Archive for June, 2009

Supply chain growing in popularity

Published June 30th, 2009 by Trevor Miles @milesahead 11 Comments

There is a very interesting post at Supply Chain Management Review entitled “CFOs: Survival trumps profits, supply chain growing in popularity” that highlights a number of issues related to supply chain management, the first being that supply chain management is almost always related to reducing direct costs, though I have to admit to being surprised that in the current economic climate as many as 37% of the respondents are focussed on increasing profit.  While it is hardly a surprise that the majority are focussed on cost reduction, nevertheless this post illustrates a primary reason why so few companies have gone from using supply chain management as a defensive weapon (cutting costs) to an offensive weapon (revenue and margin attainment), namely the mutual lack of understanding between Finance and Supply Chain.  While the authors state that “Finance departments … don’t understand supply chain management enough”, I think this is a 2-way lack of understanding.

I can count on two hands the number of times, in 20 years of working in supply chain, that the results of a supply chain plan were truly evaluated in both operational and financial terms.  Similarly, I have yet to meet a CFO who truly understands the operational consequences of mandating a 5% reduction in inventory, for example, including that there will likely be customer service consequences and, therefore, revenue consequences.

The consequence of this lack of understanding is reflected in the observation that “about two-thirds of the respondents don’t yet see the strategic value in supply chain management.”  Encouragingly the post goes on the state that “The solution … is integration … then the suspicion disappears.”

There is nothing better to promote integration between Finance and Supply Chain than a common set of numbers in the same tool so that the operational consequences of any changes made by Finance are visible immediately to both Finance and Operations.  Similarly, all operational decisions should be evaluated in financial terms too, and made visible to Finance.  All too often I see Finance working off of complex spreadsheets with models that do not incorporate any aspects of the supply chain, and supply chain planning tools that do not evaluate the supply chain in financial terms.  Without these capabilities, it is very difficult to promote and sustain the level of integration necessary to achieve collaboration, not simply enforced cooperation.

Posted in Milesahead, Supply chain management


Are you “change ready?”

Published June 26th, 2009 by Randy Littleson 0 Comments

I was just reading a draft of David Oppenheim’s (a Kinaxis consultant) new white paper (we’ll announce availability and provide a link when it’s published on this blog) and there was one line that jumped off the page and caught my attention.  David wrote, “we know that change is the only constant, and yet our processes treat change as the exception instead of the rule.”

I think this is at the heart of many of the challenges that manufacturers face today.  Think about it this way – most supply chain professionals grew up in an era where there was less global competition, less outsourcing and less volatility.  Product lifecyles were shorter and customers were less demanding.  These are obviously all relative statements, but when I talk to people across manufacturing industries, there seems to be broad concensus that we live in more challenging, complex and volatile times.  Because of this heritage, most business processes, and the tools to support them, were designed for this type of environment.  That is, they were optimized around the notion that if you built a solid plan and were good at executing that plan, you’d win.

But as David accurately points out, today more than ever, change is the only constant.  Despite this reality, most organizations haven’t adapted to this new reality.  Why?  Because that’s the way we’ve always done things.

Ask yourself this.  Does your organization think first about how to manage things when they go according to plan (which quite frankly is the easy part)  or first about how to manage things when they don’t go according to plan?  My experience is, as David points out, it’s usually the former.  And, there’s the disconnect.  Today’s environment is dominated by dealing with exceptions, yet supply chain processes are still optimized for a largely exception-free world.

Posted in Response Management


In praise of the local hero

Published June 25th, 2009 by Jane Marshall 2 Comments

In his white paper entitled Four Steps to Take Now to Prepare for the Recovery:  Strategic Supply Chain Management Strategies to Maximize Operations Performance Over the Long-Term, John Sicard talked about the need to empower people to collaborate.  He quotes Stephen Haeckel, ‘Adaptive Enterprise’; “Human skill in recognizing patterns and thinking creatively about unanticipated challenges will continue to mark the difference between successful firms and unsuccessful ones.”

