Archive for the ‘General News’ Category

It’s not everday you see a respected business journal write about supply chain management (although the Wall Street Journal recently wrote a piece here). Given the strategic importance of supply chains to a business, it continues to perplex me why there aren’t more articles, but I digress. So, it was with some pleasure that I found this article at the Financial Times site (see additional comments on this article at the Solectron blog here).

I’m sure it will catch a lot of people’s attention that the article states up front that “according to Accenture, the consultancy firm, “supply chain leadership” can increase a company’s market capitalisation by between 7 and 26 per cent above the industry average.”

The article goes on to say that “supply chain managers in many sectors are looking for greater visibility of whatis happening in their supply chains and faster accessto more accurate data. This means that if there is an unexpected event, be it storms affecting shipping or a production shortfall, companies can divert stocks or bring in alternative suppliers.”

I’ve long argued here that not only can supply chains play a much more strategic role in organizations than they usually get credit for, but that today’s environment demands a responsive supply chain. To achieve this, companies need to empower people with the visibility and tools to respond to change across their virtual enterprises made up of multiple partners geographically dispered around the globe.

Great to see the increasing coverage of these critical business issues.

Supplychainer has a post talking about the top issues on the minds of supply chain people. According to the post, the list includes:

- RFID: Invest or not invest?
- How to persuade the partners in the supply chain to share their data so that they can proceed with all types of optimization tools e.g. network design, or simply CPFR.
- Contract management in such a way that working capital becomes minimum (late payment can be one option).
- Lean six sigma: should I go for it?
- Cope with the challenge of globalization in supply chains: (all types of problems from different regulations to standards and visibility issues).
- Supply Chain Risk Management.

I added a comment to the site and have included it below as well.

** My comment **

I think you have a good list. A couple of other things I see as big challenges are dealing with demand volatility and ever shortening product lifecycles. When you combine these factors together, companies are really challenged with dealing with the amount of change that is taking place.

Most companies have invested in processes and tools that focus on execution - running the business like clockwork. But increasingly the business challenge is dealing with the business when it doesn’t run like clockwork. Very few companies have implemented a viable solution to do so - a solution that empowers their people to respond quickly and effectively to change.

While supply chain management has traditionally been very focused on reducing costs, I also find that companies now are trying to also find ways to leverage their supply chain management effectiveness to drive top line revenue growth and customer satisfaction. Again, the need to respond to the unexpected is at the heart of their ability to accomplish this.

Market leaders are increasing moving from standard timing to as needed, exception-based processes. Scenario modeling capabilities empower front-line decision makers and executives to make decisions when the business requires it. Scenario modeling provides these decision makers with insights into alternate opportunities as they balance risk and reward. Leaders confront risk and opportunity with shorter cycle times between event, collective insight and action.

To achieve this, companies need to arm decision-makers with a holistic and single version of the truth and the collaborative, scenario modeling tools necessary to evaluate situations, propose and detail action alternatives and then score them against corporate metrics to ensure actions are aligned with objectives. With the pace of change accelerating, there are more unexpected events than ever that are both high in business complexity and risk. These decisions require rapid and accurate human judgment - facilitated by scenario modeling driven from real operational data.

Many systems claim to support scenario modeling but suffer from a couple of critical deficiencies in supporting the needs of companies to rapidly respond to change. First, most scenario modeling capabilities are complex, programmed optimization engines that work on a sophisticated and rigid set of assumptions at a given point in time. The end result is a “black box” output with no insight into why the answer is what it is. This is ok if the answer is right, but creates lots of problems when the answer that comes back isn’t good enough. In addition, these systems are usable by a limited number of highly trained operators and lack any collaborative capabilities where multiple people contribute to an action.

Second, most scenario modeling systems operate on a model of the supply chain, not on real supply chain data. As such, they lack to relevance, timeliness and accuracy required to drive rapid action. To drive a profitable demand response you must be able to quickly balance demand and supply and be able to model various situations and understand their impact on this balance. Without real data to drive the simulation and with so many things changing, you have no ability to get the needed insight and determine the right course of action.

