Archive for the ‘Control Tower Concepts’ Category

The other day I was speaking with my father and I asked for his opinion on the value of using software to integrate supply chain planning with project management. This might not be the typical father daughter conversation but we enjoy these chats, and I have always valued my father’s opinion. My father, Don Lambert, is a chemical engineer retired from a career at Imperial Oil and Exxon. Dad was a business and technical manager for many years and he often speaks about the oil well drilling and refining in Talara, Peru, where we lived for a few years.

Industrial activities, particularly those in lesser developed areas of the world, rely heavily upon the establishment and maintenance of the supply chain. For example, the first activity when drilling an oil well is the building of a road to the well site. These roads must be able to carry very heavy loads. In Talara, they relied on Caterpillar equipment shipped from the US. Downtime of this equipment was critical, as a one day delay in the completion of a well could have tens of thousands of dollars of negative affect on cash flow (With today’s crude prices, it might be millions of dollars). Any part or component that could be on the maintenance critical path had to be identified and its supply had to be appropriately managed. The difference 40 years ago was that inventories could be bigger and leadtimes were longer. Global competition in recent decades has driven the need for tighter budgets. There is constant pressure to be on time and on budget.

Dad spoke about critical path scheduling, which identifies those activities and resources that dictate and control the completion date. The paths have to be continuously monitored as they change, or as new problems/events take place. One key word here is ‘planned.’ Dad’s experience was that successful project management was based on testing the current plan with the question “what might go wrong” and then conducting reassessments where necessary. The most obvious insurance was to have spares for all the equipment and lots of surplus people to handle any eventuality. This was impractical and lacking the technological tools available today (there was a heavy reliance placed upon experienced personnel). Analysis was performed (pen and paper at that time!) on identifying the critical paths in the project plan, and actions were put in place to reduce their impact on project completion.

Some will argue against having a strong project management focus, using the argument that situations occur that you could never have planned for. When questioned about this, my father’s response was that these “surprise” events strengthen the argument for a strong, resilient planning system. Response Time is the key bottom line in emergencies and having a supply chain management system which uses project planning as a major tool can significantly reduce response time. (I had no idea that my dad was dealing with these responsibilities as I collected baby octopuses in the ocean, put them in a jar, and watched the water turn blue!)

Project management is required in numerous industries from refineries, to cell tower installations, solar farms, and consumer new product introductions. We agreed that it would be very beneficial if there was tighter integration of all dimensions of the project activity including materials, resources, cost projections, and revenue projections.

Thanks for the chat Dad. Ever since I was a kid I always wanted a fast car, an oil well, and an elephant. I have the first but I am not sure that the other two are very likely. At least I have a Dad who worked in the industry and helped me make an oil rig for my science project.

I’m one of those people that has a stack of opened and unopened mail sitting on a desk near the front door. I hate paper-based mail because it takes so much work to open and read and then I have to do something with it which usually means it ends up in an ever-growing pile. Maybe once every couple of months the stack gets sorted and filed away. In the meantime, usually I or my wife are the only ones to have read it.  When the real sorting and filing gets done, we sometimes discover that we’re going to take a hit of some type because we didn’t act on information in the mail in time. A simple case is that a bill didn’t get paid on time and now there are interest charges. Or perhaps we missed the deadline to respond to an invitation for an event and so we won’t be able to participate. So, this email stack represents a ‘dead zone’ where information is allowed to languish, and, like a delicious pastry left out in the open, go stale and lose its value.

I got to thinking about this as an analogy for traditional supplier collaboration. Many manufacturing companies have implemented supplier collaboration solutions to pull in data in a more real-time fashion with suppliers. Traditionally, supplier collaboration involves the sharing of information between an OEM and a supplier related to component forecasts, purchase orders, Kanban signals and inventory positions. It’s important to share the information because of its direct impact on the ability to build product. And it’s important to share the information often because events in the supply chain can impact delivery schedules on a day-by-day and hour-by-hour basis. Many companies have implemented EDI (Electronic Data Interchange) and supplier portals to facilitate the systematic, high-frequency sharing of data. The unfortunate reality of traditional approaches to supplier collaboration is that the information that is collected goes into an information ‘dead-zone’ (i.e. ERP system) just like the mail stack. Sure, a buyer knows that a purchase order is going to be late but what is the impact of that? Buyers, on their own, typically don’t have the background nor the tools to understand the relative impact of exceptions (i.e. uncommitted forecast, purchase order receipt variance) on operations. How is a buyer supposed to know that an inability for a supplier to make a full commitment to a forecast could result in significant performance penalties on a large project, or that a partial delivery will mean a high-value order for a key customer will slip beyond a promise date?