I couldn’t agree more.  In virtually every one of my consulting engagements, whether in electronics or semiconductor manufacturing, aerospace, industrial equipment, or most recently, pharmaceuticals, I’ve found one (and sometimes more) key individuals in the supply chain planning function who really understand the business, think creatively, and see opportunities for improvement.  These are the Local Heroes in the organization.  As well as understanding the products and customers, they seem to know everyone, and they have a pretty clear picture of whom to go to for help with any issue. They’re usually the ones entrusted with the task of creating that monster spreadsheet that the head of Operations just can’t live without.  You know the one: that report that’s usually named after the VP himself or has some other catchy name— everyone’s go-to report.  Just look at the detail in one of these, as well as the number of exceptions flagged, and you’ll begin to understand the number of complex factors they’re weighing as they try to pin down the supply plan: ever-changing demand, supply disruption issues, increasing costs, and supplier problems.

These key individuals will never be replaced by planning systems. The real challenge is to make them more efficient at what they already do well.  How do we do that?  What’s really needed?

First of all, I think they need to be spared the task of assembling all of the raw data on the current situation. How often is a creative idea shot down now because someone points to a single incorrect number manually entered on a spreadsheet, and assumes that all conclusions are therefore suspect? Everyone needs to see the same base numbers and have confidence that they’re right.  This has to be easy.

And I think they need visibility of the whole supply chain in this raw data, not just their own local plant.  Outsourcing is so very prevalent now, that it’s a given that data must be shared with all partners.

Then they need tools to help them document their ideas for change in a structured way. The ability to simulate various scenarios so that they can share probable impacts with everyone involved–whether internal or external to their own organization—is critical.  One of my customers broadly categorizes these as “What-Is” and “What-If” simulations.  He uses the term “What-Is” for everyday events that need analysis on a regular basis. What do we do when that demand comes in later than forecasted? What happens when we move those two orders out to provide capacity for this new high runner?  The list goes on and on.  But then there are the “What-if” questions that are perhaps longer-term and more strategic in nature; they must also be analyzed proactively to have potential strategies in place.  What if this supplier goes out of business?  What if we close these three plants and outsource some of this production?  What if we add a new production line?

And lastly I think they need the tools to share the results of these simulations, to let others know what their assumptions are, what alternatives are being considered, how the alternatives are being evaluated.

I’m sure all you Local Heroes can relate to some of these issues.  Your role as front-line planners is not a simple one.  I’d love to hear more about what kinds of systems support you need to help you do your job better.  What capabilities would bring you the most benefit?  What gaps should we be working to fill?

Posted in Supply chain management


Sourcing in China? Might not be such a good deal.

Published June 24th, 2009 by John Westerveld 10 Comments

AMR Research recently published an article that about a study they have been working on which indicates that companies are starting to look near shore when making sourcing decisions.  In the study, risk was one of the key drivers for this trend.  Companies surveyed identified the following risks in dealing with China.

  • Intellectual property infringement
  • Product quality 
  • Regulatory compliance
  • Supplier Failure
  • Commodity price volatility

The article goes on to point out that many companies are planning to increase on shoring activity (an interesting shift from a few years ago!). 

Supply chain risk isn’t the only issue driving this trend.  Over at the IBF Blog, Tom Wallace, in a recent post, discussed a Business Week article that identified that the China price advantage has eroded from 22% to 5% cheaper at the port of entry.  This is driven by the increase in prices China charges for their goods and increasing transportation costs.  As Tom points out, higher risks in addition to the reduced savings makes it difficult to rationalize the other costs of doing business in China; 

  • Longer, more variable lead times (which drive the need for higher inventories)
  • Quality concerns
  • More complex engineering change logistics

In addition to Tom’s comments, what we’ve seen is that visibility and control over the supply chain can be a challenge and communication can be difficult due to language barriers.   And let’s not forget the “green factor”.  Moving goods around the globe simply isn’t environmentally friendly.  Also, China’s record on environmental issues isn’t exactly stellar either.