Scenario modeling, or simulations, are increasing in importance to companies as they seek ways to increase their ability to balance risk and opportunity. But to really drive the needed outcomes, the scenario modeling capabilities need to come with the required functionality.

Just saw that Solectron has launched a new supply chain blog. Solectron is a Kinaxis customer and a company with a lot of great experience and expertise in contract manufacturing, so it will be interesting to see their perspective on things. You can check it out here.

Supply Chain Digest just published an article asking if happy days had returned for supply chain software. From our vantage point, we can certainly support the notion that things have improved - we’re seeing strong demand for our Response Management software. But why?

I truly believe it’s because companies are facing new challenges and feeling increasing pressure from old challenges that are magnified today. First, everyone is outsourcing. While this has huge potential benefits, it comes with complications as well - longer lead times, more partners, more opportunities for Murphy to strike. Second, global competition has increased dramatically. It’s never been easier than now to lose a customer - expectations are on the rise, loyalty is on the decline and the number of options that customers have continues to grow. The result - if you can’t deliver precisely what the customer wants, they will go elsewhere. Third, product lifecycles continue to shrink. No matter what business you’re in, you’re seeing this happen - in part because of some of the trends mentioned above. But the requirement to innovate rapidly is critical.

When you add this all together, you get an environment of constant and rapid change. While manufacturing companies - whether you’re a supplier or a brand owner - are always focused on cost reductions, there’s a new focus on top-line growth to capitalize on the opportunities that exist. Companies are trying to do so while simultaneously dealing with all of this volatility. And that brings them to the realization that they need to invest in technology innovations to respond to change to capitalize on the opportunities while managing the risks.

Supply chain software companies that deliver innovative solutions - solutions that provide supply chain visibility, supply chain agility and responsiveness - are in a good position today.

According to research by Aberdeen, in today’s consumer industries, 50% of companies they have surveyed have indicated it takes more than a month to sense changes in demand. This has resulted in an excess of downstream supply chain inventory closest to the consumer. Unfortunately, this inventory is the most expensive as well.

With such a lag in understanding true demand, companies are really in a bind to respond quickly and effectively to change. Inevitably, these companies are going to be faced with disconnects between demand and supply that require a profitable demand response in order to ensure both customer satisfaction and the achievement of operational performance metrics.

Companies need to focus on improving demand sensing and empowering their front-line decision makers with the tools they need to see the impact of changes and to solve problems that inherently come from unexpected changes not originally accounted for in the demand and supply plans. The ability to quickly respond to these unexpected events is proven to drive improvements in both top and bottom-line results.

Following on the most recent post and elaborated on in the latest Manufacturing Insights newsletter by IDC, there’s a good discussion there by Simon Ellis asking whether or not costs are mutually exclusive with service in the supply chain?

I think the biggest mistake companies make in this area is “assuming” they are trying to achieve both - yet set objectives that focus and emphasize just one. What I mean is that if you don’t set objectives and incentives around service and cost, you won’t work to thrive at both. I’m a big believer in the “genius of the and” as described in the book Built to Last by James Collins (at amazon.com). The basic premise is that visionary, successful companies set goals and incentivize people to achieve both (and).

By focusing explicitly on both service and cost, then aligning objectives and incentives accordingly, best in class companies can achieve both. Doing so requires empowerment of people with the information and tools to rapidly respond to change and ensure that their actions are continuously aligned with these objectives.

Frost & Sullivan has come out with a new research report entitled “World Supply Chain Management Software and Services Markets” that identifies the growing importance of supply chain coordination (see more complete description of the report here).

According to the report, “The Supply Chain Coordination (SCC) segment is expected to play a key role in the near future as event management and performance management applications emerge as the competitive tools in managing the highly complex supply chains, by reducing the lead time and cost. These applications help companies detect, diagnose, and resolve performance exceptions before they become expensive problems. Currently, customer satisfaction plays a significant role in the business environment.”

