They are challenged by foreign competition, rising labor costs and shrinking profit margins. They've experienced restructuring, consolidation and massive layoffs. Increased efficiency, reduced expenses and enhanced customer value are essential to survival and better profitability.

The tribulations of the lumber/paper, plastics and textile/apparel industries sound like metals. But these industries have been faster to embrace supply chain management—where suppliers, producers and distributors collaborate with customers to ensure timely delivery of better-quality, lower-cost products.

"Much of the profit potential in these industries is now in the supply chain services that can be wrapped around these otherwise commodity products," says Michael Hugos, author of Essentials of Supply Chain Management (John Wiley & Sons, 2003) and a former paper industry CIO. He now consults with manufacturing companies on how to build stronger supply chains.

"Companies that sell commodity products such as paper, lumber, metal, plastics, etc., for the most part are serving mature markets where there is continuous downward pressure on profit margins," Hugos says. "They need to develop supply chains that emphasize customer service, internal efficiency and that demand flexibility. That's where your profit is."

While the metals industry shares some of the same problems as other basic industries, it has its own challenges in trying to create a cohesive supply chain. For one, such a supply chain requires every player—from the raw materials supplier to the distributor—to work together and share information with the final customer. That doesn't happen often enough in the metals industry, says Anthony J. Paoni, professor of technology and innovation at the Kellogg Graduate School of Management at Northwestern University.

Margins are thin and every company looks for a competitive advantage. Mills and metals service centers sometimes compete for the same customers. Sharing trade secrets risks compromising the competitive edge, or losing a customer to another company, Paoni says.

"The industry is not just competitive, it's hyper competitive. This discourages people from working together," he says.

Many other industries don't face the same obstacles to cooperation because the roles of each player in the supply chain are better defined and they don't compete for the same customer, Paoni says.

Additionally, some markets benefit from large customers that exert top-down pressure to develop a smooth supply chain that increases efficiency and lowers costs. Consider the influence Wal-Mart Stores Inc. has on the retail supply chain, or Dell Inc. in the computer industry.

While the Big Three automakers still wield great influence on the steel industry, the construction business remains the largest customer. With only a handful of sizeable players, the construction business doesn't offer incentives to change old supply practices.

"The metals industry is so fragmented—you often don't have the volume of a bigger customer to make it happen," Paoni says.

Finally, much of the work in the metals industry is specialized, with products manufactured to detailed specifications, often in smaller shipments. It's easier to create a reliable supply chain when the specifications for a product change very little and items are produced in large volumes. In the paper industry, for example, the specifications don't change in the mass production of copy paper. The supply chain is easier to build and the product is easier to track.

"Supply chain management is much more difficult in the metals industry. The products are often customized and produced in smaller quantities. Perhaps the product you produce becomes a component of other products. This makes tracking much more challenging," says Michael Hilbrich, a manufacturing consultant for i2 Technologies Inc., a Dallas-based company that markets software products for supply chain management.

But not everyone views these challenges as impediments to a successful supply chain model in the metals industry. Hugos says to start, distributors have to get over their fear of sharing information.

"If you're afraid of sharing information, sign a non-compete, non-disclosure contract," he says. "It's a bitter pill to tell folks their data is as valuable as the product they sell. But the fact is, everyone has to work together and share information if they want to survive."

For example, Hugos says that steel coil is of little real value to a service center until it is sold. By sharing information with customers, or potential customers, about how much steel is in stock, how quickly it can be cut or shaped to specifications and how fast it can be delivered, the coil takes on added value.

"It's that information that is the value added that will bring the 2%, 3%, 4% profit," Hugos says.

Hugos says metals companies should celebrate that they're in an industry that demands specialization and customization, the entrée to offering value-added products to customers and beating the competition.

"The idea that the product keeps changing—that's good news," Hugos says. "If you pay attention to what a customer is using and match your product to his exact needs, you will have a satisfied customer. Supply chain management provides you with the information to meet your customer's needs. That makes you more valuable."

Examples of innovations from the lumber/paper, plastics and textile/apparel industries, although not exact matches for the metals supply chain, show how this can work.

Products made from trees—from furniture to office paper—generate revenue of $148 billion annually in the United States, providing jobs for some 850,000 people, says the U.S. Department of Agriculture.

But the domestic lumber and paper industry has declined for a number of years, challenged by lower-cost imports. Countries in Asia and even Canada have invested heavily in state-of-the art production facilities, creating an abundance of wood and paper products offered at low prices. The result has been industry consolidation in the U.S., with the loss of nearly 100,000 jobs over the past decade.

Unable to compete on price, domestic wood and paper product manufacturers have turned to supply chain management to bring improved product quality and added service to customers, whether it be pre-cut lumber for a home improvement store, customized wood materials for a furniture manufacturer or specialized paper products for an office supply store.

