Archive for the ‘Best practices’ Category

Aberdeen recently published their Supply Chain Innovator’s Technology Footprint 2008 report.  One Fast Fact in the report caught my eye:

• 78% of Best-in-Class companies indicate that they have the ability to find (within a reasonable time) and access supply chain data needed for decision making versus 50% of all others.

This is interesting for at least two reasons.  First, if you can’t get your hands on the supply chain information you need to make decisions in a timely manner, then by definition you are not able to respond to supply chain events in a timely manner (well, I suppose you can guess or make something up).  With the growing volatility across global supply chains, your ability to respond quickly and accurately is increasingly critical to your competitive position in the market.  This data suggests a significant number of companies are unable to do this.

The second reason this is interesting is actually not stated here.  I’ve found time and time again that supply chain visibility alone is not enough.  There are two other aspects to this problem that are not discussed here.  First, you have to be sure that you put the right supply chain information into the hands of the right people.  Increasingly, these are your front line decision makers that need to take action in the face of constantly changing circumstances.  If the people “in the trenches” don’t have this critical supply chain visibility, they won’t be able to act and react.  Second, supply chain visibility alone is not enough.  Front line decisions makers need tools for risk tradeoff and response.  It’s not enough to have visibility into an historical perspective on the supply chain.  They need tools to collaborate, simulate various action alternatives and compare them before pulling the trigger on a high impact judgement call.

As the research states, it starts with supply chain visibility - and there’s a lot of work to do there.  But it doesn’t end there - ensuring that the right people are empowered with visibility and tools to respond to constant change is critical in today’s market.

According to new research from Aberdeen, most companies (56%) regard SCM as a market strategy differentiator, a customer service differentiator or a profit center, rather than simply a cost of doing business. Nearly half (49%) indicate that escalating customer service demands are driving their supply chain transformations.

This is certainly a positive trend.  For too long supply chain management (SCM) has been viewed strictly for it’s cost reduction capabilities - a necessary evil where you try to squeeze every last drop of margin out that you can.  While cost pressures continue to be front and center, I do see an increasingly “top line” mentality reflecting the increasing strategic impact solid supply chain management can have.

Aberdeen goes on to identify four key actions companies should take:

I’m seeing strong activity in all of these areas.  In particular, sales and operations planning (S&OP) is getting a lot of attention - but maybe not in the way you would first think about it.  The word planning implies that everyone is strictly focused on building a better plan.  That certainly is a key part of it, but increasingly we’re finding that market leaders are really focused on how they deliver to the plan - how do they meet the objectives defined in the S&OP process.  This is an even more strategic way of looking at the process and factors in today’s reality that volatility is on the rise, making the perfect plan even less likely.

Given this reality, companies are trying to figure out how to respond when the assumptions that went into the plan are no longer valid, which is increasingly the case.  Interestingly, the other actions that Aberdeen identifies support this.  In order to respond effectively to unexpected events that threaten the ability to execute to the plan, you need supply chain visibility and you must have processes to excel at order fulfillment when the orders aren’t coming in consistent with the forecast.

If your busines is static and predictable, focusing on supply chain planning and supply chain execution are the right things to do.  But, if your business is dynamic and increasingly unpredictable, you need to complement these initiatives with capabilities to respond to unexpected events quickly and profitably.

There’s a very interesting article here at Supply Chain Management Review by MIT’s Larry Lapide. The article introduces the concept of a new supply chain performance management metric called “Efficient Orders” - a metric that complements the more standard “Perfect Order” metric. The basic notion here is that efficiency is another key measure that needs to be taken into account, a measure to understand if the order meets the business expectations whereas perfect order focuses on measuring whether or not customer expectations were met.

Larry points out that efficiency is an issue because many supply chain personnel love to play the role of “Everyday Hero,” solving problems on behalf of customers but masking underlying problems that should be addressed. Larry goes on to say that “While supply chain plans are never 100 percent accurate, planning is necessary to reduce the number of exceptions. Do little to no planning and most customer transactions become exceptions. Do a ton of planning and you’ll still get exceptions because of the uncertainties in demand and supply. So there is a limit to how much planning should be done.”

The reality is that exceptions are occuring, and increasingly they are becoming the norm. So, you need to deal with them. The key then becomes how to do so in a way that balances the good of the customer and the business. Arming demand management and supply chain management decision-makers with tools to understand the impact of their actions before they take them is one such approach. Doing so places performance management capabilities where the rubber meets the road and ensures that decisions are made not only quickly, but in alignment with corporate objectives. This is the key to a profitable response to changes that occur daily across the supply chain.

