Archive for June, 2010

Responding…versus planning…versus expediting

Published June 30th, 2010 by Max Jeffrey 0 Comments

This is a follow-up to my post from a few weeks ago: Expediting versus Planning.  I received many comments and recommendations on this subject as to whether much of the expediting that occurs is in fact related to planning deficiencies.   After reading and reflecting on the comments I received, it seems to me that the premise that effective planning by itself will reduce the need to expedite is not necessarily true.  Obviously, effective planning is critical to reduce expediting.  Without a good plan, then what do we execute?  However, no matter how good plan is, it will always change.  Forecasts by definition are not accurate.  As we all know, changes and disruptions can occur in an almost infinite number of ways throughout the supply chain.  The best plan will always be out of date almost immediately after it is published.  (Just to be clear, when I say plan, I am referring to the MRP plan.)

Given the assumption that a plan is crucial, together with the realization that the plan will not be accurate, we are led to the conclusion that we need a stable plan, but be able to adjust the plan as and when needed. We need to be able to adjust the plan only when significant enough factors warrant a change to the plan, and with enough lead time and stakeholder buy-in to execute properly.  To restate, I believe that the following are important:

  1. Plan Accuracy and Stability – The MRP plan needs to be stable enough to enable effective execution but we need to be able to detect exceptions that are significant enough to warrant a change
  2. Responding to Change – The capability to effectively respond to required changes needs to be in place

How do we effectively accomplish the above?

Plan Accuracy and Stability

  • First, the plan needs to start with an effective Sales and Operations (S&OP) process.  The more robust the S&OP process, the better that the high level plan will be.   
  • We need to be able to detect or sense the need for changes, and once needed changes are detected, we need to be able to discern which are significant enough to warrant a change to the plan. 
  • We also need to be able to prioritize these since there may be more than we can deal with. 

The key is that potential problems such as material shortages and late customer orders need to be detected for the future.  Obviously, once late orders or shortages have occurred, they are easy to detect (maybe even by way of angry calls from customers or buyers getting urgent messages from production regarding shortages.)

Referencing a recent blog post by Kerry Zuber, “Driving performance improvement through exception management“, Kerry states that in some organizations, there can be as many as 30,000 action messages generated by an MRP regeneration.  This exemplifies the complexity of the MRP plan and sheer volumne of exceptions in many organizations.  The organization cannot work all of these recommended actions, but which ones are the right ones to work?  Which ones signal that something in the higher level plan needs to be adjusted?  A second level, automated process needs to be in place in this type of environment to prioritize actions and also alert the responsible parties. 

The capability is required to detect what future demand will be late due to the mis-alignment of supply schedules,  issues with capacity in the supply chain and other issues.  If the future state/impact cannot be detected, then adjustments or contingencies cannot be put in place to avoid or mitigate them.  And as mentioned, we also need to be able to determine which of the detected changes require action and by who.

Responding To Change

Once changes are detected, we need a process to effectively implement these changes. This involves two key process and system capabilities:  simulation and collaboration.

We need to be able to simulate what-if scenarios to determine how best to deal with the change.  For example, it is difficult to calculate what the impact of a supplier changing commitments on a PO schedule will be in many environments without being able to simulate what that change in the commitment does to the overall plan.  In developing a response to the change, we need to be able to simulate multiple action alternatives and assess how well they will solve the problem and also whether they are achievable.

These simulations cannot be done in a silo.  Any significant change needs to be collaborated on with the extended supply chain.  Collaboration is certainly required with other internal organizations and potentially with affected external suppliers.

I realize that the above is very high level and probably over simplified, but I believe the general concepts are necessary in a complex manufacturing environment to optimize planning.  Without an optimized plan, execution cannot be effectively and efficiently accomplished and we have to resort to a lot of brute force exercises, including expediting.  Even the best of plans needs to be monitored for required adjustments and we need to have effective processes and systems in place for responding to these changes.

Has your organization implemented a process for responding to change?

