Customer Innovation Study McNaughton-McKay Electric . - Earnest & Assoc

FACTS AT A G LA N C ES IT UATIO N ANALYSISINNOVATIO N STRATE GYRESULTSLOOKI N G AHEADLI N KSCustomer Innovation StudyMcNaughton-McKayElectric CompanyEnhances logistics strategy, improves customer service, andincreases operational efficiency with Infor Distribution SX.e“Infor Distribution SX.e gave us visibility into the totalMcNaughton-McKay inventory which allowed us toimplement several very strategic initiatives”.Scott SellersExecutive Vice President, Operations,McNaughton-McKay Electric Company1

FACTS AT A G LA N C ES IT UATIO N ANALYSISINNOVATIO N STRATE GYRESULTSLOOKI N G AHEADLI N KSFacts at a glanceCompanySituation analysisHigh level impactMcNaughton-McKayElectric Companyn Change processes to realize newly accessible economies of scale from rapid growth andnumerous acquisitions.n Balance customer service levels with operational cost reductions with an enhancement ofthe logistics operating model.2.12%HeadquartersMadison Heights, MichiganIndustryDistributionNumber of SKUs soldApproximately 45,000Products and modulesInfor Distribution SX.e, TotalWarehouse Logistics (TWL)Web sitewww.mc-mc.comincrease in customer fill rate(from 94.5% to 96.5%)Innovation strategy Migrate from seven disparate business systems accumulated through acquisitions toInfor Distribution Sx.e.n Change the logistical model anchored by four key customer fulfilment centers (CFCs)(Madison Heights, Michigan; Columbus, Ohio; Norcross, Georgia; and Greenville, SouthCarolina) to increase customer fill rates and reduce inventory.n Optimize operations at four CFCs with velocity picking and wave picking.n Take advantage of Infor Dynamic Science Labs to help create models that maximize bothcustomer loyalty and organizational efficiency.nResults Reduced labor costs and increased labor efficiency. Realized a 17.5% reduction in man-hoursin the Columbus CFC, and an 18% increase in McNaughton-McKay’s efficiency factor.n Reduced the inventory level required to run the business by 15% (inventory is theorganization’s largest asset).n Minimized logistics costs by increasing the overall customer fill rate and reducing thenumber of backorders.nI N F O R C U S T O M E R I N N O VAT I O N S T U D Y D I S T R I B U T I O N M c N a u g h t o n - M c K a y E l e c t r i c C o m p a n y18%increase in lines shipped/man-hours (McNaughton-McKay’sefficiency factor)15%reduction in inventory—the largestasset on the company’s balancesheet2

FACTS AT A G LA N C ES IT UATIO N ANALYSISINNOVATIO N STRATE GYRESULTSLOOKI N G AHEADLI N KSFrom a regional presence to 5 statesand 24 locationsGrowing means changing“We continue a longterm businessrelationship with ourcustomers by providingexceptional customerservice. InforDistribution SX.e’s TotalWarehouse Logisticsreduces warehouseerrors and helpsimprove the customerexperience.”Greg ChunVP Marketing,McNaughton-McKayEstablished in 1910 in downtown Detroit, Michigan,McNaughton-McKay Electric Company has over a centuryof experience as an electrical distributor. While the first72 years of its operation was confined to the Detroitmarketplace, today McNaughton-McKay has 24 locationsin 5 states across the US and 2 locations in Germany. Theorganization grew at a rapid pace from 1982, when it hadonly 1 location, to 1998 with 20 locations up and running.As a result of such fast growth and the acquisition of somany companies, McNaughton-McKay was using 7 differentbusiness systems to run all of the disparate businessesby 1999. Before Infor Distribution SX.e was introduced asthe business system at McNaughton-McKay, the companycould not share inventory or take advantage of the mutualbuying power across its divisions because it lacked visibilityinto its enterprise wide inventory. Something as simple asconsolidating an income statement was done manually.I N F O R C U S T O M E R I N N O VAT I O N S T U D Y D I S T R I B U T I O N M c N a u g h t o n - M c K a y E l e c t r i c C o m p a n yWith a larger operational footprint, McNaughton-McKayneeded to implement changes to its processes. Solutionsto support those processes were required to help theorganization realize newly accessible economies of scale.McNaughton-McKay recognized that consolidating inventorycould result in reduced inventory and working capital, butthe organization didn’t want to sacrifice its value propositionof superior customer service in doing so. As a result, theorganization looked at both customer service levels andoperational costs when making the decision to revamp itslogistics model and optimize the efficiency of its warehouseoperations with Infor Distribution SX.e.3

