Archive for June, 2007

If you’re at all a regular reader here, you know that one of the things I’ve discussed frequently is the growing importance of brand owner coordination of their virtual enterprises. Brand owners today are faced with an increasingly complex supply network, putting them in charge of a virtual enterprise consisting of a growing number of geographically distributed partners.

With direct accountability for their brand, customer satisfaction, quality, compliance, etc. brand owners have significant challenges. Combine that with the fact that changes in demand, supply and product are becoming more frequent and pronounced and you have an increasingly challenging environment.

Here’s a really interesting article in the NY Times that gives some great insights into that complexity as it details the components of the Apple iPod and where they come from. Speaking of Apple, I heard a rumor that they are launching a new phone!

Tim Minahan has a really well done post over at Supply Excellence talking about managing supply chain risk.

Tim quotes Mark Hillman of AMR Research who says “The greatest risks are the day to day operational risks that can detract from shareholder value and performance. You need to focus on high probability risks that you can control, such as supplier failure or market risks, and take steps to mitigate these.”

When most people talk about supply chain risk management, they tend to focus on the larger natural disasters and such. These are obviously critical because of the magnitude of impact they can have. However, as Mark points out, there are tons of risk vs. opportunity decisions that have to be made everyday in most organizations. Quickly identifying and responding to these risks is critical to operations performance and requires visibility and tools in the hands of those that can act.

Frost & Sullivan has come out with a new research report entitled “World Supply Chain Management Software and Services Markets” that identifies the growing importance of supply chain coordination (see more complete description of the report here).

According to the report, “The Supply Chain Coordination (SCC) segment is expected to play a key role in the near future as event management and performance management applications emerge as the competitive tools in managing the highly complex supply chains, by reducing the lead time and cost. These applications help companies detect, diagnose, and resolve performance exceptions before they become expensive problems. Currently, customer satisfaction plays a significant role in the business environment.”

The report also says “Overall, the SCC segment is expected to grow at a faster rate than the planning and execution segments during 2007-2013.”

This issue of coordination is directly in-line with the need for Response Management. I would argue that the main reason companies need to coordinate their supply chains is to coordinate response to change. With growing demand volatilty, shortening product lifecycles and increasingly global supply networks, the need to coordinate an effective response to change has become the new operating imperative. Failure to do so effectively can lead to poor customer satisfaction (and, ultimately revenue loss) and declining operating performance as inefficiencies erode margins and bloat inventories.

We are certainly seeing a growing awareness for the critical impact that poor response to change can have. This report, combined with the comments of Steve Hochman at AMR Research in his recent report, continue to validate the growing need for Response Management to cope with today’s manufacturing complexities.

We’re pleased to announce RapidResponse 9 today (see press release here). There are some very exciting innovations here that will really accelerate how quickly and accurate companies can respond to the ever-present changes in demand, supply and product that are impacting their businesses. Also, there’s an interview I did here at EMSNow that provides a bit of additional background on the release.

There’s a post over at supplychainer.com discussing the merits of simulation. The following in particular caught my eye: “In an environment which is uncertain, the winners are the ones who can better execute in the case of unexpected events. Simulation can be a great skill in such cases.”

Couldn’t agree more. The right tool that empowers people with information and tools (including simulations) is the key to responding to change and unexpected events. People need to quickly collaborate and try out various scenarios to understand what’s possible and what would be the impact of their actions. There’s a growing number of such events where the complexity and risk to the business are such that human judgment, supported by simulation tools, is the key to rapid and accurate response.

There’s a post at Cardinal Points Global Sourcing Agent talking about how to reduce supply chain costs. I’ve commented there and wanted to post my comment here as well.

There are some good suggestions in the post. Generally, the suggestions are focused on system-to-system collaboration, which is one piece of the puzzle when trying to increase collaboration with suppliers. As supply chains become more global and distributed, collaboration increases in importance. And, as demand volatility increases and product lifecycles shrink, the need to respond to change becomes essential.

So, in addition to the need for system-to-system collaboration, brand owners need to be in a position to coordinate an effective response to change with their supply chain partners. And this coordination requires people to get directly involved because it’s people that need to collaborate to determine the appropriate course corrections that need to be made in response to these changes. These people are both inside your organization and throughout your supply chain partners.

