Archive for the ‘Inventory management’ Category

Elephant in the Room: Thoughts on Metrics That Matter in Semiconductor and Hard Disk Drives

Published August 29th, 2014 by CJ Wehlage 0 Comments

Metrics That Matter in Semiconductor and Hard Disk Drives

Supply Chain Insights recently published a Metrics That Matter report covering both the Semiconductor and Hard Disk Drive (HDD) industries. Despite being hit hard by the recent recession, overall the research shows that these two industries have fared well over the last decade and are positioned to continue that success.

Success, provided they monitor the 7 “elephants” in the room.

Consolidation

Notice in the Supply Chain Insights report, there are only two HDD companies.  That industry has already gone through consolidations.  Semiconductor is poised to consolidate, which will have huge impact on the metrics.  It’s already happening with Avago/LSI, RF Micro/TriQuint, Micron/Elpida, MediaTek/MStar and Fujitsu/Panasonic.  Speed to integrate the planning functions during an acquisition is critical.

Profitability

With the OEM’s driving down the price, the semiconductor/HDD companies will have to follow (or innovate new products).  Lower price means lower profitability. This will begin to impact the semi/HDD ability to raise capital and innovate/expand.  Cost pressures and faster time to market in the planning processes will be required.

Global pressure

Consider that the Chinese and India governments are investing in the semiconductor industry.  With China already a source for semiconductor raw materials and the China/India end consumer market growing, there will be pressure to supply chips and hard drives to local China/India OEM’s first.  This could create a shortage in the US/Europe OEM chain.  Understanding inventory planning will take on a new dynamic.

Of course, like any industry, Semiconductor and HDD manufactures are faced with a set of unique challenges in their space that puts their supply chain at risk.  The largest risk being a balance between shrinking product lifecycles in the OEM world versus expensive asset utilization.  We are at a time where consumer electronic brands have a 9 month (that’s 270 days) lifecycle, while Semiconductor & HDD supply chains have 6 month component lead-time, with 3-5 year depreciation of capacity.  After reading the research, I would summarize the main obstacles as follows:

Position in the Supply Chain

As suppliers of technology embedded in more complex products, Semiconductors and HDD manufacturers find themselves further back in the supply chain, often 3-5 levels down. This can make it difficult (compared to those closer to the front of the supply chain) to find balance in what Supply Chain Insights calls the Effective Frontier – growth, profitability, cycle and complexity. The ‘bullwhip effect’ certainly plays a role here, creating wide fluctuations (over and under) of supply and demand – due to disorganization, lack of communication or miscommunication, incorrect demand information, etc. – as information moves down the supply chain to the manufacturer.

Potential for Tightening Margins

Related to their position in the supply chain, competitive and consumer pressures that drive down pricing are often pushed down the supply chain, forcing suppliers to tighten their costs.

Supply Chain Length

Reliance on suppliers beyond the US borders has extended the length of the supply chain, and opened it up to significantly more risk, as demonstrated by the impact of the Thailand flooding on both the Semiconductor and HDD segments.

Growing Complexity

As one of several suppliers contributing to the creation of a single product, Semiconductor and HDD manufacturers are susceptible to issues experienced by others in the supply chain, as explained by Broadcom in the Supply Chain Insights report: “Our products are incorporated into complex devices and systems, creating supply chain cross-dependencies. Accordingly, supply chain disruptions affecting components of our customers’ devices and/or systems could negatively impact the demand for our products, even if the supply of our products is not directly affected.”

Despite these challenges, the Supply Chain Insights dive into financial data shows that these two industries have fared well, thanks to strengths in product innovation and supply chain planning functions. More specifically, the research shows strong year-over-year growth and large (and increasing) operating margins (with minimal impact -so far-on from upstream cost pressures).

On the downside, it appears that these industries are struggling with inventory issues. The research shows the cash-to-cash cycle has increased, as have days of inventory, and inventory turns are on the decline. Supply Chain Insight’s look at four key Semiconductor companies and two key HDD companies indicates these inventory issues are not the result of poor inventory management but rather an industry trend. The research suggests that both product complexity and the length of the supply chain are contributing factors.

Based on the above, it seems clear that putting a focus on optimizing inventory management practices, making risk management initiatives a priority, and building strong collaborative S&OP practices with their customers, will help Semiconductor and HDD manufacturers continue to see success in the coming years.  This comes with a solid planning system of record.  One that will remove manual steps in the process, drive real time information from the semiconductor/HDD testing to the OEM demand, and connecting the end-to-end decisions with the planning model.

