Archive for October, 2007

A couple of weeks ago we held our annual user conference. This event brought together market leading brand owners and contract manufacturers to discuss the challenges they face every day. One of the most dominant themes at the event was the issue of managing change across multi-enterprise supply chains.

The move to outsourcing has led to “virtual enterprises” consisting of a variety of third-party specialists. Everyone is feeling the effects of increasing demand volatility and shortening product lifecycles. When you put this all in the mix together, it’s harder than ever to coordinate an effective response to change and ensure the required outcome - something the brand owner remains accountable for.

We took the opportunity to survey the attendees at this year’s event and here is a summary of our findings.

Rank in order of importance your top 3 business challenges (higher equals more important)
Managing customer demand: 2.45
Ensuring reliable supply: 2.06
Attaining supply chain cost savings: 1.88
Improving service to the customer: 1.79
Improving manufacturing efficiency: 1.50
Improving ECO and product launch: 1.88
Driving market opportunity and top line growth: 1.83
Compliance: 1.00
Other: 1.00

Importance of improving supply chain collaboration within your organization
Business critical: 64.44%
Important: 33.33%
Neutral: 2.22%
Not important: 0.00%

According to IDC: manufacturers that cannot effectively share data are less flexible, responsive and productive
Strongly agree: 62.22%
Agree: 33.33%
Neutral: 0.00%
Disagree: 0.00%
Strongly disagree: 0.00%

According to Aberdeen: business processes are transforming from inward facing to outward facing
Strongly agree: 28.89%
Agree: 53.33%
Neutral: 13.33%
Disagree: 0.00%
Strongly disagree: 0.00%

According to AMR Research: the greatest risks to the supply chain are day to day operational risks
Strongly agree: 17.78%
Agree: 55.56%
Neutral: 15.56%
Disagree: 6.67%
Strongly disagree: 0.00%

According to Technology Forecasters (TFI): responsiveness is key to success for OEM and EMS organizations
Strongly agree: 60.00%
Agree: 35.56%
Neutral: 0.00%
Disagree: 0.00%
Strongly disagree: 0.00%

Logistics Management is carrying an article here summarizing Carly Fiorina’s (formerly CEO of Hewlett Packard) opening keynote address at the Council of Supply Chain Management’s (CSCMP) Annual Conference.

I was especially intrigued by the following from the article: “The supply chain [improvements] were important in the ability to support customers, grow the company, and they became a unique differentiator,” said Fiorina. “Supply chains cut across the grain of how organizations are put together, whether it is a modern corporation or a government agency. And they all have an organization hierarchy and chain of command, which supply chains cut across horizontally.”

It’s great to see a CEO (ok, former CEO) of such a major company speaking about the strategic importance of supply chains. This is something I’ve talked about many times (see here and here). For too long supply chain management has been viewed as a necessary evil and a place where cost reductions were the sole focus. Today, there’s an enormous opportunity to leverage the responsiveness of the fulfillment network and supply chain to gain a competitive advantage in the marketplace.

To realize this, leadership is required from the top down. The strategic value of supply chain management needs to be championed from the top and then metrics need to be aligned with that vision to drive the full value of impact to the organization. Failure to do this will leave the supply chain as a tactical necessity where the only focus is on reducing costs.

There’s a new article at Supply Chain Digest here talking technologies to support the S&OP process. The article goes through the traditional mix of demand management, supply management and inventory management applications.

A couple of observations. One of the challenges I think organizations face in today’s rapidly changing marketplace is tied to the legacy and heritage of the traditional planning solutions. Traditional demand planning and supply planning solutions are very siloed in nature - focusing on the user communities, information and decisions that need to be made in that particular problem domain. While they may foster collaboration, it is only within the user communities in that domain (for example, collaboration in creating the forecast), and not across demand, supply and product simultaneously. There are multiple problems with this very sequential, siloed approach in today’s climate.

S&OP today requires rapid scenario analysis and cross functional collaboration. There are so many changes going on in demand, supply and product, that failure to integrate these into a holistic process and decisions that weigh all of the issues simultaneously leaves a lot to chance. And, because of the pace of change, there’s an increasing need to move from a purely planning centric view of S&OP to a process that is more operationally aligned - shortening the window to ensure that the pace of change is being factored into the decision making processes.

