Archive for October, 2005

I read a really interesting article by Ken Cottrill in the Supply Chain Strategy newsletter put out by Harvard Business Review (paid subscription required).

It was titled “It Takes a Village to Run a Supply Chain.” In it, Ken makes the following observations:

> “It’s already beginning to happen: more and more decisions that affect the supply chain are being made by more and more different people within the organization.”

> “Distributed decision making is changing the way your company works.”

This trend is very pervasive in the companies we work with and being driven in large part by rising customer expectations, increasing competitive pressures and an never-ending volatility throughout the outsourced environment. All of this leads to a need to empower front-line people with the information and tools they need to respond to change.

Historically, it was sufficient to have a small number of people build a plan and then have everyone execute to it. And, if things went wrong (unexpected changes), there was enough customer loyalty and/or “fat” in the system to cover – simply borrowing something out of safety stock to satisfy the customer and then replenish it as soon as you could.

This just doesn’t cut it anymore. Things have changed to the point that customer loyalty is all but gone (your competitors are a click away) and there is no more fat in the system. So, responding to change has become a competitive necessity and that means arming all the people dealing with the changes in demand, supply, capacity and product with the right tools to do so.

This is precisely why customers like Jabil have 4,000+ users of our software – because they figured out some time ago that you need to empower people to make smart and timely decisions to win.

In the same edition of the Supply Chain Strategy newsletter, there’s another article about “demand-driven innovation” – a key strategy for winning through innovation. Here too, they talk about the need for expecting and responding to change to support such a strategy.

There’s some interesting insights in this newsletter – worth checking out.

I was talking to a customer last week about their challenges in managing their extended supply network. This has become extremely common as virtually everyone is outsourcing some portion of their manufacturing and even those that are the manufacturers (contract manufacturers like EMS providers) are leveraging a globally distributed supply base. This customer was talking about the biggest problem they had was the lack of coordination and efficient collaboration and communication between their buying function and their suppliers.

The problem that companies face when this happens is that their responsiveness is delayed and any hiccup in the process has a much bigger effect. This is because you can’t effectively “sense” when something goes wrong (or at least you sense it later than you should) and then your “response” is hampered by the fact that you have no collaboration capabilities to figure out the right course of action to take.

Another customer, Teradyne, just did a presentation where they talked about their desire to get a “glass pipeline” from them to their contract manufacturers to their key suppliers. Companies like Teradyne realize that as an OEM/brand owner, you’re now really running a virtual company or extended supply network. And, while you may not directly execute all aspects of the supply chain, you’re still accountable to the customer and your own company’s performance.

Given the volatility and pace of change in today’s markets and the rising expectations by customers and shareholders, companies need to become more proactive in managing their extended supply network. To do this, front line decision makers must be empowered with greater visibility (the “glass pipeline”) and tools to make rapid, well-informed decisions that align with corporate metrics. Companies like Teradyne and others have found that empowering people throughout the supply chain to respond to change is key to effectively managing an extended supply network in today’s fast-pace and ruthless market.

Tom Wallace at Supply Chain Digest has written a series of pieces on sales & operations planning that are quite good. The first article is called “Why is sales & operations planning so hot?” and the second is “Sales & operations planning – the bang for the buck.”

Sales & operations planning IS a hot topic for many of the reasons Tom indicates. Probably the biggest is the reality that things don’t stand still anymore – the market and your business are in a constant state of movement and change.

A big part of the S&OP process is coordination – and we’re seeing this move higher and higher in the organization given the critical importance to the success of the company. We’re also seeing a greater need for empowerment throughout the organization to align strategy with execution and ensure this coordination doesn’t just stop at the planning level. This is critical because, as stated, things are constantly changing today. So, while a more robust S&OP process helps with coordination, the organization also needs to be in a position to deal with the inevitable changes that come about after the plan is in place – and many times these changes number in the hundreds each day. As one customer told us, “we build a great plan….then the phone rings.”