P.S. The Supply Chain Insights’ research report covers additional areas than what I’ve summarized here, and supplies comparative financial data. If you’d like to read the Supply Chain Metrics That Matter: Semiconductors and Hard Disk Drives report in its entirety, you can download a copy here, with no registration required.

 

Posted in Demand management, Inventory management, Supply chain collaboration, Supply chain management


“Storage Wars” Rescues Supply Chain Ignominy

Published August 6th, 2014 by CJ Wehlage 2 Comments

Take a good long look at this picture.  That’s my ignominy.  That’s my garage.

When we moved to San Diego, we loved the weather, we loved the ocean sunsets and we loved getting rid of our parka coats, gloves, scarves and tossle caps. Roddy Martin, my colleague from AMR Research, now with Accenture, often uses the term “ah-ha” moment. Up until this past year, my greatest “ah-ha” moment was watching my Boston neighbor walk away with my Arians Platinum 20-SHO snow blower.  I no longer had a need for it and he was a happy camper.  Never again was I to wake up at 4am, face the 5 degree temps, and walk up and back my driveway, blowing the snow into the woods… “Ah-Ha!”

But, in Boston, we had this dirty little secret.  A secret that  I could no longer keep hidden in San Diego.  In Boston, we had an “ATTIC”.  In San Diego, there’s no attics, no basements.  Stuff goes into the garage.  For years, we just put boxes into our attics.  Never thinking much about what it was, or why we needed it.  Occasionally, I would move the attic boxes around, putting labels on some boxes.  It made me feel like I had control on the attic.  Now, in San Diego, every box we collected for 12+ years, was sitting in the garage.

I had day-dreams of calling Darrell Sheets from the show “Storage Wars”.  They would film a segment where Dan the Auctioneer would open my garage door, and Darrell, Jared, Brandi, and Dave Hester would bid on my garage.  Wouldn’t it be great to collect $3,000 and have my garage cleaned out! Then, my wife and I would do the same old thing. Start asking questions, like:

  • What if there’s a family heirloom in one of these boxes?
  • How did we get to this point?
  • What is all this stuff?
  • Is any of this valuable?
  • Where do I begin working on this?

There I stood, looking at this garage, asking these five questions. And then I realized, these are the same questions I would ask about the ERP system when I led supply chain organizations.  In some cases, we had multiple ERP instances. In all cases, my “single” ERP Planning solution was made up of multiple modules…  Each with its own data structure and each with its own DBA team and development team.  Least we not forget, I had “boxes” of excel files as well.  I had multiple versions of the truth.

And that’s not the worst part!  My supply chain was made up of 1st/2nd/3rd Tier suppliers, 3PL’s, 4PL’s, distributors and retailers.  Last I checked, NONE of them were running my ERP system.  I had a whole other team called “BI” (business intelligence) that managed this. Agility was constrained by the lack of timely information.  People say “information is power”. I beg to differ. I say “informative decisions is power.”

Innovation leads to real change

So, as I pondered what to do about my garage, I borrowed lessons learned about we did with our ERP.

  Garage ERP System
What’s the primary purpose? Park car Transactions
Quick access to Key Decisions? Shelving on wall Planning System of Record
How to break the cycle? Think about the entire living space & storage Think about decisions in the end to end network
Informative Decisions? What do I need quick access to? How can this network know sooner & act faster?

The “ah-ha” moments are the catalyst to innovation.  Staring at my packed garage, the “ah-ha”, or better said “ughhh” moment, made me rethink the storage process and purpose of the garage.  The same held true back when I looked at my ERP system.  I had to rethink my planning process, since my network was made up of global nodes, using any old ERP system.  The “ah-ha” moment for ERP was that its purpose was a transaction system.  The end to end network required real time technology, from a single data source that could “know sooner and act faster”.

My garage is now cleared out and organized.  It serves the primary purpose of parking my car.  As well, I’ve mapped the end to end processes that require storage, resulting in quick access to key items in the garage.

 

Posted in Inventory management, Supply chain management


Innovative Approaches to Supply Chain Risk

Published August 5th, 2014 by John Westerveld 0 Comments

Imagine yourself in this scenario; You wake up at the usual time, and over coffee, you review the news.  As you flip through the articles on your iPad, you see it.  A major earthquake in Taiwan.  Then you get the e-mail. One of your key suppliers uses a supplier that is in the area affected by the quake and is effectively shut down for the foreseeable future… Uh oh.  It’s going to be a crazy, busy day.

