How Lixil transformed its global supply chain operations
No company has been immune to the supply chain disruptions that have rocked the business world over the past two and a half years. This is the story of how one company—water and housing product manufacturer Lixil—responded to this upheaval by transforming its supply chain to be more agile and efficient while still maintaining its focus on the customer and sustainability.
Whether triggered by pandemic-fueled shutdowns, geopolitical conflicts, or extreme weather events, global supply chain disruptions have had a profound impact on businesses around the world. According to research conducted by The Economist in 2021, supply chain disruptions have produced “substantial financial costs (averaging 6–10% of annual revenues), as well as reputational costs—in terms of customer complaints and damage to brand reputation—as companies have struggled to maintain supplies of their goods. Indeed, firms were as likely to report damage to brand reputation as a consequence of supply chain disruption as increased costs of operations.”1
As businesses work to repair fractured supply chains, some are struggling to accommodate increasing stakeholder demands for sustainability, flexibility, and customization. Oftentimes they also lack the talent they need to do so, making them increasingly vulnerable to future disruptions. While these challenges are certainly formidable, they also invite tremendous opportunity to design and implement global supply chain models that are more agile, sustainable, and technologically enabled.
At Lixil, we have not been immune to these disruptions. As a water and housing product manufacturer, we faced a general shortage of many critical materials at the start of the pandemic, the main example being lumber. We use lumber for packaging and pallets, and when its supply dropped, the cost was driven up exponentially and lead times extended dramatically. Another example is when a heavy winter storm in Texas in 2021 shut down some of the refineries and impacted the material availability of plastics and other components. Further, ocean shipping delays over the last few years have impacted the availability of finished products and assembly parts being imported from Asia to North America and Europe. (For more information about Lixil and its supply chain, please see the sidebar “About Lixil.”)
Even prior to the pandemic, however, we understood the importance of designing a supply chain operating model that could withstand global economic and political shocks, while mitigating systemic shutdowns to our operations. We sought to standardize, integrate, and scale supply chain operations across our business, and we’ve made good progress; but, like every other business on a road to transformation, we still have work to do.
To start, we provided our geographic regions more flexibility to account for differences in supply and demand and customer needs. In response to increasing consumer demand for sustainable practices and social and ecological accountability, we also placed sustainability front and center in consideration of how we source materials to manufacture toilets, faucets, and showers, and in the processes we use to drive greater energy efficiency. Additionally, we’re enhancing customer collaboration and improving our capabilities in forecasting supply and demand—all of which are putting us in a stronger position to achieve long-term, sustainable growth.
Using the key learnings and insights gleaned during our ongoing supply chain transformation, we outline below our main tips and takeaways for other supply chain leaders navigating economic, geopolitical, and climate dynamics.
1. Prioritize agility and efficiency
Every business is different, but global manufacturers that operate across a variety of markets will certainly benefit from increasing their operational agility and efficiency. Disruptions wrought by extreme weather events, geopolitical volatility, and inflationary pressures underscore the need for multiple sourcing and distribution centers (DCs). Should operations within a specific region falter, having various touch points will minimize risk of delays. They also help cut down lead times, as customers can rely on quicker, local shipments, rather than depending on one central distribution center.
We have built our supply chain to be agile and have added multiple DCs, sourcing centers, and manufacturing facilities across regions such as the Americas, Europe, and Asia that together create a truly global network we can rely on. For example, in the past, there were certain finished goods that we used to only be able to source in Asia from suppliers. But now, by expanding our manufacturing and sourcing capabilities, we are able to make those same products in Mexico, providing multiple sourcing options and shorter lead times.
We have also improved our supply chain agility by improving visibility across our end-to-end supply chain, particularly for our ocean freight. For example, in the last few years, we have implemented origin and destination cargo management for better end-to-end ocean freight visibility from the time the container is picked up at origin to the time it gets delivered to the DC at the destination. This includes visibility into value-added services like selecting the ocean carrier with the best rate for that route, tracking service metrics by ocean carrier, consolidating freight at origin, and transloading at destination, to name just a few.
