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?

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.

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!

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.

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?”

• 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.

I have the great privilege to present alongside Dr. Hau Lee of Stanford on a topic that I am particularly passionate about:  Matching Supply and Demand with ‘Sensible Sense and Responsive Response’

It’s a timely discussion aimed at answering questions like:

• How can we correctly interpret demand signals and make sense of them smartly?
• How can we enable the entire supply chain to react accurately and quickly?
• What are the key elements of agility?
• What value does responsiveness offer to the organization?

I recognize that there are individuals who might still believe they can plan their way out of a volatile or chaotic supply chain. It is my hope that this presentation will serve to highlight the new innovations in process and technology that make response management a far more potent cure for companies living with supply chain pain.

Find out all the details here.  Why wait? Register today!

This month’s challenge discusses a maker of wireless and radio frequency components that is starting to see signs of an economic recovery but is very concerned with the risks of overestimating or underestimating the resurgence of business.  They are struggling with what is needed from a process and technology standpoint to get an accurate picture of demand going forward.

We were fortunate to have Dr. Larry Lapide, a research affiliate with MIT’s Center for Transportation & Logistics,  join us in providing his take on a solution to the challenge as described below:

Hinnts Wireless has been fortunate to weather a bleak two years. As CEO, I watched annual revenues fall 20% to approximately $225 million. A maker of wireless and radio frequency components for OEMs and system integrators, Hinnts is highly dependent upon commercial and industrial markets. As they slowed, we slowed. Now we are beginning to see our sales trickle back, and our major customers indicate that within six months they expect their orders to get back to prerecession levels. In addition, we are launching a number of new products over the next six months that promise to hit new markets and bring in new customers.

While the severity of the market slowdown came as a surprise, I do not want us to be surprised when our markets rebound. Our management has always believed — perhaps, erroneously — that Hinnts has fairly level month-to-month sales volumes for all product lines, and so we relied on simple methods for scheduling production and triggering our supply chains. But as our markets get more complex, our scheduling will as well, and we cannot afford to overestimate or underestimate — as we’ve done in the past. I see now that every dollar counts, and the money we’ve lost on obsolete or discounted inventories, overstaffing, or missed sales would have made the last two years more bearable.

I would like to have a more accurate picture of our customers and their plans and forecasts, and use that information more proactively to integrate production with our suppliers and to staff our plants. With a recovery likely, is it time to invest in processes and technologies to help Hinnts and our suppliers sense and respond to demand quickly and cost effectively? Can I afford the investment, and what can Hinnts expect to gain?

What would be your recommendation?  Here are ours….

In these times of economic uncertainty and the global credit crunch, companies are actively seeking best practices for improving their demand network. Companies need to balance demand planning with short term responsive strategies to manage high levels of demand volatility.

Aberdeen surveyed over 135 companies about their demand management practices and have highlighted specific approaches that companies with different types of supply chain — build to order, build to stock and engineer to order — have adopted with respect to demand management.

Good news….as an underwriter, we can offer complimentary access to the report here.