Archive for the ‘Response Management’ Category

There’s a very interesting article here at Supply Chain Management Review by MIT’s Larry Lapide. The article introduces the concept of a new supply chain performance management metric called “Efficient Orders” - a metric that complements the more standard “Perfect Order” metric. The basic notion here is that efficiency is another key measure that needs to be taken into account, a measure to understand if the order meets the business expectations whereas perfect order focuses on measuring whether or not customer expectations were met.

Larry points out that efficiency is an issue because many supply chain personnel love to play the role of “Everyday Hero,” solving problems on behalf of customers but masking underlying problems that should be addressed. Larry goes on to say that “While supply chain plans are never 100 percent accurate, planning is necessary to reduce the number of exceptions. Do little to no planning and most customer transactions become exceptions. Do a ton of planning and you’ll still get exceptions because of the uncertainties in demand and supply. So there is a limit to how much planning should be done.”

The reality is that exceptions are occuring, and increasingly they are becoming the norm. So, you need to deal with them. The key then becomes how to do so in a way that balances the good of the customer and the business. Arming demand management and supply chain management decision-makers with tools to understand the impact of their actions before they take them is one such approach. Doing so places performance management capabilities where the rubber meets the road and ensures that decisions are made not only quickly, but in alignment with corporate objectives. This is the key to a profitable response to changes that occur daily across the supply chain.

There’s an interesting article by Pankaj Ghemawat at Harvard Business Review talking about globalization and the turbulence and uncertainty associated with it. I posted a comment at the site, but have included it below here as well.

*** My Comment ***

I agree that globalization is here to stay. Increasing globalization is the norm with the manufacturers I work with. You’ve identified some of the strategic imperatives of surviving in this world, there are also operational imperatives.

Manufacturers today are dealing with increasing volatility. This is driven by increasing global competition and demanding customers — all leading to volatile demand. The need to compete through innovation has placed pressure on product lifecycles, shortening them along the way. And, as you noted, globalization is a key to geographic reach and cost advantages, but comes with added complexity.

To win, more and more companies are trying to become increasingly customer, rather than internally, focused. They key is to do so in a way that balances customer requirements with company requirements for profitability. The first thing companies realize on the way to becoming more customer focused is the reality that you can’t plan the customer. This makes responsiveness a core requirement for companies to thrive in today’s globalized markets.

Of course, one of the biggest internal challenges companies face is the inability to see this. For years, everything has been about planning and execution. This model works great when you have an “inside out” mentality - a push model where you build things and push them out the door. But as soon as you move to an “outside in”, or pull, model, it’s not enough. You now need to empower people with the tools for risk tradeoff and response to manage the daily exceptions that are now at the hear of your ability to compete.

Manufacturing is in the final throes of a massive shift from a production-centric to customer-centric strategic business model. We have transformed from the “any color you want as long as it is black” model of four wall focused long production run efficiency to new a world of strategic supply chains, global outsourcing, time-to-market, mass customization and delight the customer. How fast you react and how well you act will increasingly define business success. Companies need to ask themselves what their strategic solution is for driving response? If your like most businesses, you have a cobbled together web of tactical, people-intensive solutions. The future will be won by those with the best strategic solution for Response Management – because you can’t plan the customer.

It’s NFL playoff time, so this analogy that someone shared the other day is appropriate this time of year.  If you think about the role of an NFL quarterback today, it has a lot in common with the role of a front-line supply chain decision maker.

NFL coaches are notorious for their maticulous planning.  You hear a lot of stories of how many hours they spend watching game film, developing the game plan and then practicing it over and over again with the team.  The quarterback is the field general that leads the implementation of the offensive game plan.

Yet, despite all of their planning, teams need to be able to respond to change.  Plans never actually unfold exactly as envisioned - whether it be injury, weather conditions, what the other team throws at them or a myriad of other unexpected changes that need to be accounted for.  Great quarterbacks like Tom Brady and Peyton Manning are exceptional at coming to the line and being able to manage at the moment.  They come to that situation with not only a plan, but the tools to do risk tradeoff and response to the unexpected changes they are going to encounter.  It is their ability to audible that frequently determines their success.

There’s a lot in common here with today’s supply chain professional.  It’s rarely the case that the gameplan unfolds exactly as developed and practiced.  It’s the supply chain professional that can audible, that can sense and respond to frequent and unexpected change that is going to win.  They need to be able to quickly determine what is going on and then make quick and accurate decisions that balance the risks and opportunities for their company.

