Archive for August, 2006

Here’s a post entitled “Software as a Service driving faster implementations and ROI across the enterprise” that hlighlights research from the AberdeenGroup. You can actually download a copy of the report here.

Of particular note is that Aberdeen found that Software as a Service Supply Chain Management applications see an implementation in less than 3 months and ROI in less than 1 year. This is very consistent with the value that we’re able to deliver via our on-demand offering - although we’re able to exceed these numbers in many cases.

There’s a good post over at Procure IQ entitled “The Global Supply Chain Benchmark Report” which features research done by Aberdeen.

One of the findings in the reports is that you should “extend supply chain visibility by moving to exception-based management of activities and increasing the number of monitored milestones.” The findings also promote greater business-to-business collaboration.

I couldn’t agree more. Global supply chains, increasing volatility and rising customer expectations mean you have to respond quickly and accurately or get left behind.

But the concern I continue to have with all of the recommendations about increasing visibility and “increasing the number of monitored milestones” is that the recommendations lack sufficient insight into what do do with the visibilty and exceptions on these milestones when they come up. There’s an inherent assumption that by just giving lot’s of data to people and having lot’s of exceptions you’re going to improve things. I haven’t seen this to be the case (admittedly, you’ll get some benefit, but not the breakthrough that you’re looking for).

To get value, information needs to be in the hands of the right people, information that is pertinent to their job. And, they need flexibility to “slice and dice” the data in different ways as the situation inevitably changes. But more important than the information itself are the tools that these people need to act on the information - robust analytics and simulation capabilities to solve problems.

There needs to be more discussion on what exactly we’re going to do with all of this newfound visibility.

There’s an interesting article at Optimize Magazine enttiled “The CIO As Business Predictor.” It talks quite a bit about the uncertainties prevelant in business today, something I’ve talked about frequently here.

At one point the article says “No management decision will ever look perfect after the fact, but operational excellence isn’t about managing in hindsight. Rather, it’s about making the best decisions based on all the information that’s currently available.” Great point. And, operational excellence needs to be managed throughout the organization.

As we talk to manufacturers about building a competence around Response Management, one of the things that we discuss is the difference between the planning process - which tends to be quite centralized and done by a small number of people - and the response process - which tends to be very decentralized and done by a large number of people. Response Management can support operational excellence by really empowering people to respond effectively to change. Each unexpected change is an opportunity to demonstrate operational excellence. But this can only be done if the people “where the rubber meets the road” are armed with the right information and tools to respond. Aa the article says, “it’s about making the best decisions based on all the information that’s currently available.”

Technology Forecasters, Inc. has just released new research showing that there is now sufficient data to declare that industry-wide, the global downward trend of pricing for EMS and ODM services has reversed direction.

“Given the probability of ongoing inflationary pressures during the balance of 2006 and 2007, I’ve begun counseling clients in my Outsourcing Navigator Practice and users of my True Cost of Outsourcing Model to anticipate increases of 2 to 3 percentage points in 2006 and 3.5 to 5 percentage points by the end of 2007,” said Charlie Barnhart, senior consultant at Technology Forecasters. “This becomes especially important to most OEMs as these increases are most pronounced in quotations from China, Southeast Asia, and Eastern Europe where many companies have moved manufacturing in search of the lowest possible price.”

“As these increases will be reflected in OEM’s COGS, which THEY may or may not be able to pass through to the consumer, it’s time for them (the OEM) to take a hard look at what they’re spending internally in support of their outsourcing initiatives and to ‘do the math’ on what makes sense and what doesn’t. There appear to be few other options as moving from China to India almost always results in a higher Total Cost of Ownership for most OEMs.”

The pricing pressure will undoubtedly increase the emphasis on extended supply network visibility and require OEMs to have strategies in place to respond to changes in price and availability to meet customer needs while managing their own costs.

Chris Abraham has commented on a Supply & Demand Chain Executive article by Tim Vaio entitled “Six Key Trends Changing the Supply Chain Management Today“.

The key trends identified in the article are:

1. Demand planning begins at the end of the cycle
2. Globalization
3. Increased competition and price pressures
4. Outsourcing
5. Shortened and more complex product life cycles
6. Collaboration between stakeholders in the extended supply chain

I think this is a great list and it does accurately reflect on the trends I’m hearing as well. I wanted to offer a couple of comments on the trends and observations in the posts and article.

There’s no question that improvements in demand planning are necessary. Most companies we meet with admit their forecasting is relatively weak. But there’s also a connection between some of these trends that make this a tricky one to solve. Globalization also means that your markets are more global and so are your distribution channels - making the challenges of accurate forecasting even more daunting. Combine that with shortened and more complex product life cycles and increasing competition, and you have a perfect storm. The reality is that forecasting, while clearly an area for improvement, will never be perfect, and you need to build plans assuming that reality.

Outsourcing is inevitable. It varies by geography around the world, but everyone is doing it and I see no signs that it will reverse itself (I do believe brand owners can compete without manufacturing themselves by differentiating and excelling at sales/marketing, distribution, etc.). What I do see happening though is a moderating of extremes in terms of the relationships and how they work. In early outsourcing, I think a lot of companies tended to “throw it over the wall” and declare that “it’s not my problem anymore, I’ve outsourced that.” I see companies today looking to strike a better balance - let the outsourcing partner focus on execution, but increase collaboration amongst stakeholders to ensure coordination and desired outcomes. The reality is that all stakeholders are connected in an extended supply network now and coordination is key. They must be on the same page and understand the implications of their actions on the other partners and the ability to achieve the end result. I see companies realizing this and taking actions to adjust.

What all of these trends point to is an accelerating pace combined with a more complex, competitive environment. The companies that thrive will be those that are nimble and able to respond the quickest to change.