goods inventories," Stramm says. "You can't hide the problems in your supply chain."

i2 might not have been an expert on golf clubs, but it knew something about fashioning lean, responsive supply chains. One of its customers is Dell Computer, the poster child for configure- to-order manufacturing. Chris Houck, program manager with i2, says Leposky was convinced the Dell model could be applied to TaylorMade, where a large number of SKUs hadn't translated into good delivery performance.

i2 had some adjustments to make as well. Leposky says TaylorMade pushed the vendor to integrate its various products. Creation of a coherent supply chain took more than a year of effort, he says.

Change in the Warehouse
On the execution end, TaylorMade adopted ViaWare, the warehouse management system (WMS) of Grand Rapids, Mich.-based Provia Software. In the summer of 2001, the system went live at the customer's 100,000-square-foot manufacturing and distribution facility in Carlsbad.

The system was implemented in two phases, says John Pulling, vice president and chief operating officer of Provia. The first was to handle the shipment of regularly stocked goods, such as club sets, in large volumes. TaylorMade had just merged with adidas, and was on the verge of a big increase in its distribution pipeline.

The second phase was for managing the custom configuration of clubs. The Provia system had to be able to "explode" a bill of materials and deal with its components. That required an advanced kitting and assembly function. Each of the two phases took about 90 days to implement, says Pulling.

ViaWare kicks in at the very beginning of the fulfillment process, selecting the right size of box for each order. Automatic containerization has helped the company to increase warehouse productivity to 30 cartons per hour per person, compared with four to eight cartons under the old system.

The software also gives TaylorMade the ability to prioritize orders, based on service level, order volume, promised delivery date, and transport mode. Cartons are scanned repeatedly, through radio-frequency identification (RFID), to generate the necessary paperwork and keep tabs on each shipment as it moves through the system. Provia's shop-floor execution system integrates smoothly with i2's planning and fulfillment systems, Leposky says.

Rounding out TaylorMade's suite of supply-chain software are the MFG/PRO material requirements planning product of QAD Inc., the Clippership parcel management system of Kewill Systems plc, the customer relationship management (CRM) package of KANA Software Inc., and an enterprise resource planning (ERP) platform from Oracle Corp.

How to Customize
Building up the custom club side of the business was no small task. A TaylorMade club involves hundreds of possible configurations, including type of grip, wrap, shaft length and precise angle of head. The various IT applications make it possible for the company to configure clubs for a large number of customers, in record time. "They enable us to have scale where scale did not exist," Leposky says.

The first year of the program involved a relatively narrow menu of options, mostly centered around shafts and grips. Today, TaylorMade can customize virtually any aspect of a club.

The supply chain for that line of business is run separately from the standard manufacturing operation, which still drives most of the company's business. During the peak period of May through July, one-day orders for custom clubs might account for up to 5 percent of total orders. Three-day service covers another 40 percent, five-day service 40 percent, and the rest is produced with a seven-day turnaround, the industry standard.

Except for the seven-day option, each level of service involves a progressively higher charge to the customer. Customers will generally pay an extra $100 per order for 24-hour service, $50 for three days, and $25 for five.

The expedited service offering is growing slightly, but will never make up more than a fraction of TaylorMade's business. Most customers don't mind waiting a few days for their clubs. Still, it's a key part of the company's image as market innovator and best-in-class manufacturer. TaylorMade has more than doubled in size over the past three years, Leposky notes, and better service is a strong contributing factor. Most of that growth has come in the form of regained market share.

The supply-chain overhaul is far from finished, says Leposky, but the results to date are impressive. Order-fill rates have improved by 33 percent. On the vendor side, thanks in large part to online collaboration, order-to-delivery cycle time has declined from 120 to 60 days. Vendors have improved fill rates from 70 percent to better than 90 percent. Using constraint-management techniques and inventory-planning systems, planners can now obtain realistic material schedules within hours instead of weeks.

Overall, TaylorMade has seen a reduction of more than 25 percent in the cost of goods sold. Inventory turns have improved by 33 percent, and sales representative productivity is up by 25 percent. The customer contact center handles the same volume of inquiries with half the staff. Meanwhile, on-time delivery of product has gone from 70 percent to more than 95 percent.

