Archive for the ‘CEO viewpoint’ Category

During my travels around the world it is common to find failed implementations of supply chain suites which resulted in software, maintenance, and consulting costs much greater than $20 million. Worst yet, it took many years to figure out these projects were doomed to fail. One executive used the term “fraud.”  In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual. Regardless of the words used to characterize these situations, no company should have to invest this kind of money or time to realize something will not work for their business.

Selling suites of software is great for software vendors, but is bad (at best) for the customer. Take a look around and see how many software modules are focused on fixing “symptoms” of much larger business challenges. It is my belief the vendors should be forced to offer customers affordable on-demand services which address significant underlying business challenges like Revenue at Risk. These services should not require tens of millions of IT dollars or never ending implementation cycles.

What have been your experiences?

The two major ERP vendors (which I call SAPORACLE) are facing a more rapid decline in licensing revenues due to IT cutbacks. In fact, they are essentially facing a “Reset” – more so than a recession. CIO’s are very tired with ERP vendors raising maintenance and throwing acquired software products at them left and right. Once a software vendor decides on pursuing a “financial engineering” acquisition strategy – it is never good for the end customer. It improves earnings for the vendor. Any large company has challenges when it comes to innovation – even if R&D monies are allocated to development teams. Politics alone can kill innovation inside a large vendor.

CIO’s are even more disgusted with what I call the “Suites are Sour” paradigm promoted by the ERP vendors. They want to solve business problems, not spend millions on integrating suites of modules. Once maintenance fees hit a high enough level and innovation is absent – it creates a positive environment for a “disruptive” offering. We have seen this happen time and time again in the hi-tech market.

I have the pleasure of discussing software industry trends with CIO’s of the world’s largest brand name companies. These executives are moving from very tired to angry about vendor software “suites”.  As one CIO said to me  –  “I don’t care if my ERP vendor buys up every small software company in the world. I do not buy into the story of tight integration down the road.”

This was refreshing to hear on many levels. Why should a company have to implement multiple software modules to address a single business problem? Why is the “suite” such a “sour” issue for companies? They have to first license each software module, then integrate the modules, and continually invest in IT support to satisfy users.

If you took the software suite analogy to another industry it shows the absurdity of things. Imagine if the auto industry starting out by selling you separately: wheels, engines, seats, chassis, etc. All a customer wants to do is get to their point of destination – not create an infrastructure to support an incomplete product. This is the same reason why so many software projects are late, over budget, or unsuccessful.

What do you think?

Kinaxis executives recently shared their quick takes on business and the supply chain after the recession. Hear what Doug Colbeth, CEO; Richard Monkman, CFO; and John Sicard, EVP; had to say…

Question #1: What has the recession taught us?

Question #2:  What market and business practices have changed?

Question #3:  How has the recession impacted IT?

Question #4: What is important coming out of this recession?

Today is a really exciting day for us as we announce our new online community.

The Supply Chain Expert Community, which  is free and open to the public, offers supply chain professionals, industry analysts, consultants, media and others a place to convene online to learn, share and connect in a meaningful way.

The main goal of this blog has been to offer valuable industry information and resources to our supply chain audience (which, by the way, I am very proud of its success in that regard).  Likewise, I see the Supply Chain Expert Community as an extension of the mission to facilitate knowledge sharing, discussions, debates…. which ultimately leads to the overall advancement of the industry.

We anticipate the site growing more and more robust as industry professionals discover the benefit of sharing their experiences and resources there.  We hope the community will become a ‘go-to’ resource for those who eat, sleep and breathe supply chains. 

Why Join?

• You are a supply chain practitioner looking for perspectives from others facing similar challenges
• You are a supply chain consultant wanting to offer insight and advice
• You are an editor or blogger looking for fodder on hot topics and practitioner opinions
• You are an industry analyst looking for an audience to poll on a particular research question
• You are an IT or supply chain manager researching technology solutions
• You are a RapidResponse user looking for best-practices and new ways to leverage the service
• Overall, you know the value and enjoyment networking groups can offer and are looking for a tailored community for your particular areas of interest.