I have to admit, as an “old manufacturing guy”, I would be happy to see the on shoring trend continue.   While this may come with a slightly higher cost for our gadgets and clothes, I think it’s better for us, better for the environment and maybe even better for those living in China.

What do you think?  Do you currently outsource to China?  Have you been reviewing your outsourcing strategy?

Posted in Supply chain risk management


Recession or reset?

Published June 23rd, 2009 by Trevor Miles @milesahead 1 Comment

Much of the rhetoric of the politicians in the West when “selling” their economic stimulus packages to a skeptical public has been focussed on returning to economic conditions that existed in 2003-2006.  There are many sceptical voices across the political and financial spectrum, some based upon wishful thinking, some based upon analysis.  Some of the analysis is country specific and some of the analysis takes broader trends into consideration.  I am not an economist or a politician, so I am sure there are many that can argue with my analysis.  I am also not an innocent bystander having seen my net worth shrink by 40% in a 6 month period from September 2008.  I would love to return to an economy that would restore my net worth to its original value.  I just don’t see it happening.  Macro-economic trends coupled with the historically high levels of consumer debt in the West point to a long period of readjustment and a reset of expectations.  In a world economy where an economic rate growth in China in excess of 5% is seen as a disaster, while in the West this growth rate would be celebrated and the central bankers of the G7 applauded for their wise stewardship, we can only pause to consider what this all means.

china-growthindia-growthus-growth

 

 

 

 

 

In a study just published by Boston Consulting Group (BCG) titled “Globally Advantaged Manufacturing – Winning in the Downturn and Beyond”, the authors point out that China, India and other rapidly developing economies (RDE’s) contributed only 25% of global GDP in 1990, compared with 51% for the G7 industrialized nations.  By 2007 the RDE’s share of global GDP grew to 42% and is projected to overtake that of the G7 by 2009, much of this driven by outsourcing and off-shoring by companies based in the G7. One caveat is that this analysis predates the current recession.  More importantly though is the surge in demand for goods and services in the RDE’s.  This is the tipping point.  As the BCG authors point out, “For many products, RDE demand already outstrips that of more developed markets in terms of volume”.  Perhaps the most telling remark in the article is that “Given the price sensitivity of RDE markets, products often must be designed and manufactured locally to meet the necessary price points.”  However, many brand owners in the West have outsourced manufacturing to RDE countries in order to reduce the cost of production of goods destined for markets in the West.  They don’t have the knowledge of local demand nor the manufacturing capabilities in RDE’s.

In another BCG study titled “The 2009 BCG 100 New Global Challengers” published in Jan 2009, the authors look at companies emerging from the RDE’s to not only take major market share in their countries of origin, but also in the Western economies.  Many of these are still in the “boiler room” and have not necessarily gained market presence in consumer markets, but this is only a matter of time.  We have only to look at the bankruptcy of Nortel and the emergence of Huawei in telecommunications equipment, and the purchase of the IBM PC division by Lenovo, a largely unknown PC manufacturer in the West with a dominant market presence in China.  Who in the West would have imagined in 2000 that Jaguar would be owned by an Indian company, or that Volvo’s car division might be bought by a Chinese company?  The authors point to some of the advantages these companies have, including “… privileged access to high-growth markets and resources, freedom from legacy assets in high-cost, slow growing countries, and access to low-cost labour pools”.  And of course the outsourcing of manufacturing to RDE’s by companies in the West has only served to develop a skilled labour pool in the RDE’s.  These companies are now looking for ways to expand into Western markets, and the recession has provided many ready opportunities for cash rich RDE companies.  Just as an aside, something very similar happened in the .com bust in 2000-2001 when much of the fiber-optic bandwidth was bought up by RDE companies, especially companies from India, when the likes of Worldcom filed for bankruptcy.