2. Improve planning
At Lixil, we use the Supply Chain Operations Reference (SCOR) model as a way to help us think about and optimize our supply chain. The SCOR model defines the four key processes making up supply chain management as “plan, source, make, and deliver.” In this model, planning is the most critical element, serving as the anchor for all other phases of the process. If we do not plan properly and with careful consideration, the model will fail. We dedicate significant time and resources to the planning phase, considering product demand first and foremost, and adjusting subsequent operations accordingly.
Recently, we have taken several steps to improve our planning process by increasing the amount of collaboration between the sales and operations sides of our business. We have found that by doing this, we enhance our strategic planning and provide better value to customers and suppliers, while advancing company growth and profitability.
One way we have accomplished this is by revamping our sales and operations planning (S&OP) process to ensure that participants are actively engaged and contributing to the decision-making process. To create this active engagement, we have reduced the number of participants, making sure they are the decision-makers for their function and are investing the quality time needed to make those informed decisions. These efforts have improved collaboration and communication across sales and operations. Because of our collaborative work, we have been able to better identify any supply constraints and adjust product mix and supply sources to avoid customer disruption.
We also redesigned demand planning to be a commercial sales/merchandising-driven function. In the past, the supply chain team had full responsibility for demand planning, which was giving us less than desirable results. We realized that we needed to better bridge the commercial and operations sides of our business and improve information gaps in demand planning. To accomplish this, we formed a Commercial Demand Planning organization within our merchandising division. We structured our commercial demand planning organization so that it was aligned with our sales and merchandising channel structure and with our key accounts.
Our demand planning process is multilayered, as follows: (1) begin with a review by customers, (2) then review by channel, (3) then review by business unit. This approach begins at the earliest stage, when the sales team has the closest connection with the customers. In this way, we are enabling our sales team, who work with customers daily, to increase collaborative demand planning. We are focusing more on getting customers to share point-of-sale data with us, which will enable us to collaboratively plan with the customers. This reorganization helped to improve collaboration with customers, key account planning, and demand forecasting accuracy.
As a result of these efforts, we are now able to provide even higher quality service with lower inventory levels. However, our work does not end here. We are always striving to continuously improve our planning process with the objective of optimizing service levels, cost, and working capital.
3. Implement and scale sustainable practices
Another way that Lixil is transforming its global supply chain operations is by increasing its focus on sustainability. Social responsibility and environmental stewardship have a positive impact on our communities and the planet and are consistent with the desires and expectations of our customers, employees, and investors. Moreover, environmental, social, and corporate governance (ESG) initiatives have become commonplace at many companies, with some organizations seeing negative legal, financial, and regulatory consequences if their ESG standards are inconsistent with stakeholder expectations. Thus, by meeting ESG standards (and ensuring that their suppliers do so as well), companies reduce their exposure to disruption from these negative consequences.
It is important that an organization’s commitment to its sustainability practices is all-encompassing and embedded in the fabric of its supply chain operations. As such, our purpose—to make better lives a reality for everyone, everywhere—is enabled by our unwavering commitment to a sustainable business, extending beyond Lixil to our suppliers and partners, including architects, designers, general contractors, and building owners. They, too, want partners that prioritize and demonstrate a commitment to sustainability, making these relationships mutually beneficial for our businesses, the environment, and the communities we operate in. We believe that the way a company addresses sustainability will determine how effectively it differentiates itself in the market, increases value for investors, and appeals to employees and prospective employees.
For these reasons, Lixil promotes responsible procurement across our supply chain. We base our procurement processes on the Ten Principles of the United Nations Global Compact in the four areas of human rights, labor, environment, and anti-corruption as well as our own Procurement Principles and Procurement Compliance Policy.