What’s needed is the ability to collect the information and provide real-time impact determination and alerting to all roles in the organization including planners, customer service representatives, sales, project teams and executives so they can collaborate to solve problems while there is the opportunity to make a real difference to the business. This is the hallmark of the RapidResponse Control Tower and how using RapidResponse to support supplier collaboration initiatives can help you to achieve superior corporate and operations performance.

Profitability management and human resource management – are they distinct applications or capabilities of an integrated enterprise business management (Control Tower) application?

Well, to jump to the punch line, the answer is likely “both” – depending on how one defines the terms.

A significant problem that exists in organizations today is that too many decisions get made without considerations of the impact on profitability or the feasibility of the decision given the impact that it will have on the employees in the organization.  There are numerous reasons why this is the case, but most of them come down to lack of integration –

• Integration between the processes within different departments, divisions and trading partners;
• People working within individual silo;
• Lack of integration within enterprise software products.

In this blog, I will stick to the last point, lack of integration within enterprise software products.  And … using the word “within” and not “between” is very deliberate.

Let’s first address the “distinct application” side of the answer.  The answer is a pragmatic one.  My firm belief is that distinct applications make sense if they are supporting distinct people and processes.  Financial statement reporting is an example of a profitability application that falls into this category.  The process is typically contained within finance, and it is a very specific process of reporting “closed” financial information to shareholders.

Where it makes no sense to have distinct products to handle issues such as profitability and human resource management is where these have a direct impact on decisions in business operations (so, basically in every business process).

By way of a real business example, if we reference the recent post by John Westerveld, it makes a ton of sense to integrate project management (product delivery) with supply chain.  But “how” do we assess the best possible scenarios to make changes?  We do it by taking in availability of materials (supply chain), availability of people (human resources) and deciding which option makes the most sense financially (profitability management).

In his post, John speaks of a scenario of installing a piece of medical equipment at a hospital where the equipment is going to be late and the power of putting the supply chain information in the project manager’s hands.  Let’s drill down on how this scenario would likely play out.  The project management would work with his equipment supplier.  They could evaluate the impact of the equipment being late and whether or not the supplier could still make the date if he found another supplier of the subcomponent which has become delayed.  What additional questions would they ask to determine if it would be worthwhile?

Will the delay cost us revenue?  Will any additional cost we incur be offset by the revenue gained? (profitability)

If the equipment comes on a different date, will contractors be available to install it?  Will it the inspector be available?  (human resource impacts)

If the financial (cost and revenue drivers) and human resource (rates, skills) information is only available in niche, departmental solutions, how can the company expect to make profitable and realistic decisions when projects don’t go according to plan?  Answer … they can’t.  Thus, integrated capabilities in a single application are needed for integrated planning, monitoring and response management.

In other words, profitability and human resource management are key to a Control Tower application.

Recently I was reminded of an old TV commercial for Reese’s Peanut Butter Cups.  Now, some of the readers of this blog may not be old enough to remember this commercial, so I’ll give you the “Cliffs Notes” version.  One person is walking down the street enjoying their peanut butter (what…doesn’t everyone eat peanut butter from a jar while walking down the street?). Another person is walking the other way eating a chocolate bar. The inevitable happens; and they collide causing the chocolate bar to get into the peanut butter. One of them declares “Hey, you got your chocolate in my peanut butter!” the other replies “You got your peanut butter on my chocolate!” Then to everyone’s surprise, they find that the combination works!

So, what does this have to do with supply chain you ask?  Many companies have major installation projects required to recognize revenue for their products; solar farms, cell phone towers, major equipment installation, etc.  They don’t receive full payment until the project is complete and running.  Typically, these companies will have a system that manages their supply chain and another system for project management. What is surprising is that these systems will often run independently of one another. If information flows between these systems, it is a manual update performed by the project manager or master scheduler depending of which way the information is flowing.

But isn’t there a relationship between the supply chain and the project that drives the requirements?  If a project moves out by six months, doesn’t that impact the supply chain?  If a major component on the critical path for the project is going to be late, doesn’t that impact the project? Project managers and supply chain managers are like those people in the commercial; walking along, doing their thing, eating their chocolate and peanut not realizing that there is a better way.

Let’s imagine the following scenario; you are a project manager managing the installation of a large piece of medical equipment at a hospital.  The contract has been signed, and the project plan has been approved.  But all is not rosy.  The schedule is aggressive and there are significant penalties if the project comes in late.

