Archive for the ‘Supply chain expert series’ Category

In October, SupplyChainBrain attended our annual Kinexions user conference. At our event they completed a number of video interviews with some customers, analysts, and Kinaxis executives. These videos are loaded with great information and we would like to share it with our readers.

Each week for the coming weeks, we will be highlighting a clip. Next up, First Solar

How An Integrated Supply Chain Enables First Solar’s Business Goals

When integrating its two major business units, First Solar partnered with Kinaxis to provide supply and demand planning capabilities, says Shellie Molina, vice president-global supply chain at First Solar. She explains how the Kinaxis RapidResponse solution enabled First Solar to set common goals and objectives around planning, operational excellence and global expansion.

[Run Time (Min.): 10:43]

It is many years since Gartner started discussing demand-driven value networks. This concept is central to their ideas of an S&OP maturity model in which the most mature level, “Business Orchestration”, is all about what Gartner calls demand translation. The diagram below is from a Gartner webcast (Delivering Business Value from S&OP, Applebaum, T., Kohler, J., 29 March 2012). While this was presented on Mar 29, 2012, the earliest Gartner reference to demand-driven value networks dates from the early 2000’s.

In a public report Demand-Driven Value Network Orchestration Key Initiative Overview), Lord, P., 3 February 2012) Gartner defines demand translation as

Demand-driven value networks (DDVNs) integrate processes and data in the supply chain to enable collaboration, as well as orchestrate a response to demand that creates value and mitigates risk.

A broader definition of DDVN available on the Gartner website states that

A demand-driven value network is a business environment holistically designed to maximize value across the set of processes and technologies that senses and orchestrates demand based on a near-zero-latency signal across multiple networks of employees and trading partners.

In a recent report, (Definition: Demand-Driven Value Networks, Burkett, M. 13 July 2012) describes the required attributes of DDVN as

• End-to-end alignment and synchronization of demand, supply and pr noduct cycles across multiple enterprises
• Ability to better manage demand through sensing and shaping processes
• Ability to translate demand to deliver a profitable and sustainable supply response
• S&OP that links execution with strategy to facilitate conscious trade-offs across demand, supply and product networks
• Metrics driving joint value for customers, suppliers and shareholders
• Technology architecture enabling collaborative relationships, end-to-end visibility, responsiveness, and fact-based decision making to maximize value and mitigate risk
• Culture that develops and/or acquires talent to enable transformation and that encourages new learning, while also gaining scale by sharing standardized and proven practices

What I find fascinating is that other companies are now promoting this concept, not the least of which is Boston Consulting Group (BCG). In an article (The Demand-Driven Supply Chain: Making it Work and Delivering Results, John Budd, Claudio Krizek, and Bob Tevelson, 30 May 2012 – free registration required) they give a practical example of how DDVN can reduce the overall cycle time of responding to a demand spike.

What I find most interesting in this diagram is the manner in which they describe a different information layer that crosses organizational boundaries. In the top half of the diagram, the “traditional” supply chain we can see data flowing between systems, usually between ERPs with EDI signals, that is a cascade, starting from demand and bubbling up the supply chain to raw material. The information first has to go from the retailer’s store to the retailer’s warehouse, and then to the manufacturer’s warehouse, etc. I think we can all recognize this as the most dominant form of demand propagation in place today. The reason is that demand translation – the conversion of a demand signal into an appropriate supply signal – has to take place at each level (and node) of the supply chain before the signal can be propagated to the next node. It is difficult enough to do this with standard products at a finished goods level. Try doing this with a configurable product that is made up of 100’s of components, in an outsourced and distributed supply network.

An interesting characteristic of a DDSC described by BCG is that

A DDSC requires a scalable architecture that is flexible and robust enough to dynamically incorporate changes as they arise.

This is where the need for the “Real-Time Information” layer comes into play. Clearly this layer has to be enabled by something other than semaphore, an abacus, or Post-It notes. For far too long we have tried to enable this layer with email and Excel, a clear indication that our core transactional layer is not satisfying this need. But as I stated before, the dominant mechanism of moving data between functions and organizations is still overnight (at best) EDI between ERP systems. The use of email and Excel is merely a mechanism used to try to overcome the limitations of operating an end-to-end supply chain with cascaded EDI transfers. But even if you manage to get beyond email and excel, how do you know that the calculations performed at each level of the supply chain in the “Real-Time Information” layer are consistent with the calculations performed by the ERP at each level. It defeats the whole purpose of the “Real-Time Information” layer if at each level the MRP or planning analytics have to be invoked in the ERP system. At the very least, doing this will eliminate the real-time aspect of this layer. And yet it is necessary for this layer to translate the demand at that layer into a required supply in a manner that is consistent with the underlying ERP system. In other words a truly functional DDVN must be able to emulate the policies, bills-of-material, routings, sourcing rules, lead times, capacities, and manner other aspects of the supply chain model in order to perform the demand translation required to provide an end-to-end profitable response.

