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Insight from the network optimization tool
is also extensively employed in North Pole’s
robust List and Elf Operations Planning
(L&EP) process, which actually now more
explicitly includes toy inventory as part of
that discipline (LTEP).
“We get a constant stream of companies
that come here to see how we do this,”
says Ireth Helyanwe, director of LTEP at
North pole. “Santa has made it clear this is
a board level issue, not just a supply chain
thing,” she adds, noting the bearded CEO
with the portly belly purposely selected her
for this role from out of the Toy Marketing
department to send a message about
how critical the process was for the entire
enterprise.
20
years ago the Elf Management
System (EMS), was somewhat
controversial when it was first
implemented
Of course, a high performance
forecasting program is a critical element of
LTEP, since despite a highly efficient and
flexible manufacturing operation, much
inventory must be made in advance to
support the once per year fulfillment surge.
“We are highly seasonal,” notes
Calmcacil. Demand planners are highly
respected here, and that is one of the
key pieces of advice they offer to visiting
benchmarkers.
North Pole is also very advanced in new
techniques such as Predictive Demand
Planning and Demand Sensing. This is
critical, as toy demand is very unpredictable,
especially with the growing preference on
Christmas lists for electronic toys.
“Our staple SKUs - you know the Barbies,
the GI Joes, the basketballs - we just let the
software system run with those,” Helyanwe
says. “But what will ultimately be the most
in demand gaming system come December,
that is a much different ball game.” She adds
that demand volatility is higher than ever.
Finrod Ancalime, North Pole CIO, has led
the development of a system that constantly
monitors social network sites for clues as
to where demand is headed throughout the
year. The earliest Santa letters received
here from children are quickly encoded
and posted to a data igloo to give early
intelligence as to where final demand is
really headed. While “demand shaping” in
the Dell sense is not really possible - the
toys are free, after all - the North Pole does
subsidize some television advertising for
certain products if it believes it will not be
able to meet demand in other areas given
the way list trends are headed.
Deciding on whether to use push, pull
or push-pull strategies for each SKU is a
core competence here too. While North
Pole tries to be pull based where it can,
with substantial make-to-order operations,
extreme seasonality means make-to stock
is also heavily utilized. Calmcacil notes that
in the relatively few times North Pole greatly
overestimates demand for a given toy, a
hard push strategy is often used.
“Every child is used to getting a toy or
two they weren’t expecting, right? We add
in a few of our forecasting mistakes to each
pick list, but that’s OK.” Calmcacil says.
North Pole uses that technique to draw
down inventories of slow movers, then later
partners with Overstock.com and similar
retail channels to quickly get rid of excess
North Pole
CASE STUDY
inventories after the peak season. “We used
to hold the inventory to avoid the write-down,
but have learned that is just a bad strategy in
the end,” he added.
Flexible manufacturing and
postponement strategies are the real keys to
meeting these demand dynamics.
Elves on production lines are cross
trained in numerous tasks, and investments
have been made to enable each elf line
to be capable of making multiple product
categories. But you can go too far, Calmcacil
says they have learned.
Postponement is a common practice.
Board games, for example, generally use
standard boards and boxes, which are then
digitally printed at the last moment based
on list demand to create the specific games
needed to fulfill kid customer requests.
The actual fulfillment operations here are
simply astonishing. Most of the DCs could
operate almost “lights out” given the level of
automation, though a few have been kept
more manual to test Lean versus highly
automated models.
In the most highly automated DCs, new
to the world robotic systems have been
deployed to enable high volume, childspecific
order picking.
“We’ve had Wal-Mart, LL Bean, Cardinal
Health, and several others up here to
see how we are doing this,” says Alatariel
Inglorion, Sr. VP of List Fulfillment.
The Elf Management System (EMS),
based on discrete standards, was
somewhat controversial when it was
implemented about 20 years ago, but in the
end it has both reduced costs and improved
morale and retention in the DC.
While everything seems to run here like
a high end Swiss watch, North Pole is not
without its supply chain concerns.
“Fuel costs are skyrocketing,” says
Calmcacil, noting that the grain products
used to feed the reindeer are up some
50% in 2010. An aging work force is also a
concern, with many elves more than 1000
years old. A decent percent of recent capital
investment has been to reduce the stress on
the elf bodies working the production lines,
spend which has shown a huge ROI.
With the elf population largely static and
increasing global demand, everyone at the
North Pole is overtaxed, sometimes not
leaving enough time for keeping up with the
latest SCM development and trends.
Courtesy: Supply Chain Digest
January 2011 Link
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