Posted in Response Management, Sales and operations planning (S&OP), Supply chain collaboration, Supply chain management, Supply chain risk management


World Cup and the supply chain: a comparison

Published June 29th, 2010 by Carol McIntosh 2 Comments

Would you ever think of comparing the World Cup to the supply chain? What analogies can be made?

  • Both are filled with unplanned events. Italy out? England out? That was not in the plan. There will always be surprises no matter how much you plan. However, the challenge of unplanned events in the supply chain is that you have to make course correction very quickly. If you miss the finals in the World Cup, you have another 4 years before you need to execute an improved outcome.
  • Not meeting expectations has a significant financial impact. Businesses disappoint shareholders and affect stock price and risk market share erosion. Soccer teams affect their economies. Italy’s early exit is estimated to cost their economy $177Million US , just in the restaurant/bar business.
  • Time to market can be short. Think of the businesses that are waiting for the World Cup winner and want to have their products on the market first.
  • Communication and collaboration is critical to succeed. While soccer is on and off the field : supply chain is often across continents.
  • Both need to strategize scenarios. In soccer, the team evaluates the potential outcome of different plays. In supply chain, you need to evaluate the impact of demand, supply or new product introduction scenarios.
  • Provided with the right tools to do their job, every team member will be empowered to do their best, strengthening the team.
  • In order to excel, you need to have a vision. Your vision needs to place you ahead of your competition. Don’t listen to those around you that make excuses as to why the vision cannot be executed. Just ask Cisco or Apple. There are reasons why they are leaders in supply chain. As to the winner in the World Cup?? We will have to wait and see.

Do you have any analogies to share? What is your prediction for the World Cup ?

Posted in Supply chain management


What’s needed and what’s available in S&OP offerings today?

Published June 25th, 2010 by Lori Smith 0 Comments

Just a reminder of our webcast next week with Lora Cecere, Partner with Altimeter Group.  

What S&OP Capabilities Matter Most?

Date: June 29, 2010
Time: 1:00 p.m. EST

Register today!

Based on recent research, Lora Cecere outlines optimal practices for S&OP, and what’s required to get there.

As S&OP grows in significance, companies are redefining S&OP and the supporting technological requirements. While the field evolves, everyone has a slightly different take of what the future state of S&OP maturity will look like. Learn the points of differentiation companies like Kinaxis are putting forward.

P R E S E N T E R S
Lora Cecere, partner, Altimeter Group
Trevor Miles, director, industry and applications marketing, Kinaxis

FREE REGISTRATION

Posted in Sales and operations planning (S&OP)


China…times they are a changin’!

Published June 23rd, 2010 by John Westerveld 5 Comments

I’ve recently been noticing a number of articles in Industry Week dealing with labor disputes and issues in China;

Foxconn, Honda, Brother have all been the target of labor disruptions driving higher labor costs.   Foxconn and Microsoft are both mired in reports of poor working conditions.  While China’s communist government doesn’t officially allow unions, they seem to turn their head at labor protests – so long as the protest doesn’t appear to be critical of government policies.  

Is it any wonder that this is happening?  Prices for electronics have been pressured downwards continuously over the past several years.  Just look at the cost of a laptop today compared to a few years ago.  Almost a 1/3 the cost.  While some of these reductions are due to economies of scale and improved manufacturing techniques, much of the savings is because of the low cost of labor.  Even still, factory wages are significantly more than a typical Chinese worker could make farming or as a laborer in the rural parts of the country, and so workers flocked to the factory towns.  As a result, China’s workers started having a disposable income.  Money for televisions, cell phones, bicycles and automobiles.  The same desire that drives consumption in the West, is starting to permeate life in China.  The Chinese worker wants the same things that you and I want.   Can you blame them?

So what do these changes mean for us?  To a certain extent, we will need to accept that things will get more expensive (in the case of electronics, the downward price trend will slow and perhaps even reverse).  Chinese workers will continue to demand fair wages and better working conditions (as they should!). But these changes can continue only to a certain point.  At some point (as it did in North America, Europe and Japan), the wage pressures are going to increase to the point that the advantages of doing manufacturing in China will start to disappear and China will transition from being a low cost supplier of goods to a net consumer of goods.   At this point work will be moved to the next hub of low cost labour (India?  Africa?). 