Spreading the Model
TaylorMade's success raises the question of how many of its techniques can be applied to other industries. Manufacturers have long dreamed of mass customization--the ability to turn out highly tailored products on a large-scale basis.

A handful have scored big wins. Dell Computer does a thriving business in partially bespoke machines, mostly ordered over the internet. The business-to-business web site of Cisco Systems lets high-tech equipment makers configure routers, switches and other components to their precise requirements.

Other attempts have faltered. For a time, Levi Strauss & Co. was offering to make jeans according to customers' exact measurements, obtained at its retail stores. The program never really got off the ground. In 1995, office furniture maker Herman Miller launched its SQA ("simple, quick and affordable") division to market custom-built cubicle systems to small and medium-sized businesses. While SQA succeeded in implementing a configurable supply chain with fast turnaround times, the division was phased out this year, a victim of sluggish demand.

The TaylorMade model "fits almost every business you can think of," says Bruce Richardson, analyst with AMR Research in Boston. Even giant Procter & Gamble has dabbled in custom product design on its web site. The goal, he says, is to achieve "a lot size of one--and do it quickly."

The automotive industry has talked about the so-called custom car for decades. In recent years, Toyota has spurred debate over the feasibility of a "five-day car," whereby the consumer could specify color, upholstery, stereo system and a host of other features, then take delivery of that exact model in less than a week. In theory, the manufacturer would produce to order, rather than draw from existing inventory.

The idea - whether it's five days, seven, or longer - remains a distant dream for automakers at the moment. Special orders still take months to fulfill, Richardson notes. The industry has no means of accurately forecasting demand for the various components that would go into a custom car, let alone the manufacturing techniques to create an endlessly flexible production line.

One key to success lies in limiting the number of options. A highly configurable supply chain may offer the illusion of infinite choices. The number of variations in a Dell computer isn't as great as it appears at first blush. Herman Miller SQA offered just five surface finishes for its tables and desks, and two - gray and black - for chairs. That's significantly fewer than the choices available to customers of the parent company.

Speed, while hard to achieve, is another means of simplifying the process. "The faster you can satisfy the customer," says Richardson, "the less time you leave to change the order or cancel it." Moreover, he says, companies looking to embrace mass customization must have sufficient demand to justify maintaining the requisite mix of parts, not to mention a host of enabling software systems. They include sophisticated tools for demand planning, plant-floor scheduling, supply-chain costing and supplier collaboration.

The Execution End
Revamping the production line is only one step in the process, says Steve Banker, director of supply-chain research with ARC Advisory Group in Dedham, Mass. The other is fast delivery, often within a day or two. Both require a degree of service that not every business can emulate, or even wants. "Fundamentally, companies compete in different ways," he says. "This is really a strategy of competitiveness based on very high service levels."

Customization is as much a question of image as reality, agrees Banker. "One of the tricks is the appearance that it's a special item, when really it's not," he says. "The Dell web site looks like it offers an infinite number of choices, but it's designed to narrow you down to a manageable number."

Still, launching a customization strategy of any kind is a tough challenge. Many adopters practice the technique of postponement, creating a basic product, then tailoring it at the last minute to suit the needs of a given customer, company or geographical region. Hewlett-Packard has long employed this strategy for its line of printers, sold globally. But that's a far cry from making product to suit the needs of a single buyer.

TaylorMade has no second thoughts about its own program. The company can respond to changes in the market with unprecedented speed. In late August, the U.S. Golf Association issued new rules on the acceptable "spring-like" effect of driving clubs. TaylorMade's popular R500 Series of drivers was in violation of that standard. The company immediately announced that its first shipment of conforming clubs would reach North America just over two weeks after the ruling. Total time from the USGA decision to redesign and distribution of product: 12 working days.

Leposky speaks of the importance of sustainable competitive advantage, meaning a company is at least 18 months ahead of its competition in terms of cost, quality, speed, service, agility or consistency. But to remain dominant, he says, a leader must keep on innovating every 18 months.

While its rivals struggle to match TaylorMade's custom club program, the company will continue to streamline its supply chain. What form will that effort take? Answers Leposky: "Talk to me in 18 months."