Archive for January, 2008

There’s a very interesting article here at Supply Chain Management Review by MIT’s Larry Lapide. The article introduces the concept of a new supply chain performance management metric called “Efficient Orders” - a metric that complements the more standard “Perfect Order” metric. The basic notion here is that efficiency is another key measure that needs to be taken into account, a measure to understand if the order meets the business expectations whereas perfect order focuses on measuring whether or not customer expectations were met.

Larry points out that efficiency is an issue because many supply chain personnel love to play the role of “Everyday Hero,” solving problems on behalf of customers but masking underlying problems that should be addressed. Larry goes on to say that “While supply chain plans are never 100 percent accurate, planning is necessary to reduce the number of exceptions. Do little to no planning and most customer transactions become exceptions. Do a ton of planning and you’ll still get exceptions because of the uncertainties in demand and supply. So there is a limit to how much planning should be done.”

The reality is that exceptions are occuring, and increasingly they are becoming the norm. So, you need to deal with them. The key then becomes how to do so in a way that balances the good of the customer and the business. Arming demand management and supply chain management decision-makers with tools to understand the impact of their actions before they take them is one such approach. Doing so places performance management capabilities where the rubber meets the road and ensures that decisions are made not only quickly, but in alignment with corporate objectives. This is the key to a profitable response to changes that occur daily across the supply chain.

Sustainability is a hot topic these days.  I attended an AMR conference last year that featured several speakers highlighting their sustainability initiatives.  Their presentations not only detailed the environmental and social advantages of their programs, but also explained how the companies were profiting from these efforts.

Aside from the environmental and social reasons driving sustainability initiatives at manufacturers, there’s the regulatory requirements in many industries (and this is expected to grow substantially in the coming years).  These requirements, such as RoHS and WEEE, mandate certain sustainability steps be taken.  Of course, one problem with these mandates is that they are geographic in nature, which creates substantial challenges to supply chain professionals.

No matter what the driver of your sustainability initiatives, you need to fully integrate them into everything you do.  It just won’t work to treat these as standalone initiatives given how pervasively they impact every aspect of the business.  Think about this in the context of managing responses to unexpected events. 

As an example - for a variety of reasons, you’ve seen an unplanned uptick in demand in North America.  The natural desire is to satisfy all of this demand to realize a revenue and profit bump, but the uptick was never in the plan.  You may determine that the only way to profitably meet this new demand is to re-allocate supply that was destined for Europe to North America.  Except, sustainability mandates differ geographically, meaning that the “same” product really isn’t the same across all geographies.

One way to combat this, of course, is to take a more global view in your sustainability initiatives - to drive consistency across all geographies.  The advantage of doing so is to get ahead of the curve based on the realization that these requirements will increasingly be adopted globally.  While geographic differences are bound to exist, the bar will continue to rise and the further you’re ahead the better off you’ll be.

This simple example illustrates the depth by which these issues need to be thought through and the impact that sustainability initiatives can have on responsiveness.  I think the key is looking at these situations as opportunities rather than barriers.  By proactively making sustainability requirements a core part of your business, you retain a high degree of responsiveness while being able to differentiate your offerings in a positive way.

I came across this post today which features information on some interesting research. The research covers some interesting areas. This comment particularly caught my eye:

The pace of change in supply management is more likely to increase rather than the decrease in the future, as evidenced by changing market factors, globalization and the ongoing march of technology.

The research covers the market forces and makes recommendations for coping. Might be worth checking out.

There’s an interesting article by Pankaj Ghemawat at Harvard Business Review talking about globalization and the turbulence and uncertainty associated with it. I posted a comment at the site, but have included it below here as well.

*** My Comment ***

I agree that globalization is here to stay. Increasing globalization is the norm with the manufacturers I work with. You’ve identified some of the strategic imperatives of surviving in this world, there are also operational imperatives.

Manufacturers today are dealing with increasing volatility. This is driven by increasing global competition and demanding customers — all leading to volatile demand. The need to compete through innovation has placed pressure on product lifecycles, shortening them along the way. And, as you noted, globalization is a key to geographic reach and cost advantages, but comes with added complexity.

To win, more and more companies are trying to become increasingly customer, rather than internally, focused. They key is to do so in a way that balances customer requirements with company requirements for profitability. The first thing companies realize on the way to becoming more customer focused is the reality that you can’t plan the customer. This makes responsiveness a core requirement for companies to thrive in today’s globalized markets.

