Archive for the ‘Demand management’ Category

For those of you who aren’t gadget hounds like I am, a Kindle is an e-book reader. It’s a device that is the size of a very thin paperback book. It has a special “e-ink” screen that is visible in daylight and, with the wireless turned off, only consumes energy for “page turns”.  You can go for weeks without recharging the device.    You can carry thousands of book in the palm of your hand.  It has wireless connectivity so that you can purchase new books anytime you want and if you spring for the 3G option, you can buy books anywhere you want too.   

I read a lot of books.    I typically have a few books “in the queue” but occasionally I’ll run out of reading material and have to wait for my next trip to the city to buy more.   When I travel, I’ll bring the book I’m currently reading and one or two more just in case I run out during the trip.  I’ll often re-read books I’ve enjoyed so I tend not to sell or give away books I’ve already read. As a result, my book shelves are stuffed way beyond their capacity.

So, when the Kindle came out a few years ago, I watched with interest.  There were still a few bugs to work out, so I waited.  The Kindle was also kind of expensive and…oh yeah…it wasn’t available to us cave-dwelling Canadians.  The Kindle 3 was announced in July.  It had some nice new features and a great price and was available north of the border, so I decided that I would treat myself for my birthday and ordered one on August 17th.

When I placed my order, Amazon couldn’t tell me when my new Kindle would ship.  Hmmm.   Yesterday, a couple of days into September, Amazon STILL couldn’t tell me when my Kindle will ship…not online anyway.  What’s going on?  Do they honestly not know when they can ship my product?  Is the date so bad that they are afraid I’ll go elsewhere?   Those among you that have been involved in supply chain, customer service or sales, know that the only thing worse than not shipping a product on the date a customer wants it is not being able to tell the customer when they can expect it.  

So what is the cause of the delay?  Bad Forecast?  Supply issues?  We just don’t know and likely won’t know until Amazon tells us (if they ever do). Regardless of the cause, what is stopping Amazon with providing me with a delivery date?  We all know that there are supply chain analytics available that can be used to identify an expected ship date.  Perhaps, being new to the brand owner /  manufacturing side of things, Amazon might not yet be aware of what is possible with good supply chain software.

Desperate for Amazon to tell me where the heck my Kindle is, I broke down and called customer service and finally got an answer that it should ship likely on September 10th.  Why that date wasn’t or couldn’t be provided online when I checked the status, I don’t know.

As someone who understands the complexity of the supply chain, I know that sometimes we can’t ship when a customer wants a product.  However, as a customer, I want to know when you CAN ship my product.  Amazon, you gotta give your customers any insight you can….and don’t make them work for it!

It is always a pleasure to read Bob Ferrari’s Supply Chain Matters blog. He addressed parts/component shortages, a topic that we are seeing across our customers in a recent post titled, “Parts Shortages Noted in the Mainstream Press- Are you actively educating senior management?” Bob observes that:

The WSJ article, From Snowmobiles to Cellphones, a Scramble for Parts, (paid subscription or preview sign-up may be required) further notes that companies have had to reconfigure offered products due to persistent supply shortages. It notes that shortages of transistors, capacitors and integrated circuits became pronounced in the first quarter, and persist in the second quarter. Telefon AB L.M. Ericsson indicated that shortages cost the company $400-$550 million in sales and delayed shipments, and Royal Phillips Electronics, Polaris Industries Inc. Motorola and Whirlpool are also mentioned as being impacted. Motorola CEO Sanjay Jha  summed it best noting that his company is scrambling in a “constrained environment.” Companies utilizing current hard-to-find components are seeking their own fixes which include offering customers different features or alternative components and/or technologies.