Our Lixil Code of Conduct also specifies the ethical behavior that is expected of all of our staff, and it includes the prohibition of bribery. Meanwhile, our Supplier Code of Conduct, compiled in 2018, requires that suppliers respect human rights, observe international labor standards, conserve the global environment, and ensure fair business conduct. At the same time, we request that suppliers demand equivalent standards from their own suppliers.
Additionally, in January 2020, we created Green Procurement Guidelines outlining our policy and standards for procuring parts and materials that exert the least impact on the environment. In collaboration with our environmental management department, we ask suppliers to understand and support our environmental initiatives and procurement activities based on these guidelines.
Agility and sustainability
The past few years have taught us that risks to business continuity and supply chain disruptions will not abate anytime soon. Therefore, it is critical for supply chain leaders to design, standardize, and integrate supply chain operating models that are rooted in agility and sustainability, while adding in multiple distribution centers closer to customers. We are on a journey of continuous learning and adaptability, as are our colleagues in the manufacturing and supply chain space. By embracing these lessons and applying them in the transformation of global supply chains, businesses will become far more resilient, and gain a competitive advantage in the marketplace.
About Lixil
For more than 150 years, LIXIL Corporation has engineered water and housing products, such as faucets, toilets, and showers. Our brands include American Standard, GROHE, DXV, and INAX. Our customers not only encompass individual homeowners but also businesses and corporations seeking to upgrade their water technology and housing fixtures.
Our supply chain aims to deliver consistent lead times and the lowest landed costs. To achieve this goal, we take advantage of our manufacturing facilities in North America, which represent over 80% of LIXIL’s supply. We distribute to our customers from four distribution centers (DCs) in the U.S., two DCs in Mexico, and one DC in Canada. Currently, our manufacturing teams are also creating capability in our North America plants for greater nearshoring.
Sometimes, all you need is the right partner to solve your logistics problems.
In 2021, global paint supplier Sherwin Williams faced driver and hazardous material (hazmat) capacity constraints: There simply weren’t enough hazmat drivers available in its fleet to maintain the company’s 90% fleet utilization rate expectations for key partner store deliveries while also meeting growing demand for service. Those challenges threatened to become even more acute in the future, as a competing paint supply company began to scale back its operations in the Pacific Northwest, leaving Sherwin Williams with an opportunity to fill the gap.
The paint supplier needed a logistics partner that could help it overcome the shortage of hazmat drivers while also helping to manage its West Coast trailer pools, out-of-region runs, and ad-hoc freight. It also needed a solution that would meet quarterly and annual fleet budgets.
SCALING UP
Enter ITS Logistics, a third-party logistics service provider (3PL) that offers supply chain solutions for drayage, network transportation, distribution, and fulfillment across North America. ITS proposed a combined owned-asset and asset-light approach that would provide Sherwin Williams with the equivalent of 21 additional drivers. The 3PL would leverage its carrier network to overcome the shortage of hazmat capacity while also certifying its own drivers via a three-month process. Further, ITS would help manage Sherwin Williams’ trailer pools and coordinate carriers, providing the paint company with a single point of contact for transportation.
The project would address cost concerns as well: “ITS Logistics aligned its solution with Sherwin Williams’ budgetary cadence and offered a quarterly business review to align on price structure, adding a level of transparency and trust to the relationship,” according to a case study the partners released earlier this year.
The companies soon sealed the deal and launched the program.
Not long after that, Sherwin Williams began to feel the effects of the anticipated challenges in the Pacific Northwest—but the company was prepared. When the competing paint supply company shuttered its operations, causing demand for Sherwin Williams’ products to spike, ITS injected a blend of owned trailers and carrier power to alleviate equipment challenges, cover all locations and regions, and help the paint supplier scale to meet volume.
CLOSING THE GAPS
The project has helped Sherwin Williams rapidly scale its capacity, meet fleet utilization requirements, manage trailer pools, coordinate carriers, and flex to meet spikes in regional demand.