My advice for companies with manufacturing in China?  First and foremost, take notice of the working conditions in the factories.   It doesn’t matter that the contract manufacturer is a separate company with their own policies, it is your company name and brand that is attached to the product. Have a plan in place in case your manufacturing source (or their supplier) goes on strike.   Also, (and I’m sure this is something that you are doing already),  closely monitor the costs from your manufacturing operations.  At some point, costs will rise to the point where you will need to start looking at other sources. The sooner you recognize that point, the better off your company will be.  

Before looking for another low cost offshore location to manufacture your goods, consider bringing your manufacturing back to North America.  While labor costs would be undeniably higher, these additional costs might just be offset by reduced lead time, reduced transportation costs, improved quality, reduced risk and improved goodwill.   Just a thought.

Posted in Supply chain management


Driving performance improvements through exception management

Published June 22nd, 2010 by Kerry Zuber 0 Comments

Who doesn’t embrace the concept of management by exception?   This is one of those universal concepts that suggest we should build processes that handle normal variations virtually automatically, and reserve our precious human capital to address the variances that have significant business impact.  Like most great concepts, the real challenge lies in the application of the concept.  

First you have to decide where the concept can be applied.  This suggests that you examine your existing processes to determine where you can address a significant portion of the normal variation with a minimum of organizational effort.  That alone can be a major stumbling block and too often I’ve heard the comment “everything is an exception around here”.  So the challenge is identifying what constitutes a meaningful exception, and in my book, a sign of a good process is where something is an exception less than 10% of the time.  The next step is to identify who needs to act, how they will be notified, and what tools they will need to address the exception.  Not a trivial job, but well worth the effort.   

Let’s use a common administrative process as an example, committing to a sales order delivery date.  For this example, your business uses either a traditional ATP process, or perhaps product lead time to automatically establish a proposed commit date.  If in 90% of the cases this results in a date that is in alignment with the customer need date, then you have the basis for implementing an exception based process.  In this case, only those orders that do not meet the customer requested date would be identified as an exception and flagged for special consideration.  All other orders would be automatically committed and confirmed with the customer.  This might be refined further to establish tolerances where the exception is only in cases where the delivery date is more than 3 days later than the customer request.

Once the exception condition is defined, an effective process for dealing with them requires timely notification (alerts) to the people who must collaborate to establish an acceptable outcome.  In today’s largely outsourced supply chain, that can be both technologically and logistically challenging.  Not only do they need to be notified of the business condition requiring their attention, but given access to the tools and information that can lead to a rapid and reliable decision.  Using the order commit process as a further example, the ability to meet the customer request date might take one of several paths;

  1. Product substitution (if availability exists)
  2. Production acceleration (if capacity and material availability exist)
  3. Order split (if a partial order can be delivered when the customer needs it)
  4. Order prioritization

A well defined exception management process would consider options in a logical sequence and within a time frame that meets customer expectations for responsiveness.

Applying the concepts of exception management to ERP action messages is an area ripe with opportunity.  I’ve known organizations that get 30,000 or more action messages following an ERP regeneration.  In those organizations it is readily acknowledged that planners will never get through the action list.  Therefore, the real question is, “Are they working on the right actions?”  In one organization, a second level analysis was performed on the action queue to evaluate the messages and prioritize them with regards to their importance and impact.  This had a huge impact on planner productivity and overall business performance.  A well designed exception management system should have that effect where ever it is applied. 

The bottom line is that I strongly recommend examining if your organization has the tools to effectively implement exception management processes.  This requires the ability to generate alerts, identify the right participants, provide the right views of information, and facilitate collaboration where needed.  The investment to put this in place will typically yield returns that are often 10X within the first year.  With the economy now on the rebound, the time is right to better leverage your organizations human capital through the implementation of effective exception management processes.

Posted in Response Management, Supply chain management, Supply chain risk management


The real value is in the response (In this case, responses to my blog post on forecast accuracy)

Published June 21st, 2010 by Bill DuBois 1 Comment

Many times the responses to a blog post are more valuable than the original post itself, especially when the original post poses a question. In the case of “How accurate does the forecast need to be?” that was certainly the case. The following are some “nuggets” from the  responses received to the original post that are worth sharing.