While it is obvious why Ericsson, Philips, and Motorola are affected by electronics component shortages, what is interesting is Bob’s inclusion of Polaris and Whirlpool in the list of companies. The original WSJ article clearly focuses on electronic parts shortages. Polaris makes snowmobiles and ATV’s. Whirlpool makes dishwashers, dryers, etc.  What does this have to do with electronic parts?  Well, a lot actually. I remember working on a project at Volkswagen in Germany in the late 1990’s shortly after they had just come out with the Golf Mark IV.  I don’t remember the exact details but the number of chips in the Golf had gone up from about 5 in the Mark III to about 50 in the Mark IV. Yet the demand that this represented for the chip manufacturer was still relatively low compared when compared to the demand from electronics companies such as Ericsson. The difference in the relationship with the more traditional Volkswagen suppliers, who made mechanical components for the Golf, was profound.  Whereas the chip demand represented a lot less than 10% for the chip manufacturer, often the demand from Volkswagen for the mechanical component suppliers represented well in excess of 30%-40%, sometimes in excess of 75% when factoring in aftermarket sales. Clearly Volkswagen had a great deal more leverage with the mechanical component suppliers.

Other industries, such as the white goods industry, will often design different washer or dryer models using virtually the same mechanical components, but use different chips to provide differentiation. Electronic components are everywhere. Delays in component deliveries affect many industries. The original WSJ article contains a graphic showing how the lead time for a common type of transistor has increased from 10 weeks in July 2009 to 20 weeks by February 2010.

Initially I set out to try to estimate the effect of electronic component shortages on G20 gross domestic product, but the more I looked into the data, the more it seems that electronic component shortages might already be “old” news. Clearly there is still a lot of caution in the industry and the effects are very real otherwise neither the WSJ nor Bob would have written about component shortages. It is also something we have been hearing from customers and prospects for the past 6-9 months. Yet some really good results over the past four quarters, such as those from Intel, seem to indicate that the situation may be easing. Since the financial results of semiconductor companies are a leading indicator of how other companies are investing in raw materials, it is encouraging to see the upward trend in both revenue and gross margin reported by Intel. But this blog is about component shortages. While Intel has shown better revenue numbers, the increase in the margin would still indicate a shortage situation. Looking at Intel’s inventory numbers indicates that these have been rising sharply too, especially finished goods.

The question is whether Intel is the proverbial “swallow that does not a summer make.” Looking at public semiconductor companies around the globe would indicate that the same is true throughout the industry. The figure below shows averaged financial results for all semiconductor companies.

This effect is most pronounced when considering the semiconductor companies in Asia, though a similar pattern is observed in North America, and less so in Europe.

Clearly it takes time for inventories to be built across the entire supply chain, but it is encouraging to see the level of inventories being built in the semiconductor industry. Notice that inventory levels far exceed the levels in early 2008.  In addition, the semiconductor industry is only one segment of the overall electronics industry. But, as I noted earlier, the semiconductor industry is a leading indicator because it is far up the supply chain.

What is your experience? Are you beginning to see an easing in the electronic component supply shortages?

To rely on the forecast or not to rely on the forecast– that is the question:
Whether ’tis nobler in the mind to suffer
The slings and arrows of volatility and risk,
Or to take arms against a sea of troubles
And, by reacting swiftly, end them. To be agile, to be caught off guard
No more – and by a quick response we manage
The heartache and the thousand natural shocks
That the forecast is heir to…

Ah, enough of that….There is a great article by David M. Katz in CFO magazine about demand planning leading up to the holiday season. With all the talk of a double-dip recession, CFO’s are asking themselves do they ramp up for growth or hunker down and wait out another drought? 

Ultimately, the question is – how and what do you forecast?  There are risks on both sides if you get it wrong – excess inventory or missed sales opportunities.  As such, at times like these where there is little to no predictability, experts are now saying that the ability to respond and react to demand is more critical than the ability to forecast/plan it.  Can I hear a hallelujah!

As the article points out…

In these volatile times, it’s hard for companies to get a reliable read on what to expect from their customers and how to deal with rapid shifts in demand. Here are four steps that supply-chain experts say are essential to coping with a fast-changing economic landscape:

1.Ditch the long-range forecasts.

2. Avoid gut feeling.

3. Go granular.

4. Launch an S.O.P.  

Any other steps that should be included?

After attending the IndustryWeek webcast “Developing Greener Products: Trends in Product Stewardship and Corporate Sustainability” last April, I was thinking about how the supply chain we know today will evolve as a response to the ‘green’ pressure.

