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.
Nari Viswanathan
Vice President & Principal Analyst, Suppy Chain Management
Aberdeen Group
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.
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Nari,
With all due respect, I think you are way off the mark here. Complexities have always existed in the supply chain to some degree (some moreso than others). It is the false premise that we must constantly use a “benchmark” or “traditional” model to gauge how to maintain and manage the supply chain. It is only the true supply chain professional that can sincerely analyze his own, or in the case of a 3PL or 4PL, others, supply chains and fashion processes/resources to fit the situation. The supply chain “geniuses” can actually incorporate those into the current model by modifying, tweaking or adapting the current operations/processes. In this day and age of ERP/APS/WMS/”insert more acronyms here” systems, we tend to want to make the processes fit the application, whereas the push should be to modify the system to fit the processes. Sort of the tail wagging the dog versus the dog wagging the tail routine. Systems are tools. Will you use a hammer to drive a nail into a piece of wood? Absolutely! Will you use the same hammer to drive 100 nails into the wood? No! You get a nail gun!!! Same job, different tool to be more productive and save time/money. A similar condition exists with SCM, albeit on a grander scale. Many companies wrongly believe that using “benchmarks” or “proven technologies” or “consensus” of SCM professionals for a particular tool is probably the right one for them. Houston, we have a problem! Innovation, analytics, logic and simple common sense just got flushed down the toilet! The true SCM professional will use history and/or past experience with processes, implementations, systems, etc. as a guide to establishing a “baseline” approach to the complexities of the supply chain in question, but you have to have a little bit of creativity and flexibility to build a supply chain that can withstand adaptation to further complexities. If you constantly keep in mind that “change” is inevitable, then as you are constructing or modifying the supply chain, you will automatically (if you are truly honest about the process and include all levels of the company and all departments) engage in establishing a flexible supply chain. If the company does not support this venture, then it is doomed from the start. Arrogance of the C-level offices is rampant and they are always looking for the individual that fits “the mold” of a SCM professional, while the true geniuses that they “need” to do the job successfully and creatively are overlooked or eschewed because the don’t fit that mold. I’m still optimistic that this will change in the near future. If it doesn’t then we will see more companies fall to be replaced by entrepreneurs that realize that the old ways are not the best ways. Onward and upward!
Dear GMan
Thanks for your detailed feedback. I appreciate it.
If I understood your argument clearly, you are stating that the status quo has to be challenged and existing approaches do not work.
When we talk about Best-in-Class companies, it is the top 20% of companies that are leaders in their industry segments. We abstract the key capabilities that they have demonstrated in different areas such as Process, Organization, Knowledge Management, Data and Technology and provide recommendations for companies. By doing so , we are also capturing some of the innovations that these companies are doing and flexibility that they are creating in the supply chain. Some of these innovations may be against the grain of commonly accepted practices.
I do agree that there is a secret sauce for every successful company which is difficult to capture in a quantifiable manner – this is where the creativity and innovation comes into the picture.
The goal of what we are setting out to do is to provide the baseline on top of which an organization can build their own “secret sauce” process.
Also by looking at Process as the driver, we are essentially avoiding the situation of companies that modify their processes to fit the application which is what ERP and planning systems have traditionally asked companies to do. By talking about organization we are highlighting the need for organizational alignment to gain success. Technology comes at the end (still it is critical – you cannot run a company long enough with spreadsheets!).
I hope that this clarifies. Please send me a note at nari.viswanathan@aberdeen.com if you would like to discuss in more detail.
Regards
Nari