When you get to work, you get your team working on this issue.  You don’t panic because you are ready for this.  You have a supply chain risk management strategy in place.  This key supplier had been identified and sure enough, you have a second source primed and ready to go.  As you put things in place to switch over to the other supplier you mentally pat yourself on the back.  It looks like you should be able to ride this crisis out without missing a beat.  A few hours later, your procurement head walks in the office.  “We have a problem.”   The alternate source uses the same supplier in Taiwan.  We won’t be getting any of this key component for the next several weeks…maybe months.   Your heart sinks as you pick up the phone to call your boss…

Think this is a pretty unlikely scenario?  Think again.  This scenario played out for thousands of companies after the Japan earthquake, the Thailand floods and numerous other smaller scale disasters.

Many companies have accepted the need for Supply Chain Risk Management because they understand that just such a scenario could occur and if they are ready for it but their competitors are not, they have an opportunity to gain market share.  The problem is most companies are relatively immature when it comes to Supply Chain Risk Management.

Innovative approaches to Supply Chain Risk‘SCM World, Innovative Approaches to Supply Chain Risk, Geraint John, July 2014′.

SCM World has published a report (login required) ‘Innovative approaches to Supply Chain Risk’ authored by Geraint John, Senior Vice President, Research that outlines an approach to bring your supply chain risk management to the next level of maturity.

Supply chain risk management is not simple otherwise, given the potential impact to corporate revenues, I’m sure that more companies would have robust supply chain risk management processes in place.  The report outlines some of the key challenges as follows;

  1. A variety of physical and non-physical risks need to be considered including geographic factors (natural disasters, political unrest), supplier quality and labor issues, volatility in pricing, customer demand, shipping, IT security, regulatory changes, etc.
  2. Supply chains are complex; You must understand risks not only to your suppliers but their suppliers as well (tier 2, tier 3, tier n). Adding to this challenge is the reluctance of suppliers to share their sources with their customers for competitive reasons.
  3. There has been a huge increase in the amount of data available, both numeric and unstructured.  How do you cut through the noise and find data that is relevant?  No off the shelf tools exist.  Analytics and mapping is available but many companies are not at the level of maturity to leverage these. The temptation is to act on gut instinct in the face of too much data but this can lead you down the wrong path
  4. There is a natural conflict between risk mitigation and supply chain efficiency.  Efficiency programs like lean drove us to reduce suppliers and cut inventory.  Supply chain risk management practice advises us to source additional suppliers and plan additional strategic inventories as mitigation strategies. It can be a real challenge to get executive approval for these measures in today’s environment.

The report outlines 4 key action areas that companies developing a more systematic, focused and proactive supply chain risk management approach need to address;

  • Identifying and assessing risk – This includes visibility across the supply chain including a good understanding of the companies involved.  Leaders like Cisco and IBM utilize dialog with suppliers and customers as well as visual risk mapping and scenario planning techniques
  • Quantifying and prioritizing risk – Given that all companies operate on limited resources, focus on those areas that will deliver the biggest benefits. One way is to plot likelihood of occurrence against business impact. While this approach can work well for recurring operational risks like supplier performance, it doesn’t work as well for hard to predict incidents like natural disasters.  One approach suggested in the article is that supply chain managers assign financial impact and time to recover factors at a site and component level.  This tends to identify critical but low-spend suppliers that may otherwise be overlooked.
  • Mitigating Risk – inventory tracking and dual sourcing are considered to be the most effective risk mitigation strategies.  Also increasing use of standard components, segmented and regionalized supply chain strategies and business continuity plans
  • Speeding Recovery – Business continuity plans that have been developed and tested with suppliers are key to rapid recovery
Innovative Approaches to Supply Chain Management Risk‘SCM World, Innovative Approaches to Supply Chain Risk, Geraint John, July 2014′.

For me, the key takeaways from this report are that effective supply chain risk management needs to be all inclusive – it must include layers beyond just your suppliers. You need to evaluate your supply chain based on the impact each supplier, site, and component might have on your business.  (I wrote about a similar approach here.)  Your supply chain risk management process must be integrated into the broader enterprise processes. It shouldn’t be considered an isolated process but instead should be a consideration in each decision made by the company.  Those were my takeaways, but I encourage you to download the report and form your own conclusions.  You may look at your supply chain in a completely different way.

What supply chain risk mitigation processes are you using?   Comment back and let us know!

Posted in Inventory management, Supply chain risk management


I think our future supply chain leaders may be playing Hay Day…

Published June 27th, 2014 by Lori Smith 1 Comment

I read my colleague, Jonathan’s, post on Monday about the supply chain lessons that can be learned by playing Angry Birds.  I loved the analogy and have another game to add to the list.  Hay Day.  This is truly a supply chain game.  My 10-year old son is an avid player and, without knowing it, has become a supply chain expert.  In fact, perhaps this is where our future supply chain leaders are starting out!? 