There’s an interesting article by Pankaj Ghemawat at Harvard Business Review talking about globalization and the turbulence and uncertainty associated with it. I posted a comment at the site, but have included it below here as well.

*** My Comment ***

I agree that globalization is here to stay. Increasing globalization is the norm with the manufacturers I work with. You’ve identified some of the strategic imperatives of surviving in this world, there are also operational imperatives.

Manufacturers today are dealing with increasing volatility. This is driven by increasing global competition and demanding customers — all leading to volatile demand. The need to compete through innovation has placed pressure on product lifecycles, shortening them along the way. And, as you noted, globalization is a key to geographic reach and cost advantages, but comes with added complexity.

To win, more and more companies are trying to become increasingly customer, rather than internally, focused. They key is to do so in a way that balances customer requirements with company requirements for profitability. The first thing companies realize on the way to becoming more customer focused is the reality that you can’t plan the customer. This makes responsiveness a core requirement for companies to thrive in today’s globalized markets.

Of course, one of the biggest internal challenges companies face is the inability to see this. For years, everything has been about planning and execution. This model works great when you have an “inside out” mentality - a push model where you build things and push them out the door. But as soon as you move to an “outside in”, or pull, model, it’s not enough. You now need to empower people with the tools for risk tradeoff and response to manage the daily exceptions that are now at the hear of your ability to compete.

Manufacturing is in the final throes of a massive shift from a production-centric to customer-centric strategic business model. We have transformed from the “any color you want as long as it is black” model of four wall focused long production run efficiency to new a world of strategic supply chains, global outsourcing, time-to-market, mass customization and delight the customer. How fast you react and how well you act will increasingly define business success. Companies need to ask themselves what their strategic solution is for driving response? If your like most businesses, you have a cobbled together web of tactical, people-intensive solutions. The future will be won by those with the best strategic solution for Response Management – because you can’t plan the customer.

Great article here at the Financial Times talking about the need to design supply chains from the shelf back.  The article cites some great statistics on the negative brand and revenue implications of not having product on the shelf and then talks about strategies to design a supply chain from the shelf back.  Of note, the article states “designing the supply chain from the shelf back requires flexibility and responsiveness, which is at odds with the need to reduce cost.”  This is a challenge I’ve spoken about before (see here and here as examples) where companies have everyone aligned with internal metrics that drive cost reductions at the expense of external metrics that drive customer satisfaction and revenue growth.

Companies need to become more demand-driven today to deal with the increasing competition and demand volatility, the shortening product lifecycles and the elongated supply chains that have created delays and more opportunities for things to go wrong.  In the quest to become more demand-driven, you need to start designing supply chains from the customer - or shelf - back.  The first business reality you must face in doing this is realizing and embracing the reality that you can’t plan the customer - so you need to build in processes to respond quickly to the more accurate and current understanding of true demand that such initiatives will bring.

The article does a nice job of netting out three distinct recommendations for action and then explaining them in more detail.  They are: “One, make the supply chain a key part of your business strategy, focused on delivering top line growth. Two, integrate supply chain management with sales and marketing. Three, build joint business plans with your supply chain partners.”  Good advice.

Good article here at ITBusinessEdge by Ann All discussing the challenges Boeing has faced with its global supply chain for its new Dreamliner 787 jet.  As you’ve probably read, Boeing took a very aggressive outsourcing strategy for this project.  What they’ve come to realize, like so many others, is that doing so is a double-edged sword with lots of benefits and risks.

If everything goes according to plan, outsourcing doesn’t represent a lot of problems since a well laid out plan simply needs to be executed.  The reality is that things rarely go exactly according to plan.  This is where outsourcing can pose unique challenges since you’re now working with multiple third parties.  The problem I’ve seen a lot of companies take is that they continue to treat this situation as if they were still doing all the manufacturing.

When companies outsource, they continue to remain accountable for all of the outcomes despite the fact that they are no longer executing all aspects of the project.  Their role shifts to that of master coordinator and the emphasis needs to be on coordinating an effective response to change as it comes up.  A pre-requisite to doing so is visibility.  This isn’t to micro-manage the partners, but to ensure that exception based alerts are possible and to facilitate active resolution of problems.