industrial-capacityLooking closer at the US economy specifically, Steven Hansen, in his blog Seeking Alpha, wrote an article titled “This Recession Is a Reset to a New Normal” in which he states that “We will exit this Great Recession in the New Normal. It will be a world of overcapacity in many sectors of the economy, poor employment conditions, abandoning of innovation, and credit abuse.” The graphs in Steven’s article were particularly startling and revealing given the long period over which the data is plotted, although as a semi-skilled applied statistician I think some of the trend lines are suspect.  Nevertheless what is apparent from the graph is that growth in both capacity and output from US based manufacturing has dropped markedly since 1999.  Perhaps more importantly the gap between capacity and output has increased.  Clearly this is a result of the outsourcing and off-shoring of manufacturing to RDE’s, which in turn has led to the emergence of a middle class and hence a consumer market in the RDE’s, the very point that BCG is making.

Yet there are quite a few voices that paint a different story.  In an article titled “The BRICs: An Analysis” in Nouriel Roubini’s blog on Forbes.com, he points out that “… India and China are net commodity importers, while Russia and, to a lesser extent, Brazil depend on commodity exports” .  Commenting on each of the BRIC countries, Nouriel makes the following observations:

  • Brazil – “The expansion of the middle class and strength of the nascent housing sector require large investments in infrastructure and education and adequate micro-planning. The expansion of potential growth will only take place if this appropriate framework is built.”
  • India – “Increasing the potential growth rate from the current level will therefore require raising infrastructure and energy investments, agriculture yields, government savings, education spending and implementing labor law reforms. But most of these reforms are politically challenging and will happen at a snail’s pace in the coming years.”
  • China – “The real question: Can China pump up domestic demand soon enough? Chinese private consumption’s share of GDP fell steadily over the last decade to around 35%, meaning it may have a long way to go to pick up the slack of the export sector and export-oriented investment.”  

These are all true statements.  While the GDP of the RDE’s has grown rapidly, much of this has been through outsourcing by Western companies to satisfy Western demand. The consumer demand in the RDE’s has not begun to reach the levels required to sustain the growth rates experienced in the RDE’s over the past decade.  However, as pointed out by BCG, this is less of a problem for RDE based companies because of their lower cost base, and a major issue for Western companies used to designing products for affluent consumers.

In his blog, “Supply Chain Matters”, Bob Ferrari writes about US based auto suppliers struggling to find new markets, in which he refers to an article in the Wall Street Journal titled “Auto Suppliers Attempt Reinvention”.  The central point in Bob’s article is that addressing new markets is not a trivial matter, specifically that companies “… may well have the design and production capabilities related to product technology, but the other open question is whether you have the supply chain business process capabilities to compete with other existing players in your new industry venture.”  While much of Bob’s article is focussed on auto suppliers satisfying local demand from OEM’s, many of the points he makes can be readily applied to Western companies trying to address the needs of the consumers in the RDE’s.  In a separate article, Bob refers to a book “Poorly Made in China”, and analyses many of the issues that arise from outsourcing manufacturing to one of the RDE’s in which legislation and social norms are very different from those to which the which the Western based companies are accustomed.  The lessons to be learned on the supply side are only a precursor for the knowledge that needs to be gained to design, market, and sell products in the RDE’s.

The other day I came across a case study on Nirma that exemplifies for me the way in which Western manufacturers need to respond to the challengers of adapting to the new normal.  Many Western-based washing powder manufacturers have been marketing and selling their products in India for many years, largely to the more affluent city dwellers.  The manner in which the products where packaged and sold was very similar to that used to Western consumers: Large, half-empty boxes with at least 500g (1lb) of washing powder.  In many cases, even the formulation of the washing powder was the same, despite the fact that much of the washing is done by hand and not in washing machines.  The rural poor were not a target market for the Western based companies because the concepts of packaging and distribution and margins available were deemed not to be profitable.  An Indian company, with much greater knowledge of the local market, particularly the rural poor, started selling washing powder to the rural poor in small paper packets of about 25g through local merchants.  The financial outlay for each purchase was much lower and the packets were much easier to transport than the bulky boxes of other products.  In no time at all they had gained a large market share, not only amongst the rural poor, but also amongst the urban poor.  And the company was making a profit too.  Hindustan Lever, an Indian division of Lever Brothers, studied Nirma’s approach for some time, including studying ways to reduce their own cost base in order not only to sell to the poor in India, but to do so profitably. Hindustan Lever has been able to claw back market share from Nirma and now both have approximately 40% of the washing powder market.  I have heard the Procter & Gamble also studied Nirma and brought the practice of selling much smaller quantities in compact packaging back to the US to address the “seniors” and “empty nesters” markets more appropriately.