Of course, one of the biggest internal challenges companies face is the inability to see this. For years, everything has been about planning and execution. This model works great when you have an “inside out” mentality - a push model where you build things and push them out the door. But as soon as you move to an “outside in”, or pull, model, it’s not enough. You now need to empower people with the tools for risk tradeoff and response to manage the daily exceptions that are now at the hear of your ability to compete.

Manufacturing is in the final throes of a massive shift from a production-centric to customer-centric strategic business model. We have transformed from the “any color you want as long as it is black” model of four wall focused long production run efficiency to new a world of strategic supply chains, global outsourcing, time-to-market, mass customization and delight the customer. How fast you react and how well you act will increasingly define business success. Companies need to ask themselves what their strategic solution is for driving response? If your like most businesses, you have a cobbled together web of tactical, people-intensive solutions. The future will be won by those with the best strategic solution for Response Management – because you can’t plan the customer.

It’s NFL playoff time, so this analogy that someone shared the other day is appropriate this time of year.  If you think about the role of an NFL quarterback today, it has a lot in common with the role of a front-line supply chain decision maker.

NFL coaches are notorious for their maticulous planning.  You hear a lot of stories of how many hours they spend watching game film, developing the game plan and then practicing it over and over again with the team.  The quarterback is the field general that leads the implementation of the offensive game plan.

Yet, despite all of their planning, teams need to be able to respond to change.  Plans never actually unfold exactly as envisioned - whether it be injury, weather conditions, what the other team throws at them or a myriad of other unexpected changes that need to be accounted for.  Great quarterbacks like Tom Brady and Peyton Manning are exceptional at coming to the line and being able to manage at the moment.  They come to that situation with not only a plan, but the tools to do risk tradeoff and response to the unexpected changes they are going to encounter.  It is their ability to audible that frequently determines their success.

There’s a lot in common here with today’s supply chain professional.  It’s rarely the case that the gameplan unfolds exactly as developed and practiced.  It’s the supply chain professional that can audible, that can sense and respond to frequent and unexpected change that is going to win.  They need to be able to quickly determine what is going on and then make quick and accurate decisions that balance the risks and opportunities for their company.

Success today has very much become a function of your ability to respond to the unexpected.  Are you arming your supply chain quarterbacks with the tools that they need to audible at the line?

IDC’s Manufacturing Insights has just released their top 10 predictions for 2008 as documented here. Amongst the predictions, IDC notes:

• IT organizations will accelerate spending on collaborative decision environments and incubate multi-enterprise business networks
• IT spending in the supply chain area will focus on fulfillment execution

These are interesting insights. I continue to see that as companies have created ever more globally distributed fulfillment networks and supply chains, the need to collaborate on decisions has increased substantially. The drivers behind this is increasing demand volatility and global competition combined with ever shortening product lifecycles. These drivers are creating an environment of constant change, which is placing a premium on organizations ability to collaboratively respond.

The fulfillment execution insight is also right on the mark with what I’ve been seeing as I talk to large brand owners and manufacturers. At the end of the day, the battle is to ensure that you have the right product at the right place at the right time. Sounds easy, but given the drivers mentioned above, its increasingly challenging to do this. But as companies move to become more demand-driven in an effort to proactively manage these drivers, they come to realize that you need to build into your processes the flexibility and responsiveness to deal with the circumstances as they unfold. While efforts to improve demand planning and supply planning provide incremental improvements, breakthroughs are being realized by those companies that figure out how to respond when things aren’t going according to plan - which is increasingly the case.

Great article here at the Financial Times talking about the need to design supply chains from the shelf back.  The article cites some great statistics on the negative brand and revenue implications of not having product on the shelf and then talks about strategies to design a supply chain from the shelf back.  Of note, the article states “designing the supply chain from the shelf back requires flexibility and responsiveness, which is at odds with the need to reduce cost.”  This is a challenge I’ve spoken about before (see here and here as examples) where companies have everyone aligned with internal metrics that drive cost reductions at the expense of external metrics that drive customer satisfaction and revenue growth.

Companies need to become more demand-driven today to deal with the increasing competition and demand volatility, the shortening product lifecycles and the elongated supply chains that have created delays and more opportunities for things to go wrong.  In the quest to become more demand-driven, you need to start designing supply chains from the customer - or shelf - back.  The first business reality you must face in doing this is realizing and embracing the reality that you can’t plan the customer - so you need to build in processes to respond quickly to the more accurate and current understanding of true demand that such initiatives will bring.

The article does a nice job of netting out three distinct recommendations for action and then explaining them in more detail.  They are: “One, make the supply chain a key part of your business strategy, focused on delivering top line growth. Two, integrate supply chain management with sales and marketing. Three, build joint business plans with your supply chain partners.”  Good advice.