Of course, we always talk about becoming leaner and implementing new processes and techniques that will make our companies more productive and efficient, but that has, until recently, been driven mostly by financial incentives, regulations or environment mandates. Nowadays, according to data published from Gartner (presented in the webcast), competitive advantage/corporate brand is the top driver for participation in sustainability programs (33%), which I believe is a result of customers’ demonstration of a stronger sense that protecting the environment is important to them.

Before the webcast, I had come across an extremely interesting video “The Story of Stuff” and was astonished by some numbers and information shared there. The host, Annie Leonard, claims that 99% of total materials flown through the system is trashed after 6 months. Can you believe it!!?? I didn’t at first, but then in the IndustryWeek webcast I learned that 90% of waste in the life cycle of a mobile phone is generated at the raw-material stage. So it became clear to me that there will be no lack of surprises in research results in this area.

Whether you may disagree with some points made in the video, the fact is that there is an increasing number of people looking to buy Green, buy Fair, buy Local, buy Used, and/or buy Less. Also importantly, some people are willing to pay closer to the ‘real’ cost of production, and some organizations are preparing to capture that information: for example, the ACCA – associations of chartered Certified Accountants – is calling on businesses to not only account for their carbon emissions, but their water usage too in a report. I can’t stop thinking how this behavior can change the entire game!

See Larry Lapide’s view of “A green supply chain” on KinaxisTV (Analysts Videos)

Think about recent stories published in the media about some companies’ green initiatives. Who would have thought a few years ago that Walmart would invest in developing a worldwide sustainable product index and monitor suppliers’ emissions?

One consequence of the ‘new game’ is the increasing need for collaboration, since the product life cycle activities, “the system” referred to by Leonard, need to be coordinated by all participating organizations so that they can work together to deliver an efficient & sustainable 21st century business model. This requires actions to distinguish core & non-core business, rationalize & virtualize non-core business, develop joint supply chain objectives, define new targeted sustainable operating models. Data capture and sharing assume increased importance and is extended to new areas (see example of BOM management in the webcast).

As a manufacturing engineer by training, I am excited to see a lot of new initiatives to reduce waste and improve energy efficiency, especially in supply chains (80% of the carbon footprint is tied to products and supply chain). As always, the companies who are ahead of mandates and continuously innovating processes and products will have a lead in attracting the increased number of costumers concerned with environmental sustainability.

Business models incorporating IT-enabled focused innovation will deliver more sustainable outcomes, enhanced efficiencies, superior growth, margins and cash flows

 “Surviving the Upturn: Sustainability, Innovation and Information in the Low Carbon Economy,” Stephen Stokes, VP Sustainability and Green Technology, AMR Supply Chain Leaders, Gartner Research, 24 March 2010, slide 9.

How is your company reacting to this new wave? Are you investing in building sustainability in your core?

The supply chain is tightening up again.  We are hearing about this in high tech and automotive and most likely in other industries as well.  While we never seem to avoid the cyclical nature of demand and supply, it is refreshing to see the level of interest in making good decisions with limited supply.

In working with clients, I have never seen so much interest in supply allocation options,  demand prioritization and customer segmentation. Companies are realizing that the FIFO approach to customer demand isn’t good enough anymore.  However, you do find some companies that think that they need VERY complex rules. Supply chain doesn’t have to be complex to be effective.  In fact, I would argue that the opposite is true.

Companies all want to maximize revenue and minimize stock levels. I believe that global competition has also had a significant influence on the need for supply allocation options. If you can’t satisfy everyone on time, which customers are most important and what impact will not satisfying some customers have on your business?  Many companies have top tier customers that represent such a significant portion of their business that they always need to satisfy.  Other companies are rewarding their customers with the best forecast accuracy.

Supply is being allocated at either the finished good level or the material component level. If you are managing the finished goods side of the business, you may need a combination of automated supply allocation rules and also the option to manually allocate or create firm allocations to distribution centers or regions.

There is no one rule however for supply allocation. These are collaborative decisions that need to be supported by software but not decided by software.

What has been your experience with limited supply? How are you solving this today and do you need a better way? I would be really interested in hearing your comments.