I believe it will be a long time before demand in the West returns to 2006 levels, so Western companies have little option to regain revenue other than to address the demand in RDE’s. Much has been written about how outsourcing and off-shoring of manufacturing by Western companies has made supply chains a lot more complex, but this body of work has focussed on getting products to Western markets, not on addressing global demand, much of it in RDE’s. The concept of the long-tail, focussed on providing a wide range of products specific to as many market segments as possible, exacerbates the issue of supply chain complexity even further, and adding geographical dispersion of demand across country and cultural boundaries adds even more complexity.  As pointed out by Bob Ferrari in the case of the auto suppliers, moving into new markets requires a lot of study and learning to be successful.

While there are many strategic issues to be addressed, companies will need many of the tools and capabilities being used to address the lack of visibility and coordination caused by outsourcing. Top on the list is visibility into their operations on a global basis, especially demand, to monitor their financial and operational performance, and the ability detect and respond to changes very rapidly.  This is especially true if the company is used shared manufacturing capacity in the RDE’s to satisfy both Westerns and RDE market demand.  Without the ability to balance demand and supply on a global basis, and to respond to changes in a rapid and effective manner, the risks of addressing RDE consumer demand are enormous.

Posted in General News


Supply chain deployments: should they be “all you can eat buffet” or “a la carte”?

Published June 22nd, 2009 by Carol McIntosh 3 Comments

Let us suppose that you are walking by two restaurants trying to decide where to eat.  The gourmet a la carte restaurant looks very appetizing. But surprisingly many people choose the buffet. The Buffet style always sounds like a good bargain for your money, but there are consequences to selecting buffet chains.

         All you can eat buffet                   Gourmet a la carte

buffett

gourmet

We need to look at supply chain software the same way.

  1. Only bite off what you can chew. If you focus on solving a specific problem, for example, sales and operations planning, that should be the focus of your deployment.
  2. Make sure that you can come back to the restaurant and order something else. You have done your due diligence in selecting the restaurant, the service was excellent and your hunger was definitely satisfied. Make sure that your supply chain software is scalable enough to support other requirements without additional integration effort.
  3. You may be enticed by the buffet style bargain. Your Procurement group knows that there is no such thing as a bargain buffet in a supply chain solution. You will end up paying millions of dollars in deployment services for something that you didn’t really need. 
  4. If you take too much it is left on your plate and it spoils. Ordering just what you want or need eliminates waste, quality is usually better and you get full value. 
  5. With buffet software you take it like it is, or pay extra if you need something changed. You need the flexibility to easily adapt the software to your business processes as they change. 
  6. Buffets can certainly make sense to support your internal financial control requirements. There are clearly benefits to an internally integrated transaction system. 
  7. The key question is – Does it make sense for supply chain planning?

In today’s multi-enterprise supply chain network, the reality is that you and your partners never all have the same system.  Is your buffet solution really best at integrating a multi-enterprise supply network that might have your biggest contract manufacturer running a different system in their sites? The outsourcing business model continues and is expanding from its inception in high tech electronics to other industries such as pharmaceutical. This means that the number of companies requiring a multi-enterprise model across their trading partners is also growing. Shedding overhead does not mean shedding control. The pendulum has shifted from 100% OEM control to 100% outsource control and is now somewhere in the middle. Modeling your partner’s (supplier or contract manufacturer’s) decisions is critical in understanding your risks and opportunities and can only be achieved when your systems are host system agnostic.