The report also says “Overall, the SCC segment is expected to grow at a faster rate than the planning and execution segments during 2007-2013.”

This issue of coordination is directly in-line with the need for Response Management. I would argue that the main reason companies need to coordinate their supply chains is to coordinate response to change. With growing demand volatilty, shortening product lifecycles and increasingly global supply networks, the need to coordinate an effective response to change has become the new operating imperative. Failure to do so effectively can lead to poor customer satisfaction (and, ultimately revenue loss) and declining operating performance as inefficiencies erode margins and bloat inventories.

We are certainly seeing a growing awareness for the critical impact that poor response to change can have. This report, combined with the comments of Steve Hochman at AMR Research in his recent report, continue to validate the growing need for Response Management to cope with today’s manufacturing complexities.

I recently wrote about proactive metric management (here) and the impact it can have on your business.

I’ve seen and heard of cases where companies say “we always say yes, then figure out how to do it.” Well, saying yes all the time seems right, its very customer centric. But saying no sometimes is the right answer. But how do you know if you’re not proactively managing metrics and you resort to using rock, paper, scissors to support decision making in your company?

This is especially true as your company grows. The smaller you are the closer everyone is to the center and has a better insight into what’s important. But as the company grows as a result of success, it becomes increasingly harder to keep everyone aligned. And, as the business grows, there are more “opportunities” created out of all the changes going on. Opportunities to make or break the company based on the decisions you make at that momemt when quick action is required.

If you’re like most, you’re now trying to do this across a distributed environment, so understanding the impact of individual actions gets even harder to understand. The only solution is to bring objectivity back into the response process itself. To respond effectively, people need to collaborate on various what-if alternatives to see what’s possible. Then they must be able to compare those proposed action alternatives against the metrics that are critical to the business to ensure their actions are objective, fact-based and not having to resort to rock, paper, scissors to decide what is right.

You may have seen our recent announcement (it’s also covered here at SupplyChainer.com) describing a partnership with Solectron to promote greater coordination of responses across distributed supply networks. I think this is pretty interesting and significant so I wanted to comment a bit further.

Several years ago our primary customers were companies doing internal manufacturing. Many of these evolving leaders at the time were the large electronics manufacturing services (EMS) providers like Solectron, a global leader in the space. As companies increasingly were outsourcing their manufacturing to companies like Solectron, they found themselves right in the eye of the storm. That storm was one of constant change, demand changes coming from their brand owner customers, supply changes coming from their suppliers and product changes coming from all directions. As a result, our Response Management solutions have provided a significant competitive advantage by empowering the front-line decision makers in these organizations with the visibility and tools they need to quickly and accurately collaborate and respond to these changes.

If you switch to the brand owners, I witnessed that as many took their first steps into outsourcing, there was a bit of an implicit mindset that said “it’s not my problem anymore, that’s why I’ve outsourced it.” Over the years, as these brand owners have increased their outsourcing and seen rapid increases in the amount of change they themselves are experiencing, they’ve awakened to a much more involved and coordinated relationship with their outsourcing partners. They are, in essence, responsible for managing a virtual enterprise now with quality, customer satisfaction, shareholder accountability and, ultimately, their brand on the line based on their performance.

Along with this realization came the insight that brand owners need to be in a position to coordinate effective response to change across these virtual enterprises. Coordination is the key, as brand owners don’t want to micro-manage or take responsibility for the work they have outsourced. But they do want to ensure the outcomes that support their business objectives are realized.

Companies like Solectron are realizing this as well and taking proactive steps to ensure that happens. Solectron realizes that not only will their brand owner customers benefit by having greater visibility into their supply networks and better tools to respond to change, but so will Solectron who operates “downstream” from their customers and feels an even greater impact of changes that trickle down to them.

By working together, we can ensure that Solectron customers can not only leverage our product capabilities to respond better to change, but that they can do so with access to the key data they need from Solectron to gain the necessary visibility that their front-line decision makers need to coordinate a response.

At the end of the day, it’s all about increasing the effectiveness of both parties to improve customer satisfaction and reduce costs.