Archive for the ‘Response Management’ Category

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I found a post over here over at Business Strategy interesting. The post describes how Lego led a company turnaround by focusing on supply chain transformation.

I really think they are onto something. I’ve written about this before (see here as one example) and believe there is a new opportunity for companies to look at their supply chain management competency as a more strategic weapon. With supply chains becoming more elongated as they become more global, with the pace of demand changes increasing and with product lifecycles shrinking, how responsive your fulfillment network and supply chain(s) are to change is becoming a more substantial determinant of your company’s success.

Far too often when companies struggle they attack the more cosmetic issues - they change personnel, they change pricing, they change product. While all of these may be required, evaluating the need for supply chain transformation as a competitive and strategic weapon seems to be overlooked far too frequently. Yet, these issues are often the true root causes of market problems.

More and more, companies are recognizing the need to become more demand-driven, to oriented everything they do around an outside-in mentality. As soon as you do this, you begin to realize that you can’t plan your customers, so you need to implement supply chain transformation processes to ensure your organization excels at responding to change. Doing so provides you with a competitive weapon against your global competitors.

If you’re like most companies, the pace of product innovation has been accelerating. I’ve talked to many companies that indicate that it now takes longer to market and sell a product than it does to develop it.

In many companies, new product introductions represent the single biggest demand management challenge they face. Given that forecasts can often include 70-80% errors for new product introductions the supply chain management challenges are significant. Improving forecast accuracy is certainly one objective.

But will forecasting ever be perfect? It’s doubtful. Realizing this doesn’t mean you’re failing, it means you have an opportunity to proactively do something about it. Ensuring that your organization can quickly sense true demand and quickly respond to changing demand and supply situations is the key to being able to capitalizing on the opportunities that new products represent.

There are critical timing decisions to be made about the proper effectivity date - a date that balances meeting demand with the need to avoid excess and obsolete inventory problems. There is also a critical need to be able to rapidly align supply with the true demand as it materializes in the early stages of product ramp up. None of these things can be perfectly forecast.

Developing a competency in responding to change is essential for companies to deal with the realities that exist in supply chain management today.

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.

The latest edition of IDC’s Manufacturing Insights Theory & Practice newsletter (here) has a good article talking about the critical need to get timely information to supply chain decision makers. According to the article, “manufacturers that cannot effectively share data between functional groups and with outside partners will increasingly find themselves less flexible, less responsive to customer demand, and less productive than competitors with mature information sharing capabilities.”

I just talked about one aspect of this here. As companies increasingly outsource, they can’t outsource responsibility for the end result, and to be able to effectively coordinate response to unexpected events, requires they have visibility as a pre-requisite. This requires partnerships with suppliers to ensure that data is available. Too often we see information focused in silos - where the demand team focuses on demand related information and the supply team on supply related information. The speed and quantity of demand, supply and product change is requiring companies to move from sequential planning processes to more parallel, interactive response processes. This necessitates that all key decision-makers have a holistic and current view of demand and supply at once.

The ability to deliver greater responsiveness and flexibility is tied to your ability to empower people with not only visibility in a timely fashion, but ensuring that the visibility is holistic and that these decision makers have the tools to drive action in response to unexpected events.

Great post over at Solectron’s blog talking about putting supply chain risk management into perspective. When supply chain risk comes up, it’s usually the headline grabbing examples that get all the attention. Things like hurricanes, strikes, terrorist attack, etc. are always mentioned. There’s no doubt that these risks are potentially devastating, but I would define these as low frequency.

What about the high frequency risks? What about those unexpected customer demands that always pop up? While a natural disaster is automatically assumed to be devastating to the business, these higher frequency risks can be too. What happens when you’re company can’t effectively respond to that customer request, and they go to a competitor? The aggregate effect of hundreds of these events mis-managed over time can be equally devastating to the business.

I liked the Solectron post because it focuses the attention back to the more likely events and their true impact - lost sales.

SupplyChainDigest has an article here citing research from IDC’s Manufacturing Insights that discusses a potential disconnect between business objectives and supply chain priorities. The article debates the research findings that a disconnect exists.

I sent a comment in regarding the article, that I’ve posted below.

** My comment **

I’m not terribly surprised by the findings. First, the supply chain function in most companies is goaled and oriented around cost reductions – it’s been that way for quite some time. If we look at the fulfillment (which tends to be more demand-centric in its thinking and orientation) and supply chain (which tends to be more supply-centric) functions in most organizations, we find that they both share a common desire to impact both top-line (revenue, customer satisfaction) and bottom-line (costs, margin, inventory) oriented metrics. However, the emphasis varies greatly – with the fulfillment functions placing the greater emphasis on top-line metrics and the supply chain functions emphasizing the bottom-line metrics.