For those of you who may not be familiar with the game, in Hay Day you run a farm. You grow produce and make other products, and then sell them through different channels – order deliveries, customers that come to the farm, boat orders, or at a roadside stand.  The money you make allows you to purchase additional equipment and resources to grow your farm and offer new products.  All the basic tenets of supply chain are present in full force…

  • There are multiple orders coming in from various channels and you have to figure out a way to deliver to the most customers to maximize your sales. And not all orders are created equal. Boat orders, for example, offer the most money, but involve a high-volume of long-lead time products that you have to deliver before a set deadline. And as in real life, you just never know what orders are coming.
  • The bigger your farm, your product offering becomes more diverse and complex.  You have to balance making products to sell, with making products that become a component of another product.  For example, you can sell sugar directly, but you also need sugar for all your baked goods and jams.  If you have an order for 10 cakes, you need to make sure you have all the butter and sugar on hand to make those cakes, and if you use the butter and sugar for that, you have to figure out what other orders you may not be able to fulfill as a result.
  • Capacity is constrained. Equipment can only produce so much in a certain period of time, and the silo and barn can only hold a certain amount of inventory. You want to make sure your storage space is used for ingredients that are always needed so they don’t become your gating parts. Likewise, you need to fill certain machines (again, dairy and sugar machines as example) to full capacity before you leave the game (overnight), so the machines can work in your absence so you don’t have idle or underutilized workstations.

I could go on and on…the examples are endless.

It’s been amazing to see my son build an understanding of pretty significant supply chain principles such as order management, customer segmentation, profit maximization,  capacity constraint management, inventory planning etc..

This past week though, he took things to a whole new level.  Previously, he was focused on his farm alone, but the sly little devil came to the realization that if he used the family iPad and his father’s iPhone, he could make their own Hay Day farms and use them as suppliers.  He made these farms feed his farm with the products he needed to fulfill his own orders.  Pretty cool.   And then he realized, in addition to having the feeder farms work on products for his orders, he could also buy any product off these farms (at crazy low prices because he controlled them) and then turnaround and sell them at his own roadside stand at a huge markup. Ok, so maybe this last part is more about gaming the system and undertaking a total money-making scheme, but it’s still astute nonetheless, and it did have him double his farm in a matter of a day or two.

Anyway, at one point, he was at the dining room table playing on all three devices simultaneously – now that’s what I call coordinating the extended supply chain!

I know computer games can get a bad rap, but in this case, I’m viewing it as hands-on training for his future career as a supply chain manager.  He did eventually turn off the devices to go play outside so he will be a well-rounded supply chain manager at any rate.

Posted in Inventory management, Supply chain management


Part 2: Bold Predictions for the 2014 Top 25 Supply Chains

Published May 14th, 2014 by CJ Wehlage 1 Comment

Yesterday, I posted Bold Predictions for the 2014 Top 25 Supply Chains Part 1 where I gave a brief recap on my predictions from last year and the approach I took for this year’s Bold Predictions for the 2014 Top 25 Supply Chains.

Now I’d like to share with you:

  • Biggest Move Up the Top 25 Ranks
  • Biggest Surprises
  • My top 5 2014 Predictions

Biggest Move Up the Top 25 Ranks
This is the supply chain that will make the biggest move up in 2014 from their 2013 ranks.

And the winner is…

Lenovo has been making news, especially with acquisitions:

  • IBM’s personal computer business in 2005
  • IBM’s server lines in 2014
  • NEC joint venture in 2011
  • ~ 3800 patents from NEC in 2014
  • Medion in 2011, giving them 14% of the German computer market
  • CCE in 2012, giving them a local Brazilian partner for regional growth
  • Stoneware in 2012, to expand cloud computing services
  • LenovoEMC joint venture for network attached storage solutions
  • Motorola Mobility from Google in 2014
  • Nok Nok Labs for implementing voice recognition over passwords for security

All this activity will have a positive effect on both their Peer and Gartner Opinion votes.As well, Lenovo had a 18% increase in revenue from 2012 to 2013, and a 18% increase in gross profit.I wouldn’t be surprise if Lenove went from #20 in 2013 to #10 in 2014.

 

Biggest Surprises

The biggest surprise for the 2014 Top 25 Supply Chain will be the year of the Automotive return to glory.Ford, BMW, Volkswagen, Hyundai Motor, and Tata Motors all had a good 2013.The restructuring phase appears to be behind the industry.Global auto sales have been good, especially in China and Japan (15% y/y), along with Western Europe.While there’s reason to cheer the sales growth, the auto industry supply chains will need to step it up.The pressure going forward will be on profits, through lower pricing and raised incentives to keep up sales.Ford issued a profit warning due to pricing pressures in late 2013.The supply chain leaders in the automotive industry will need to drive the profitability challenge, by lowering costs and developing innovative methods in their supply chain strategies.