As market leaders push to become more demand-driven, one of the first challenges they have to deal with is the reality that you can’t plan your customer. The S&OP and all processes need to be oriented around this reality to ensure that the company is positioned to lead in a demand-driven market.

There seems to be an increasing focus on supply chain collaboration in terms of research, articles, etc. Here’s new research on the topic at ThomasNet. There’s also a detailed review of Boeing’s supplier collaboration model related to the new 787 Dreamliner airplane here.

The ThomasNet article highlights new research by CAPS Research that “found managers are spending more time evaluating supply-chain-enabled business models, but most have not fully grasped the nature of collaboration or the concept of what it takes to achieve a true collaborative capability.” The article goes on to provide insights into best practices.

It’s not suprising that supply chain collaboration is taking center stage. Companies continue to outsource at a fast pace. This is creating more globally distributed, multi-enterprise supply chains at a time where demand volatility and the pace of product innovations are at an all-time high. The result is an environment where coordination and the ability to respond to change are at a premium. This can’t be accomplished with an arms-length relationship with partners.

Brand owners must become more actively engaged and take a more holistic view of their partner relationships to succeed. Gone are the days of simply focusing on partners to reduce costs. The market dynamics demand brand owners excel at both cost management while being swift enough to capitalize on changing market conditions and new opportunities. This can only happen through coordinated efforts with supply chain partners - efforts that place a premium on win-win scenarios, that empower people with the information and tools they need to rapidly make course corrections to deal with the inevitable unexpected events that come up daily.

New research from Aberdeen shows that leaders in global supply chain visibility report improved performance across key metrics (see more on the report here). The report shows that leaders have reduced lead times from international locations, reduced inventory levels and reduced inventory carrying costs.

In another Aberdeen report entitled Beyond Supply Chain Visibility: Response Management is the Key (available here) their research findings show that supply chain visibility ranks as one of the top two application focus areas for companies as part of their supply chain technology investment plans. The ability to respond to change rapidly is emerging as critical to a company’s success. Just having visibility is not enough to manage this constant change. This research brief outlines the key characteristics of solutions that go beyond visibility toward enabling a flexible Response Management capability.

There’s no question that visibility is gaining more attention as companies struggle with increasingly distributed and multi-enterprise fulfillment networks and supply chains. The demand management and supply management challenges in these environments are complex as companies try to gain an upper hand on constant changes in demand, supply and product. Companies continue to find that their employees face an increasing number of decisions that require human judgment and that, while visibility is a pre-requisite, tools to collaboratively simulate various action alternatives and choose the actions that are best aligned with corporate metrics are required to proactively respond to the literally hundreds of daily changes that must be managed.

There’s a good post over at Supplychainer.com asking the question “where should demand management reside?” (see the post here).

I posted a comment and have included it below as well.

** My comment **

This is an interesting question. First, my experience says that the reality is all over the map - I’ve seen it reside in a number of organizations from sales to operations to finance.

One of the biggest challenges I see in an organization is that for too long the responsibilities for demand, supply and product have been organizationally separated and, thus, it further promotes the “silo” mentality of dealing with these issues. Someone creates the demand plan, throws it over the wall to someone else to create the supply plan, etc. The integration of product into this equation is usually the most troublesome and least integrated.

With things changing so fast, the need to integrate these three functions more tightly has never been more critical to the success of the business. Each process along requires a lot of collaboration to derive the right demand plan, for example. Then there’s the critical need for cross-functional collaboration - ensuring that the demand planning participants are actively collaborating with the supply planning and product planning participants.

The historical approach has been to focus on planning the business. Today’s reality forces you to acknowledge that you must be more demand-driven and in doing so you have to realize that you can’t plan the customer. The key to thriving in this environment is through more active organizational integration and by empowering people with the visibility and tools they need to both collaborate and rapidly respond to change.

I found this article here at World Trade Magazine to be quite thought provoking.

The basic premise of the article is that we are currently moving into the third era of global supply chain transformation that has occurred within the last 100 years. The article suggests that third era of supply chain globalization–the era of revitalized command–is already upon us.