In a Supply Chain Insight’s report (Building Market-driven Value Networks – Driving Differentiation in Supply Chain Processes Market-to-Market, Cecere. L, 11 July 2012) Lora Cecere uses the following diagram to describe a similar concept.

In the report Lora defines supply chain agility as the

ability to recalibrate plans in the face of market demand and supply volatility and deliver the same or comparable cost, quality, and customer service.

More interestingly Lora states that

In the adaptive supply chain, the processes first sense and then shape demand based on revenue management practices. This is sometimes termed “a demand-driven supply chain.” Demand shaping includes the active processes of new product launch, price management, trade promotion management, marketing and advertising, and incenting sales against revenue management processes. They build processes outside-in to evaluate what “really matters to customers.” Companies that mature in this capability usually are also mature in the processes of analyzing customer profitability through cost-to-serve analysis and looking at product profitability to determine the right product portfolio. They actively manage complexity.

All of these comments have described a technology layer that far transcends what some commentators and technology vendors are portraying as “control tower” solutions.  These almost never go beyond simple visibility and alerting solutions.  As in many situation, visibility is a precursor, but not an adequate definition.  Without a doubt the descriptions used by Gartner, BCG, and SCI all go way beyond this simplistic perspective. Even if we extend visibility to alerting we are in no way even approaching the sophistication described by Gartner, BCG, and SCI.  Do we know the downstream/upstream impact of the event causing the alert to be issued? Isn’t the impact what actually determines whether the event is important or not?  How does one even determine to whom the alert should go when much of the supply chain is outsourced? 

Imagine the consequences if an airport control tower could only alert someone if a plane was in the wrong position but not tell that person that if the plane does not move in the next minute there will be a collision with a second plane. As importantly, imagine if the system couldn’t even detect, let alone alert the control tower, that the second plane was on a collision course.  After all, in a purely event-based system, there is nothing to indicate an alert condition for the second plane because it is being viewed in isolation.  This is what you will get from solutions that don’t incorporate all the capabilities described by Lora Cecere, Mike Burkett and others.

Is this really the supply chain control tower you want?

Going beyond simplistic 1990s event alerting to true risk/opportunity analysis and rapid, reasoned response is available today.  This is not Star Wars or a mission to Mars, though even those idioms have lost their sense of impossibility lately. It is a journey of maturity, and as our skills, processes, and technology mature we need to both grasp the opportunity and extend the art of the possible. 

I’d love to hear from people where they think they are in this journey and the steps you are taking to achieve it.

In my last post, I presented some problems with traditional S&OP systems.  I then pondered what if you could…

• Create a new demand plan (or several) and instantly see how this new plan would impact your supply chain down to the smallest component?
• Drive your supply plan from any forecast stream (Sales, statistical, marketing, customer, pessimistic, optimistic) or combination of streams?
• Change which forecast drove your supply chain and evaluate the impacts?
• Visualize these plans against the same key corporate metrics you use to run your business?
• Compare various plans against each other AND against your annual targets?
• See a problem at the sales and operations level, and were able to drill down until you found the problem, no matter how far down the supply chain the problem exists?

Sounds pretty good right?  Let’s see what it takes to get this kind of functionality:

1. You need a system that allows you to create “what-if” scenarios instantly, and provides the ability to collaborate with these scenarios.
2. You need to have both collaborative demand planning and complete supply planning in the same tool.  The supply planning tool needs to accurately emulate the planning done by your ERP system.
3. You need to be able to drive the supply planning system from the demand plan.
4. Further, you need to be able to configure which forecast stream (or combination of streams) forms the demand plan (and therefore drives the supply planning process). This combined with #1 will allow you to evaluate and compare different demand planning scenarios.
5. You need excellent reporting tools that allow you to understand supply issues, their cause, and potential resolutions.
6. You need excellent reporting tools that allow you to present the recommended S&OP plan, the issues, and alternative resolutions to the executive team.

