Becoming customer-centric and building outside-in processes is tough for the traditional supply chain thinker. Historic processes are inside-out tightly integrated to orders and purchase orders. Challenging this paradigm is seen as just too risky by most readers. Perception is not reality: ironically, the riskiest path is doing nothing.
Today, I received this email from a millennial:
Supply Chain experts are expected to think out of the box and futuristic, but to translate the thinking into savings is a real hurdle. I recently moved from a workplace embracing Supply Chain principles for the first time in fifty years. What is your take on this?
Answering this type of question and being a provocateur keeps me going.
The Sleep Number Supply Chain Delivers on the Customer Promise
Sleep Number is a Supply Chain to Admire Award Winner for the past two consecutive years. The Company executed one of the most effective customer-centric supply chain designs while outperforming against its industry peer group, as shown in Figure 1. The Company built the supply chain from outside-in to focus on delivering its brand promise. Over 95% of companies, stuck in a supply-centric model, struggle to design and implement outside-in processes. I am hoping that by sharing case studies like Sleep Number that we can break traditional paradigms.
Figure 1. Orbit Chart For Sleep Number for the Period of 2010-2019. A Comparison Of Company Performance To Industry Average.
Defining the Customer-Centric Supply Chain
Sleep Number may sell beds, but the Company’s focus is on health and wellness. For kicks and grins, when you meet a Sleep Number executive, ask, “What was your SleepIQ® score last night?” The question will likely spark a great conversation regarding sleep and the role that the quality sleep on a Sleep Number® smart bed plays in improving health and wellness. In the discussion, you may even receive insights from one of the world’s largest database of sleep data. And if you speak long enough, you will hear about a supply chain design that delivers growth at twice the rate of competitors while outperforming on cost, inventory turns, and Return on Invested Capital (ROIC). The Sleep Number supply chain design was created to keep the focus on the customer and delivering a good night’s sleep. As shown in Table 1, the results are impressive.
Table 1. Comparison of Companies in the Furniture Peer Group for the Period of 2010-2019
The Company, now in its thirty-third year of operation, is growing at twice the rate of the industry due to its focus on the customer experience. Sleep Number’s award-winning 360® smart beds are the first commercialized smart beds, and effortlessly adjust throughout the night, sensing each sleeper’s movements and automatically adjusting to keep both sleepers comfortable. Additionally, the Company sells smart adjustable bases and bedding solutions that include customizable pillows, temperature-adjusting layers, furniture and more. The Company won the JD Powers customer satisfaction award for the mattress segment for the past four out of five years. Sleep Number has now improved the lives of over 12 million sleepers with its air adjustable beds.
With a headquarters in Minneapolis, MN, the supply chain supports 600 stores in 50 states. Sleep Number Labs, the Company’s technology center, is in San Jose, California and works on data analytics and algorithm development to gain insights from Sleep Number’s proprietary SleepIQ technology, which has created one of the largest sleep databases in the world. The two primary manufacturing sites are located in Salt Lake City, Utah, and Irmo, South Carolina. The focus of these facilities is core manufacturing, including sewing, electronic assembly, and packaging/shipping. Additionally, the Company operates several warehousing and assembly locations to over 100 core markets. In each of the core markets, the Company operates a service delivery system to ensure customer service.
Great Supply Chains Start With A Clear Mission
The design of the supply chain strategy is to deliver on the Company’s mission to improve lives by individualizing sleep experiences.
At the 2019 Supply Chain Insights Global Summit, when Tony Rossa, Vice President of Supply Chain, and John Brine, Digital Strategist, were asked why Sleep Number outperformed peers, their response was, “We believe that the secret sauce of being a Supply Chains to Admire Award Winner is a clear mission to drive alignment to customer experience. Our mission drives all of our employee’s behavior.” The purpose-driven company manufactures proprietary sleep products, designs, and executes white-glove delivery to build lifelong customer relationships.
The Company’s success starts with its products. The Sleep Number 360® smart bed redefined and disrupted the $30 billion mattress industry. The core innovation since it’s founding in 1987 – DualAir™ adjustability – allows each sleeper to adjust his or her own Sleep Number® setting to their ideal level of firmness, enabling optimal comfort and high-quality sleep. The beds are often recognized as the best beds for couples due to this individualized adjustability.
Figure 3. Sleep Number’s Focus to Deliver Superior Customer Loyalty
The company controls the experience by owning the distribution channel. The brand is tightly controlled through the delivery experience to maximize customer satisfaction – the goal is a lifelong customer relationship. The Company estimates that over forty-five percent of sales are repeat and referrals.
Figure 4. The Sleep Number’s Innovation Timeline for Supply Chain Redefinition
Innovation runs deep through the Sleep Number timeline shown in Figure 4.
The Company started by advertising in late-night infomercials. The target market was the customer that could not sleep due to back problems. The first store opened in a retail mall space in 1992.
Defining the Customer Experience Through Supply Chain Excellence
In the early 2000s, the Company began rolling-out “white glove” delivery service. Slowly the company built a supporting supply chain to support 400 retail stores by 2002. In 2017, with the 360 smart bed launch, the Company rethought bed fulfillment. The redesign included an ERP implementation to enable a core data model across functions. The Company also operated fifteen existing service centers to facilitate home delivery technicians’ access to parts and materials.
As the Company expanded, the smaller markets had a greater dependency on Less Than Truckload (LTL), creating the need to improve reliability. There was a need to improve flexibility for delivery to customers and visibility to ensure delivery. The answer? The Company deployed a customer scheduling system and a late-stage postponement network to improve inventory agility to help navigate large swings in demand associated with Labor Day and Presidents’ Day sales. Late-stage assembly in the warehouses enables five-day delivery. The Company uses a single piece mixed material flow line that can make any mix of mattresses at any point in time. To fine-tune the network, Sleep Number redesigns components of the network periodically. The Company also builds work systems for teams to see progress on delighting the customers. According to Tony, “Nothing gets to the customers without the right team members making it go every day.”
The digital transformation shapes the path forward. In this presentation, John Brine asked, “Who likes their ERP? Nobody. Who needs their ERP? Everybody.”
Figure 4. The Sleep Number’s Innovation Timeline for Supply Chain Redefinition
Brine continued, “There is a role for ERP. We need to track and account for our business transactions and have an understanding of material flows. Our goal is to simplify the flows. Using advanced analytics, we built a system on top of 6 specific use applications to answer the questions surrounding order tracking for our customers.”
Visibility An Essential Component
The first focus was customer visibility. The process design started with the customer and then mapped back to manufacturing and transportation. The first stumbling block on the digital journey was not all processes were digital. Paper supported most of our processes, and there was no single system of record. Sleep Number partnered with suppliers and vendors to use material availability and in-transit data. The focus was not solely on data, but on insights. For example, the Company used intelligent alerting to drive action. Something like an email to the field team to say, “Hey, this order was missed. What do you want to do?”
To drive the digital transformation, the Company also created a virtual and mobile workflow from the customer’s home through the supply chain. This mobile application created a single gateway for communication. Along the supply chain, personnel can update order progress, push critical product updates, ask questions, and request information.
The next step in the digital supply chain is enhancing the customer experience through continuous engagement. The future for Sleep Number is about outcomes and improving reliability to the customer. On-time delivery and hassle-free installation is part of the essence of our brand. To lower structural costs, the team is continually evaluating product complexity and the added value of each item, but also to continue to reduce the cost of delivery. Sleep Number takes quality sleep very seriously and is committed to improving the overall health and wellness of all by delivering proven quality sleep.
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