I’ve talked numerous times about the challenges of orchestrating the desired outcome across a virtual enterprise (see here, here, here and here). With your ability to respond effectively to change being an increasing threat to competitive success, how you’re able to coordinate responses to those changes is essential. There’s no question that the move to a heavily outsourced model, while providing a lot of benefits, has complicated this process. We’ve seen research and heard first-hand how challenged many brand owners are at controlling their own destiny in these situations. This is because they are still accountable for the end result and the virtual enterprise means more players and more potential for hiccups.

This article is interesting in that it not only acknowledges these issues, but takes it a step further to suggest that companies are going to start rationalizing their strategies and actually moving a bit in the opposite direction to improve their ability to deal with the realities of complexity and change. I would be interested in hearing your thoughts - is your company thinking this way?

I found a really great article at the Bangkok Post site here. This article hit home because it talked about several topics that I have found in talking to companies. It’s central theme is one of asking who is involved in supply chain management and that it’s more people than you think.

I’ve absolutely seen this to be the case time and time again. Especially in today’s environment of constant change - the people that end up involved are from various functions in the organization. You’ve got your customer service representatives that are the voice of the customer and have a high degree of interest in trying to please them. Then you have your planners, schedulers, buyers, outsourcing partners, demand managers, etc., etc. - all people that frequently get involved in dealing with the unexpected.

The article accurately states that “tradeoffs between cost and customer service are inevitable, given the geographic reach, product mix, customer and channel variety, and supply variability, the planning process is complex and requires sophisticated information management to support it.” So, think about your organization. When a demand change comes in - maybe a last minute order or a last minute order change - who gets involved trying to figure out the right tradeoff to make at that time. Or, what happens when that just-in-time inventory shows up but its the wrong stuff?

If you’re like most companies, it’s a wide variety of people that get involved and it varies by the situation. All of these people are involved in the demand management and supply chain management processes critical to market success. But, a lot of companies only focus on the more traditional roles - the planners, schedulers, etc.

Once you’ve accounted for all of the people involved in these types of decisions, the next question to ask is how are they going about solving these problems today? If you’re like most companies, it’s a scramble. The key to automating this critical response process is empowering these people with the right information and tools to respond both quickly and accurately - with proactive insight into the impact of their actions.

New research cited here at CNNMoney.com identifies characteristics of supply chain leaders. According to the article, the survey, which was completed by supply chain professionals in 21 industries, identifies collaboration as a major differentiator between leaders and those identified as “followers” and “laggards.” The survey findings also indicate a significant opportunity for financial officer involvement in supply chain efforts.

The focus on collaboration is certainly very positive and consistent with what we see in the marketplace. I’ve written about the importance of collaboration many times (see here, here and here).

I found the focus on financial officer involvement interesting and a potential catch-22. On the one hand, I think this has significant potential in that supply chain professionals too frequently take a unit rather than dollar viewpoint on supply chain management decisions. Involving the financial organization offers opportunities here. The risk is that this drives everything to be too tactically focused with decisions purely based just on the economics. The reality is that you can’t plan your customers today. So, there are a lot of decisions that are going to be high impact/risk to the business where tradeoffs need to be made. Financial considerations should always be a part of that - you need to make decisions that are aligned with your corporate objectives. But so too are customer satisfaction considerations essential to these tradeoffs - factoring in the impact of this one decision on the long-term relationship with the customer and the downstream implications this decision may have on future business opportunities.

There’s a good post here at SupplyChainer.com citing new Aberdeen research on best practices in trade promotion. This caught my eye because promotions are one of the biggest sources of demand volatility that companies face. According to Aberdeen, the current state of the trade promotion management is not satisfactory and 75% of the companies are having problems with their systems.

Promotions represent a significant demand management challenge…and opportunity. Companies that can successfully execute promotions and rapidly respond to the changes that come out of a promotion (good and bad) are going to be at a competitive advantage compared to the market.

A well thought out plan is a requirement before launching a promotion, one that ties together all aspects of the business. But a thorough plan supported by strong execution capabilities isn’t enough. The reality today more than ever is that you can’t plan your customers, so you have to be able to manage at the moment and deal with whatever realities come your way. Customers may not react to the promotion in the way you expected - leaving you with the potential for excess inventory. Or, demand may exceed supply. Or, just as likely, demand for the blue product may outpace that of the red product (this week, but next week that could change too).

If you’re like most companies, you scramble to cope with these situations. Empowering people to respond to change is the key to automating this critical process and ensuring that you optimize customer satisfaction and operating performance.