Archive for July, 2008

You may have noticed that I have changed the name of the blog.  Why?  I want to evolve the blog to a broader agenda.  One thing that’s become pretty obvious is that today’s supply chain is not your father’s supply chain.  The pressures and complexities are at unprecedented levels.  And, this is causing companies to rethink their supply chain strategies and come up with innovative supply chain management strategies.  I want to evolve the blog to talk more broadly about these issues, and thus the change.

In addition, I’m working to tap more of our internal experts for their thoughts and opinions as well.  So, I expect to start bringing you contributions from our deep bench of supply chain experts in the coming weeks. 

I hope these changes will bring even more value to those supply chain professionals trying to thrive in the 21st century supply chain!

NOTE: If you subscribe to the RSS feed for this blog (thank you!), this change will not impact your subscription.  We are not changing the URL for the feed to avoid breaking existing subscriptions.

Do your customers sound like these demanding customers?  OK, so that may be a bit over the top, but directionally correct with many of the companies I’ve talked to.  Customers are a lot more demanding today than ever before.  This is true whether you’re in a high volume or low volume high mix business.  In fact, we have a customer that makes million dollar plus equipment that is highly configurable, the last thing you’d expect to be a commodity, yet their customers often treat it as if it is.  They expect to be able to change the configuration options right up to the last minute, and if you don’t accommodate, they will go elsewhere.

So, what to do?

First, you need to have an early warning system that is capable of identifying demand changes and understanding which ones can have a negative impact on your business.  You’ve got to ensure that your key staff have this information readily available to them.

Once you know about the changes in demand that will negatively impact your business, you’ve got to be able to take quick action.  This requires your “responders” to have visibility into your global supply and demand picture – simultaneously.  I stress this because most systems give you a view of demand or a view of supply, but not an integrated demand-supply view side-by-side.  And, this is critical.  It’s critical because when things aren’t going according to plan, you need to make the right course corrections to deal with the realities as they unfold.   This is all about making tradeoffs and it requires you to understand what your options are and the impact on your business should you implement any of the available options.

Customers are becoming more demanding as expectations rise and more options become available to them.  There are options for dealing with these situations, but it requires you to adjust demand management processes and ensure responders have tools to support responsive actions.

Aberdeen recently published a new report entitled Sales and Operations Planning: Aligning Business Goals with Supply Chain Tactics. Because Kinaxis was a sponsor of this report, we’re able to offer a complimentary copy of the report through the end of August.  You can access the report here.

The report had over 300 respondents across a variety of industries and company sizes.  The goal of this year’s report was to identify how the S&OP process helps corporate executives accomplish their overall business strategy, with the four broad strategies being: product differentiation, customer service differentiation, cost reduction and profitability.

Aberdeen found that the Best-in-Class companies (the top 20% of respondents):

• Increased Return on Net Assets (RONA) over the last two years: 43% of respondents with 5% and above improvement
• Customer service levels (on-time and complete to the customer’s requested date): 97%
• Average cash conversion cycle: 15 days
• Average forecast accuracy at the product family level: 86%

In addition, Best-in-Class companies are:

• Two and a half times as likely to be proactively alerted when they are no longer on track to meet S&OP objectives
• More than twice as likely to have the ability to align the S&OP plan with the company’s financial goals
• Three times as likely to proactively monitor daily performance against S&OP metrics
• Twice as likely to have the ability to respond to unplanned events in a timely manner
• Twice as likely to utilize statistical analysis and fact-based decision-making

There are some really good insights in the report and you can’t beat the price.  Also, I recently wrote about tools to support the S&OP process here.

I just came across this article at Supply Chain Digest featuring comments from Patrick Connaughton, an analyst at Forrester Research.  Connaughton says that “Saddled with inflexible and heavily customized legacy systems, countless supply chain operations are urgently in need of a large-scale IT modernization and transformation effort. Some have flat out reached a point where they can no longer compete or expand globally without a complete rip and replace of their systems.”

For years companies have invested large sums of money in legacy demand planning and supply chain planning systems in hopes of improving their operations performance.  While there have been some successes, increasingly companies are finding that legacy supply chain planning systems are failing today’s supply chains.

