Archive for December, 2007

New research from Aberdeen (available here) points to the growing need for improved demand management in discrete industries.  The research identifies a variety of pressures that are forcing companies to focus on improving their demand management capabilities, including: rising customer service expectations, global supply chains resulting in increased lead-times, volatile market resulting in high uncertainty in demand, need to utilize expensive assets with maximum efficiency, pressure from stockholders to reduce inventory and competition from global brands.

The research also finds that Best-in-Class companies are 2.5-times more likely than all others to have a clear owner of the consensus forecast.  In discrete industries, the sales inventory and operations planning process is gaining foothold.  The owner of the consensus forecast thus then is the same as the S&OP process owner.  This is an important trend because in the past there has been very limited attention paid towards balancing supply, demand and inventory.  The challenge is exacerbated due to multiple channels of selling products.

For too long companies purchased applications that were focused on a single issue - demand planning applications that focused strictly on gaining an accurate picture of demand and supply chain planning applications that focused on the creation of a supply plan to meet the demand plan.  While planning plays a vital long-term role, as companies seek to become more demand-driven in light of the market forces that Aberdeen identifies, they face the reality that you can’t plan the customer.  The premium then shifts to being able to respond to change as it occurs.  To do so you need to empower people with the visibility and tools to quickly evaluate the impact of change and figure out what course corrections are required to balance supply, demand and inventory.  Doing so requires an integrated view of all three – a view based on real operational data and not some model of the real world that prevents you from taking action based on an understanding of what’s possible and what the impact of your actions would be.

Demand management is increasingly the focus for companies seeking to become more demand-driven, and the defition of demand management is all about demand sensing, demand shaping and the ability to profitably respond to demand changes.

IndustryWeek has a new article talking about the significant benefits associated with delivering decision makers an integrated view of demand and supply.  Operations performance breakthroughs are enabled when people are empowered with this holistic visibility.

As the article points out with explanation and examples, for too long companies have leveraged planning systems that operate in silos.  Demand planning systems focus on developing a demand plan and supply planning systems focus on developing a supply plan.

At an operational level, down in the trenches, the issue is about constantly dealing with misalignments in demand and supply.  The examples in the article point this out with great clarity.  Decision makers no longer care what the plan was, they have to deal with today’s reality.  The only way to do this is to understand an accurate view of what true demand and the current state of supply is – at that moment.  And, more importantly, they need to be able to leverage this to understand what is possible and what the impact of any proposed course corrections would be.

You’ll find demand planning systems and supply planning systems that represent themselves as offering visibility into the “other side” (demand planning systems that promote visibility into supply).  The problem you’ll find is that they do so at such a superficial level – enough to get a check mark – that it’s useless in truly solving real problems where course corrections are needed to solve a current problem.  In a planning context where the time horizon is months or more, this modeled view of supply reality is likely sufficient in a demand planning solution.  But this is completely inadequate when it comes to solving an operational performance problem today or this week when the customer is waiting for an answer.

Demand and supply integration put into the hands of decision makers with the tools to leverage that visibility to solve real world operational problems is the key to responding to the pervasive change that is driving the organization today.

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.

Very interesting article here about the shareholder value impact of supply chain risk.  According to the article, “businesses must remain prepared to adapt to adverse events. Organizations that are better equipped will gain competitive business advantage while improving reputations, while ill-equipped organizations will lose market share and shareholder value.”  The article goes on to state that “Companies that are able to avoid disruptions will be regarded as a superior shareholder value in 2008 –shares of resilient companies should perform better.”

This is one of the first times that I’ve seen supply chain risk management be tied so directly to financial impact to the organization and, ultimately, shareholder value.  I think the article is right on the mark.  Unfortunately, supply chain management is too often viewed of as a tactical issue where cost reductions and savings is the main objective.  The article clearly points out the strategic impact of supply chain management and, specifically, the growing importance of being able to respond to change. 

The implications are clear, companies that can respond quickly and effectively to unexpected supply chain risk are in the best position to avoid customer erosion and win new business and are best positioned to avoid costly excess and obsolete inventory and other negative operations performance impacts associated with poor responsiveness.

Good article here at ITBusinessEdge by Ann All discussing the challenges Boeing has faced with its global supply chain for its new Dreamliner 787 jet.  As you’ve probably read, Boeing took a very aggressive outsourcing strategy for this project.  What they’ve come to realize, like so many others, is that doing so is a double-edged sword with lots of benefits and risks.

If everything goes according to plan, outsourcing doesn’t represent a lot of problems since a well laid out plan simply needs to be executed.  The reality is that things rarely go exactly according to plan.  This is where outsourcing can pose unique challenges since you’re now working with multiple third parties.  The problem I’ve seen a lot of companies take is that they continue to treat this situation as if they were still doing all the manufacturing.

When companies outsource, they continue to remain accountable for all of the outcomes despite the fact that they are no longer executing all aspects of the project.  Their role shifts to that of master coordinator and the emphasis needs to be on coordinating an effective response to change as it comes up.  A pre-requisite to doing so is visibility.  This isn’t to micro-manage the partners, but to ensure that exception based alerts are possible and to facilitate active resolution of problems.

Failure to properly coordinate response to change across the virtual enterprise can lead to poor operating performance, inventory control challenges and project delays.

There was an interesting article here in the Wall Street Journal (paid registration required) the other day talking about the challenges that Nintendo is having balancing supply and demand for it’s popular Wii game console.  The article points out that “… Nintendo’s problem illustrates how tough it is for companies to try to predict demand for a product…”  The article goes on to describe the delicate balance companies face in choosing to ramp up supply in the face of uncertain demand.  Doing so risks being stuck with excess and obsolete inventory whereas not doing so creates stock out situations and the potential for customers to go with a competitive offering.

 The essence of the article speaks to the unabating market forces that are creating huge challenges for brand owners and manufacturers alike.  The combination of increasingly volatile demand, shortening product lifecycles and the globalization of fulfillment networks and supply chains are creating a significant performance management challenge for companies as they struggle to proactively manage their response to constant change.  The negative consequences of not doing this well are poor customer management and satisfaction, excessive inventory and overall operations performance issues.

 As the article points out, Nintendo is constantly working to improve its demand planning capabilities, but even under the best of circumstances they will never be able to completely predict their business.  This is the case for many companies today.  Given this reality, it’s important to complement demand planning and supply chain planning efforts with Response Management strategies that empower people to respond to the unexpected – to rapidly make the right tradeoffs and course corrections needed to deal with the uncertainty that unfolds every day.