 

Top 5 2014 Prediction
#5

Ever since Kevin O’Marah and I sat down with Samsung back in 2008 at their Suwon location, I’ve always admired Samsung’s supply chain.They run one of the best S&OP’s, focusing on market share across their multiple business units : Computing Products, Home Appliances, Semiconductors, Digital Displays, Mobile Devices and Home Electronics.They moved from #13 in 2012 to #8 in 2013, driven by strong revenue growth, peer opinion and good inventory turns.What puts them in at #5 will be continued revenue growth.Going from $201T (won) in 2012 to $229T (won) in 2013.2013 year end net income was $30.47T (won), along with $36.47T (won) in operating profit.A 27% on-year increase.And that’s with an $800B (won) “special employee bonus” to commemorate 20 years since Chairman Lee Kun-hee announced a management strategy, as well as a $700B (won) being knocked off by a stronger won.

 

#4

In the 2012 Gartner Top 25, McDonalds beat out Amazon by 1/100th of a point, 5.87 composite score vs Amazon’s 5.86.I have them coming in at #4, simply because their revenue growth was only 0.2% from 2012 to 2013.From their 2013 Annual Report, I also found it concerning they were challenged to respond fast enough to flat forecasts, competition, pricing and customer facing initiatives.

Don Thompson, CEO, McDonalds – “Though McDonald’s continues to grow, our performance fell short of our high expectations this past year.Challenging conditions – including a flat or contracting informal eating out category in most of our major markets, increased competitive activity and consumer price sensitivity – impacted our results.In addition, some of our customer facing initiatives didn’t generate the comparable sales lift and incremental guest visits needed to overcome external pressures in today’s highly fragmented market.”

These are challenges that an effective supply chain should know sooner and be acting faster.

#3 Unilever

Unilever has been doing a lot of things right, especially to influence their Peer and Gartner Opinion votes.They’ve done a significant amount of keynote presentations:

  • SCM World Live 2013, Marc Engel, CPO Unilever
  • SCM World Leaders Forum 2014, Paul Polman, CEO Unilever and Pier Luigi Sigismondi, Chief Supply Chain Officer Unilever
  • SCM World Live 2014, Jorg Brouwer, Group Vice President, Sales & Operations Planning Unilever
  • Gartner Supply Chain Executive Conference Australia 2013, Dhaval Buch, SVP Supply Chain, Asia, Africa, Russia, Unilever
  • ISMC2013, Pier Luigi Sigismundi, CSCO Unilever
  • Logicon 2014, David Beauchamp, VP Global Logistics Unilever
  • Sustainable Supply Chain Summit, 2013, Dirk Jan de With, VP Procurement Ingredients & Sustainability Unilever
  • Supply Chain West Africa 2013, Adedoyin Ashiru, Manufacturing Director, Unilever Nigeria

I would have been thinking #2, as Unilever posted a 4.3% increase in 2012 to 2013 sales growth.But turnover was down 3% from $51.2B (euro) to $49.8B (euro), largely due to the impacts of foreign exchange and net acquisitions & disposals.Despite an increased spend in advertising and promotions, Unilever’s core operating margin only improved 0.4%.

#2 Apple

Things are still going very well for my previous employer. Revenue went from $156B in 2012 to $170B in 2014. The Gartner vote dropped from 651 in 2012 to 470 in 2013. It may continue to drop, but the Peer vote should stay in the 3000 range, nearly 1200 points above the competitors (excluding Amazon at 3115 in 2013). My main concern about dropping them to the #2 position is that their margins have fallen on an annual basis for seven straight quarters. And the press has been questioning when new products will arrive. I remember the negative responses when Tim Cook said: our teams are hard at work on some amazing new hardware, software and services that we can’t wait to introduce this fall and throughout 2014. Information like this makes for nervous investors, and creates articles like the one in Business Insider, which calls into question the strategic roadmap. Even this week, with the news that Apple is buying Beats by Dre, that is somewhat concerning. Not only is this type of acquisition out of character for Apple for inorganic growth, it begins to show the strategic importance of streaming music, something that iTunes strategy has lacked.