Success today has very much become a function of your ability to respond to the unexpected.  Are you arming your supply chain quarterbacks with the tools that they need to audible at the line?

There was an interesting article here in the Wall Street Journal (paid registration required) the other day talking about the challenges that Nintendo is having balancing supply and demand for it’s popular Wii game console.  The article points out that “… Nintendo’s problem illustrates how tough it is for companies to try to predict demand for a product…”  The article goes on to describe the delicate balance companies face in choosing to ramp up supply in the face of uncertain demand.  Doing so risks being stuck with excess and obsolete inventory whereas not doing so creates stock out situations and the potential for customers to go with a competitive offering.

 The essence of the article speaks to the unabating market forces that are creating huge challenges for brand owners and manufacturers alike.  The combination of increasingly volatile demand, shortening product lifecycles and the globalization of fulfillment networks and supply chains are creating a significant performance management challenge for companies as they struggle to proactively manage their response to constant change.  The negative consequences of not doing this well are poor customer management and satisfaction, excessive inventory and overall operations performance issues.

 As the article points out, Nintendo is constantly working to improve its demand planning capabilities, but even under the best of circumstances they will never be able to completely predict their business.  This is the case for many companies today.  Given this reality, it’s important to complement demand planning and supply chain planning efforts with Response Management strategies that empower people to respond to the unexpected - to rapidly make the right tradeoffs and course corrections needed to deal with the uncertainty that unfolds every day.

If you’re like most companies, you’re dealing with increasing demand volatility, shortening product lifecycles and an increasingly globally distributed fulfillment network and supply chain. In the quest to become more demand-driven, you’ve no doubt realized that you can’t plan the customer.

Unfortunately, if you’re like most companies, because there is no systemic way to respond to change, you find yourself scrambling everytime something doesn’t go according to plan, and this is become the norm. The result is a constant feeling that you’re just hanging on.

Many companies have invested a lot of money in automating the lowest levels of decision making. Significant investments have been made in automated call centers for example, where most of the decisions are relatively low risk to the company. Yet, at higher levels of the organization, where critical business decisions are made daily that impact customer satisfaction, profitability and a host of other business critical metrics, there’s little to no automation. These people are required to make rapid decisions with significant impact but are left to scramble to try to determine the right course corrections to make to respond quickly and effectively.

I remember talking to a large equipment manufacturer a couple of years ago. They shared the story of a customer wanting to make a product configuration change right up to the last minute. This company had to quickly assess the request and commit to the customer on whether or not they could satisfy the request, and needed to know not only if they could do it, but if they could do so profitably. Three supply chain staff collaborated together over the course of two days to evaluate options, understand the impacts, etc. They eventually brought their analysis to their management - an eight page spreadsheet printout taped together into a single report. The manager looked at their work and said “let me understand this, we spent 6 man days analyzing this, and we still don’t really know if it’s possible or not and what the impact of doing so would be - right?” The answer, of course, was that the manager was correct. The company had never invested in a competency to respond to change and were left scrambling and just hanging on. This was becoming much more common.

There’s a significant opportunity to deliver a breakthrough in productivity and operating performance - performance that can impact both the top and bottom line - by enhancing the organization’s ability to respond to change. Companies are conditioned to focus on improving their planning capabilities. That’s a worthy investment, but increasingly it’s how you deal with the fact that things don’t go according to plan that dictate how you do in the market.

There’s a lot of discussion today about improving forecast accuracy. It makes sense since improvements here will yield direct improvements in business performance. There tends to be less discussion about improving demand sensing (although AMR Research promotes this quite regularly) and ensuring appropriate supply-side flexibility and responsiveness to deal with true demand that is quite often not what was forecasted.

Unless your business has very predictable demand (this increasingly seems to be the minority business), then your best efforts at forecasting will never produce a perfect forecast. The question then becomes what are you going to do about the portion of your business that you can’t accurately forecast? This is where demand sensing and supply-side flexibility and responsiveness are critical. As companies seek to become more demand-driven, they need to acknowledge the fact that you just can’t plan the customer. You need to invest in tools and methods to ensure that you can respond as realities unfold.

The biggest concern here is that I continue to hear of too many cases where companies view these as either/or decisions - usually starting with improving forecast accuracy since that seems to be the hot topic today. While this is a worthy investment, in many businesses its actually more important to excel when the forecast isn’t accurate to ensure that you can beat the competition by providing better customer service and a more profitable demand response in response to the unexpected.