3D TVs were the big story at the CES show in January and  now I’m starting to see them show up at Best Buy.    While I tend to be in the early majority of the technology adoption curve, I don’t think I’ll be buying a 3D TV any time soon.   So, am I representative of the population, or am I just receding to the technological late adopters side of the curve? Is my geekiness declining as my age advances? Or are others as apathetic about this as I am?

On the one hand, there is definitely a “gee whiz” factor that you simply can’t deny.  It’s that coolness that have been drawing people into 3D movies since the 1950’s   Classics like House of Wax and  It Came from Outer Space drew people into the movie theatres  despite having questionable plots and an excess of things flying out of the screen at you.  Recent hits like Up , Avatar and Alice in Wonderland are fanning the flames of interest in 3D.  Now you can have this experience in your home.

On the other hand,  there are several issues that could impact the adoption of 3D;

• Glasses – Today’s TV and movie theatre technology requires you to where special glasses to view 3D. A CNET article points out that the 3D glasses are specific to a given set and cost as much as 150 per pair.  This might not be prohibitive if you are just watching yourself, but if you have a family, you need a pair for each person.  And what if you have friends or family over for a visit – do you need a pair for them as well?  Besides…I have enough trouble keeping track of my remote control; who needs another thing to look for?
• Content – Aside from a few movies, and some sporting events, there is not a whole lot of content currently available.  Similar to the implementation of HD, there will be more and more content coming as devices become available and more common.  It’s that traditional chicken and egg problem.  From the consumer’s perspective;  What is the point of spending thousands of dollars for a new TV if there is nothing to watch?  From the content producers perspective; Why should I spend millions making 3D content when there are very few people with 3D sets? 
• Consumer fatigue – Many consumers have just upgraded their home theatre set-ups to allow them to consume high definition content;  Large 1080p televisions, HD Tivos, new set-top boxes from the cable company or satellite provider and of course new upconverting DVD players or Blue-ray decks.   Those who have just recently upgraded are not likely to want to go back and buy another new system.   Those who haven’t yet gone HD will likely not go 3D when the time comes to replace their systems.
• Technical issues – multiple formats, differences in perspective (kids see 3D differently than adults do because their eyes are closer together), all put the market in a high state of flux.

So the question then becomes if you are a TV manufacturer and are offering a 3D TV, how do you forecast future demand?  Do you go bullish and forecast big sales?  Or do you play conservative and risk stockouts and the loss of significant potential revenue?  

The big concern is that the technology is still in a state of flux and if you are holding significant inventory when the next advance hits, you could be stuck with a lot of obsolete inventory.  One example of potential game changing technology is the introduction of 3D televisions that don’t require special glasses.   You don’t want to be sitting on a pile of old stock when that change hits.

Traditional forecast accuracy mitigation issues can’t help in this case. Normally, you could use techniques like postponement strategies to limit inventory costs while improving responsiveness.  With 3D TVs it is entirely likely that technology changes and that the majority of your strategically placed inventory would need to be replaced. 

So what to do?  Personally, I’d probably go conservative, but as I’ve already pointed out, I’m not that excited about 3D. Let’s hear from you…  Are you excited about the upcoming “3D revolution”?  If you were to forecast 3D TV sales, what factors would you consider?   Comment back and let us know.

In getting ready for a trip I went into the drug store to buy travel sized toothpaste and contact lens solution. Looking at the packaging, I started to wonder how accurate a forecast needs to be. (You know you’re consumed with everything supply chain when that’s what you think about while shopping!)

I’m sure no one was predicting the need for these products in 100ml sizes a couple of years ago. And what if the airlines lifted the size requirement on liquids or reduced it to 50ml? What chaos would that cause the demand planners of the world? Walking to the front of the store I noticed some Olympic wear. As you know, Vancouver just finished hosting very successful Olympic and Paralympic games. I could only imagine the heroics and horrors that were experienced to make these games the success they were. Everything from scheduling materials for the new venues to the clothing, flags, food and everything else required for the games. Will the promotions to sell off Olympic paraphernalia make up for the excess inventories now on the shelves and in the warehouses?