What does this do for your S&OP process?
Two things:

1. Your S&OP planning process will be faster – supply planning and demand planning are in the same tool, collaboration is enabled between supply planner and demand planner, and resources allow you to quickly identify and resolve issues.
2. Your S&OP plan will be more accurate – powerful collaborative forecasting tools are combined with the ability to understand at a detailed component level how a given demand plan impacts supply.

So, why are speed and accuracy so important?  I think accuracy is self-explanatory, but what about speed? We do S&OP on a monthly cadence, so why should I worry if my S&OP process takes several weeks? There are two key drivers for faster S&OP processes:

1. Timeliness of data – remember that the first step in any S&OP process is data gathering.  If your S&OP process takes three weeks, then the data you are basing your decisions on is at least three weeks old! I talked to one company that had a six week S&OP process to support a monthly cycle. I don’t know how they came to any useful decisions with that data.
2. Ability to respond – Imagine the following scenario: You just finished your S&OP process and have an approved plan. You come in Monday morning to discover that one of your key suppliers has had a major problem and has cut production in half and this has impacted items across multiple product lines. The response is going to require coordination across sales, marketing, procurement, and manufacturing. Sounds like an S&OP level problem right?  If it takes you three weeks to pull the plan together, you may as well not bother…decisions will be made on little or no data because they need to be.  If, however, you can pull a plan together in days or hours, you can base your response on current, accurate data.

When I presented my workshops at the Kinexions user conference, I polled the room asking how many participants had an active S&OP process at their companies. In each case, the vast majority of participants had an active S&OP process. Those that didn’t were planning on implementing one soon. What this means is that S&OP itself is no longer a differentiator. To step above the competition requires that S&OP be a more agile, responsive tool. Traditional S&OP systems simply are not capable of being this tool because the supply plan and demand plan are not connected, they don’t allow easy simulation and they don’t allow you go drill from the high level to the detailed in a single tool. It’s time for a new way of looking at S&OP. What do you think? Comment back and let us know.

For most of us, we’re experiencing unprecedented economic challenges. The implications to the supply chain management profession are profound. We’ve gathered some of the industry’s brightest minds to discuss these challenges and seek innovative solutions. We hope you enjoy the Kinaxis Supply Chain Expert Series as we challenge these experts on these issues.

Colleen “Coco” Crum
Managing Principal and Member of Board of Directors
Oliver Wight Americas

Colleen “Coco” Crum, a managing principal and member of the board of directors with Oliver Wight Americas, is considered a thought leader and innovator in demand management and sales and operations planning.  She has helped to develop methodologies for enabling companies to successfully implement sales and operations planning and demand management and achieve quick time to financial benefit. Through these efforts, she has helped companies to think and act beyond their individual enterprise and extend the benefits of demand planning and
sales and operations planning throughout their supply chains.

Coco has co-authored three books that have received excellent industry reviews. The book, Enterprise Sales and Operations Planning: Synchronizing Demand, Supply and Resources for Peak Performance, has been called one of the best books of 2003 by The CEO Refresher magazine. The book, Demand Management Best Practices: Process,
Principles and Collaboration, has been called, by Foresight magazine, a practical and allinclusive, how-to guide that most executives and managers will find invaluable. Coco also co-authored the book, Supply Chain Collaboration: How to Implement CPFR and Other Best Collaborative Practices.

Coco participated in a cross-grocery industry effort to develop a best practice model for supply chain replenishment. The effort resulted in the publication of ECR: Road Map to Continuous Replenishment by Canadian food industry trade groups. As a consultant and educator with Oliver Wight Americas since 1995, she has assisted companies across the manufacturing spectrum, including agricultural chemicals, consumer goods, electronics, entertainment, pharmaceutical, biotechnology, and aerospace and defense industries. In doing so, she has contributed to advancing the methodology of how to successfully integrate demand and supply processes both inside a business enterprise as well as throughout the supply chain.

Kinaxis:  We are experiencing a rapid and perhaps long-lasting downturn in the economy.

• What lessons can be learned from the downturn that can be applied to supply chain management in the short term and in the long term?
• What specific supply chain initiatives can be applied in the short term that will have greatest effect on a company’s financial performance and sustainability?
• How can companies balance short-term cost cutting objectives with the need to strengthen their position for an eventual recovery?

Coco: Many companies were slow to respond to the changing economic conditions. Some executives describe the situation as “business was good, and then the bottom dropped out in October.” The warning signals were readily apparent, however.