FACTS AT A G LA N C ES IT UATIO N ANALYSISINNOVATIO N STRATE GYRESULTSLOOKI N G AHEADLI N KSCentralizing inventory andoptimizing deliveryRather than keeping wide and deep levels of inventory atMcNaughton-McKay’s walk-in branches, the company decidedto instead centralize inventory in four customer fulfillmentcenters (CFCs) spread strategically across the US, and tomake daily deliveries to branches for their needs for that day.All of McNaughton-McKay’s customers are close enough thatthey are within a two-and-a-half-hour drive, which means thatcustomers can get same-day delivery service for their urgentneeds. Smaller branches without a wide breadth of SKUs nowbenefit from the effects of pooled inventory from a group ofbranches, which helps to reduce the occurrence of non-stockitems and duplicated inventory required to adequately fulfillcustomer demand. While the CFC initiative was a strategicdecision, Gregory Chun (VP of marketing and former VP of ITat McNaughton-McKay) commented, “it could not have beenimplemented without the support of Infor Distribution SX.e.”I N F O R C U S T O M E R I N N O VAT I O N S T U D Y D I S T R I B U T I O N M c N a u g h t o n - M c K a y E l e c t r i c C o m p a n yIncreasing efficiency inwarehouse operationsMcNaughton-McKay uses Total Warehouse Logistics (TWL),a module of Infor Distribution SX.e, to optimize warehouseprocesses. The CFC in Detroit has roughly 100,000 squarefeet of warehouse space; and like many other distributors,before the implementation, the company’s warehouses wereorganized alphanumerically by product line. Now, the 10,000feet of the warehouse that’s closest to the docking area canfulfil 65% of the total orders that are picked. This set-up reducesdock-to-stocking time and enables velocity picking whichreduces the amount of time it takes to pick an order. Wavepicking, the operational strategy of having workers pick multipleorders as they move throughout the warehouse, was alsointroduced. This helps minimize the average distance workersneed to travel to pick orders and helps increase McNaughtonMcKay’s efficiency factor (lines shipped/man-hours).4

FACTS AT A G LA N C EDetailed impact79%reduction in warehouseerrors at the ColumbusCFCS IT UATIO N ANALYSISINNOVATIO N STRATE GYincrease in line count in theMadison Heights CFC17.5%reduction in man-hours atthe Columbus CFC20-25%reduction in back ordersas a result of the useof the back order shipcomplete functionLOOKI N G AHEADLI N KSWarehouse and logisticsefficienciesValue realized183%RESULTSInfor Distribution SX.e has helped McNaughton-McKaydecrease labor costs and increase labor efficiency, whichhelp reduce the amount of inventory required to run thebusiness, as well minimize logistics costs. Logistics costsare cut because the number of back orders is reducedby increasing the overall customer fill rate by 2.12%. With166,000 orders processed every month, that increase incustomer fill rate would account for 45,749 fewer ordersshipped each year. With the average total cost of managingsales orders per sales order placed of 24.21, this wouldrepresent an annual savings of 1,107,583. Also helping toreduce logistics costs is Infor Distribution SX.e’s back ordership-complete function, which allows an order to be helduntil all the material for the order is together. This results in20% to 25% fewer back orders created.I N F O R C U S T O M E R I N N O VAT I O N S T U D Y D I S T R I B U T I O N M c N a u g h t o n - M c K a y E l e c t r i c C o m p a n yIncreasing efficiency, accuracy, andcustomer service all at onceBy adopting the CFC model, work that was previously donein multiple locations is now done in one place. Becausemore work can be done in one location, the operation canrun around the clock. This allows McNaughton-McKay’soperation to wait until after normal business hours—whendaily business activities have subsided—to pick ordersthat will be shipped the next morning. With McNaughtonMcKay’s most recent implementation of Total WarehouseLogistics at the Columbus CFC, warehouse errors decreasedby 79%. This reduces the number of times a customerreceives an order with incorrect parts, quantities, or both,and the number of times an order is shipped to close out therevenue attached to the order. The scheduled labor for agiven shift can be more closely aligned with the actual workrequired, so employees can develop expertise in their roles,which has increased productivity.5

FACTS AT A G LA N C ES IT UATIO N ANALYSISINNOVATIO N STRATE GYRESULTSLOOKI N G AHEADLI N KSLooking ahead“We are reallyencouraged by theformation of InforDynamic Science Labsand some of the thingsthey have been talkingabout with us. Theprocess they are usingis impressive and weare looking forward tofinishing the projectswe have underwaywith them.”Infor Dynamic Science Labs is a group of scientists,mathematicians, economists, and engineers whose goal isto help organizations make smarter, better-informed,data-driven decisions. The team uses the scientific method—proposing and testing falsifiable hypotheses so thatopposing questions can be tested and verified. Infor DynamicScience Labs is currently working with McNaughton-McKayto help create models that maximize both customer loyaltyand organizational efficiency.Scott SellersExecutive VicePresident, Operations,McNaughton-McKayElectric CompanyI N F O R C U S T O M E R I N N O VAT I O N S T U D Y D I S T R I B U T I O N M c N a u g h t o n - M c K a y E l e c t r i c C o m p a n y6

FACTS AT A G LA N C ES IT UATIO N ANALYSISINNOVATIO N STRATE GYRESULTSLOOKI N G AHEADLI N KSLinksThe next generation of enterprisesoftware won’t just collect, report,and distribute informationIt will anticipate problems and respond with solutions.See how Infor Dynamic Science Labs is leading the nextgeneration of enterprise software.A workflow improvedLearn more about McNaughton-McKay’sgrowth story and how the organizationcentralized seven business systemswith Infor Distribution SX.e to manage itsbusiness.Watch the video Read more Are you an Infor DistributionSX.e customer?Infor Distribution SX.e helps all typesof distributorsIncrease productivity and adapt quickly to an evolvingmarket. Providing broad visibility across your entireorganization, this powerful solution delivers unparalleledcontrol in managing thousands of transactions, suppliers,and customers, while simultaneously tracking millions ofinventory items.Read more Take a look at the Infor Distribution SX.e customercommunity page. You’ll find the most recent information onthe latest release and other resources to help you accesssupport and education, get involved in customer events,upgrade your solution, and more.Read more I N F O R C U S T O M E R I N N O VAT I O N S T U D Y D I S T R I B U T I O N M c N a u g h t o n - M c K a y E l e c t r i c C o m p a n y7