Anyone can navigate the community and view its content by simply visiting the site: http://community.kinaxis.com  To contribute to the community (rate content, create documents, add comments), users must self-register.

For more details, read today’s news release.

See you online!

Douglas  Colbeth

CEO

As CEO of Kinaxis, I always make the point to prospective customers that nobody wanted to buy from us. Early in this decade enterprises went to great lengths to rationalize their number of software vendors. It even felt like many had resorted to “hoping and praying” their ERP vendor would create a new application to compete with Kinaxis RapidResponse™.

However, a new problem has emerged in the supply chain space due to a couple of factors. Consumer behavior began to change rapidly – partly due to the evolution of the Internet. The “I want it now and my way” generation of consumer is here to stay. In addition, brand name companies began to outsource their manufacturing and lost control of key information. These enterprises were so happy to “get rid of the smoke stacks and unions”, but key information often went with the jettisoned facilities. They simply could not respond to the increasing level of demand volatility.

Many companies began losing customers and increasing inventory levels because there were no applications for responding to constant changes in demand. It was evident a new category of software was needed – which we refer to as “Response Management.”

About four years ago I came across a “gang of geniuses” in Ottawa, Canada who had created the most powerful modeling technology in the world. This technology could simulate the entire manufacturing operations of a global company – with hundreds of products built in dozens of facilities – all in a matter of seconds. I know this brash claim sounds ludicrous – but this technology is now in use at close to 100 name brand companies around the globe.

I challenged these computer scientists and manufacturing experts to take their technology and incorporate it into a collaborative multi-enterprise application. This would be a significantly different offering from a traditional forecasting or advanced planning system. Forecasting is much less important in today’s dynamic world. Advanced planning systems lost their value as changes happen faster today than the time it takes them to produce an optimized plan.

In order to respond to today’s pace of change, you must leverage the human capital inside and outside your company. Information must be shared with more employees and partners so they can coordinate on a series of actions. This is completely contrary to the architecture of an ERP system. In addition, it is completely different than Business Intelligence offerings since you must be able to dynamically align supply and demand in real-time with current information.

This is why Response Management is a new category of capability.

Everyone knows there’s been an incredible push to outsource manufacturing over the last couple of years. The push to reduce costs to increase competitiveness in a highly demand driven world has been the driving force. Companies have been evaluating their core competencies with greater scrutiny than ever so they can focus on them and outsource the execution of everything that doesn’t rank as a core competency.

For manufacturers, this has created a clearer distinction between brand owners and contract manufacturers. Brand owners view their core competency as sales and marketing over the actual manufacturing of the products, something they have substantially outsourced to contract manufacturers. In doing so, however, they have had to develop extended supply networks comprising partners that now manage the day-to-day execution of these tasks. While this has taken place, customer expectations and competitive options have continued to increase with no end in site. This creates a significantly more complex “virtual company” for the brand owner to manage–a company that still retains full accountability for performance in the eyes of the customer.

In order to achieve the full benefit of outsourcing, the virtual company needs to execute better than before. In other words, the focus on the brand owner’s core competency should actually strengthen the brand’s appeal in the marketplace. While this sounds obvious, I see many brand owners struggling with the lack of control and visibility inherent in the newly created extended supply network.

We’ve worked with a variety of global leading brand owners–Agilent, Teradyne, Lucent, Network Appliance (NetApp), Casio, Toshiba, to name a few–who have recognized that the ability to effectively manage the extended supply chain of a virtual company is essential to realize the benefits of focusing on your core competency. And, in this highly volatile and rapidly moving global marketplace, the ability to respond quickly and effectively to ever present changes is at the core of their ability to successfully achieve the desired results. While it is no longer the case that they manufacturer everything internally, neither is it the case that they can outsource and focus on their core competencies without the means to ensure success of their extended supply network. Visibility and control are essential for brand owners to deliver results, and developing skills in responding to change are at the heart of being in control.

The unprecedented success of new consumer electronics such as the Apple iPod and Motorola Razr have shed light on how critical supply chains have become in the success of companies. With more and more business outsourcing to gain cost advantages, the ability to have a superior supply chain truly is becoming a competitive differentiator for companies. The other thing that has become clear is that no matter how much planning you do, there are going to be unexpected events that happen that you need to respond to – and the speed and accuracy of your response will dictate success or failure.

