Crayola draws new picture of supply chain for today's market
By William Atkinson -- Purchasing, 7/16/2009 2:00:00 AM
While many supply chain executives see the current barrage of challenges being presented by the economy as a negative, Easton, Pa.-based Crayola is taking the opposite approach and identifying competitive advantages in the down market. And the executive driving this thinking is Peter Ruggiero, vice president of global operations at Crayola.
Known as Binney & Smith until 2007, Crayola operates today with a unique two-pronged business model—a historical business and an innovation business—and each requires a unique supply chain strategy to continue to grow these businesses profitably.
The historical business has a more inward-facing focus on making the company's core products, such as crayons, markers, pencils, paints and modeling compounds. "We have been selling crayons since 1903," reports Ruggiero. "This was the dominant part of our business model for years." The supply chain goals in the historical business emphasize optimization via continuous improvement, such as kaizen and Lean.
The innovation business was launched in 2005 and the focus of that business "has been on creating new and unique products, and introducing these to the marketplace in the most efficient and cost-effective way possible," Ruggiero says. In addition, the company wanted to have proprietary technologies involved in these products so it could differentiate itself from the competition.
The purchasing challenge was to build a supply base in Asia, Mexico and North America that could respond to the requirements of the innovation business, which include product integrity/quality, engineering, and chemical capabilities.
"We also wanted to be able to launch these products in an efficient way without being compromised by high air freight costs and poor execution costs that some companies experience," says Ruggiero. "We were able to create a very effective model to do this."
By bringing products to market faster at a lower cost via its supply chain capabilities, Crayola has been able to free up more capital to invest in product innovation and consumer advertising.
To achieve success in both business areas, Crayola introduced a number of operational excellence strategies designed to streamline the supply chain while also reducing costs.
One strategy designed to improve operational excellence is cost management, which Ruggiero says focuses on supplier negotiations, Lean initiatives, product design initiatives and logistics enhancements. All of which have helped Crayola remove costs from its products. The Lean initiative actually dates back to 2001, and the company supplemented this within the last year with a Six Sigma initiative.
Crayola's supply chain team also introduced a supply-base segmentation initiative to improve its operational excellence. Traditionally, Crayola had treated almost all of its suppliers as strategic. By design, it sole-sourced the vast majority of its raw materials and the finished goods that it sourced. "More recently, we have been moving down a path of trying to introduce competition into our supply base in order to reduce the risk on our business, and also to improve our cost," says Ruggiero.
With the rationalization of its supply base in Asia and building stronger ties with strategic suppliers, Crayola has been able to accelerate its time to market, which fits well with its "rapid commercialization" movement which emphasizes increasing speed to market of products and optimizing these products from a cost and customer value perspective.
"We have taken several weeks out of the launch time for some of our products. This lets us get our products on the shelves faster and reduce the costs associated with doing so."
Crayola also launched an environmental sustainability initiative which raised the bar to meet consumer expectations.
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