And the results speak for themselves.
“ITS integrating themselves into our fleet was instrumental in helping increase our outbound volume by 18.4 million pounds [year over year] in the last seven months of 2023,” said Ted Taxon, regional transportation manager at Sherwin Williams, in the case study. “This equated to approximately 460 truckloads of extra freight, a large portion of which ITS [handled] on an ad-hoc basis with no operational constraints or quality issues.”
The partnership also helped Sherwin Williams maintain a 90% fleet utilization rate with big box retailers—an increase from less than 70% prior to the partnership’s launch.
Robots are revolutionizing factories, warehouses, and distribution centers (DCs) around the world, thanks largely to heavy investments in the technology between 2019 and 2021. And although investment has slowed since then, the long-term outlook calls for steady growth over the next four years. According to data from research and consulting firm Interact Analysis, revenues from shipments of industrial robots are forecast to grow nearly 4% per year, on average, between 2024 and 2028 (see Exhibit 1).
EXHIBIT 1: Market forecast for industrial robots - revenuesInteract Analysis
Material handling is among the top applications for all those robots, accounting for one-third of overall robot market revenues in 2023, according to the research. That puts warehouses and DCs on the cutting edge of robotic innovation, with projects that are helping companies reduce costs, optimize labor, and improve productivity throughout their facilities. Here’s a look at two recent projects that demonstrate the kinds of gains companies have achieved by investing in robotic equipment.
FASTER, MORE ACCURATE CYCLE COUNTS
When leaders at MSI Surfaces wanted to get a better handle on their vast inventory of flooring, countertops, tile, and hardscape materials, they turned to warehouse inventory drone provider Corvus Robotics. The seven-year-old company offers a warehouse drone system, called Corvus One, that can be installed and deployed quickly—in what MSI leaders describe as a “plug and play” process. Corvus Robotics’ drones are fully autonomous—they require no external infrastructure, such as beacons or stickers for positioning and navigation, and no human operators. Essentially, all you need is the drone and a landing pad, and you’re in business.
The drones use computer vision and generative AI (artificial intelligence) to “understand” their environment, flying autonomously in both very narrow aisles—passageways as narrow as 50 inches—and in very wide aisles. The Corvus One system relies on obstacle detection to operate safely in warehouses and uses barcode scanning technology to count inventory; the advanced system can read any barcode symbol in any orientation placed anywhere on the front of a carton or pallet.
The system was the perfect answer to the inventory challenges MSI was facing. Its annual physical inventory counts required two to four dedicated warehouse associates, who would manually scan inventory to determine the amount of stock on hand. The process was both time-consuming and error-prone, and often led to inaccuracies. And it created a chain reaction of issues and problems. Fulfillment speed is one example: Lost or misplaced inventory would delay customer deliveries, resulting in dissatisfaction, returns, and unmet expectations. Productivity was also an issue: Workers were often pulled from fulfillment tasks to locate material, slowing overall operations.
MSI Surfaces began using the Corvus One system in 2021, deploying a small number of drones for daily inventory counts at its 300,000-square-foot distribution center (DC) in Orange, California. It quickly scaled up, adding more drones in Orange and expanding the system to three other DCs: in Houston; Savannah, Georgia; and Edison, New Jersey. The company plans to add more drones to the existing sites and expand the system to some of its smaller DCs as well, according to Corvus Robotics spokesperson Andrew Burer.
Those expansion plans are based on solid results: MSI’s inventory accuracy was about 80% prior to the drone implementation, but it quickly jumped to the high 90s—ultimately reaching 99%—after the company initiated the daily drone counts, according to Burer.
“We actually had an incident early on where one of the forklift drivers ran into the landing pad, rendering it inoperable for about a week while the Corvus team fixed it,” Burer recalls. “When we restarted the system, we noticed MSI’s inventory accuracy had dropped down to the 80s. But after flights resumed, accuracy quickly improved back to near perfect.” He adds that such collisions are rare as Corvus mounts landing pads high off the floor to avoid impacts but that accidents can still happen.