All businesses plan – and they should build the best plan possible. But companies also need to be prepared for the plan being wrong – since unexpected changes are the norm in today’s high-velocity marketplace. When you consider these two core business disciplines, they are quite different. Many companies invest lots of money in long-term strategic planning. This process tends to be very “top down” with key management leading the initiative and leveraging data from the rest of the organization. Yet, responding to changes in the plan tends to be completely the opposite. By its very nature it is not as much of a process as it is an ad hoc situation that must be dealt with. And, unlike the planning process that involves a small number of highly skilled planners, responding to change tends to involve lots of front-line decision makers throughout the organization – and frequently outside the organization (partners, suppliers, etc.).

Technology can help – but it needs to be specific to the function. Planning systems were designed for the planning function–small number of users, a specific process executed over a period of time that produces an output for others to use. Response Management is different. It needs to be built for the ad hoc situations – so it needs to be information rather than process-centric and it needs to empower all the front-line decision makers to rapidly collaborate and determine the best course of action no matter what the situation. And, the action they take needs to be aligned with corporate goals and objectives.

The runaway success of high profile products, and the rapid fall of others, have highlighted the need for effective Response Management and the unique capabilities that such technology needs to deliver.

One of the better business books written over the last few years was James Collins‘ “Built to Last (at Amazon.com).” In the book, Collins talks about how the “tyranny of the OR” pushes people to believe that things must be either A OR B, but not both. There’s an interesting parallel here for manufacturers.

Conventional wisdom was that you traded off operating results for customer satisfaction. How? Well, to achieve higher customer satisfaction through better on-time delivery and other metrics manufacturers would “eat” operating margin by carrying safety stock, expediting orders, carrying excess capacity, etc. These institutionalized approaches to increasing customer service ended up being a corporate margin sinkhole.

Collins goes on to say that highly visionary companies liberate themselves with the “genius of the AND” and no longer settle for either or. Visionary and leading companies find ways to increase customer service AND improve operating margins. And, in today’s cut throat market, there’s no more fat to eat so you had better perform.

As I talk to executives at our customers I hear them focused on the “genius of the AND” all the time (although not necessarily by those words). And, its gratifying to see how our Response Management software is one key enabler to help them achieve this goal and provides them with a competitive advantage in the market.

There’s not a day that goes by where you don’t read about the impact of outsourcing on jobs, the economy, an individual company or a market. Outsourcing is here to stay and it’s redefining the way companies operate.

While the headlines about outsourcing focus on jobs and cost savings, those in the trenches know that a host of new challenges get introduced when you outsource. The company outsourcing their manufacturing is still ultimately accountable to the end customer and is defining demand, product introductions, etc. The contract manufacturer is now juggling the requirements of many OEMs and working to provide cost savings and high customer service in the midst of constant changes.

The complexity of today’s supply chains is much greater than in the past. In 1985, the supply chain for a PC manufacturer was quite simple – the end user generated demand to the PC manufacturer/OEM who purchased parts from a semiconductor company. In contrast, the supply chain for a telephone handset manufacturer today includes the end user generating demand with the telephone company, who works with a communications OEM. They in turn outsource the manufacturing to a contract manufacturer who works with a semiconductor manufacturer who works with a foundry.

According to research by the Electronics Supply Chain Association (ESCA), a 10% forecast error in the 1985 PC supply chain produced 21% excess inventory. But in the current telephone handset supply chain, the same 10% forecast error produced 61% excess inventory.

What’s the moral of this story? With spending on consumer electronics on the climb, there’s an increase in volatility (demand, short product lifecycles, increasing margin pressure, etc.) that is making it harder for companies to respond to change. One traditional response mechanism was to carry excess inventory and capacity – but margin pressures don’t allow such “fat” in the system today.

The real challenge is to simultaneously increase customer service levels while improving operating efficiences (less inventory, leaner operations, etc.). To do so, companies need to develop a competency in responding to change. This is the next breakthrough in business performance and many market leaders are already leading the way and seeing the results in both top and bottom line performance.