Upscale office furnishings manufacturer Knoll Inc. knew it had to develop a new operational paradigm to handle its increasing global supply chain (particularly from China). "Over the last two years, we experienced a significant shift in our sourcing and we had to change our strategy from a domestic to an international model," says Rich Cirulli, director of logistics for the East Greenville, Pennsylvania-based company.

Knoll was facing the same challenge as many other U.S. manufacturers. This shift in sourcing required a shift in planning. "Being able to see the flow of products and materials throughout the supply chain while ensuring and monitoring the quality of that flow is difficult to manage in the command-control model American companies are accustomed to using in our highly rationalized domestic economy," says William Dodson, managing director of Chicago-based Silk Road Communications, a consulting firm offering business development service to U.S. companies in China. Fragmentation of the global supply chain can be prevented, he continues, "by having the information to know who your suppliers are, what is inbound, what the quality of goods is, how much inventory you have, and what your lead times are."

Predictive algorithms

Knoll understands this keenly, operating four U.S. manufacturing facilities, one Canadian facility, and two in Italy. As the fifth-largest manufacturer of high-end office furnishings in the world, Knoll-with annual revenues of $800 million-wanted to create an efficient world-class and reliable global supply chain network. A large order, especially when coupled with Knoll's business model as a build-to-order manufacturer operating within a tight three- to five-week lead time. "Keep in mind that the rub in all of this is we are also trying to keep our inventory levels as bone-low as possible," Cirulli says.

Knoll's predictive algorithm method of demand sourcing is the cornerstone of its operational success. "The China market posed a different challenge simply because the transportation time involved from our suppliers to our manufacturing doors could involve a minimum of 33 days to 40 days," says Cirulli. Knoll knew it had to find a solution to combat the time factor.

Cirulli prefers not to use the word 'forecasting.' "We chose a predictive mentality in which we attempt to predict what materials we will need at what time," he says. Once Knoll establishes that predictive algorithm, it manages it on a regular basis and makes appropriate adjustments as needed. "We have been successful in accomplishing this."

A big factor in Knoll's success is its collaborative partnership with Penske Logistics. "Quite honestly, our core competency is not handling the worldwide supply chain. So, we hired a best-in-class lead logistics provider to manage all of those activities for us," Cirulli says. The key benefit to Knoll is supply chain visibility. "In my mind, visibility adds to efficiency and increased capacity within our organization because we don't have to ask the 'what-ifs' involved in these long global supply chains." Another logistics challenge facing manufacturing companies today is guarding against fragmentation of their complex worldwide supply chain networks. For Knoll, protecting the integrity of its global network meant finding a way to integrate its U.S. and Canadian manufacturing facilities with assured deliveries from its Chinese suppliers so it could meet its customers' delivery dates.

As soon as Knoll predicts when it will need raw materials brought into its U.S. manufacturing plants, the supply chain kicks into action. Penske reports where those materials are at any given moment, and when manufacturing facilities will receive those materials. "Cirulli calls the transportation piece that Penske provides "critical," managing world-wide relationships with suppliers, freight forwarders, trucking companies, airports and ocean ports and customs offices.

Leap of faith

Already enjoying a successful relationship with Penske Logistics, who had been operating and managing its outbound finished goods distribution network in the U.S., Knoll turned to them in 2002 for help with its international inbound raw materials. "Early on we knew we needed to improve our supply chain from our suppliers in China, and it was absolutely critical for us to know where all our raw materials are at all times," says Cirulli.

So, Cirulli approached Penske to discover the nature of its presence in China. "They were just about ready to emerge on a new extension of their logistics program at that time which included managing supply chains from China to the U.S.," he says. "Penske asked me to take a leap of faith with them and to be one of their first clients in managing that piece of our supply chain."

After Knoll took that leap of faith, Penske then established a joint venture with another logistics provider in China. "Penske already had all its sophisticated supply chain visibility technology in place in the U.S. and in Europe so it was simply a matter of them doing a plug-and-play for us in China," Cirulli explains.

Today, using its predictive demand model to request raw materials, Knoll simply sends electronic purchase orders to its suppliers anywhere around the world. "Once they receive our purchase order and know what our demand is, they simply call 1-800-Penske and work out the date the shipment will be ready, the size of the shipment, and when the shipment needs to be at our manufacturing facilities," Cirulli says.

Based on these parameters, Penske coordinates-but does not perform-the chain of activities for the inbound transportation to Knoll's U.S. manufacturing plants. Penske chooses and manages the mode of transportation and acts as Knoll's transportation supplier, customs broker and freight forwarder. While the forwarders have long-standing close relationships with transportation carriers in China and they select the most cost-effective carrier, it is Penske that manages and reports all the information to Knoll.

Knoll enjoys complete supply chain visibility through its customized Web-based system linked to Penske data. "We have visibility of every leg within that supply chain, so we can see shipments moving from supplier to port, from port to ocean transportation, from ocean to land and from land to train, and from train to the point of embarkation and then the actual drayage right into our plants," says Cirulli.

Navigating efficiently

Another benefit the Penske international portfolio provides Knoll is the ability to minimize transportation costs for less-than-container shipments from China. "Penske handles the complexities of consolidating our shipments with those of its other customers, so we are sharing a container and receive full-container pricing," Cirulli says.

Penske also handles vendor-managed inventories with Knoll's worldwide suppliers, eliminating the need for Knoll to carry inventory in overseas warehouses. "We can leverage this infrastructure to coordinate material deliveries to our assembly lines to the hour and minute," Cirulli says.

In fact, Penske and Knoll developed a strategy that resulted in an overall reduction of about 50 percent of the costs associated with operating a third-party warehouse used to store raw materials from China. "We eliminated that warehouse and the associated line hauls. Now, we bring the raw material in to the Penske facility we manage on behalf of Knoll in China," says Frank Hazeltine, vice president of freight management for Penske Logistics headquartered in Reading, Pennsylvania. When Penske receives a demand for material from Knoll, Penske sets in motion the release of those parts to Knoll's manufacturing plants. "At this point, the ownership of the material reverts to Knoll and suppliers can then invoice Knoll," he says.

Even within the complex supply chain Knoll has been able to realize cost reductions through its partnership with Penske. "Knoll gets the visibility they desire as well as the material flows at a reduced rate because we handle all the complexities of their global supply chain," Hazeltine says. This includes real-time data relative to cycle time, costs, and all the key management information necessary to continuously improve its supply chain while more effectively focusing on its core manufacturing competency.

Knoll's regional consolidated mixing centers are also a big piece of the logistics puzzle on the outbound side of business. Prior to working with Penske, Knoll had been shipping its customers' furnishings from any of its four U.S. manufacturing facilities. This could mean a particular customer would get several different shipments at different times-for the same order-because each Knoll facility would send its finished products to that customer. The regional consolidated mixing centers eliminated that inefficiency. "Today, our factories ship every day like a conveyor belt on wheels into these mixing centers where orders are consolidated into one complete shipment and one single delivery can be made to a customer," Cirulli says.

Choosing the right suppliers can ameliorate the numerous risks lurking along the global supply chain. "Although the risk never goes away, it's really a matter of good business diligence to choose suppliers with good performance and track records that can minimize loss and maximize service," concludes Cirulli.