So, we see companies investing in building a better plan, but also in how to deal with the inevitable changes that come as soon as the plan is in place. A good analogy to compare this contrast between planning and responding to changes can be found in the military. The military is premised on solid planning – having contingencies for all possible outcomes. Yet, the military also invests in dealing with the unexpected, by arming pilots with heads up displays providing real-time, actionable information to empower pilots to deal with circumstances not taken into account in the planning process. The same thing is happening in major companies – they are improving their plannign by investing in processes like S&OP, while simultaneously arming their front-line decision makers with the information and tools they need to ensure the organization as a whole is becoming more agile and responsive to change.

There’s a good and relevant article by Dan Gilmore over at Supply Chain Digest talking about this ever popular topic. Despite the fact that we’re not a traditional supply chain planning vendor, as a non-ERP software company we encounter this situation quite frequently.

Justifiably so, IT organizations are seeking simpler solutions and the appeal of a single vendor is enticing. We’ve worked really hard to make sure our solutions are IT friendly and have proven that at many of the world’s leading companies where our software integrates with and complements systems from SAP, Oracle and the like.

The reality is that every piece of software in the market was designed with a specific intent – to solve a certain set of problems. And, while the major ERP vendors have very broad capabilities and offerings, they don’t cover all of the critical business needs today, nor will they ever. Our challenge is to continue to focus on solving critical business problems that require a unique solution that is not available from the ERP providers. If we can do so in a way that allows IT to address several critical problems at once with our solution while integrating easily within their current infrastructure, we can be an asset to them as they work to address the business’ key challenges.

Mark Carleo has written a nice piece over at Supply & Demand Chain Executive entitled “The case for supply chain visibility.” The article does a nice job of detailing some of the challenges and benefits of increasing suppy chain visibility.

I’ve talked to numerous OEMs and CMs about these issues. Each company struggles with these issues, especially as you get into bigger companies and more globally extended supply chains. OEMs who have outsourced some or all of their manufacturing are, in essence, managing a virtual company today, requiring greater levels of visibility and collaboration by their very nature. Likewise, CMs are managing an increasingly global set of manufacturers and plants as they seek to gain cost and quality advantages.

So, while visibility is very important, its not enough. The one thing I continue to hear from people “in the trenches” is that visibility without the proper tools to actually act on this new found information really doesn’t benefit the organization nearly as much as you might think. Especially in manufacturing operations, where there tend to be hundreds of decisions throughout the day that must be made “now” (responding to a customer on the phone, dealing with a last minute supply disruption, etc.), information alone isn’t enough. The problems are more complex and require collaboration, supply chain analytics, etc.

I was in Palo Alto a few months back and had the opportunity to meet with Dr. Hau Lee at Standford. We talked about this issue under the context of “sense and response” to which he acknowledged that the industry has done a much better job of sensing that providing tools to effectively respond.

So, I agree with Mark’s observations about the need for supply chain visibility, but would just add that effective tools to empower the people needing to make quick decisions are also required.

The unprecedented success of new consumer electronics such as the Apple iPod and Motorola Razr have shed light on how critical supply chains have become in the success of companies. With more and more business outsourcing to gain cost advantages, the ability to have a superior supply chain truly is becoming a competitive differentiator for companies. The other thing that has become clear is that no matter how much planning you do, there are going to be unexpected events that happen that you need to respond to – and the speed and accuracy of your response will dictate success or failure.

All businesses plan – and they should build the best plan possible. But companies also need to be prepared for the plan being wrong – since unexpected changes are the norm in today’s high-velocity marketplace. When you consider these two core business disciplines, they are quite different. Many companies invest lots of money in long-term strategic planning. This process tends to be very “top down” with key management leading the initiative and leveraging data from the rest of the organization. Yet, responding to changes in the plan tends to be completely the opposite. By its very nature it is not as much of a process as it is an ad hoc situation that must be dealt with. And, unlike the planning process that involves a small number of highly skilled planners, responding to change tends to involve lots of front-line decision makers throughout the organization – and frequently outside the organization (partners, suppliers, etc.).