"Companies can no longer compete just pushing a lot of inventory. Now customers are asking for more innovative, radical approaches. Suppliers, manufacturers and distributors are figuring out how to work together to deliver," says Les Brand, CEO of Supply Chain Solutions Inc., a Grand Rapids, Michigan-based consulting firm.

For example, Supply Chain Solutions worked with Weyerhaeuser Co. and its distributors to create a system to deliver customized wood products to the Howard Miller Clock Co., a Zeeland, Michigan-based maker of grandfather clocks.

For years, Weyerhaeuser, a $22.5 billion forest products company based in Federal Way, Washington, was simply in the business of cutting and shipping large quantities of wood to its customers. But Howard Miller Clock no longer wanted to store large shipments of 2-by-4 sections of wood in its warehouse. It wanted custom-cut pieces that could quickly be fashioned into a clock. That would lower inventory and labor costs and allow clocks to be produced in a smaller facility.

So in 2002, Weyerhaeuser leased a distribution center nearby, where it could deliver unfinished wood, cut it to Howard Miller's specifications, and deliver it to the clockmaker within 24 hours. Weyerhaeuser networked its computer system with Howard Miller so it knew the clockmaker's inventory needs up to 20 weeks out. The improved supply chain enabled Howard Miller to increase production without having to build additional factory space. It also reduced inventory and labor costs.

As a consequence, Howard Miller has delivery of pre-cut wood within 24 hours of an order.

The Michigan distribution center is one of 72 Weyerhaeuser has built across North America to bring added value to its customers. Besides supplying pre-cut products to manufacturers, Weyerhaeuser also uses the distribution centers to deliver just-in-time orders to retail clients such as Home Depot and Lowe's. In most cases, the customer's inventory needs are shared by the distribution center and Weyerhaeuser's manufacturing, helping reduce inventory and labor costs for each member of the chain.

"It's a savings for everyone because it gives real-time information about how much product is needed and when," says Phil Alexander, sales manager for Weyerhaeuser's Michigan distribution center.

Similarly, Steelcase Inc., a Grand Rapids, Michigan-based office furniture maker, wanted to achieve lower costs and increased efficiency by streamlining its packaging operation. Historically, multiple suppliers would deliver cardboard, foam and other materials used to package furniture before shipping. Steelcase decided to outsource the operation to reduce truck traffic, reduce warehouse space and trim some labor costs. It asked its suppliers—including Weyerhaeuser, International Paper Co., Georgia-Pacific Corp.—to work together to design a technically advanced packaging facility that would be operated by an outside contractor.

"Here was a case where a group of competitors worked together as a team to make each other more efficient and ultimately more competitive," Brand says. A representative for Steelcase declined comment.

Sometimes companies employ supply chain management techniques to ensure the quality and integrity of a product. Consider Office Depot Inc., which wanted to certify the source of the paper it sells. The Delray Beach, Florida, office products retailer sought to ensure that its paper products contained a certain amount of recycled paper, or used virgin wood fiber from forests that were responsibly managed. Suppliers must certify the integrity of the products, and an independent auditor verifies the information, which is placed on Office Depot's Web site for the public to view.

"The fiber and paper industry is looking more closely at the supply chain since more products are coming from offshore. Concerns include illegal logging, unethical labor practices and whether suppliers have a reforestation plan," says Bruce McIntyre, a partner with PricewaterhouseCoopers LLP's forest and paper practices, which helped Office Depot develop the certification system.

"Suppliers wonder, ‘What's in it for me?'" McIntyre says. "But when customers become aware of it and start asking for it, suppliers see the value."

Office Depot sees value in creating such supply chains because its customers are making greater demands for "green" products such as paper containing recycled materials, says company spokesman Brian Levine.

"It's good for the environment, and frankly, it's good for business," Levine says. "As customer demand increases, we're asking our suppliers to share more information about their environmental efforts.

