Archive for September, 2007

According to an article here at The Industry Analyst Reporter, new research from Manufacturing Insights indicates that European companies are focusing on transforming their supply chains to be more agile.

The article states that Western companies are trying to balance efforts in reaching contrasting business objectives of:

• Reducing overall cost and improving productivity (64.85%)
• Increasing quality and customer satisfaction (64.24%)
• Innovating in new or existing products and services (64.24%)

On the other hand, firms from Eastern Europe are operating in the global marketplace and, in order to compete, are placing a particular effort in increasing product quality and customer satisfaction.

The macro trends impacting manufacturers - increasingly volatile demand, extended supply chains and shortening product lifecycles - don’t discriminate by geography. All companies, no matter where you reside, are going to feel the impact of these trends. As global competition increases, companies are increasingly left to compete on the same terms no matter which geography they operate in.

These trends are pushing the need for more responsive demand management and supply chain management capabilities in companies. The days of building a great plan and then executing it well are gone. Competitiveness is now very much a function of your ability to respond to change, and that’s a reality for all geographies.

Found a good article here at the India Knowledge@Wharton site describing how companies like Nike and Dow Chemical have leveraged their supply chain excellence to gain competitive advantage. I’ve talked about this in the past here and here.

I really believe this is a huge opportunity that companies frequently fail to take advantage of. Too frequently supply chain management is viewed as a necessary evil and the focus is strictly on cost reductions. As the article discusses, though, supply chain management excellence is much more strategic than that, affording a company a significant competitive advantage if they are able to out-execute their competitors by ensuring they have the right product in the right place at the right time and are able to respond to unexpected demand management, supply management and product changes.

There’s a good article here over on SupplyChainDigest entitled “Do you get supply chain “surprises?”" It’s written by Tom Wallace (to learn more about Tom, see his website here), a noted expert on Sales and Operations Planning (S&OP).

The article talks about the various challenges that companies face in dealing with supply chain surprises. Tom goes on to explain how you can use the S&OP process to deal with these surprises.

What’s not detailed in the article are some of the tools required to deal with surprises within this process. Participants in this process need to be armed with consistent and up-to-date visibility into demand and supply and have tools for rapid scenario analysis to enable sense and respond. When surprises happen, you’re really trying to figure out a way to “re-balance” supply and demand to enable a profitable demand response (Tom’s example is of a large customer sending in a signifcant, yet unexpected, order). If supply and demand can’t be re-balanced, then a compromise is required to determine the best course of action, one that balances all of the metrics the company is driving to, such as customer satisfaction, revenue, margin, inventory, etc.

Supply chain surprises are increasingly becoming the norm. Through the proper processes and by empowering key decision makers with the necessary visibility and tools to sense and respond to such changes, companies can gain a competitive advantage vs. those companies that are slow to react.

There’s a post over at Supplychainer talking about how you can attack supply chain risk. I posted a comment there but wanted to include it here for completeness.

** My comment **

I think the suggestions in the post are quite valid. However, I would argue that more is needed. The reality is that there’s no way to predict all the unexpected events that are going to pop up daily in a globally distributed supply chain that is faced with increasingly volatile demand and shortening product lifecycles.

To be proactive in dealing with these “make or break” situations, companies need to empower people with the visibility and tools (including collaborative scenario modeling capabilities) to act quickly and in accordance with corporate metrics. Why empower people? Because dealing with these high complexity, high risk decisions requires human judgment. By definition these unexpected events were not in the plan that everyone is trying to execute to. So, human judgment is going to be required to figure out the right tradeoffs and compromises to make.

It’s not everday you see a respected business journal write about supply chain management (although the Wall Street Journal recently wrote a piece here). Given the strategic importance of supply chains to a business, it continues to perplex me why there aren’t more articles, but I digress. So, it was with some pleasure that I found this article at the Financial Times site (see additional comments on this article at the Solectron blog here).

I’m sure it will catch a lot of people’s attention that the article states up front that “according to Accenture, the consultancy firm, “supply chain leadership” can increase a company’s market capitalisation by between 7 and 26 per cent above the industry average.”