#1 Amazon

It’s going to take a big effort for Amazon to improve their 2013 composite score of 5.86 to the level of Apple’s 2013 score of 9.51. Amazon already compares with Apple in the Peer Opinion vote and Gartner Opinion vote. Net sales continue to grow, going from $61.1B in 2012 to $74.5B in 2013. Where Amazon got knocked in 2013, Three Year Weighted ROA (at 1.9%), is where they stand to improve dramatically in 2014. Amazon was able to reduce the percentage of sales devoted to cost of goods sold from 75.25% to $72.77. This was a driver behind a 2012 Earnings from Continuing Operations loss of ($39M), to a positive $274M in 2013. Finally, Amazon hit it well for innovation when CEO Jeff Bezos announced on 60 Minutes about developing a drone based delivery service called Prime-Air, giving customers their product in only a half-hour after they click “buy”.

Send me your thoughts on my Bold predictions. What other profiles should I consider? What factors should I weight more or less? Send me your Top 5 predictions!

 

Posted in General News, Inventory management, Supply chain collaboration, Supply chain management


Three Distinct Capabilities of Best in Class – From the supply chain leadership series

Published April 16th, 2014 by CJ Wehlage 2 Comments

supply chain leadership seriesAs I mentioned in my last post of this series, I am starting a blog series on “supply chain leadership”. I hope to pose thought provoking, and forward looking questions to executives in my supply chain network. This series will provide insights into the most pressing challenges, innovative items in supply chain leader’s budgets, and how these executives have handled talent, complexity, end-to-end S&OP, and technology. Next up is Clarence Chen, Partner at AT Kearney.  I have known Clarence from his days at PRTM as Partner of Electronics & Semiconductors.  His background and opinions on the future of supply chain is truly fascinating.

1. As we enter 2014, how would you describe the most pressing supply chain challenges?

Some of the most pressing supply chain challenges in 2014 continues to be that of delivery, quality and cost.  I think the factors that compound those challenges are changing at a faster pace than most industries are able to cope with, thereby making attainment of the core supply chain objectives even more challenging.

There are two vectors for those factors:

1)  At a geo-demographic level there are the shifting patterns of demand and growth along with cost factors rising quickly in some geographies/countries and inputs into production.

2) At a technological level, the pace of innovation continues to accelerate.  Not only is the pace of NPI increasing in technology, but that same clock speed is now moving into broad sectors as trends such as the internet of things/devices become more pervasive beyond traditional high tech penetrating into industrial, healthcare, automotive sectors, etc.

To cope with these factors, companies have to rethink the core supply chain capabilities of plan, source, make, deliver and the skills and resources required to manage supply chains in 2014 and beyond.   Companies will need to manage with greater precision, tightness, and control over their supply chain assets and partners. Those who don’t master that well will risk high E&O and overall inventories, supply-demand mix issues which impact service levels, and slow response times to changing market demand patterns

2. The End-to-End supply chain strategy has been well documented. What capabilities does your company have that is better in class for integrating end to end?

The best-in-class companies have three distinct capabilities that are more developed than others.  First is a thorough mastery of the demand management process – not just focused on forecasting, but on developing a better “quality” of demand.  This emphasizes factors such as being able to understand whether shifts in demand represent a timing issue driven by big deals, or whether the market is fundamentally at new level of demand, and then driving the rationalization of actual demand against a plan. Second is an ability to propagate demand across an extended supply chain, taking into account the key control nodes and depth of the supply chain, and balancing that against supply, inventory, service and supply chain level constraints. Third is the ability to collaborate with key long lead time suppliers to ensure that they are able to meet the forecast and execute against actual requirements. This direct control of the end-to-end supply chain minimizes bullwhip effects, and enables the responsiveness required in today’s volatile environments.

3. How aligned and connected are you to the many supply chain nodes?  What are the reasons you would want to improve this alignment?

Back in 2010, on the heels of a severe component shortage environment as companies emerged from the 2008 market downturn, I conducted a survey with 14 leading computing and storage companies to better understand how some coped better than others with the upswing in demand, and extreme supply shortages.  The findings validated that those companies with greater visibility and control of their extended supply chain fared much better in recovering supply than those companies that did not.  By visibility and control, it means that those that had visibility at component level, and sometimes at tier 3 level visibility, coupled with planning and orchestration across the extended supply could then proactively allocate precious supply to demand priorities and manage tightly the placement of P.O.s at the extend lead times. In particular, those that modeled what their contract manufacturers and key supplier suppliers (e.g. die banks with silicon devices) and were able to balance S-D at each node fared the best.