As you pointed out, far too few companies are leveraging their supply chains to drive top-line growth. You also hit on a key to doing so as noted in the survey – responding to change. In today’s market, an essential determinant of market success on both top and bottom-line metrics is the organizations ability to respond to change. This is a unique area to impact both sets of metrics simultaneously. Responding more quickly to change increases customer satisfaction and drives revenue growth while responding more efficiently and effectively to those same changes can drive breakthroughs in operating performance that drive bottom-line metrics.

If you focus on the response to change and the impact it has on both top and bottom-line metrics, you see that the research actually shows a strong correlation between business objectives and supply chain priorities.

There’s a post here at the site uyriputyeruit talking about supply chain collaboration. I added a comment at the site, but thought I would post it here also.

*** my comment below ***

Good post - and agreed. In today’s highly distributed supply networks, collaboration amongst people is essential.

With so many things changing - demand, supply, product - every day and at an increasingly rapid and frequent pace, your ability to respond to the unexpected increasingly determines your success with customers and in the marketplace.

Historically, collaboration has focused predominantly on system-to-system collaboration where transactions are automatically shared between two parties. While there’s certainly value in that, the more urgent need is to respond to the situations where the transactiosn represent a problem (for example, a transaction goes out indicating a need for an additional 100 products by Friday, and a transaction comes back saying only 50 can be delivered). Now what?

This is where people come in - to make the right tradeoffs and compromises to respond to the unexpected. An, when the supply network is distributed and made up of multiple parties, it’s going to require multi-enterprise collaboration to coordinate an effective response.

Today’s realities are placing an increasing emphasis on people-centered collaboration to respond to change.

AMR has just posted information on how frequently companies execute their Sales and Operations Planning (S&OP) processes.

AMR has also talked about the fact that to execute this process correctly, companies need to invest in tools that provide rapid scenario analysis and foster collaboration across all of the groups involved. The ability to quickly understand the alignment issues between demand and supply in the context of collaborative scenarios is key to enabling the compromises inherent in this process.

Equally important is the need to ensure that the company is well armed to deal with the exceptions that occur daily and outside of this planning process. With the pace of change accelerating in all dimensions, the ability to respond to the unexpected and ensure continuous alignment between demand and supply is essential. Companies need to seek a profitable demand response in a timely fashion to proactively deal with these events.

When we first started to talk to people about the need for Response Management solutions a couple of years ago, the common refrain was that “we have planning.” I think people had been conditioned to think that solid planning was the only thing necessary to ensure great execution.

But over the years, I think more and more people are coming to the realization that you can’t plan your way out of all problems. In fact, increasingly, there are a host of problems you just can’t plan your way out of. Increasingly volatile demand, shortening product lifecycles and the globalization of supply chains have meant more changes are popping up every day. And many of these unexpected events are high enough in business risk and complexity that they require human judgment to determine the appropriate tradeoffs and course corrections to make.

This situation happens all of the time in our daily lives, so it’s not surprising that it should be happening within the context of manufacturing and supply chains. Take today’s modern, most sophisticated airplanes. They are pretty much run by computers and every aspect of their trip is meticulously planned out in advance. Yet, you would never think of not having a pilot on board. That’s because there are a variety of problems that could creep up that you can’t plan your way out of - they are high in complexity and risk and require human judgment to figure out the right tradeoffs and course corrections to make given the circumstances.

It’s no different in today’s supply networks. Having a solid plan in place is critical to the long-term viability of the company, but increasingly it’s your ability to respond to the unexpected quickly and accurately that’s going to determine your position in the market.

Tim Minahan has a really well done post over at Supply Excellence talking about managing supply chain risk.

Tim quotes Mark Hillman of AMR Research who says “The greatest risks are the day to day operational risks that can detract from shareholder value and performance. You need to focus on high probability risks that you can control, such as supplier failure or market risks, and take steps to mitigate these.”

When most people talk about supply chain risk management, they tend to focus on the larger natural disasters and such. These are obviously critical because of the magnitude of impact they can have. However, as Mark points out, there are tons of risk vs. opportunity decisions that have to be made everyday in most organizations. Quickly identifying and responding to these risks is critical to operations performance and requires visibility and tools in the hands of those that can act.