Other companies with a robust Sales and Operations Planning process were creating models based on different scenarios. They documented the assumptions for each scenario. This gave these companies the advantage of already determining, at the senior executive level, how their companies would respond for each scenario, such as growth will remain steady, growth will stagnate, and growth will decline. The models were reviewed every month to determine which model should be used over what time period.

Sales and Operations planning is  formal decision-making process, led by executive management, which provides:
A common operating plan, with accountability for new products, customer demand, supply and the resulting financial plan. Done well, Sales and Operations Planning provides executives with a clear visibility of the current projections versus the company’s business strategy and objectives. Gaps between the latest projections and the business strategy and objectives are and actions are taken to close the gaps, leading to greater predictability. The Sales and Operations Planning process also ensures alignment of goals and key resources to most effectively meet customer needs and the company’s strategies and tactics.

The planning horizon for sales and operations planning is at least 24 months. This gives executives the short-, mid-, and longer-term projections of the business (product, demand, supply, and financial plans). These views enable making decisions on new product priorities, markets and marketing, supply chain tactics, customer service strategies, and optimal utilization of company resources (people and time; equipment, facilities, and suppliers; and financial).

Note: Some companies are starting to use the term Integrated Business Planning and Management in place of S&OP, particularly those companies that utilize the process as an executive management process to align all company plans, not just demand and supply.

During this recession, we have observed companies focus on reducing inventories and other improvement efforts that can be achieved quickly (in a few months) without a substantial financial investment. At Oliver Wight, we call these improvement initiatives a “Fast Track Approach.” We also see companies using a Fast Track Approach to implement Sales and Operations Planning, as they recognize the shortcomings of not having an integrated executive planning and decision making process in these times of economic turmoil. Companies that stay focused on improvement initiatives – and that utilize Sales and Operations Planning as an executive management process (not a mid-management balancing of demand and supply process sometimes called “Real-Time S&OP”) — will be best positioned to rebound quickly when the economy revives.

Kinaxis: Most governments in the developed and developing world have announced stimulus packages, some more ambitious than other.

• Will this prevent the failure of certain manufacturing sectors, such as the automotive sector in the US?
• Are there some existing manufacturing sectors that will not require stimulus?
• Will the stimulus packages spawn new industry sectors, and how soon will these have an effect on the economy?

Coco: Many people have different views on the stimulus package and the financial bailout of certain businesses. Companies that operate in certain manufacturing sectors will be the beneficiaries of the stimulus money – either directly or indirectly. These include companies involved in infrastructure development, such road and bridge construction. Some of the beneficiaries of infrastructure development, such as steel-producing companies, are actively lobbying for stimulus money to be directed to their industry segment.

One purpose of the stimulus package is to reduce unemployment. If it truly results in job stimulation, other companies, particularly in the consumer goods sector, will be better able to hold their own during this deep recession.

As for spawning new industries, it will all depend on how the stimulus money is spent as well as other local, state, and federal government programs. The development of a U.S. energy strategy has long been needed and long neglected. If a meaningful strategy could be developed that would create a new commitment to energy conservation, a multi-faceted green industry could be created that would survive beyond this economic crisis. It remains to be seen whether we will have the political and social will to address our long-term energy challenges.

Kinaxis: We have seen the globalization of demand, especially in the BRIC  (Brazil, Russia, India, China) countries.

• Notwithstanding the current economic downturn, will this trend continue?
• How will this impact the supply chain, especially with respect to outsourcing, which has tended to look at the BRIC countries as cheap(er) manufacturing centers?
• How will this impact product development, and by extension the products available in the developed countries?

Coco: Outsourcing will continue as long as it is economically viable to do so. The genesis of outsourcing was to take advantage of inexpensive labor. If energy prices continue to increase, the cost of transporting goods long distances will also increase significantly. This situation will cause companies to reconsider outsourcing the production of goods that require physical movement to go to market. For those products and services that are created and delivered digitally, outsourcing will continue to the countries with the skills and lower costs in delivering those skills.

Kinaxis: Ford a century ago used to have a fully integrated supply chain from steel manufacturing through to the sale of a car. Now other companies make the steel, most of the components are manufactured by other companies, and yet other companies sell the cars.

• Will this trend in supply chain specialization concomitant with outsourcing continue at the current pace?
• What will be the effect on the supply chain if this trend continues?
• Is there a “natural” number of actors in a supply chain which gives greatest flexibility while limiting complexity?
• What will this mean in terms of systems requirements to support supply chains with many actors?