The article goes on to say that “supply chain managers in many sectors are looking for greater visibility of whatis happening in their supply chains and faster accessto more accurate data. This means that if there is an unexpected event, be it storms affecting shipping or a production shortfall, companies can divert stocks or bring in alternative suppliers.”

I’ve long argued here that not only can supply chains play a much more strategic role in organizations than they usually get credit for, but that today’s environment demands a responsive supply chain. To achieve this, companies need to empower people with the visibility and tools to respond to change across their virtual enterprises made up of multiple partners geographically dispered around the globe.

Great to see the increasing coverage of these critical business issues.

I found a post over here over at Business Strategy interesting. The post describes how Lego led a company turnaround by focusing on supply chain transformation.

I really think they are onto something. I’ve written about this before (see here as one example) and believe there is a new opportunity for companies to look at their supply chain management competency as a more strategic weapon. With supply chains becoming more elongated as they become more global, with the pace of demand changes increasing and with product lifecycles shrinking, how responsive your fulfillment network and supply chain(s) are to change is becoming a more substantial determinant of your company’s success.

Far too often when companies struggle they attack the more cosmetic issues - they change personnel, they change pricing, they change product. While all of these may be required, evaluating the need for supply chain transformation as a competitive and strategic weapon seems to be overlooked far too frequently. Yet, these issues are often the true root causes of market problems.

More and more, companies are recognizing the need to become more demand-driven, to oriented everything they do around an outside-in mentality. As soon as you do this, you begin to realize that you can’t plan your customers, so you need to implement supply chain transformation processes to ensure your organization excels at responding to change. Doing so provides you with a competitive weapon against your global competitors.

If you’re like most companies, the pace of product innovation has been accelerating. I’ve talked to many companies that indicate that it now takes longer to market and sell a product than it does to develop it.

In many companies, new product introductions represent the single biggest demand management challenge they face. Given that forecasts can often include 70-80% errors for new product introductions the supply chain management challenges are significant. Improving forecast accuracy is certainly one objective.

But will forecasting ever be perfect? It’s doubtful. Realizing this doesn’t mean you’re failing, it means you have an opportunity to proactively do something about it. Ensuring that your organization can quickly sense true demand and quickly respond to changing demand and supply situations is the key to being able to capitalizing on the opportunities that new products represent.

There are critical timing decisions to be made about the proper effectivity date - a date that balances meeting demand with the need to avoid excess and obsolete inventory problems. There is also a critical need to be able to rapidly align supply with the true demand as it materializes in the early stages of product ramp up. None of these things can be perfectly forecast.

Developing a competency in responding to change is essential for companies to deal with the realities that exist in supply chain management today.

Supplychainer has a post talking about the top issues on the minds of supply chain people. According to the post, the list includes:

- RFID: Invest or not invest?
- How to persuade the partners in the supply chain to share their data so that they can proceed with all types of optimization tools e.g. network design, or simply CPFR.
- Contract management in such a way that working capital becomes minimum (late payment can be one option).
- Lean six sigma: should I go for it?
- Cope with the challenge of globalization in supply chains: (all types of problems from different regulations to standards and visibility issues).
- Supply Chain Risk Management.

I added a comment to the site and have included it below as well.

** My comment **

I think you have a good list. A couple of other things I see as big challenges are dealing with demand volatility and ever shortening product lifecycles. When you combine these factors together, companies are really challenged with dealing with the amount of change that is taking place.

Most companies have invested in processes and tools that focus on execution - running the business like clockwork. But increasingly the business challenge is dealing with the business when it doesn’t run like clockwork. Very few companies have implemented a viable solution to do so - a solution that empowers their people to respond quickly and effectively to change.

While supply chain management has traditionally been very focused on reducing costs, I also find that companies now are trying to also find ways to leverage their supply chain management effectiveness to drive top line revenue growth and customer satisfaction. Again, the need to respond to the unexpected is at the heart of their ability to accomplish this.