Today’s supply chain is defined by pervasive, global outsourcing, increasing demand volatility and shrinking product lifecycles.  The result is that the best possible plans are made…but then everything unravels.  Legacy supply chain planning systems were not designed for this environment.  Instead, they are:

• Used by a small number of highly trained planners
• Designed around a single enterprise focus
• Produce plans that are always “wrong” (the math is correct, but the assumptions that went into the planning model have changed by the time the optimization is completed – resulting in the wrong optimized plan)
• Result in planners and front-line decision makers having to rely on spreadsheets to run multi-billion dollar businesses

Optimization solutions can provide value at a very local level – in factory planning, for example, where you want to optimize what is built the next day – but are failing today’s multi-enterprise supply chains.

Today’s realities present new challenges that require new solutions – a new paradigm for a new world.  Solutions must embrace the reality that today’s supply chains are multi-enterprise in nature and, thus, must provide clear visibility into the extended supply chain and tools that understand this virtual enterprise and its nuances.  Today’s solutions must embrace and leverage human judgment since the number of unplanned events with high risk to the business are on the rise.  Front line staff need to be armed with tools for risk tradeoff and response to deal with these situations quickly and appropriately to ensure a profitable response is put into action.  These solutions must foster team-based decisions that tab the collective insight of the right people in the organization – those that understand the potential impact of any unplanned event and proposed action alternative.  These people need to be able to tap into a single system with one set of data, no matter what the problem – whether it be a demand, supply or product issue that needs to be addressed.

To deal with today’s increasingly complex supply chains, manufacturers need an integrated solution that empowers their staff with planning, monitoring and response capabilities.  Legacy supply chain planning systems were not designed for today’s complexities and can actually contributing to making the problems worse as a result.

I read a very interesting paper by The Economist Intelligence Unit entitled “In search of clarity: Unraveling the complexities of executive decision-making.”

The article included a discussion on the virtues-and limitations-of scenario-building in the context of executive decision-making.  A couple of comments that I found very interesting:

• “Another benefit of using scenarios is that they combine human intuition and hard analysis, two elements which are the bedrock of all good decision-making”
• “Scenarios do not make the decisions; rather they provide a common intellectual background against which choices can be discussed, tested and agreed”
• “In turbulent times, people are looking for ‘flexibility and resilience’ in strategy to meet rapid change–something which scenario-building can be designed to address”

Great observations.  As I’ve commented in the past, every company needs a plan – it serves as the foundation of all actions and provides specific goals and objectives.  But the reality today is that the plan is a set of guidelines.  Increasingly, things are changing so rapidly that manufacturers need to combine demand-supply planning with monitoring and collaborative response capabilities to deal with the pace of change.

The collaborative response capabilities must embrace human judgment–using tools such as scenarios–to figure out how to deal with the realities as they unfold, since reality is increasingly not what was in the plan.

For years companies have  been conditioned to focus on supply chain planning and supply chain execution.  If you could do this better than anyone else, you won the supply chain management game.  But that’s no longer sufficient.  We’ve entered a new era of surprise and compromise that needs to be supported by a new set of tools designed specifically for this new reality.  Traditional demand planning and supply chain planning systems have failed us in this new reality.

The appropriate scenario management capabilities into the hands of the key people within the supply chain management function can provide breakthroughs in dealing with today’s new era of uncertainty.

I’ve suggested several times (see here as one example) that there’s a change underway in how supply chain management is viewed.  The traditional view is that supply chain management is all about cost reductions – impacting the bottom line.  I’ve suggested in the past that I’m seeing a shift, where more and more companies are seeing the strategic impact that supply chain management excellence can have on the top line.

IndustryWeek just published an article citing new research from Archstone Consulting that states the following: “Over 80% of manufacturers have responded to the current economic climate by devising aggressive agendas to boost sales and cut costs.”  They went on to say “An interesting pattern emerged, in that manufacturers across the board have high expectations for their supply chains to both boost revenues and reduce costs.”

It took some pretty intense market pressures, but this is a positive shift for the long-term.

Charlie Barnhart has written a very thought provoking post here stating that inventory is not an asset.  This is a great topic given today’s market forces and something I’ve written about several times (see here, here and here).  Charlie has actually written a paper on this topic that you can access here.

While accounting is unlikely to change their categorization of inventory as an asset, supply chain management professionals increasingly realize that inventory is more a liability than asset.  The pace of change today is making that a reality for everyone involved in supply chain management.  Charlie has some great insights on the topic based on his years of experience in the contract manufacturing market, where inventory plays a central role.