I love Clarence’s insights, especially on the main challenge: delivery, quality, and cost.  These are the core objectives from the past 20 years, and remain the core challenges.  However, as he notes, demand demographics and speed of NPI cycles are stressing the core in new ways.  Most people want visibility.  But, a lot don’t drill into the question, “What will you do with visibility?”  As Clarence notes, the quality of demand needs to improve.  What segments are relevant?  You need to propagate this relevance throughout your supply network.  What are the insights to this change?  And, then you need to collaborate with the key nodes to execute the change.

You can see those supply chains that can prioritize change, analyze the end-to-end impact, and collaborate in real time are doing so with better margin  and operating costs, capturing more market share, and controlling supply chain risk and disruptions better.

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Posted in Demand management, General News, Inventory management, Sales and operations planning (S&OP), Supply chain collaboration


‘Know Sooner, Act Faster’: A Supply-Chain Mantra | Kinexions

Published April 9th, 2014 by Melissa Clow 2 Comments

SupplyChainBrain attended our annual Kinexions user conference, and while there, they completed a number of video interviews with customers, analysts, and Kinaxis executives. And, we’d like to share them!

In this interview, hear C.J. Wehlage, vice president of high-tech solutions with Kinaxis, detail industry’s major supply-chain management challenges in particular, the difficulty of obtaining full visibility of supply and demand, and dealing with the volatility of markets. Know sooner, act faster  is the mantra offered by Wehlage as a key strategy for dealing with growing market volatility. I run into supply chain practitioners who don’t know as much as they think they do, he says.  It’s about responsiveness, and how much you know about your supply chain.

 

Previously, we featured interviews with:

 

‘Know Sooner, Act Faster’: A Supply-Chain Mantra – Interview summary

CJ wehlageIn seeking upstream visibility, many companies don’t look beyond their first-tier suppliers. As a result, crises often devolve into firefighting, rather than being averted through proper oversight of all suppliers, third-party logistics providers and even the retail store.

It’s tough to put a value on the prevention of a crisis that never happens. Still, says Wehlage, that necessary level of responsiveness is the core of supply chain.  It’s the key to how managers can influence the reporting structure within their organizations. Being able to make informed decisions, and acting on them, provides executives with a level of power that isn’t reachable through traditional methods.

Responsiveness isn’t just a tool for managing supply-chain execution; it also bears a strategic element. Decisions can be driven at the C-level, rather than occurring exclusively in the trenches.

A key competency that many companies are missing today is leadership. There has to be somebody asking the end-to-end questions, says Wehlage. What’s my profitability across this?

Yet another key element of modern-day supply-chain management is obtaining the right talent. It used to be sufficient for employees to possess functional expertise. Now, end-to-end skills are critical.

Posted in Demand management, Inventory management, Milesahead, Sales and operations planning (S&OP), Supply chain collaboration


5 Drivers of Supply Chain Complexity in the Life Sciences Industry

Published March 31st, 2014 by Trevor Miles @milesahead 0 Comments

I’ve attended several Life Sciences events recently (including Biomanufacturing Summit) and it’s quite clear that these supply chain teams are working in a new, complex world. Not only do they need to meet diverse customer expectations, but they need to do so while coordinating an extended supply chain, in an environment that is constantly changing. Additionally, they’re faced with a set of five industry trends that are driving complexity even further.

1.       Exceedingly Distinct Markets

Through accidents of history and industrial capabilities, the Life Sciences industry has developed to satisfy principally the diseases of the affluent West, such as cardiovascular disease, diabetes, respiratory disease, and obesity, while paying less attention to the diseases prevalent in the developing world, such as malnutrition, malaria, HIV/AIDS, and TB. This has led to a drug market segmented by geography and demographics, with companies in the emerging markets focused on satisfying the ‘local’ diseases. But in recent years, with the rapid expansion of the middle class in many emerging economies, many of the ‘Western’ diseases are increasing rapidly in the middle classes of the emerging markets – for example diabetes in India – stretching local healthcare provision while opening opportunities for expansion into these countries. While at the same time innovations by companies in emerging markets are challenging the market leadership of well-established Life Sciences companies in the West.

2.       Increased Outsourcing

With tremendous opportunities for growth in emerging markets, many manufacturers have executed aggressive globalization and outsourcing strategies, while relying increasingly on Third Party Operators (TPOs) in India and China for Active Pharmaceutical Ingredient (API) supply and subcomponents, or even the manufacturing of complete devices. Coming along with these shifts is an increase in business complexity and supply chain risks given the varying regulations across global supply chains and longer and riskier supply chains.