Overall, the system has helped speed warehouse operations in two key ways: First, the accuracy improvement means that associates no longer waste time searching for missing material in the warehouse. And second, the associates who used to conduct the physical inventory counts have been reallocated to picking and replenishment—creating a more efficient, and optimized, workforce.
A SAFER, MORE EFFICIENT WAREHOUSE
Robot maker Boston Dynamics is well-known for its Stretch and Spot industrial robots, both of which are at work in warehouses and DCs around the world. Earlier this year, Stretch made its debut in Europe, teaming up with Spot at a fulfillment center run by German retail company Otto Group. The deployment marks the first time Stretch and Spot are being used together—in a partnership designed to improve Otto Group’s warehousing operations by increasing efficiency and making warehouse work safer and more attractive to workers.
The partnership is part of a two-year project in which Boston Dynamics will deploy dozens of its warehouse robots in Otto Group’s European DCs. The first location is a fulfillment site operated by Hermes, the company’s parcel delivery subsidiary, in Haldensleben, Germany—a facility that handles as many as 40,000 cartons of goods on peak days.
At the site, Stretch—which is a mobile case-handling robot—autonomously unloads ocean containers and trailers, using its advanced perception system to pick and place boxes onto a telescoping conveyor inside the container or trailer. Spot—a quadruped robot—helps with predictive maintenance by collecting thermal data and performing acoustic and visual detection tasks throughout the facility to reduce unplanned downtime and energy costs. One of Spot’s jobs is to detect air leaks in the facility’s warehouse automation systems; future duties may include conveyor vibration detection, according to leaders at Otto Group.
Both Stretch and Spot will help the Haldensleben facility run more efficiently, especially during fall peak season when volume increases and work intensifies. The addition of Stretch addresses safety and comfort issues as well: Trailer unloading—a process that entails repeatedly lifting and moving heavy boxes inside a trailer, which can be dark, dirty, cold, and/or hot, depending on the weather—tends to be unappealing to workers. Along with reducing the amount of labor required, automating these tasks will have the added benefit for European facilities of helping them comply with EU (European Union) regulations limiting the amount of time workers can spend in those conditions.
Essentially, the robots are making life easier on the warehouse floor and for the company at large.
“Stretch is going to have a ton of benefits for customers here in the EU,” Andrew Brueckner, of Boston Dynamics, said in a recent case study on the project.
The trucking industry faces a range of challenges these days, particularly when it comes to load planning—a resource-intensive task that often results in suboptimal decisions, unnecessary empty miles, late deliveries, and inefficient asset utilization. What’s more, delays in decision-making due to a lack of real-time insights can hinder operational efficiency, making cost management a constant struggle.
Truckload carrier Paper Transport Inc. (PTI) experienced this firsthand when the company sought to expand its over the-road (OTR), intermodal, and brokerage offerings to include dedicated fleet services for high-volume shippers—adding a layer of complexity to the business. The additional personnel required for such a move would be extremely costly, leading PTI to investigate technology solutions that could help close the gap.
Enter Freight Science and its intelligent decision-recommendation and automation platform.
PTI implemented Freight Science’s artificial intelligence (AI)-driven load planning optimization solution earlier this year, giving the carrier a high-tech advantage as it launched the new service.
“As PTI tried to diversify … we found that we needed a technological solution that would allow us to process [information] faster,” explains Jared Stedl, chief commercial officer for PTI, emphasizing the high volume of outbound shipments and unique freight characteristics of its targeted dedicated-fleet customers.
The Freight Science platform allowed PTI to apply its signature high-quality service to those needs, all while handling the daily challenges of managing drivers and navigating route disruptions.