So, a few weeks have gone by, and things are progressing well; the supply chain has gone to work building the equipment and work has started at the hospital to prepare the site.  Then, one of the suppliers several levels down in the supply chain has pushed out their delivery date on a key component that goes into a critical piece of equipment needed for the project.  This lateness is propagated up through the supply chain and is now reflected in the delivery date of this assembly.  Traditionally, the project manager might never be made aware of this critical shortage, because traditionally, the project manager doesn’t have visibility into the supply chain.

In this new world, however, supply chain and project management are both part of the same system and are linked together. So, when the project manager comes in, he immediately gets an alert that the project is going to miss its date including the impact on revenues and additional penalty costs.  A few clicks later, the project manager sees that the lateness is due to a late assembly coming from the supply chain. With this information, he project manager can collaborate with the supply chain to resolve the issue.

Integrating supply chain with project management is like sticking chocolate in peanut butter.  Once you put it together, you realize that they are better together than on their own.   If you’ve been following posts in this blog about Control Tower, you may have realized that this is just one of the ways that Kinaxis is bringing various aspects of the company together into an integrated new way to solve problems across the enterprise.  However, you might not have thought about some of the practical applications of what we are proposing.   Do you manage projects as a regular part of your business?  How do you tie the project plan back to the realities of the supply chain?  Comment back and let us know!

As our Doug Colbeth, our CEO, wrote recently

Companies must look at their supply chains as having a “cause and effect” relationship with other key parts of their business. It is in the supply chain and its related areas where companies can effectively address the three key challenges of any business; financial performance, customer satisfaction, and corporate risk.

There are several key points in Doug’s statement, but the one I want to highlight is the cause and effect relationship to other key parts of business.  While gaining control of one’s own operations is important, in today’s outsourced supply chain, the cause and effect relationship often spans across multiple tiers.  This multi-tier cause and effect relationship is fairly well described and explained through concepts such as supply chain visibility, and remains an issue for many multi-national organizations, let alone multi-tier supply chains. Over five years ago, Aberdeen Group in a Benchmark report titled, “Industry Priorities for Visibility, B2B Collaboration, Trade Compliance, and Risk Management” identified many of these issues.  As late as February 2011, Aberdeen Group published another report titled “Supply Chain Visibility Excellence” in which the greatest pressure to improve supply chain visibility is “Growing global operations/complexity”.  It ain’t goin’ away any time soon.

But Doug is making a different point (I think). My interpretation of Doug’s comment is that a company’s operations functions have to operate in a coordinated or orchestrated fashion in order to drive the best financial performance.  While most of our focus is in manufacturing, where the issue is perhaps most acute, many other sectors can benefit from Doug’s advice.

As an example of the need for orchestration between functions, how many project management systems provide a mechanism to plan materials in conjunction with resource assignment and task dependencies?  And yet in many engineer-to-order (ETO) environments payment is based upon milestone achievement so any slippage because of material shortage has a big impact on the top line.  And of course on the bottom line too because while resources can be assigned new tasks, there is always lost productivity when they are reassigned.  And of course it isn’t that no orchestration between functions happens today, it’s just that very little of it is fact based and there is no opportunity to perform what-if analysis of different scenarios to evaluate the impact on financial performance, customer satisfaction, and operational risk.

So what is orchestration? Jane Barrett of Gartner wrote in a Supply Chain Brain article titled “The Secret Sauce to Supply Chain Orchestration” that:

Orchestration describes a value-driven organization that is consciously excellent. This ability to make conscious choices and to understand the trade-offs comes from advanced capabilities in information management, demand sensing and shaping, cost-to-serve analysis, end-to-end segmentation, simulation and analytics. It requires strong collaboration internally and externally.

The on-line Merriam-Webster dictionary defines “orchestrate” as:

or·ches·trate

1 .      a) to compose or arrange (music) for an orchestra

b) to provide with orchestration <orchestrate a ballet>

2.  to arrange or combine so as to achieve a desired or maximum effect

While clearly it is the second definition that is more directly relevant to the supply chain, or operations more broadly, we should not lose sight of the idiomatic value of the first definition.  A lot of the value of a control tower comes from being able to ‘arrange’ the processes and people in a harmonious whole.  The beauty of an orchestra or rock band comes from the manner in which the different instruments are played collectively. If any one part of the orchestra is out of tune or playing too loudly/quietly the sound of the entire orchestra is affected, not just of that instrument section. In order to do this, every orchestra must have a conductor.  Undoubtedly the orchestra could get through the piece without a conductor, but they do so with far less effort and with a superior outcome if they do use a conductor.  Key aspects of the conductor’s role is to interpret the piece, keep each section playing in time, and to ensure the correct sound balance across sections.