The plastics industry records more than $393 billion in annual sales and employs some 1.4 million people, says the Society of the Plastics Industry, a trade group. However, foreign competition and falling commodities prices have stung some sectors of the domestic industry, spurring consolidation but also investment in new technology. Among the leading plastics manufacturers, investment in technology has advanced supply chain management. Companies share information with suppliers, distributors and customers to create a transparent supply chain. Consider Performance Fibers Inc., a Richmond, Virginia-based maker of polyester fibers for automobile tires. The company, owned by Sun Capital Partners Inc., generates $550 million in annual sales by supplying fibers to the major tire makers. One of its biggest customers is Bridgestone Corp.'s U.S. subsidiary in Nashville. Traditionally, Bridgestone would place a monthly order with Performance Fibers without much forecasting about consumer demand. This sometimes left both companies holding too much inventory. In fact, Performance Fibers leased a 300,000 square foot warehouse to store additional fiber because it had trouble predicting demand. But in 2004, Bridgestone and Performance Fibers began sharing information. By shipping a mix of products every day instead of just one product, Performance Fibers and Bridgestone were better able to manage inventories. Bridgestone now submits orders weekly. Performance Fibers, by smoothing orders with Bridgestone and other customers, was able to reduce its inventory by 25%, enabling it to cancel the lease on the additional warehouse. "It was simply a matter of two companies communicating and sharing information," says Fred Indermaur, vice president of operations for Performance Fibers. Now Performance Fibers wants to extend the supply chain to its multinational petrochemical suppliers. This has been a challenge, Indermaur says, because these suppliers have been subjected to unpredictable railway service and other forces such as wars, natural disasters and shifting international demand. Even so, these petrochemical companies mark their products with codes to help their customers maintain quality and consistency in their own products. Each chemical is delivered by batch to a plastics manufacturer marked by a lot number. The finished plastic products are labeled with bar codes. All the information on the chemical lot numbers and the bar codes is downloaded to a computer network and is available for review by everyone involved in the supply chain. "The quality of the final product is reliant on the correct recipe and processes used at every step. So it's important to keep track of each batch of material," says Mark Eischens, manufacturing product manager with HighJump Software LLC, a 3M company that helps plastics manufacturers with supply chain management issues. As the plastic product begins to take shape, bar coding is used to carry the batch information along through multiple manufacturing steps—often splitting or combining with other batches along the way. Tracking the heritage of the product develops a product genealogy, which is essential to tracking and managing the quality of the inventory, Eischens says. Those companies wired to an electronic supply chain system have up-to-date information on the inventory levels of the customer and can act quickly to fulfill a new order when the customer's supplies begin to run low. This enables everyone to keep down inventory and labor costs. It also permits faster delivery. The computerized process also allows the customer to review a scorecard of its suppliers, grading them on items like product quality and delivery times. "The whole process makes everyone better and more profitable," Eischens says.

 
The domestic textile and apparel industry has been battered by foreign competition for decades, but industry erosion accelerated in 2004 when the U.S. government lifted tariffs on imports. This flooded the market with low-cost products, especially from China, and increased plant closings and layoffs. The textile/apparel industry records about $80 billion in annual revenues and employs roughly 660,000 people who produce fiber and materials for clothing, floor coverings, towels, curtains, sheets and other products, RSM McGladrey Inc., the New York-based accounting and consulting firm said in a recent report on the industry.

Since 2001, the industry has lost 441,000 jobs, with 279 factory closings in states such as North Carolina and Georgia, the report said.

Supply chain management in this industry has become a global venture. Domestic companies keep track of facilities around the world. The industry experiences significant "pull" from retailers such as Wal-Mart Stores Inc., J.C. Penney Co. Inc. and Gap Inc. All demand updated fashions, accurate inventories and speedy delivery. Such fast response times—-measured in days—requires everyone in the supply chain, from the textile mill to the warehouse, to be networked to the retailer.

"Every industry has used supply chain management to become more responsive. But it is more important in textile and apparel because there is continuous forecasting, planning and replenishment," says Peter Kilduff, a textile management professor at the University of North Carolina at Greensboro.

At the textile mill, when the fabric is ready to ship, it is labeled with a bar code so everyone in the supply chain can keep track of the order status. As the order moves through the system, to the garment factory, distributor and store, bar coding keeps track of the progress.

"Bar coding not only allows the customer to track delivery time, but also manufacturing quality. If a product is defective, the customer can learn where the problem occurred," Kilduff says.

Not all successful supply chains are controlled by big box stores. Some smaller retailers have used the practice. One example is Zara, a Spanish clothing retailer with 626 stores in 46 countries. Zara prides itself on being on the leading edge of fashion, and utilizes an elaborate supply chain to introduce new products constantly, says Kilduff, who has studied the company. Information flows freely between the company's designers and its stores. The company relies on its sales clerks to keep an eye on street fashions and relay that information to its designers. The stores also use hand-held computers to keep track of inventory, which helps headquarters determine which items are popular and which are slow moving.

Once a new design is complete, it is relayed by computer to garment factories around the world. The products are produced quickly and in small quantities, producing an average 15-day turnaround from design completion to delivery to Zara stores. The production runs allow for the constant introduction of new products and for modest store inventories. The exclusivity mystique also helps sell clothes; customers feel compelled to buy sooner because the stock will not be replenished.

That exclusivity also permits Zara to sell items at slightly higher prices than competitors. A representative for Zara did not respond to repeated inquiries.

"Zara is kind of the model for supply chain management," Kilduff says. "It uses information to be fast, flexible and on the cutting edge of fashion….I think companies from any industry could learn from them."