Posted in Supply chain management


Taking action now to prepare for the recovery

Published June 19th, 2009 by Bill DuBois 2 Comments

In John Sicard’s white paper, “Four Steps to Take to Prepare for the Recovery”, you don’t have to look any further than the second line of the white paper to understand the value delivered in the content. That line is, “Strategic Supply Chain Management Strategies to Maximize Operations Performance over the Long Term.” The important point to understand about the white paper is that the four steps John describes to prepare for the recovery is not a “throw away” effort once we start to bounce back from the recession will benefit companies for the long term in any economic condition.  The strategies described will serve any company well regardless of what “chaos” is inflicting pain on their supply chain or what state the economy is in.  Let’s take a closer look at the four steps.

The first step involves getting data. It is critical to establish “one version of the truth”. The challenge for most companies in getting to one version is including all data regardless if it resides in a single instance of ERP or disparate data sources across the globe. Getting a single view of your supply chain data is the enabler, as John describes, for “embracing the chaos.” Even in stable times, imagine the value of being able to respond to a customer request in seconds? This is only possible when a user has access to a single version of the supply chain and also the ability to instantly model the request or change to understand impact and decide on the proper response. As suggested, getting to this point requires a methodical, phased approach but will be well worth the effort.

Step two is described as establishing “a robust supply chain surveillance system”. This really comes down to knowing sooner. Many times, if a person just knows sooner they can respond more effectively and in a timely manner. The other key ingredient to knowing sooner is to know the impact sooner. It is one thing to know there will be a supply disruption, for example an order will miss its due date. Perhaps the material was not actually needed on the due date and this order could have been delayed in the first place. On the other hand, the late supply could seriously impact the delivery of key customer orders. Cutting through the noise and getting to those issues that need immediate attention will allow users to know sooner AND respond sooner. This leads us to the third step.

The third step is empowering people to collaborate. When people know sooner, as described in step two, resolving issues is rarely done in isolation. The best solutions are collaborative. It will be the people that will formulate and decide on course corrections and as John quotes this will be the difference between success and failure. It is this collaboration the will enable step four.

Merging supply chain planning and execution will be dependent on the first three steps. Consider Sales and Operations Planning (S&OP). Getting data and establishing one version of the truth will allow you to see impact at the lowest level when establishing demand plans and modeling such changes as a forecast decrease, price reduction or new product introduction. No longer will you have to take the “swivel chair” approach to understand the impact your plan will have on the rest of the supply chain. Providing transparency and establishing the surveillance system will alert all participants of changes that impact the plan or the ability for operations to execute. Finally getting consensus on the plan requires the human element John describes in step three. You need all participants at the table to formulate, approve and course correct as required. This is something no mathematical model will ever be able to do. Taking S&OP from a monthly cycle to “S&OP on demand” will also differentiate the winners and losers.

Most likely the companies who will take action to execute on these four steps have already been continuously improving their supply chains long before the economic downturn hit, but as John alludes to, technology has finally caught up so that these supply chain leaders can take their performance to the next level. Fortunately for the rest, there is still time to catch up to take advantage of future opportunities.

Posted in Sales and operations planning (S&OP), Supply chain collaboration


Colleen “Coco” Crum: Advances in communicating information across a supply chain aid in better decision making and collaboration

Published June 17th, 2009 by Randy Littleson 4 Comments

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.

Colleen “Coco” Crumcoleen-crum
Managing Principal and Member of Board of Directors
Oliver Wight Americas

Colleen “Coco” Crum, a managing principal and member of the board of directors with Oliver Wight Americas, is considered a thought leader and innovator in demand management and sales and operations planning.  She has helped to develop methodologies for enabling companies to successfully implement sales and operations planning and demand management and achieve quick time to financial benefit. Through these efforts, she has helped companies to think and act beyond their individual enterprise and extend the benefits of demand planning and
sales and operations planning throughout their supply chains.