Stephen Mills (who responded to the LinkedIN version of the post) talked about using what we know about past relationships and other key variables that may be in the future to determine what sales, demand and production should be. It’s the “shocks” to the forecast that can’t be built into the model. How you respond to the shocks will determine the impact of an inaccurate forecast. Running scenarios to determine the impact of “future shocks” to your replenishment times, inventory policies and customer relationships, etc. all play a factor on how accurate the forecast needs to be. Stephen also supplied the best quote related to forecast accuracy,

“Forecasts are either wrong or lucky.”

Stephen points out that a robust end to end supply chain will ensure that an inaccurate forecast doesn’t mean bad luck for the business. It’s only one piece of the puzzle.

Another respondent also pointed out that forecast accuracy was only one piece of the equation. This response also talked about forecast communication. Communication between functional partners on everything from market trends, process improvements and “shocks” are discussed in a timely manner so adjustments can be made in time to improve the business. Some relevant examples included the case where demand for a product may be unexpectedly soft, so marketing may shift promotions to help on the sales and supply chain side. Finance would also be in the loop so they could adjust their balance sheets.

I believe overall respondents agreed that the need for the forecast to be accurate is a function of such factors as the cumulative lead time, safety stock policies and flex capacity. Continuous improvement activities around lead times and quality will take some of the burden off those responsible for developing the forecast. Operational excellence and the ability to respond to “shocks” are a competitive advantage when unexpected demand opportunities present themselves. One response pointed out that this introduces an element of “time” to this issue of forecast accuracy. How good the forecast needs to be will be dependent on the range of the forecast and service level policies, especially on critical lead time items.

As pointed out, forecast should not be left on its own but accompanied by all the background and risk information so demand plans can be set, supply rationalized and plans easily re-evaluated if the “shocks” hit. This was only a small sample of some great insights from the blog responses. Thanks to all those who participate in these discussions. It really is worth it!

Posted in Supply chain management


Closing the gaps in supply chain management

Published June 18th, 2010 by Trevor Miles @milesahead 0 Comments

The C-suite & SCM

Much has changed over the years since the 1980’s when few knew the term Supply Chain Management (SCM) and even fewer knew what it meant, including me.  The closest one could come to study SCM at university was Operations Research or Industrial Engineering.  Having done this at the graduate level, I can attest that the focus was very much on factory optimization with little emphasis on the inter-connectivity between demand, production, and supply.

I remember going to a pulp and paper manufacturer in Florida in the mid-1980’s because they wanted to optimize the utilization of their digesters, even though they were at over 90% utilization.  It didn’t take long to discover that there was over 9 months of finished goods and over 4 months of raw material on site. I had no idea and never bothered to find out how much finished goods inventory there was in the distribution channel.  Clearly, the company’s supply chain problems were not related to the utilization of their digesters.  However we had been brought by the plant manager to optimize the digesters and he had no responsibility for either raw material (Purchasing) or finished goods (Sales) inventories.  The question we were faced with was who owns the problem?  We could have gone to the Sales VP or to the Purchasing Director, but they each only owned a part of the problem.  Notice also the titles of the people responsible for Sales, Production, and Purchasing.  Eventually we managed to get a meeting with the CFO on the pretext of getting data for production costs.  The CFO was a lot more receptive to our message but really didn’t own the problem either, so he sent us to the CEO.  He thought we were a bunch of engineers, and he was right.  We couldn’t really articulate the issue in a manner in which he would understand.  Somehow, we managed to get enough across to the CEO to ensure that project focus changed to profitability rather than capacity utilization.

And yet, in a recent study by SCM World and Aberdeen titled “The Evolving Role of the Chief Supply Chain Officer”, there still appears to be a mismatch between the expectations of the C-suite and the people actually running the supply chain.  There have been a lot of positive developments since the 1980’s including the establishment of university courses and the knowledge of the function and strategic value of SCM within the C-Suite.  The use of the term “chief supply chain officer” is a testament to this change.  While the gulf between the C-suite and operations has narrowed, the very first chart in the SCM World report indicates a mismatch in objectives and perception.