Failure to properly coordinate response to change across the virtual enterprise can lead to poor operating performance, inventory control challenges and project delays.

Some good advice here at Manufacturing.net from Tom Leonarski talking about things you can do to improve your supply chain.

I especially liked his comment that “Decision-making up and down the supply chain must be based on finding the best way to reach the business objective, even though this frequently means sub-optimizing one’s own function-specific metrics.”

Far too frequently it seems that departments have their metrics and they focus aggressively on achieving them. The problem, as noted above, is that a lot of the decisions that need to be made require tradeoffs and looking “beyond” just your departments objectives to see what makes the most sense for the business as a whole. This is not to suggest that people don’t care about what’s good for the business, but the reality is that people are frequently departmentally focused and their goals (and even compensation) are tied to those objectives - and that drives behavior.

Empowering peole to respond to change is critically important, but doing so in a way that ensures that they have visibility into the impact of their decisions on the entire business and are armed with the information needed to make the right decisions for the business as a whole is critical to driving the right outcomes.

New research from McKinsey (available here with free registration) does a nice job of outlining the challenges of retaining access to key operational supply chain data when you’ve outsourced manufacturing.

The research accurately identifies that “decisions to select a supplier are seldom coordinated to ensure that they optimize total end-to-end costs and delivery performance. In fact, these decisions are commonly driven by procurement organizations, without attention to delivery performance requirements.”

I’ve seen this repeatedly, where companies go into an outsourcing relationship with costs being the sole (or at least primary) driver. That’s certainly a very important consideration, but how are you going to deliver top notch service to your customers when things don’t go according to plan? To think that’s all on the outsourcing partner is naive, you as the brand owner are the one going to be help accountable by the customer.

In order to thrive in this type of environment you need both the information and tools to enable rapid response to change - where you are actively coordinating an effective response - one that is timely and accurate (meaning, aligned with your business objectives).

Recapturing your supply chain data is a lot easier if you go into the relationship with this broader mindset. By establishing data connectivity at the outset, you’ll not only build the proper relationships and expectations, but you’ll lay the foundation for increased collaboration and responsiveness to ensure all of your objectives are met.

New research from Aberdeen shows that leaders in global supply chain visibility report improved performance across key metrics (see more on the report here). The report shows that leaders have reduced lead times from international locations, reduced inventory levels and reduced inventory carrying costs.

In another Aberdeen report entitled Beyond Supply Chain Visibility: Response Management is the Key (available here) their research findings show that supply chain visibility ranks as one of the top two application focus areas for companies as part of their supply chain technology investment plans. The ability to respond to change rapidly is emerging as critical to a company’s success. Just having visibility is not enough to manage this constant change. This research brief outlines the key characteristics of solutions that go beyond visibility toward enabling a flexible Response Management capability.

There’s no question that visibility is gaining more attention as companies struggle with increasingly distributed and multi-enterprise fulfillment networks and supply chains. The demand management and supply management challenges in these environments are complex as companies try to gain an upper hand on constant changes in demand, supply and product. Companies continue to find that their employees face an increasing number of decisions that require human judgment and that, while visibility is a pre-requisite, tools to collaboratively simulate various action alternatives and choose the actions that are best aligned with corporate metrics are required to proactively respond to the literally hundreds of daily changes that must be managed.

There’s a good post over at Supplychainer.com asking the question “where should demand management reside?” (see the post here).

I posted a comment and have included it below as well.

** My comment **

This is an interesting question. First, my experience says that the reality is all over the map - I’ve seen it reside in a number of organizations from sales to operations to finance.

One of the biggest challenges I see in an organization is that for too long the responsibilities for demand, supply and product have been organizationally separated and, thus, it further promotes the “silo” mentality of dealing with these issues. Someone creates the demand plan, throws it over the wall to someone else to create the supply plan, etc. The integration of product into this equation is usually the most troublesome and least integrated.

With things changing so fast, the need to integrate these three functions more tightly has never been more critical to the success of the business. Each process along requires a lot of collaboration to derive the right demand plan, for example. Then there’s the critical need for cross-functional collaboration - ensuring that the demand planning participants are actively collaborating with the supply planning and product planning participants.

The historical approach has been to focus on planning the business. Today’s reality forces you to acknowledge that you must be more demand-driven and in doing so you have to realize that you can’t plan the customer. The key to thriving in this environment is through more active organizational integration and by empowering people with the visibility and tools they need to both collaborate and rapidly respond to change.