For most of us, we’re experiencing unprecedented economic challenges. The implications to the supply chain management profession are profound. We’ve gathered some of the industry’s brightest minds to discuss these challenges and seek innovative solutions. We hope you enjoy the Kinaxis Supply Chain Expert Series as we challenge these experts on these issues.
Vice President & Principal Analyst, Suppy Chain Management
Nari Viswanathan heads up the supply chain planning practice and counsels enterprises on their supply chain planning strategies in areas such as sales and operations planning, demand management, inventory management, network design, and customer/ supplier collaboration with specific emphasis on financial performance. Nari also covers the Software as a Service, B2B collaboration and process integration coverage areas. Nari is part of the SCM research team, and possesses a very strong understanding of adjacent supply chain areas like TMS, WMS and Distributed Order Management.
Nari is a well recognized industry expert with extensive experience across product management/marketing, consulting, solution design/development and presales. Nari recently gained industry recognition as a Pro to Know by Supply Demand Chain Executive Magazine. Nari has also published extensively in magazines like SCMR, GLSCS, Supply Demand Chain Executive, Internet Retailer, Industry Week etc.
Kinaxis: We are experiencing a rapid and perhaps long-lasting downturn in the economy.
- What lessons can be learned from the downturn that can be applied to supply chain management in the short term and in the long term?
- What specific supply chain initiatives can be applied in the short term that will have greatest effect on a company’s financial performance and sustainability?
- How can companies balance short-term cost cutting objectives with the need to strengthen their position for an eventual recovery?
Nari: In order to understand the primary concerns companies are facing with respect to their supply chains, it is critical to understand the key events that happened in 2008 which resulted in the need to redesign supply chains (Figure 1). There has been extreme fluctuations in customer demands based on market conditions as well as due to other macro-economic conditions (54%) as well as the volatility in fuel prices that was experienced in the second half of 2008 (51%). In addition the impact of the rise in fuel prices was a sharp increase in raw material prices. The shortage of food commodities also resulted in a cascading increase in raw material prices (45%). Finally there were shipment delays and other execution related issues that resulted in companies looking to redesign their supply chains.
Figure 1: Key Supply Chain Events that Necessitated Redesign of Supply Chains
Source Aberdeen Report Survey 2009
Given these critical challenges that companies are facing, it is important that there is a focus on short term ROI initiatives.
One of the key areas where companies need to focus on in the current economy is working capital. In these times of economic uncertainty and global credit crunch, companies need to actively seek out best practices in how to move from working capital optimization theory to practical initiatives that will improve corporate financial performance while maintaining customer satisfaction. Supply chain, procurement and financial professionals have an opportunity to use working capital innovations to create a market advantage for their companies. Cash velocity can be a competitive differentiator and companies need to assess a variety of breakthroughs in working capital management to keep pace with their peers.
Kinaxis: As companies have outsourced, much to their consternation, their direct control of the supply chain has decreased. They now need to participate in multi-enterprise supply networks.
- How do companies need to change their supply chain planning paradigm to compensate?
- With so little under the direct control of a company, of what relevance is an sales & operations planning (S&OP) process?
- Are the advanced planning & scheduling (APS) and enterprise resource planning (ERP) solutions developed in the 1990’s still relevant?
Nari: Seventy-one percent (71%) of the participants in a recent Aberdeen study indicated that they were removed from their end customers by at least two levels of the supplier chain (tiers). In addition, rising supply chain costs, escalating customer service demands, an increasingly global operation and increasing number of value chain partners have resulted in increased complexity. This complexity has resulted in companies gradually losing visibility and control over their network-wide supply chain operations and performance metrics.
Visibility in such a multi-enterprise environment cannot be enabled fully through a traditional ERP or APS approach. There is a need for a comprehensive business process layer that ties existing investments in ERP and APS systems with add-on business components that can fill gaps in capabilities. In other words a key ingredient for enabling multi-party SCM is a Business Process Management layer that can support multi-party business processes.
A true multi-tenant on-demand application is an example of a multi-party SCM solution. Many on-demand providers also come to the table with networks of pre-connected suppliers and carriers, which helps to further reduce rollout times and increase trading partner acceptance.
Enabling support for unique business processes by customer, product line, or channel, an on-demand technology platform can lay a foundation for richer data exchange and more flexible process collaboration.
Kinaxis: We have seen the globalization of demand, especially in the BRIC (Brazil, Russia, India, China) countries.
- Notwithstanding the current economic downturn, will this trend continue?
- How will this impact the supply chain, especially with respect to outsourcing, which has tended to look at the BRIC countries as cheap(er) manufacturing centers?
- How will this impact product development, and by extension the products available in the developed countries?
Nari: Today’s economy is a global one in the true sense of the term in that companies both source and compete for customers on a global stage. This has been made possible due to the lowering of tariff barriers and the improvement in communications mechanisms. Earlier approaches to global markets, followed primarily by large manufacturers, included vertical integration – operating plants in every country to serve customers in these countries.
Today’s focus, however, is creating more collaborative relationships with channel partners like distributors, wholesalers, retailers, etc. This has resulted in the need for improved demand management practices as lead-times across the value chain have increased. In addition, it is important to analyze channel sell through data to better predict end customer demand. In other words, globalization has resulted in increased customer-centricity for companies that were hitherto removed from end customers.
This increase in the need for customer-centricity has, in turn, dramatically increased the need for improved demand management.
Best-in-Class companies are ahead of their peers in being able to recognize a problem that is only emerging within the marketplace, namely the globalization effect. Fifty percent (50%) of Best-in-Class companies indicate that many of their supply chains do not have normal demand distributions, making traditional forecast modeling difficult, whereas among other companies only 15% indicate the same. Traditional forecast modeling was designed around the premise that there are a few critical customers who determined the forecast volumes whereas the rest were not so critical and hence the normal distribution. With elongation of the supply chain on both the customer and supply sides, the long tail effect associated with a larger number of customers sharing a smaller piece of the revenue pie has become a critical issue. In addition, these customers are demanding differentiated products faster and at a lower price. One approach by which Best-in-Class companies are working around this issue is to become more market responsive by reducing overall lead-times.