Archive for November, 2007

If you’re like most companies, you’re dealing with increasing demand volatility, shortening product lifecycles and an increasingly globally distributed fulfillment network and supply chain. In the quest to become more demand-driven, you’ve no doubt realized that you can’t plan the customer.

Unfortunately, if you’re like most companies, because there is no systemic way to respond to change, you find yourself scrambling everytime something doesn’t go according to plan, and this is become the norm. The result is a constant feeling that you’re just hanging on.

Many companies have invested a lot of money in automating the lowest levels of decision making. Significant investments have been made in automated call centers for example, where most of the decisions are relatively low risk to the company. Yet, at higher levels of the organization, where critical business decisions are made daily that impact customer satisfaction, profitability and a host of other business critical metrics, there’s little to no automation. These people are required to make rapid decisions with significant impact but are left to scramble to try to determine the right course corrections to make to respond quickly and effectively.

I remember talking to a large equipment manufacturer a couple of years ago. They shared the story of a customer wanting to make a product configuration change right up to the last minute. This company had to quickly assess the request and commit to the customer on whether or not they could satisfy the request, and needed to know not only if they could do it, but if they could do so profitably. Three supply chain staff collaborated together over the course of two days to evaluate options, understand the impacts, etc. They eventually brought their analysis to their management - an eight page spreadsheet printout taped together into a single report. The manager looked at their work and said “let me understand this, we spent 6 man days analyzing this, and we still don’t really know if it’s possible or not and what the impact of doing so would be - right?” The answer, of course, was that the manager was correct. The company had never invested in a competency to respond to change and were left scrambling and just hanging on. This was becoming much more common.

There’s a significant opportunity to deliver a breakthrough in productivity and operating performance - performance that can impact both the top and bottom line - by enhancing the organization’s ability to respond to change. Companies are conditioned to focus on improving their planning capabilities. That’s a worthy investment, but increasingly it’s how you deal with the fact that things don’t go according to plan that dictate how you do in the market.

There’s a lot of discussion today about improving forecast accuracy. It makes sense since improvements here will yield direct improvements in business performance. There tends to be less discussion about improving demand sensing (although AMR Research promotes this quite regularly) and ensuring appropriate supply-side flexibility and responsiveness to deal with true demand that is quite often not what was forecasted.

Unless your business has very predictable demand (this increasingly seems to be the minority business), then your best efforts at forecasting will never produce a perfect forecast. The question then becomes what are you going to do about the portion of your business that you can’t accurately forecast? This is where demand sensing and supply-side flexibility and responsiveness are critical. As companies seek to become more demand-driven, they need to acknowledge the fact that you just can’t plan the customer. You need to invest in tools and methods to ensure that you can respond as realities unfold.

The biggest concern here is that I continue to hear of too many cases where companies view these as either/or decisions - usually starting with improving forecast accuracy since that seems to be the hot topic today. While this is a worthy investment, in many businesses its actually more important to excel when the forecast isn’t accurate to ensure that you can beat the competition by providing better customer service and a more profitable demand response in response to the unexpected.

Some good advice here at Manufacturing.net from Tom Leonarski talking about things you can do to improve your supply chain.

I especially liked his comment that “Decision-making up and down the supply chain must be based on finding the best way to reach the business objective, even though this frequently means sub-optimizing one’s own function-specific metrics.”

Far too frequently it seems that departments have their metrics and they focus aggressively on achieving them. The problem, as noted above, is that a lot of the decisions that need to be made require tradeoffs and looking “beyond” just your departments objectives to see what makes the most sense for the business as a whole. This is not to suggest that people don’t care about what’s good for the business, but the reality is that people are frequently departmentally focused and their goals (and even compensation) are tied to those objectives - and that drives behavior.

Empowering peole to respond to change is critically important, but doing so in a way that ensures that they have visibility into the impact of their decisions on the entire business and are armed with the information needed to make the right decisions for the business as a whole is critical to driving the right outcomes.

Found this very interesting article based on research done as a joint effort between CAPS Research, A.T. Kearney and the Institute of Supply Management. The research poses the question “what will a typical supply management organization look like in 10 years?” and concludes that “it’s hard to say for sure, but it likely will be complex, high-tech, supplier network-driven, and spread out across the globe.”

This particularly caught my attention. The report identified four areas future supply managers will be expected to tackle:

1. Delivering more innovation from suppliers
2. Contributing more broadly to revenue generation
3. Anticipating and managing supply risk to ensure business continuity
4. Expanding the breadth and impact of cost management efforts

These are themes I’ve talked about frequently here. The trends are clear; increasing demand volatility, shortening product lifecycles and the increasing globalization of supply chains is creating an environment where collaborative response to unexpected events is required to compete and win.

New research from McKinsey (available here with free registration) does a nice job of outlining the challenges of retaining access to key operational supply chain data when you’ve outsourced manufacturing.

The research accurately identifies that “decisions to select a supplier are seldom coordinated to ensure that they optimize total end-to-end costs and delivery performance. In fact, these decisions are commonly driven by procurement organizations, without attention to delivery performance requirements.”

I’ve seen this repeatedly, where companies go into an outsourcing relationship with costs being the sole (or at least primary) driver. That’s certainly a very important consideration, but how are you going to deliver top notch service to your customers when things don’t go according to plan? To think that’s all on the outsourcing partner is naive, you as the brand owner are the one going to be help accountable by the customer.

In order to thrive in this type of environment you need both the information and tools to enable rapid response to change - where you are actively coordinating an effective response - one that is timely and accurate (meaning, aligned with your business objectives).

Recapturing your supply chain data is a lot easier if you go into the relationship with this broader mindset. By establishing data connectivity at the outset, you’ll not only build the proper relationships and expectations, but you’ll lay the foundation for increased collaboration and responsiveness to ensure all of your objectives are met.

Interesting article at the Enterprise Decision Management blog citing new research from Forrester on what they call “The Dynamic Business Applications Imperative.” According to the research, decision management will be at the heart of future enterprise applications. The authors provide insights into how to determine which areas of the business would benefit most from these decision management applications.

We’re already seeing strong validation for this in manufacturing operations. Our Response Management solutions, which are decision management applications, help to empower front-line decision makers with the visibility and tools they need to make faster and better decisions. The driver behind this increasing need is constant change. If you combine increasing demand volatility, shortening product lifecycles and increasingly distributed and complex supply chains, you get an environment where demand management and supply management is significantly more complex than ever before.

Front-line decision makers are inundated with exceptions to the plan that they need to deal with. In doing so, they need to balance the often conflicting requirements of customer satisfaction and internal operating metrics. And, increasing global competition means you need to act now or risk losing your customer to someone else who can deliver what they want when they want it.

For years companies have invested in solutions to plan the business better and ensure it can execute efficiently. But as organizations become more demand driven it’s becoming increasingly clear that you can’t plan the customer. The result is that operations is in need of decision management tools to support their critical need to make rapid and accurate decisions to deal with the pace of change.