Coco has co-authored three books that have received excellent industry reviews. The book, Enterprise Sales and Operations Planning: Synchronizing Demand, Supply and Resources for Peak Performance, has been called one of the best books of 2003 by The CEO Refresher magazine. The book, Demand Management Best Practices: Process,
Principles and Collaboration, has been called, by Foresight magazine, a practical and allinclusive, how-to guide that most executives and managers will find invaluable. Coco also co-authored the book, Supply Chain Collaboration: How to Implement CPFR and Other Best Collaborative Practices.

Coco participated in a cross-grocery industry effort to develop a best practice model for supply chain replenishment. The effort resulted in the publication of ECR: Road Map to Continuous Replenishment by Canadian food industry trade groups. As a consultant and educator with Oliver Wight Americas since 1995, she has assisted companies across the manufacturing spectrum, including agricultural chemicals, consumer goods, electronics, entertainment, pharmaceutical, biotechnology, and aerospace and defense industries. In doing so, she has contributed to advancing the methodology of how to successfully integrate demand and supply processes both inside a business enterprise as well as throughout the supply chain.

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?

Coco: Many companies were slow to respond to the changing economic conditions. Some executives describe the situation as “business was good, and then the bottom dropped out in October.” The warning signals were readily apparent, however.

Other companies with a robust Sales and Operations Planning process were creating models based on different scenarios. They documented the assumptions for each scenario. This gave these companies the advantage of already determining, at the senior executive level, how their companies would respond for each scenario, such as growth will remain steady, growth will stagnate, and growth will decline. The models were reviewed every month to determine which model should be used over what time period.

Sales and Operations planning is  formal decision-making process, led by executive management, which provides:
A common operating plan, with accountability for new products, customer demand, supply and the resulting financial plan. Done well, Sales and Operations Planning provides executives with a clear visibility of the current projections versus the company’s business strategy and objectives. Gaps between the latest projections and the business strategy and objectives are and actions are taken to close the gaps, leading to greater predictability. The Sales and Operations Planning process also ensures alignment of goals and key resources to most effectively meet customer needs and the company’s strategies and tactics.

The planning horizon for sales and operations planning is at least 24 months. This gives executives the short-, mid-, and longer-term projections of the business (product, demand, supply, and financial plans). These views enable making decisions on new product priorities, markets and marketing, supply chain tactics, customer service strategies, and optimal utilization of company resources (people and time; equipment, facilities, and suppliers; and financial).

Note: Some companies are starting to use the term Integrated Business Planning and Management in place of S&OP, particularly those companies that utilize the process as an executive management process to align all company plans, not just demand and supply.

During this recession, we have observed companies focus on reducing inventories and other improvement efforts that can be achieved quickly (in a few months) without a substantial financial investment. At Oliver Wight, we call these improvement initiatives a “Fast Track Approach.” We also see companies using a Fast Track Approach to implement Sales and Operations Planning, as they recognize the shortcomings of not having an integrated executive planning and decision making process in these times of economic turmoil. Companies that stay focused on improvement initiatives – and that utilize Sales and Operations Planning as an executive management process (not a mid-management balancing of demand and supply process sometimes called “Real-Time S&OP”) — will be best positioned to rebound quickly when the economy revives.

Kinaxis: Most governments in the developed and developing world have announced stimulus packages, some more ambitious than other.

  • Will this prevent the failure of certain manufacturing sectors, such as the automotive sector in the US?
  • Are there some existing manufacturing sectors that will not require stimulus?
  • Will the stimulus packages spawn new industry sectors, and how soon will these have an effect on the economy?

Coco: Many people have different views on the stimulus package and the financial bailout of certain businesses. Companies that operate in certain manufacturing sectors will be the beneficiaries of the stimulus money – either directly or indirectly. These include companies involved in infrastructure development, such road and bridge construction. Some of the beneficiaries of infrastructure development, such as steel-producing companies, are actively lobbying for stimulus money to be directed to their industry segment.