A control tower is equivalent to the conductor in operations orchestration, which ensures that all the functions are operating in harmony. This is what Doug is referring to in his blog: Making sure that not only are the functions sharing information, but that they are operating in unison to achieve common goals.  And this is where Jane Barrett’s capabilities of simulation and analytics come into play.  While undoubtedly on concert night the orchestra needs to play flawlessly by following the conductors lead, it is the practice sessions in which the conductor will have experimented, sometimes with individual sections of the orchestra, and even during the dress rehearsal.  This experimentation is vital for the conductor to achieve the right sound.

Without the equivalent “what-if” capabilities in supply chain, and operations more generally, it is extremely difficult to gain actionable insights and to reduce corporate risk.  Without a doubt cross-functional visibility, formal meetings, and standard reports are foundational requirements, the real value to operations is the ability to evaluate alternative scenarios quickly and collaboratively.

To create and sustain change, the discussion has revolved around people, process and technology (software in this case) since the beginning of the information age.  What is interesting about this discussion is that almost all of the focus and discussion surrounds the process and the software, or at best, talks about each of these as equally important cornerstones of the equation.

Stepping back from the triad, and taking an objective view, the process and software pieces only really exist to make people more effective.  To go a step further, the process and software should exist to make the people work together more effectively.  You can think of this as the promise of collective intelligence of an enterprise.  In “executive speak”, you can think of this as fulfilling the promise of having the entire organization actually executing the strategy across all functions, on behalf of the organization as a whole.

Collapsing planning and execution (real-time response management to deviations from the plan) into a single integrated process and breaking down the silos between various functions, departments, and trading partners, are key tenets of an enterprise control tower solution.

Andy Coldrick, working with Dick Ling, advanced Dick’s original definition and process of S&OP in the 1990’s to introduce the concept of integrated reconciliation – the key to driving the cross-functional, collaborative process at the heart of successful S&OP.  In the past decade, they have advanced an implementation methodology to drive cross-functional collaboration to truly allow strategic and sales and operations planning to become an execution-driven activity.

Andy and I will be presenting a blueprint for enabling people to realize the promise of strategy execution on Tuesday, December 13^th.

Register now for the webcast: Orchestrating Success in Sales and Operations Planning by Driving Cross-functional Collaboration with RapidResponse Control Tower

Since announcing RapidResponse Control Tower in October, we’ve been enormously encouraged by the response. Not only is our message resonating, but our technology credibly supports the control tower vision evangelized by several industry influencers, in particular that of our strategic partners.

At the foundation of our control tower vision is the belief that the operational core of any business is their supply chain. Companies must look at their supply chains as having a “cause and effect” relationship with other key parts of their business. It is in the supply chain and its related areas where companies can effectively address the three key challenges of any business; financial performance, customer satisfaction, and corporate risk.

We believe the core capability for any business is to be able to dynamically balance demand and supply of anything (materials, cash, human resources, etc.). I can say with confidence that Kinaxis has the most powerful, flexible, and comprehensive demand-supply balancing capabilities in the world. All of our database engine work over the past couple of years has resulted in Kinaxis having exclusive capabilities in this regard.

I believe the key capabilities for a great control tower solution include:

• Global, multi-enterprise visibility – creating a single information source for the extended enterprise.
• Not only event detecting, but event impact measurement capabilities.
• Strong human collaboration tools because today’s business problems have to be solved by people.
• Powerful “what-if” analysis or simulation capabilities. Users must be able to instantly study multiple scenarios to respond to daily changes in their business.
• A great presentation layer and user interface (scorecards, dashboards, mobility, etc.).
• A robust set of analytics to solve difficult problems across different parts of the business.

This last point is very key. In order to provide a true operations (or supply chain) control tower, all sorts of applications need to be dynamically integrated with the demand-supply balancing capability. This provides valuable simulation capabilities to “cause and effect” areas like project management, workforce management, and financial management. With our control tower, we are extending simulation capabilities to these related areas. Everyone in the supply chain, as well as those areas that are impacted, or can impact the supply chain, must be working from a single version of the truth. With everyone “sitting around the same virtual table” using the same information, that’s how you are going to achieve your next corporate and operations  performance breakthrough.

Stay tuned for weekly “Control Tower Concepts” posts from a wide range of contributors!