Technology can help – but it needs to be specific to the function. Planning systems were designed for the planning function–small number of users, a specific process executed over a period of time that produces an output for others to use. Response Management is different. It needs to be built for the ad hoc situations – so it needs to be information rather than process-centric and it needs to empower all the front-line decision makers to rapidly collaborate and determine the best course of action no matter what the situation. And, the action they take needs to be aligned with corporate goals and objectives.

The runaway success of high profile products, and the rapid fall of others, have highlighted the need for effective Response Management and the unique capabilities that such technology needs to deliver.

If you’re an OEM who’s outsourced much of your manufacturing, you may be wondering why Response Management applies to your business.

With all the intended benefits of outsourcing, OEMs are significantly challenged with the lack of visibility and the ability to respond to changes. This is a direct result of the fact that most essential information related to their supply chain now resides at 3rd parties. Yet, OEMs remain directly accountable for end customer satisfaction and delivery performance, product profit and their own financial results. OEMs have become “virtual companies” with supply networks comprising: contract manufacturers (responsible for work-in-progress, raw materials, providing a finished goods buffer, consigned materials, etc.), suppliers (responsible for raw materials), 3rd party logistics providers (responsible for maintaining a finished goods buffer and providing efficient logistics) and, ultimately, the customer. While the OEM’s business has become virtual, they are still accountable for customer and shareholder responsibilities despite no longer having direct control.

Many companies have spent years and millions of dollars developing their supply networks—yet now struggling with the complexities of running them in an ever changing and increasingly faced pace marketplace with increasing expectations. Realizing the desired results in this new world requires synchronization across several tiers of the value chain. Systems originally deployed for managing internal operations were not designed for this new reality where effective multi-party collaboration, rapid response to frequent change and heterogeneous IT capabilities among the supply chain partners make it difficult to achieve the desired results.

Response Management software provides operations performance management to eliminate most and minimize the rest of the surprises that arise from the real world problems at the point-of-action—where real world variances in demand, supply, product and capacity occur. These variances often require rapid yet crucial collaborative decisions and actions. The effectiveness of these decisions and actions often determines customer satisfaction and retention, and even business profitability or margin loss.

Response Management software enables real-time visibility and multi-enterprise collaboration that empowers front-line decision makers with the insight and tools they need to quickly and effectively respond to a wide variety of supply chain problems spanning the OEM’s virtual company.

Response Management supports the needs of OEMs with the following:
> Simultaneously represents demand, supply, product and production capacity at all levels of the extended enterprise
> Supports multiple layers of the supply chain simultaneously to facilitate parallel access to changing end market conditions for all supply network participants—thus eliminating the painful/costly time lags inherent with the serial ERP approach.
> Flexible in that it can model as much or as little as the OEM wishes
> Adaptable in that it can quickly and simply be re-configured to a constantly changing supply network environment
> Is scalable and responsive (can accommodate large networks without losing response time) and is as near real-time as the OEM wishes
> Is interactive and accommodates collaboration for all connected parties, which is key with supply networks that are physically dispersed
> Can be used as a decision-making tool and then used as input (back integration) into local ERP execution applications
> Facilitates OEM processes that have become extremely difficult with outsourcing (such as Sales and Operations Planning, Inventory Management, New Product Introductions (NPI), End-of-Life (EOL) optimization, product profit management) as well as new processes introduced with outsourcing (such as contract and inventory liability management)
> Can be used equally for internal (OEM) supply networks as well as ones involving 3rd parties

Response Management software can be deployed quickly and to empower front-line decision makers with access to real-time information from disparate enterprise systems and collaboration across extended supply networks so they are able to quickly reach decisions that align with corporate objectives.

There’s a really good article in Electronic Business entitled “Unchartered territory” that speaks in detail about the trends toward outsourcing design to EMS and ODM providers.

The article also speaks to the growing complexities in outsourced supply chains – something we specialize in. Several Kinaxis customers are also mentioned.