One purpose of the stimulus package is to reduce unemployment. If it truly results in job stimulation, other companies, particularly in the consumer goods sector, will be better able to hold their own during this deep recession.

As for spawning new industries, it will all depend on how the stimulus money is spent as well as other local, state, and federal government programs. The development of a U.S. energy strategy has long been needed and long neglected. If a meaningful strategy could be developed that would create a new commitment to energy conservation, a multi-faceted green industry could be created that would survive beyond this economic crisis. It remains to be seen whether we will have the political and social will to address our long-term energy challenges.

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?

Coco: Outsourcing will continue as long as it is economically viable to do so. The genesis of outsourcing was to take advantage of inexpensive labor. If energy prices continue to increase, the cost of transporting goods long distances will also increase significantly. This situation will cause companies to reconsider outsourcing the production of goods that require physical movement to go to market. For those products and services that are created and delivered digitally, outsourcing will continue to the countries with the skills and lower costs in delivering those skills.

Kinaxis: Ford a century ago used to have a fully integrated supply chain from steel manufacturing through to the sale of a car. Now other companies make the steel, most of the components are manufactured by other companies, and yet other companies sell the cars.

  • Will this trend in supply chain specialization concomitant with outsourcing continue at the current pace?
  • What will be the effect on the supply chain if this trend continues?
  • Is there a “natural” number of actors in a supply chain which gives greatest flexibility while limiting complexity?
  • What will this mean in terms of systems requirements to support supply chains with many actors?

Coco:  Whether the supply chain is fully integrated within one company or operated by multi-enterprise supply networks, supply chains are difficult to control and achieve flexibility without the following:

  • Integrated planning and control processes
  • Lean manufacturing
  • A knowledgeable and skilled work force
  • Effective executive decision making
  • Supply chain collaboration
  • The tools, including information technology, that enable the work force to operate the processes effectively.

Supply chains, both fully integrated within one company and multi-enterprise networks, need to return to the fundamentals (well designed processes that utilize best practices and are operated by knowledgeable people). They also need to leverage the advances of information technology in communicating information across a supply chain to aid in better decision making and collaboration.

Inefficiencies, poor customer service, and other waste in a supply chain are inevitably the result of: 1) poor decisions made by people,  and 2) poorly designed processes that lack integration (although many people incorrectly blame the information technology).

An excellent white paper on this subject has been written by a colleague, Rick Burris. The white paper titled, “Guiding and Improving Lean Manufacturing and Other Initiatives with Integrated Business Management,” is available at www.oliverwight.com.

Kinaxis: “Cloud” computing is the hot topic in the IT world, and is a superset of on-demand/SaaS.

  • Will there be a wide adoption of “cloud” computing in the SCM world?
  • What role will standards adoption play in the overall adoption of “cloud” concepts in SCM?
  • Are the existing SCM application architected to take advantage of “cloud“ computing?
  • What are the key technology innovations that will lead to a wide adoption of multi-enterprise business applications?

Coco: I will comment on cloud computing as a user rather than an information technology professional. I use Apple’s mobile.me cloud to save files from my MacBook Air. I use Amazon’s cloud to retrieve books that I have purchased using my Kindle. I have a need to retrieve files and books and always hold my breath when doing so. But there they are!

Cloud computing is upon us. For the business arena, it must be secure and reliable – that will be the big test. It has the ability to reduce the IT investment in hardware (servers and computers). The cloud should provide access to an amazing amount of data. The challenge will be in ensuring access to perform specific tasks in support of specific business processes. This means that business processes must be well defined and people need to be well educated and trained on the business processes and practices as well as their specific tasks in which they will perform utilizing the cloud.

The challenge for information technology businesses will be delaying as long as possible cloud computing from becoming a commodity and an expectation that is taken for granted by users. Commoditization occurs at an ever quickening pace.

Posted in Sales and operations planning (S&OP), Supply chain expert series