Coco:  Whether the supply chain is fully integrated within one company or operated by multi-enterprise supply networks, supply chains are difficult to control and achieve flexibility without the following:

• Integrated planning and control processes
• Lean manufacturing
• A knowledgeable and skilled work force
• Effective executive decision making
• Supply chain collaboration
• The tools, including information technology, that enable the work force to operate the processes effectively.

Supply chains, both fully integrated within one company and multi-enterprise networks, need to return to the fundamentals (well designed processes that utilize best practices and are operated by knowledgeable people). They also need to leverage the advances of information technology in communicating information across a supply chain to aid in better decision making and collaboration.

Inefficiencies, poor customer service, and other waste in a supply chain are inevitably the result of: 1) poor decisions made by people,  and 2) poorly designed processes that lack integration (although many people incorrectly blame the information technology).

An excellent white paper on this subject has been written by a colleague, Rick Burris. The white paper titled, “Guiding and Improving Lean Manufacturing and Other Initiatives with Integrated Business Management,” is available at www.oliverwight.com.

Kinaxis: “Cloud” computing is the hot topic in the IT world, and is a superset of on-demand/SaaS.

• Will there be a wide adoption of “cloud” computing in the SCM world?
• What role will standards adoption play in the overall adoption of “cloud” concepts in SCM?
• Are the existing SCM application architected to take advantage of “cloud“ computing?
• What are the key technology innovations that will lead to a wide adoption of multi-enterprise business applications?

Coco: I will comment on cloud computing as a user rather than an information technology professional. I use Apple’s mobile.me cloud to save files from my MacBook Air. I use Amazon’s cloud to retrieve books that I have purchased using my Kindle. I have a need to retrieve files and books and always hold my breath when doing so. But there they are!

Cloud computing is upon us. For the business arena, it must be secure and reliable – that will be the big test. It has the ability to reduce the IT investment in hardware (servers and computers). The cloud should provide access to an amazing amount of data. The challenge will be in ensuring access to perform specific tasks in support of specific business processes. This means that business processes must be well defined and people need to be well educated and trained on the business processes and practices as well as their specific tasks in which they will perform utilizing the cloud.

The challenge for information technology businesses will be delaying as long as possible cloud computing from becoming a commodity and an expectation that is taken for granted by users. Commoditization occurs at an ever quickening pace.

For most of us, we’re experiencing unprecedented economic challenges. The implications to the supply chain management profession are profound. We’ve gathered some of the industry’s brightest minds to discuss these challenges and seek innovative solutions. We hope you enjoy the Kinaxis Supply Chain Expert Series as we challenge these experts on these issues.

Larry Lapide, PhD
Director, Demand Management
MIT Center for Transportation & Logistics (CTL)
Research Director
Demand Management Solutions Group

Dr. Lapide managed the launch of MIT’s Supply Chain 2020 Project. He is currently an advisor to it, oversees CTL’s Demand Management initiatives, and is responsible for its Strategy Alignment training workshops. He is also directs the research supporting the Demand Management Solutions Group, a consortium of companies looking to advance DM strategies, principles and methods.

Dr. Lapide has extensive experience as a consultant, high-tech manager, software market analyst, and business researcher. He is a frequent presenter at supply chain events and has written numerous publications, including his co-authorship of a book on e-business and SCM. He has worked at AMR Research, Accenture, Data General and A.D. Little. Dr Lapide holds an SMEE from MIT and a Ph.D. in OR from the Wharton School.

Kinaxis: What is DMSG and when was it started?

Larry: The Demand Management Solution Group (DMSG) got started about 6 to 8 months before the initial kick off meeting.  In August 2006, I had a roundtable where we invited people to come in and talk about the concept of demand management — matching supply and demand.  It was an area that I had started focusing on from a research perspective. It is a very conceptual process, but I wanted to run a roundtable so we could start to get input from some of the practitioners and the thought leaders in the industry on the concept. At that initial roundtable, we announced, in consortium with Larstan Publishing, the DMSG initiative. We were going to assemble a group to do ongoing research in the area of demand management over a 2-year period.

We spent the next 6 months assembling that group of member companies and we officially launched the group in January of 2007.  We had our first meeting a couple of months later where we convened the group to define the research question we were trying to address, which is: What strategies, principles and methods can be leveraged to optimally match supply and demand over time?