In a discussion thread on the supply chain expert community, Joshua Gao asked what your “Vision of the Supply Chain” is?  Well, if we look to the past many things are different from our grandparents’ supply chain. Two of the biggest stand out.  First, customers are more demanding. I mean that in a positive sense, in that customers can quickly research products, understand trends in technologies and purchase what they want with a few clicks of a mouse. The second is that supply has become more fragile. Outsourcing, margin pressures and even catastrophic events can cause supply challenges. So this gets us back to the vision of the future and the question, how accurate does the forecast need to be.

In the past, good enough may have worked because there were fewer demand and supply pressures. But today and in the future, is it better to have an accurate forecast or should the focus be on handling the deviation?

If the focus is to manage the deviation and leverage your supply chain as a competitive advantage, then how much effort should go into developing the forecast if you know it is going to be wrong anyway? This is where it would be helpful to get your feedback since the answer may vary based on industry etc. Does the forecast need to be more accurate given the supply chain challenges of today or do you just need some number to start with since you will have to handle change regardless what the forecast states? How close does the forecast need to be, 40%, 60%, 80%?

Just one final request for feedback: if you were involved in any Olympic related supply chain stories, it would be great to hear them. Maybe your story will make the podium and win gold, silver or bronze!

We are hosting a webinar on Wednesday, March 3rd with March Networks and Aberdeen Group.   To register for this free webinar click here.

Here is more about it:

“Using Segmentation Strategies for Better Demand and Supply Balancing in the Mid-Market”, presented by:

• Jeff Range, VP, global operations and customer service, March Networks,
• Nari Viswanathan, VP and principal analyst, supply chain planning practice, Aberdeen Group, and
• Trevor Miles, director, industry and applications marketing, Kinaxis.

Mid-market OEM’s are faced with unique challenges in today’s world of outsourcing. An effective balance between demand and supply in this environment is crucial, yet difficult to achieve. Learn how March Networks has used product segmentation processes and systems to overcome some of the supply chain challenges presented by outsourcing.

This 60-minute webcast presentation will be held on March 3, 2010, at 1:00 pm EST.

I was recently in conversation with someone who’s company was struggling with lumpy demand, and he asked the question ‘what is the best system for demand management?’.  Well, the answer depends on what exactly he’s looking for.  This may mean taking a step back to understand why demand is so lumpy and thus, what are the capabilities that would help.

Here are some points for consideration:

Perhaps a statistical forecasting package that could produce a more accurate forecast based on historical demand patterns is enough.  I would suspect otherwise though.  With things changing so fast, historical demand alone is an unreliable predictor of the future.

Would aggregation of multiple demand inputs take out some of the bumps?  If so, then a collaborative demand planning system could be considered.   This system would capture various inputs, (such as sales projections, marketing projections, management judgement, and possibly a statistical forecast) to develop a single collaborative forecast that would provide a more insightful view of the demand picture.  But here’s the catch, in today’s volatile marketplace, your plan will never be 100% accurate.  While you might be able to reduce forecasting error, better planning isn’t going to reduce demand volatility. 

So if you can’t accurately plan demand, then you need to respond to it.  That requires you to:

• Detect changes in real-time between the actual demand and your forecast,
• Change your supply plans in response to those changes, and
• Revise your forecast when appropriate.

But is this type of supply chain response agility enough?  Is improving customer service levels while reducing inventory risk in the face of volatility an urgent need?  If so, having the following capabilities can have significant impact on your performance:

• Determine target inventory levels and resulting replenishment plans in order to handle the “lumpy” demand.
• Detect when your inventory at various locations is in excess of current needs, especially if there is a shortage in that part in another location.
• Link replenishment to satisfy demand with your supply side planning to determine viability of potential changes.
• And when your supply simply can’t satisfy the demand fast enough, allocate the supply to particular orders or distribution channels, possibly based on a combination of fair share, equal share, and priority schemes.

That leaves just one more question:  What types of users do you expect, what actions and decisions do you expect them to take, and how do you expect people to interact with the demand management system?

In answering some of these questions, one might find that what they thought they needed would only cover some of the total demand management picture.  So, it comes down “what are you really looking for?”

