Archive for May, 2007

That’s the question posed by AMR’s Steve Hochman in his new research report available here. We’ve felt for some time that the macro trends in the market were creating an environment where responding to change was quickly becoming one of the most critical competitive differentiators for brand owners and manufacturers. Steve discusses these trends and the importance of being able to respond to change.

Given everything I’ve written about here, you won’t be surprised that I was caught by the Supply & Demand Chain Executive article entitled “The Move to ‘Intelligent’ Supply Chain Decisions.” The article features insights from Bob Parker, the vice president of research who leads Manufacturing Insights, an IDC company. I’ve had the opportunity to talk to Bob a couple of times and came away with the feeling that “he get’s it” (in my humble opinion).

According to the article, “the top prediction for the year was that that companies will need to adopt solutions — or better use the solutions they already have — to help them to make faster, better decisions.” Bob describes a nested model whereby strategic decision making leads to improved tactical decision making which leads to better operational decision making.

If you read this blog you know that we focus on improving decision making, particularly as it pertains to dealing with the rash of unexpected events that occur daily in today’s manufacturing environment. What we’ve also seen is that our solution tends to get pulled into a wide variety of situations where the need for enhanced visibility and better decision making is critical. This can be new product introductions, sales and operations planning, risk management, etc.

It’s great to see an industry thought leader calling out this important market need.

I was having a discussion the other day where this question came up. Does the fact that a company needs Response Management – the ability to respond quickly and effectively to unexpected changes – indicate that they do a poor job of planning?

Well, in the most theoretical case, I guess it does. Why? Because if you had perfect planning you would have planned and accounted for every potential unexpected event in the first place, rendering obsolote the need for a strategic Response Management solution.

But, back on earth, I’ve never come across a company where this is reality (I guess there are companies that are so static and predictable that you could approach this theoretical scenario – but just not the companies we deal with). We’re fortunate enough to work with some of the best companies in the world – truly global leaders in their fields and companies that are renowned for their planning and execution. Yet, they’ve all come to us with a common need to enhance their ability to respond to change. Why?

I see two primary reasons. The first is that all the market forces are driving increasing change – from increasing demand volatility driven by buyer behavior changes and increasing competition to shorter product lifecycles because of increasing innovation and market pressures to extended supply networks that have more moving parts and more risk. The second is that the traditional systems were not designed for this problem. ERP and supply chain planning systems were designed to help the business run like clockwork. They are either transaction-based or focused on optimizing a ‘fixed’ set of assumptions.

The reality today is that companies need to compete through their excellence in dealing with the business when it doesn’t run like clockwork. There is no way to build the perfect plan, so companies that want to lead need to deal with the realities of imperfection in the planning process. While planning and execution systems focused on automating processes in part by removing people from the equation, Response Management systems bring people into the response processes to leverage the unique insights and judgment they have in determing the appropriate tradeoffs and course corrections that need to be made to respond to the unexpected.

I really believe there are two separate issues here. Companies will continue to need to be good at planning, but the value of these efforts will increasingly be over longer time horizons. There’s a growing need for Response Management solutions that empower people to respond to the unexpected that is becoming the key to competitive success. So, the need for Response Management doesn’t indicate poor planning, it indicates an understanding of the dynamics driving competitive positioning today and is a growing strategic asset that compliments strong planning.

I recently wrote about proactive metric management (here) and the impact it can have on your business.

I’ve seen and heard of cases where companies say “we always say yes, then figure out how to do it.” Well, saying yes all the time seems right, its very customer centric. But saying no sometimes is the right answer. But how do you know if you’re not proactively managing metrics and you resort to using rock, paper, scissors to support decision making in your company?

This is especially true as your company grows. The smaller you are the closer everyone is to the center and has a better insight into what’s important. But as the company grows as a result of success, it becomes increasingly harder to keep everyone aligned. And, as the business grows, there are more “opportunities” created out of all the changes going on. Opportunities to make or break the company based on the decisions you make at that momemt when quick action is required.

If you’re like most, you’re now trying to do this across a distributed environment, so understanding the impact of individual actions gets even harder to understand. The only solution is to bring objectivity back into the response process itself. To respond effectively, people need to collaborate on various what-if alternatives to see what’s possible. Then they must be able to compare those proposed action alternatives against the metrics that are critical to the business to ensure their actions are objective, fact-based and not having to resort to rock, paper, scissors to decide what is right.

You may have seen our recent announcement (it’s also covered here at SupplyChainer.com) describing a partnership with Solectron to promote greater coordination of responses across distributed supply networks. I think this is pretty interesting and significant so I wanted to comment a bit further.

Several years ago our primary customers were companies doing internal manufacturing. Many of these evolving leaders at the time were the large electronics manufacturing services (EMS) providers like Solectron, a global leader in the space. As companies increasingly were outsourcing their manufacturing to companies like Solectron, they found themselves right in the eye of the storm. That storm was one of constant change, demand changes coming from their brand owner customers, supply changes coming from their suppliers and product changes coming from all directions. As a result, our Response Management solutions have provided a significant competitive advantage by empowering the front-line decision makers in these organizations with the visibility and tools they need to quickly and accurately collaborate and respond to these changes.