The good news is that the C-suite is focused on using the supply chain as a competitive weapon; however, it reminds me of Peter Drucker’s definition of the difference between being effective and efficient.

“Efficiency is doing things right; Effectiveness is doing the right things.”

Perhaps this is the correct split in which the C-suite focuses on what should be done, while the rest of the organization focuses on doing this in the most efficient manner. The SCM World report indicates that there is a much closer alignment between the C-suite and the rest of the organization when it comes to the areas of efficiency gains.  However, even here it appears that the C-suite has a greater focus on the more strategic goal of restructuring the supply chain organization (effectiveness), whereas the rest of the organization has a greater focus on reducing inventory (efficiency).

I think there is still the need for people in the supply chain to understand the objectives and perspectives of the C-suite and to align themselves with these, and to communicate in the language of the C-suite.  The arrival of the “chief supply chain officer” in the C-suite is certain to close this gap.

Planning & Execution

Some months ago, Lora Cecere wrote a blog post about the gap between planning and execution, what she calls the supply chain black hole.

Lora states that:

Technologies are evolving to eliminate the supply chain black hole. In this first generation of supply chain applications, we have built a fixed response with very little sensing.

How can we effectively respond when we cannot sense?

Lora goes on to state that

The first generation of supply chain applications got us started down the path, but they must be cast-off to move forward.  ERP is not the backbone of supply chain management for the future.  The new technologies will not come from the ERP consolidators.

We are at a discontinuity between inside-out and outside-in technologies.  The new technologies will be outside-in. They will help us sense before responding.  They will help drive an intelligent response.

Lora’s statements are supported very strongly by the findings of the SCM World study, with very clear differentiation between the best-in-class SCM companies and those that received an average rating.  In the case of closing the gaps between planning and execution, there is a huge difference of 17%, and 28% to the laggards.  While not as dramatic, there is also a significant difference in the degree to which information from trading partners is included in SCM processes.

How can you sense what is happening in your supply chain quickly and effectively if you do not get demand or supply signals from your trading partners?  Or as Lora states, “how can we effectively respond when we cannot sense?”  Sensing is only half of this statement, responding is the other part.  How can you have an effective  response without closed-loop integration between supply chain planning and execution?  As Nick LaHowchic states in an interview in SCDigest,

Companies need to respond much faster tactically. You can’t wait for a monthly S&OP meeting to make most of those tactical decisions any more.

Summary

These commentators and the results from the SCM World survey clearly indicate the importance and benefits of closing the gaps between planning and execution.  The business drivers behind this need start from customer expectations for reduced order-to-delivery lead times and competitive pressures to bring new products to market in ever shorter cycles.

But the gap is wider than just between supply chain planning and execution.  It starts from the gap between financial plans and supply chain planning.  This is, of course, the primary gap between the C-suite and the supply chain function.  One talks in financial terms and the other talks on operational terms.  One talks effectiveness, the other talks efficiency.

Perhaps the answer is to have a single integrated planning and execution system, from business planning all the way to execution, including S&OP in between.  Only then can we bring these gaps together.  Any change in the business plan will be reflected immediately as changes of goals and objectives for operations.  Equally, changes in planning and execution will give the C-suite visibility in future performance.

What are your thoughts?  Do these gaps exist in your organization?  How effectively do you communicate with the C-suite?

Posted in Best practices, Milesahead, Sales and operations planning (S&OP), Supply chain management


Is collaboration the next supply chain optimizer?

Published June 17th, 2010 by John Sicard 2 Comments

On June 15th, I had the privilege of presenting at the world first Chief Supply Chain Officer Summit alongside a very well-known and respected Supply Chain Leader. I say alongside because Angel Mendez, Senior Vice President of Customer Value Chain Management at Cisco (NASDAQ: CSCO), really did the majority of the work. On this occasion, his message focused on the path he’s taking towards creating the “Next Generation Value Chain to Deliver Customer Value” for Cisco. While still a work in progress, with over 9,000 strong under his influence across 90+ locations and 32 countries, my money is on Mr. Mendez succeeding with his endeavor.