3.       New Regulations

With this rapid increase in the use of TPOs has come added risks to quality and of counterfeiting, leading the US Food and Drug Administration (FDA) to push for the passage of the Safety and Innovation Act (FDASIA), which focuses on the risks inherent in an increasingly global Life Sciences supply chain. Much of the public comment has been on the two user fee reauthorizations, as well as two new user fee programs, and the reauthorization for pediatric research. But buried deep in the text are provisions for supply chain validation – in both domestic and off-shore plants – and drug shortages that will have a profound impact on outsourced and global supply chains.

Stefanie Johns, Ph.D., Program Manager, Xavier Health Initiatives, commenting on conference sessions at Xavier University, states that:

“The new powers from FDASIA will level the playing field between foreign and domestic sites, enhance transparency and collaboration with foreign regulators, and shift focus “away from the border to a global safety net.” FDASIA also provides the FDA with new tools to destroy counterfeit products, misbrand products on the basis of inspection refusal, and deliver criminal penalties for intentional adulteration. In order to streamline resources, the FDA will be moving towards a risk-based inspection system and will work with foreign regulatory counterparts.”

In summary, the impact of FDASIA on the Life Sciences supply chain will come from provisions for:

  • reporting of drug shortage issues, and the penalties associated with not informing the FDA;
  • and more active inspections of production facilities, including sites in other countries, including those belonging to Third Party Operators.

 

Outsourcing in the Pharmaceutical Industry

phamacutical supply chain graph #1Source: Frost and Sullivan Global Bio-Pharma CMO Market Report,“ May 2010

 

4. Shift in Treatment Focus

One side effect of FDASIA is the fast-tracking of approval for treatments that address an ever narrower spectrum of diseases. Of particular importance to rare disease patients, and likely to help encourage further investment, is the Breakthrough Therapies Act addressing the need to provide expedited development and evaluation of potential therapies that show promise early in the research process; and the Therapeutics for Rare and Neglected Diseases which aims to encourage and speed up the development of new drugs for rare and neglected diseases.

Included in the Breakthrough Therapies Act is a voucher system that allows companies developing rare pediatric diseases to obtain a transferable voucher which they can use for the expedited approval of another treatment, whether that treatment satisfies the requirements for priority review or not.

The trend to ever more targeted products is widespread across most industries whether Life Sciences, High-Tech/Electronics, or Consumer Goods. In the past, the limited markets coupled with the fact that many of the patients were in less affluent areas of the world, were a disincentive to major Life Sciences companies that were addressing a large set of diseases with broad spectrum therapeutics. However, with many of the major disease categories covered effectively by existing treatments, combined with the fact that a) many treatments are reaching the end of their patent protection period, b) growing competition from generics, and c) increasing scrutiny from regulatory bodies have all led to a rapid shift in focus of research, as well as mergers and acquisition activity toward rare diseases. (While there isn’t a universally accepted definition of a rare disease, the US government defines a rare disease as one afflicting fewer than 200,000 Americans, while the European Union defines a rare disease as one afflicting fewer than 1 in 2,000 people.)

 

Innovation versus Cost

phamacutical supply chain graph #2

 

A report released by the Pharmaceutical Research and Manufacturers of America (PhRMA) in 2011 emphasized the extent of this shift away from broad spectrum drug research focused on diseases with large patient bodies to narrow spectrum drugs focused on rare diseases. According to the PhRMA report there were a record 460 medicines for rare diseases either in clinical trials or awaiting FDA review at the time the report was published.

To overcome the economic barriers associated with the discovery and development of diagnostic equipment, drugs and devices to treat rare disease, big Life Sciences companies have been pursuing collaborations, acquisitions, and joint ventures, often with companies in India and China.

This search for ‘long tail’ drugs will mean that Life Sciences must also deal with increasingly complex demand patterns. They have to simultaneously deal with predictable patterns for mid-life cycle products and highly unpredictable patterns for new introductions. They typically have to manage both low volume, high mix products that require quick response for clinical trials and high volume products that require ramped production and global delivery capabilities. phamacutical supply chain graph #3

5.       Shorter Patent Protection

An aging product portfolio, along with a future of shorter patent periods in general, with limited opportunities for patent extensions (as demonstrated by the recent challenge by the Indian government of patent extensions based upon reformulation), only serves to reinforce the critical requirement for supply chain efficiency and effectiveness, in order to capitalize fully on the opportunities while they exist.

These industry trends are having a significant impact on the way supply chains must operate. And unfortunately, there is growing evidence that existing technology architectures are not satisfying the capability needs for this new, complex world. In an upcoming blog post, I’ll be looking at seven supply chain processes (including jurisdictional control, expiry management, supply and capacity planning) that require an integrated approach to overcome these complexity drivers.

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Posted in Inventory management, Milesahead, Pharma and life sciences supply chain management, Sales and operations planning (S&OP), Supply chain management