The DMSG, which has since completed its initiative, was a group of representatives from thought-leading companies who would meet approximately quarterly.  The group did research around demand management – including running several market surveys and sponsoring theses work of MIT students. I in particular, wearing my MIT hat, also did some research inside of MIT with some of our sponsors, as well as worked with the members at each of the meetings we held.

All in all, it was a successful joint research effort.

Kinaxis: What are the business issues a company would be trying to solve or address by using a Demand Management solution?

Larry: The buzz word in early 2007 was ‘demand shaping’. Demand shaping is a concept that has to do with changing demand and creating it – but doing that in the context of aligning with the supply side. Demand shaping, in general, is done by sales and marketing organizations.  What we were seeing in industry is that frequently sales and marketing organizations put action plans in place, and executed against them, often regardless of whether the demand shaping plans lined up well with supply. So they could for example, line up sales for what they did not have, or not sell what they did have a lot of.

So demand shaping is really about demand creation and shaping demand with supply in mind. And I think that is the key thing.

There is usually what I call a chasm —sales and marketing on one side working up how they are going to shape and create demand, but their decisions are made independent of the supply side. What we are trying to do is bridge that chasm (in fact, this bridge image and story is the identifier we used for the whole group).  Demand management processes are bridging processes between the demand side of a company and the supply side, so the two organizations can make joint decisions.

Why this is so important comes down to the goals of the company.  In other words, the demand side typically has goals for revenue generation; the supply side typically has goals of inventory and cost reduction; and the demand management processes have profitability goals— which takes both sides into account.  So demand management processes are really processes that are put in place to ensure that corporate goals of profitability and other corporate strategic objectives have priority, while still measuring the demand side with revenue goals, and still measuring the supply side on reducing costs and inventories.

The DMSG looked at 3 different bridging processes:

The first is customer segmentation and service differentiation – which is aligning service programs to different customer segments. Companies develop specific offerings to different customers where they can get greater profitability and service them better.

The second piece is sales and operations planning processes. That is the linchpin process in the sense that it is a process that many companies embrace and it becomes the key process for matching supply and demand.

And the last piece is order promising and fulfillment – more of an executional or real-time process. Of course, this is where we promise a date to a customer based upon an order they plan to place.  Companies should not conduct order promising and fulfillment simply by a first-come, first-serve method, but do it in concert with customer priorities, where they are giving greater priority to customers who give them more profit than ones that don’t.

So the first one is strategic, the second one is a little more tactical and the third is executional, but all three processes link to profitability and must involve joint decision making between the supply side of the house and the demand side of the house.

Kinaxis: In that context, I have heard you refer to the efficient perfect order, could you elaborate on that?

Larry: The term ‘perfect order’ has been around for quite some time—it measures the percent of orders that we execute perfectly.  Usually it’s the way the customer would see it: did we give the customer exactly what they want?…was it on time?… with the quality they want?… with the right product mix?…and no split shipments? It’s all about delivery and what they get delivered.

That’s very good, but at a point that may be very expensive to do that at the 100% level. The issue becomes what if, to get a customer order filled, we had to expedite it? So we had to do something differently than we were planning to do. Now we start to bring in what we call the ‘efficient perfect order’. We may have gotten all of our orders to the customer correctly in the way the customers wants to see it, but we might have had to expedite half of them or we might have had to do something special to get the shipment done on time. That becomes a profitability story because we are incurring greater costs to make it happen.

The efficient perfect order is a much harsher, harder criteria but it is a criteria that ties better with the profitability story.  And so, for example, you don’t get credit for an order if you had to expedite it, and you don’t get credit for filling an order correctly if it was an online order that should have been done with no manual intervention but someone had to touch it and fix it before it went into the system – these are the types of things that impact profitability that wouldn’t have been captured in a perfect order, but do get captured in the efficient perfect order.

Kinaxis: Can you describe briefly the maturity model associated with the findings of the DMSG?

Larry: Well after the DMSG conducted extensive research, we came up with the ideal stage of Demand Management, and that is optimized demand management. In order to optimize the matching of supply and demand, your demand management processes have to be aligned to achieve strategic goals—that is the ultimate.

So we looked at that ideal stage and asked what kind of architecture, in terms of functionality and processes, needs to be put in place in companies to achieve that ideal stage. And we broke it down into what you have to do in each one of the three processes that are a part of demand management that we had defined, and then we looked at all the supporting processes –the information you need to do it, how would you align your processes, and the supporting tools and techniques needed.

Kinaxis: What are the anticipated benefits of achieving a high level of maturity in the DMSG model?