If you switch to the brand owners, I witnessed that as many took their first steps into outsourcing, there was a bit of an implicit mindset that said “it’s not my problem anymore, that’s why I’ve outsourced it.” Over the years, as these brand owners have increased their outsourcing and seen rapid increases in the amount of change they themselves are experiencing, they’ve awakened to a much more involved and coordinated relationship with their outsourcing partners. They are, in essence, responsible for managing a virtual enterprise now with quality, customer satisfaction, shareholder accountability and, ultimately, their brand on the line based on their performance.

Along with this realization came the insight that brand owners need to be in a position to coordinate effective response to change across these virtual enterprises. Coordination is the key, as brand owners don’t want to micro-manage or take responsibility for the work they have outsourced. But they do want to ensure the outcomes that support their business objectives are realized.

Companies like Solectron are realizing this as well and taking proactive steps to ensure that happens. Solectron realizes that not only will their brand owner customers benefit by having greater visibility into their supply networks and better tools to respond to change, but so will Solectron who operates “downstream” from their customers and feels an even greater impact of changes that trickle down to them.

By working together, we can ensure that Solectron customers can not only leverage our product capabilities to respond better to change, but that they can do so with access to the key data they need from Solectron to gain the necessary visibility that their front-line decision makers need to coordinate a response.

At the end of the day, it’s all about increasing the effectiveness of both parties to improve customer satisfaction and reduce costs.

Michael Lamoureux over at Sourcing Innovation had asked several bloggers to comment on their thoughts on the top three issues impacting supply chain management today. Here’s my take:

1. Supply chain management should be more strategic – for years the emphasis in supply chain management has predominantly been on cost reductions. This is a very important, but tactical view of the contributions that supply chain management can make to the organization. As companies are increasingly forced to compete on a global basis, they must start to view their supply networks as a competitve advantage that can not only deliver low costs but impact top-line growth through superior responsiveness and best-in-class customer service. Companies need to deploy every asset at their disposal to win in today’s marketplace and a responsive supply network is such an asset. Failure to recognize this will leave companies short-handed against their global competitors. To accomplish this requires leadership from the top by increasing the exposure of the supply chain initiatives and value to the organization. Metrics that track contribution to top-line growth in addition to cost reductions are critical to ensure proper visibility. It’s easier than ever to lose a customer today, and supply chain execution can be a major impact on company revenues and brand performance.

2. To thrive in the 21st century requires 21st century strategies and techniques – AMR Research was the first to really emphasize the need to become demand-driven. Becoming demand-driven represents a new paradigm for companies that have historically been supply-centric in their thinking (thus the term supply chain management). As AMR points out, making this transition requires top-down executive leadership since it impacts the entire organization and how it operates. While technology is only a component of becoming demand-driven, it’s an important and essential piece. Today companies are trying to make the transition while continuing to utilize 20th century technologies. These technologies were firmly rooted in the supply chain planning and supply chain execution mindset that focused on running the business like clockwork. With the amount of change in today’s globally distributed supply networks, the increasing global competition and the ever shortening product lifecycles, the business imperative has shifted to becoming demand-driven and dealing with the business when it doesn’t run like clockwork. Companies need to align technology solutions with the new business priorities to become demand-driven and arm their people with the enabling technologies that will support the business changes they are striving to implement. Failure to do so will leave a good strategy with no legs to make it work.

3. People make the difference – As companies seek to leverage supply networks as a strategic advantage and become more demand-driven with the appropriate tools to support these transformations, they have to reinvest in the people that will make the difference. Why? Because increasingly things don’t go according to plan, and it’s people using human judgement that make the difference and can best figure out the best course corrections to make when the unexpected happens. There’s a tremendous amount of dialog in the industry about collaboration. However, if you look a bit deeper, it’s all focused on system-to-system collaboration – which is a good thing. But what about people-centered collaboration? To deal with change across a distributed supply network, people need to be able to collaborate with other people with the right domain expertise and insights to make the right course corrections quickly. Where 20th century technologies focused on automated processes by removing people from the equation (which made sense when the business could be expected to run like clockwork most of the time), 21st century technologies need to re-engage critical front-line decision makers to leverage the human capital across the extended enterprise to respond quickly to change (i.e., deal with the business when it doesn’t run like clockwork). There are certain problems you just can’t plan your way out of, and people are essential to dealing with these.

Eric Joiner has written a post over at Freight Dawg commenting on a piece by Dan Gilmore at Supply Chain Digest. The topic is supply chain best practices.

I posted a comment there that I wanted to share here as well.

I agree with you that visibility, especially in this day of increasingly distributed, global operations, is a best practice that can stand the test of time.

Visibility is at the root of solving so many problems – without it, you really don’t have the foundation and “single version of the truth” so important to problem solving.

I do believe, however, that visibility alone is rarely enough. One of the biggest problems facing supply chain professionals today is dealing with constant change. Visibility is essential to solving this problem. However, visibility alone is not enough. To quickly and accurately respond to change, people need to be empowered with both visibility and tools to collaborate, analyze and choose the best response actions (course corrections) to implement.

I agree that a lot of best practices are market/business specific and will evolve as conditions do, but I think visibility is a key best practice that will benefit everyone – provided it is not seen as the end solution but the basis of a solution to solving specific problems.