STREAMLINING PROCESSES
Dedicated fleets face challenges that evolve from day to day and minute to minute, including truck breakdowns, drivers calling in sick, and rescheduled appointment times. PTI needed a tool that allowed for a real-time view of the fleet, ultimately enabling its team to adjust truck and driver allocation to meet those challenges.
The Freight Science solution filled the bill. The platform uses advanced analytics and algorithms to give carriers better visibility into operations while automating the decision-making process. By combining streaming data, a carrier’s transportation management system (TMS), machine learning, and decision science, the solution allows carriers to deploy their fleets more efficiently while accurately forecasting future needs, according to Freight Science.
In PTI’s case, Freight Science’s software integrates with the carrier’s TMS, real-time electronic logging device (ELD) data, and other external data, feeding an AI model that generates an optimized load plan for the planner.
“We’re an integrated data analytics company for trucking companies,” explains Matt Foster, Freight Science’s president and CEO. “We’re talking about AI.”
The benefits of the real-time data are difficult to overstate.
“We’ve been able to execute in the toughest of situations because we’ve got real, live data on how long each event is actually going to take and a system to aid and even automate the decision-making process,” says Chad Borley, PTI’s operations manager. “From what traffic patterns we are battling in the morning and evening with rush hour and things like that, to the impact of additional miles to a route, or even location-specific dwell times, it’s been a huge differentiator for us.”
REALIZING RESULTS
A case in point: the collapse of Baltimore’s Francis Scott Key Bridge in March. PTI was scheduled to go live with a new dedicated account in the area just days after the collapse, which would mean rerouting and the potential for longer transit times. Instead of recalculating based on assumptions or latent data, PTI was able to reroute freight based on real-time information and analytics to give the customer timely updates.
“With the bridge going out, that changed our ability to make as many turns a day as the customer would expect,” Stedl explains. “But one of the things Freight Science could do [was to] quickly [assess] how much of an impact that traffic would have [and] what the turns [would] be based on what’s happening on the ground.
“So we were able to go back to the customer and readjust expectations in a real way that made sense, using data. Now expectations can be reset¾we’re not asking for forgiveness when there’s no reason for it.”
The system’s advanced algorithms make load planning more cost-effective and scalable as well. The platform allows PTI to monitor trucks, trailers, and driver hours in real time, recommending additional loads with remaining driver hours that would otherwise be wasted.
And they’re doing it all with much less. Stedl says tasks that used to require five people and hours of work can now be accomplished by one person in mere minutes, improving productivity and profitability while reducing labor and operational costs.
Terms of the deal were not disclosed, but Aptean said the move will add new capabilities to its warehouse management and supply chain management offerings for manufacturers, wholesalers, distributors, retailers, and 3PLs. Aptean currently provides enterprise resource planning (ERP), transportation management systems (TMS), and product lifecycle management (PLM) platforms.
Founded in 1980 and headquartered in Durham, U.K., Indigo Software provides software designed for mid-market organizations, giving users real-time visibility and management from the initial receipt of stock all the way through to final dispatch of the finished product. That enables organizations to optimize an array of warehouse operations including receiving, storage, picking, packing, and shipping, the firm says.
Specific sectors served by Indigo Software include the food and beverage, fashion and apparel, fast moving consumer goods, automotive, manufacturing, 3PL, chemicals, and wholesale / distribution verticals.
Schneider says its FreightPower platform now offers owner-operators significantly more access to Schneider’s range of freight options. That can help drivers to generate revenue and strengthen their business through: increased access to freight, high drop and hook rates of over 95% of loads, and a trip planning feature that calculates road miles.
“Collaborating with owner-operators is an important component in the success of our business and the reliable service we can provide customers, which is why the network has grown tremendously in the last 25 years,” Schneider Senior Vice President and General Manager of Truckload and Mexico John Bozec said in a release. "We want to invest in tools that support owner-operators in running and growing their businesses. With Schneider FreightPower, they gain access to better load management, increasing their productivity and revenue potential.”