It begins with what he believes defines the customer experience value chain:

“Network of internal and partner processes, people and capabilities that translate innovation into customer value while delivering an unrivaled customer experience”

While closely formulated from Forrester’s definition, loosely defined as “activities through which companies create value, competitive advantage, and superior customer experiences”, what I find unique and interesting about Cisco’s definition is the specific attention and promotion of “people” and their “capabilities”. Perhaps this resonates so much with me because I have long believed that collaboration is the next supply chain “optimizer”, and collaboration is decisively a purpose-driven human activity. To be more precise, it is the unifying of actions taken by uniquely capable people for a common good (more on this later).

Angel identified four legs required to support the creation of strategic advantage; Customer Focus, Agility, Collaboration and Sustainability. At first glance, you might find these to be obvious and perhaps not so unique – and indeed, many companies are talking about these elements in one form or another. What is different about Angel’s message, for one, is the maturity and execution of the model. For example, I’ve never met a company who would say they are “not customer focused”; however, most continue to govern themselves according to traditional, and very operationally focused, metrics (e.g. cost, quality, delivery and speed). Cisco, on the other hand, measures their customer focus by focusing on perfect product launch, perfect order, order-to-invoice cycle time and last but not least “moment of truth customer satisfaction measurements” – thus, redefining their balanced scorecard to align with its customer focus.

A significant portion of Angel’s presentation was spent on the Flexibility/Agility leg. What caught my eye most is a theme I am seeing across multiple manufacturing segments, and is becoming a key requirement for many looking to improve their supply chain management and S&OP processes: the growing gap between Demand Chain and Supply Chain. Today, it is not uncommon to see completely disjoint demand side planning (S&OP) and detailed supply chain planning solutions, and yet, it is in between the two where a significant amount of efficiency and performance can be lost. I believe the gap is widening at a steady rate, and this is what is driving the need for new and innovative solutions to “collaborate and effect change in real time”.

So we’re back to Collaboration – the third leg. In my humble opinion, it will be in this area where excellence will be won or lost. You might look at collaboration as the combination of people + processes + technology/tools, but I was very impressed to see a slight variant of this long standing equation. In Angel’s vision, it is “culture” + process + technology/tools. I admit never having thought about it as a cultural challenge, but having worked with many large organizations on this problem, I’ve come to realize how unique a problem this is… collaboration amongst peers and employees is often challenging enough across departments. The type of collaboration Angel is talking about is inter-enterprise – which means that on a given day, you may very well be collaborating with a complete stranger living on a different continent. Indeed, there are cultural implications to achieving this level of maturity.

Again, I might say there is nothing new about promoting collaboration as a key to success; however, it is what Cisco is doing about it that distinguishes them from the rest. They are leveraging many of their own technologies to produce what they call an “Integrated Workforce Experience” (IWE) platform capable of bringing teams together to collaborate and solve ‘moment of truth’ problems that occur in the gap between demand chain and supply chain planning. Unlike social networking platforms, such as Facebook, MySpace and the like, which use friends, family and fun as a hook, I believe platforms like IWE will motivate productive usage and involvement through content, context, and consequence.

Finally, we have Sustainability, which is extremely topical these days as we watch in horror the catastrophe still hemorrhaging under the Gulf of Mexico. Here, we heard some common themes on creating efficiencies and innovations in product design, educating and increasing employee involvement, and a particularly catchy tag line: “Don’t just ‘comply’, lead, innovate, differentiate”. The one resonating message around sustainability, more of a lesson really, is the reminder that sustainability should not be viewed as a factor for competitive advantage, but rather, the one common flag around which everyone can unite and learn from one another. Industry collaboration will be the key to effecting a meaningful and lasting change.

Does Angel’s vision align with yours? Do you see effective collaboration as an emerging competency that will distinguish your company’s performance?

By the way, if you missed the presentation, grab a soda and sandwich and watch the replay of this presentation by registering here.

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