Interesting article at the Enterprise Decision Management blog citing new research from Forrester on what they call “The Dynamic Business Applications Imperative.” According to the research, decision management will be at the heart of future enterprise applications. The authors provide insights into how to determine which areas of the business would benefit most from these decision management applications.

We’re already seeing strong validation for this in manufacturing operations. Our Response Management solutions, which are decision management applications, help to empower front-line decision makers with the visibility and tools they need to make faster and better decisions. The driver behind this increasing need is constant change. If you combine increasing demand volatility, shortening product lifecycles and increasingly distributed and complex supply chains, you get an environment where demand management and supply management is significantly more complex than ever before.

Front-line decision makers are inundated with exceptions to the plan that they need to deal with. In doing so, they need to balance the often conflicting requirements of customer satisfaction and internal operating metrics. And, increasing global competition means you need to act now or risk losing your customer to someone else who can deliver what they want when they want it.

For years companies have invested in solutions to plan the business better and ensure it can execute efficiently. But as organizations become more demand driven it’s becoming increasingly clear that you can’t plan the customer. The result is that operations is in need of decision management tools to support their critical need to make rapid and accurate decisions to deal with the pace of change.

There’s a new article at Supply Chain Digest here talking technologies to support the S&OP process. The article goes through the traditional mix of demand management, supply management and inventory management applications.

A couple of observations. One of the challenges I think organizations face in today’s rapidly changing marketplace is tied to the legacy and heritage of the traditional planning solutions. Traditional demand planning and supply planning solutions are very siloed in nature - focusing on the user communities, information and decisions that need to be made in that particular problem domain. While they may foster collaboration, it is only within the user communities in that domain (for example, collaboration in creating the forecast), and not across demand, supply and product simultaneously. There are multiple problems with this very sequential, siloed approach in today’s climate.

S&OP today requires rapid scenario analysis and cross functional collaboration. There are so many changes going on in demand, supply and product, that failure to integrate these into a holistic process and decisions that weigh all of the issues simultaneously leaves a lot to chance. And, because of the pace of change, there’s an increasing need to move from a purely planning centric view of S&OP to a process that is more operationally aligned - shortening the window to ensure that the pace of change is being factored into the decision making processes.

As market leaders push to become more demand-driven, one of the first challenges they have to deal with is the reality that you can’t plan your customer. The S&OP and all processes need to be oriented around this reality to ensure that the company is positioned to lead in a demand-driven market.

New research from Aberdeen shows that leaders in global supply chain visibility report improved performance across key metrics (see more on the report here). The report shows that leaders have reduced lead times from international locations, reduced inventory levels and reduced inventory carrying costs.

In another Aberdeen report entitled Beyond Supply Chain Visibility: Response Management is the Key (available here) their research findings show that supply chain visibility ranks as one of the top two application focus areas for companies as part of their supply chain technology investment plans. The ability to respond to change rapidly is emerging as critical to a company’s success. Just having visibility is not enough to manage this constant change. This research brief outlines the key characteristics of solutions that go beyond visibility toward enabling a flexible Response Management capability.

There’s no question that visibility is gaining more attention as companies struggle with increasingly distributed and multi-enterprise fulfillment networks and supply chains. The demand management and supply management challenges in these environments are complex as companies try to gain an upper hand on constant changes in demand, supply and product. Companies continue to find that their employees face an increasing number of decisions that require human judgment and that, while visibility is a pre-requisite, tools to collaboratively simulate various action alternatives and choose the actions that are best aligned with corporate metrics are required to proactively respond to the literally hundreds of daily changes that must be managed.

I found this article here at World Trade Magazine to be quite thought provoking.

The basic premise of the article is that we are currently moving into the third era of global supply chain transformation that has occurred within the last 100 years. The article suggests that third era of supply chain globalization–the era of revitalized command–is already upon us.

I’ve talked numerous times about the challenges of orchestrating the desired outcome across a virtual enterprise (see here, here, here and here). With your ability to respond effectively to change being an increasing threat to competitive success, how you’re able to coordinate responses to those changes is essential. There’s no question that the move to a heavily outsourced model, while providing a lot of benefits, has complicated this process. We’ve seen research and heard first-hand how challenged many brand owners are at controlling their own destiny in these situations. This is because they are still accountable for the end result and the virtual enterprise means more players and more potential for hiccups.

This article is interesting in that it not only acknowledges these issues, but takes it a step further to suggest that companies are going to start rationalizing their strategies and actually moving a bit in the opposite direction to improve their ability to deal with the realities of complexity and change. I would be interested in hearing your thoughts - is your company thinking this way?