People are essential to this response process because the system-to-system collaboration will enable the automation of certain processes, but not others. Take the situation where a brand owner needs 100 more products by next week. Through system-to-system collaboration, that request can be pushed out to suppliers and their response can be automatically sent back to the brand owner. But what happens if their response is that they can only provide 50 and this request is coming on behalf of the brand owner’s most important and profitable customer? Now what? This is where people come into the equation because they have to figure out how to make it work, and that requires weighing opportunity vs. risk and evaluating alternatives for how to respond to this unexpected change.

So, system-to-system collaboration is certainly one key step to integrating supply chain partners and driving down supply chain costs, but Response Management is all about responding to the unexpected, and in these environments, the ability to respond to the unexpected is quickly becoming the key to market leadership.

Dan Gilmore has written an article at Supply Chain Digest comparing the merits of supply chain optimization versus simulation.

In my mind, they are simply two approaches suited for two different problems. Years ago the focus of all supply chains was efficiency and trying to run things like clockwork. Process automation and removing people from the process were key objectives. Today, managing volatility and change is critical to success, so the more urgent need has become how to respond, and that requires human judgment. So, where optimization can be used when assumptions are known and stable, simulation that supports human judgment is required when there is frequent change requiring rapid scenario analysis to determine the right course corrections to make.

Steve Hochman of AMR Research just published a paper entitled “Response Management: Next Wave in Supply Chain Innovation?” talking precisely about this issue (get the paper here). In the paper, Steve says “Our research shows conventional technology hasn’t met the need. Consider the following:

Advanced planning–Automated algorithms are tailor made for low-value-intensity, high-complexity decisions. But collective judgment becomes an essential complement in context-rich decisions (for example, will this irate customer defect if I don’t pay $500,000 in expediting costs?).

Spreadsheets–Standalone spreadsheets are pervasive precisely because of the limitations of closed-loop planning. The problem, of course, is that spreadsheet flexibility quickly devolves into multiple versions of the truth.

Business intelligence (BI)–As with spreadsheets, BI dashboards put decision control back in the hands of people. But BI tools are structured for insight, not execution. In the face of difficult real-time tradeoffs, yesterday’s snapshot of read-only analytics leaves a wide gap between awareness and confident action.

In environments where decisions are high in risk and complexity, many find they need systems for collective risk tradeoff and response. Whether the risk takes the form of a forecast spike, a component approaching obsolescence, a sales order shortfall, or more strategic sales and operations planning (S&OP) or network commitments, discrete manufacturing clients increasingly place a premium on the ability to see, study, and simulate alternate resolutions before pulling the decision trigger on a major tradeoff.”

So, I don’t think it’s an either/or situation, both have their place - although I would argue the more urgent need today is for staff empowerment to deal with the unexpected, and simulation is a core tool to accomplish this.

While at the AMR supply chain executive conference someone shared a story that they attributed to Dr. Hau Lee at Stanford. The story goes something like this.

Some Volvo executives were walking a lot and noticing how many green Volvos were sitting there collecting dust. They asked the local manager why there were so many green Volvos. The manager replied that the green Volvos just weren’t selling very well, so they had excess inventory piling up. The executives suggested a promotion to get rid of the green Volvos and clear up the inventory. The local manager put together a promotion and, sure enough, they started to sell the green Volvos. The production folks noticed this, and promptly started to manufacture more green Volvos to support the growing demand.

The lesson here was clearly one of poorly coordinated activities and, in this particular case, came in the context of a sales and operations planning (S&OP) process that clearly lacked appropriate participation and coordination. AMR talks a lot about the intersection of demand, supply and product. This intersection is at the heart of a good Response Management process as well, since the only way you can effectively respond to a change in any one of these is to understand the impact and interactions with the other two. This is one of the reasons why the Response Management process is so people-centric. It’s about figuring out the right tradeoffs and course corrections to make in the face of unexpected change – maybe a last minute order drop-in that supply was never planned to support. Engaging the right people from across the organization that have the specific domain expertise and insights to help determine the appropriate response is critical to any Response Management process.