I came across a great blog post by Atul Chandra Pandey from Infosys titled “Y2010 & Ahead – value chain trends in emerging economy” in which Atul emphasized the following trends in the first part of a 2-part series:

• Customer side equations will take prominence over rest of value chain
• Supply chains will get more integrated with marketing and service chains
• Speed and responsiveness will be key drivers for spend on new initiatives
• Cost will continue to play critical role in decision making
• Asset Management will gain more prominence and will help in accelerating “green” initiatives

I responded to Atul in the following manner:

We too are experiencing that prospects and customers are focusing a lot more attention on customer satisfaction as it pertains to on-time delivery of orders, but also to the enquiry-to quote and quote-to-order processes.

I couldn’t agree more with your third point about speed and responsiveness. Overall the trend we are observing is that consumer behaviour is pervading B2B transactions with ever shorter lead times. Coupled with the adoption of Lean and postponement strategies, companies have to be very responsive to changing demand, blurring the lines between planning and execution. These are the business drivers for your third point about agility and responsiveness.

Cost will always be a driver in supply chain management. If we adopt any of the Lean concepts it should be the elimination of waste. All too often I come across situations where the information and decision lead time exceeds the physical lead time to manufacture and/or deliver the order.

But this got me thinking about several other reports and observations that have come across my desk over the past 12 months. 

First and foremost must be the article by Dan Gilmore at Supply Chain Digest highlighting the work done by Supply Chain Digest’s research arm CSCO (Chief Supply Chain Officer) Insights.  There is an excellent report titled ”Next Generation Supply Chain Management: Integrating Planning and Execution” available from this link. (Subscription required).  In the article, Dan Gilmore observes that “For many years, analysts and others have offered separate models of ‘supply chain planning’ and ‘supply chain execution’ processes, and the technology vendors were generally organized in that sense as well. You can find many diagrams that show hierarchical planning processes with no connection at all to execution, for example. The report argues, and the research supports, that this gap must be closed from a process perspective to meet the challenges of today’s supply chains.” I added the bolding because this is the key to being able to provide the speed and responsiveness to which Atul at Infosys refers.  Not only that, but also managing to contain if not reduce supply chain costs will depend on being able to reduce this gap between planning and execution.   

Traditionally we have used inventory to buffer against what we would like to happen (the plan) and what actually happens (execution).  But this is no longer possible.  As the graphic below illustrates, as long ago as 2004 postpone strategies had pushed much of the inventory up the supply chain to the suppliers.  They too have adopted Lean and postponement strategies, leading to even lower inventories.  And then there is the effect of the recent recession.  Nearly all the OEM’s I speak to are struggling to secure supply of components, clearly indicating reduced inventory levels in the suppliers. I wish I had equivalent inventory figures for 2009.  Anyone willing to provide these figures?

Then there is the excellent blog written by Lora Cecere recently titled “Tackling the Black Hole in the Center of Your Supply Chain” in which she states “We now know that fixed data integration, one-dimensional rules mapping, and traditional master data techniques from ERP to Supply Chain Optimization are insufficient.  As a result, plans are created and consumed in isolation, and transactional systems hum along with little– to no — guided intelligence.”  So as the speed of business has increased – some would describe this as volatility – the supply chain systems have not kept up. 

And most of the information is now external to your organization.  Companies have being trying desperately to get point-of-sale information to get early trend analysis of sales.  At the same time, many brand owners have largely outsourced manufacturing, not only lengthening the physical supply of goods, but also the time and effort it takes to make a decision.  All of these factors are only making the gaps between planning and execution even wider.  But the business need is to close this gap; to respond to demand changes quickly and effectively.  As Lora Cecere, states, the solutions from the 1990’s have not kept pace with the business needs.  Throwing more ERP at the problem isn’t the solution.  At their heart, all ERP systems are essentially accounting packages.  They deal with your data – financial and operational – but provide very little help in dealing with the majority of the information, which now exists outside of your organization.

What are your thoughts?  Do you experience this gap?  Are your systems able to cope.  Will your next breakthrough in performance come from learning to plan better, or learning to respond to plan variance?  In other words, closing this gap between planning and execution.  Robust debate encouraged.