Larry: Again, it goes back to greater profitability. Most people say that they always focus on greater profitability, but if you are just reducing costs sometimes that impacts revenues detrimentally — in other words if I take one extreme, I might reduce my inventories down to a level where I have impacted demand.  Moreover, if I just tried to optimize the revenue side, without regard for profitability, I might be selling things I can’t make any money on, and I might be accommodating my very large customers to a point where my profitability on them is not very much, if anything.

And so we would say that with demand management the major benefit is profitability improvement. But whatever your strategic goal is — it might be something else – we would say that the benefits are all around better achieving your goals — whether that be maximizing share, maximizing revenue, maximizing margins. Whatever the goals are that you want to put in place for your demand management solutions, the major benefit is in improving those… with a lot of it doing with improving profitability of course.

Kinaxis: And the maturity model as described in the perfect state is, of course, linking the goals to the operations…

Larry: Exactly — and linking the goals to all the demand management processes, so that they are all in sync with each other. You don’t want a demand management process that is trying to reach some strategic goal that is different than, or not in harmony with another process that is trying to do something else. And so it really has to do with what are my strategic goals, and how do I align and maximize my processes to achieve those goals.

For most of us, we’re experiencing unprecedented economic challenges. The implications to the supply chain management profession are profound. We’ve gathered some of the industry’s brightest minds to discuss these challenges and seek innovative solutions. We hope you enjoy the Kinaxis Supply Chain Expert Series as we challenge these experts on these issues.

Dave Blanchard
Editorial Director/Associate Publisher
Material Handling Management
Logistics Today

David Blanchard is the editorial director of Penton Media’s Supply Chain Group, which includes
Material Handling Management and Logistics Today. He previously served as editor-in-chief of IndustryWeek. He is also the author of Supply Chain Management Best Practices (John Wiley & Sons, 2007), with a second edition forthcoming in 2010.

Kinaxis: We are experiencing a rapid and perhaps long-lasting downturn in the economy.  What lessons can be learned from the downturn that can be applied to supply chain management in the short term and in the long term?

Dave: All business is cyclical, although based on some of the more hysterical reporting from the mainstream media, you would think we’ve never seen a downturn before. In the course of writing my book, Supply Chain Management Best Practices, I discovered that top-performing supply chains consistently do things differently than everybody else. They relentlessly attack their inventory problems, they commit resources to improving customer service, and they partner with their key supply chain partners to ensure they’ve got the best transactional data at all times.

Supply chain success requires commitment at the highest levels of a company. “Short-term supply chain management” is something of a misnomer since the whole idea of SCM involves the integration of processes and activities within your company and outside the four walls to your customers and suppliers. But when things aren’t going well, short-term reactive thinking tends to trump long-term proactive planning. For instance, a recent front page article in the Wall Street Journal points out that electronic component manufacturers probably overreacted when the downturn hit and cut inventories too close to the bone; as a result, they cost themselves sales by not being able to adequately respond to the demands of the marketplace. While nobody wants to be stuck with inventory that doesn’t move and has to be warehoused, cutting production and workforce simply for the sake of cutting is a bad idea, too. Hence, it all comes back to having as clear and accurate a picture of the total supply chain as possible.

Kinaxis: What specific supply chain initiatives can be applied in the short term that will have greatest effect on a company’s financial performance and sustainability?

Dave: Again, the goal of supply chain management isn’t necessarily focused on short-term quick-fixes, but that said, there are plenty of problem areas that you can address by taking a supply chain approach to them, rather than the more typical silo approach.

Supply chain people are always talking about the Perfect Order, getting the right product in the right quantity from the right source delivered to the right destination in the right condition at the right time at the right cost. So any company looking for some of that short-term “low-hanging fruit” can start by addressing whichever area of their supply chain is the least perfect.

Whenever one of these “rights” isn’t met, somebody in your supply chain is going to bill you for the discrepancy. Customers today are very, very picky. They don’t want a truck to pull into the dock five hours early, and they certainly don’t want it there five hours late. They’ll give you a window of opportunity, but if you don’t hit it just right, you’re going to pay more. Similarly, you’re going to pay more if you don’t deliver the right amount of widgets to your customer, and you’re going to pay more if some of those widgets are damaged in transit. So achieving the Perfect Order translates into “don’t spend a dime more than you have to, but make sure you do everything right”

Focus on where the most money is spent or where the most network disruptions occur. Inventory optimization seems to be where a lot of companies are focusing their attention, and rightly so since it can pay off both short- and long-term: carrying less inventory when the economy is down, and turning more inventory when the economy is up. In either situation, the ideal is to carry the “right amount” of inventory.

Kinaxis: Outsourcing has been widely adopted in the developed world over the past two decades. Will the trend of using off-shore contract manufacturing continue, or will near-shoring and even local sourcing become more dominant?

Dave: I’m sure U.S. companies would love to hear that near-shoring is the coming trend, but there are only isolated pockets of activity to suggest that might be the case. The reality is, manufacturers are going to continue seeking out the least expensive alternatives to produce their goods. If your competitor can make their widgets cheaper overseas and then sell them for a dollar less here in the United States – even after factoring in the transportation costs and the longer supply chain cycle – then unless you can find a competitively-priced domestic source, chances are you’ll be off-shoring some of your production, too. If the economy was more robust right now, the near-shoring trend might be more popular given all the negative reaction to tainted products overseas.

“Outsourcing” and “off-shoring” aren’t really the same thing, though. The idea of using a third-party to perform key logistics tasks, such as transportation and warehousing, is part-and-parcel of the 3PL movement, and that trend will continue to become more dominant. The reason for that is simple: There are some jobs that you’d rather not do yourself, such as maintaining a private fleet of trucks, so if you can outsource that activity to a third-party specialist, you can concentrate instead on your core competency. So 3PLs are here to stay.

For most of us, we’re experiencing unprecedented economic challenges. The implications to the supply chain management profession are profound. We’ve gathered some of the industry’s brightest minds to discuss these challenges and seek innovative solutions. We hope you enjoy the Kinaxis Supply Chain Expert Series as we challenge these experts on these issues.

Clarence Chen
Principal
PRTM

Clarence is a Principal with PRTM Semiconductor and Electronics practice based out of Silicon Valley.  Clarence has over 19 years in supply chain management and operations across high tech and industrial manufacturing companies. His practice focuses on supply chain innovation and use of systems to enable strategic change.   Clarence is APICS  CPIM certified, and obtained his MBA from the University of California, Berkeley and a BSME from the University of Notre Dame.

Kinaxis: Most governments in the developed and developing world have announced stimulus packages, some more ambitious than other.

• Will this prevent the failure of certain manufacturing sectors, such as the automotive sector in the US?
• Are there some existing manufacturing sectors that will not require stimulus?
• Will the stimulus packages spawn new industry sectors, and how soon will these have an effect on the economy?

Clarence: The topic of stimulus packages is having a very real impact to the way global supply chains are operated.   In some countries such as China, the stimulus packages have been directed at spurring consumer purchases for white goods.    More often stimulus packages come in the shape of regulatory and compliance issues.   For example Country of Origin (COO) and Trade Agreements Act (TAA) represent real opportunities to enhance revenue streams.

TAA for examples limits federal purchases to US and other designated countries (DC) such as US Trade Free Agreement countries, or WTO Government Procurement Agreement countries.  For this to take into effect goods must be “substantially transformed” within these countries.  Often a key driver is country of origin.

What this means to the supply chain is a complex series of decisions of whether to locate local manufacturing in key countries to take advantage of these regulatory opportunities and capture revenue that would otherwise be lost.    Those companies with a global customer and manufacturing base are today analyzing the potential revenue enhancement opportunities, and the often higher cost of servicing this revenue.

Our clients at PRTM are now making capital investments to establish local manufacturing presence in key global markets.  In a regulatory environment that both seeks to promote trade and regulate, the impact to the supply chain will be additional complexity.  Making the right decisions at the right time will be key.

Kinaxis: Outsourcing has been widely adopted in the developed world over the past two decades.

• Will brand owners, in particular, continue to adopt contract manufacturing as a way to reduce overheads?
• Will the trend of using off-shore contract manufacturing continue, or will near-shoring and even local sourcing become more dominant?

Clarence: Outsourcing has matured in some industries more than others.   In electronics, outsourcing is the preferred model as it provides flexibility and removes the burden of capital investment and depreciation burdens.  The issue off-shore or near-shoring is becoming more nuanced as the economics of customer value chains converge.  When you couple several factors such as decreasing manufacturing conversion costs advantages in China, transportation costs, long lead times, against emerging trade stimulus drivers, the case for near-sourcing becomes more compelling.   Strategically located near-shoring can provide flexibility, tax advantages, and improved customer responsiveness which in turn enables revenue growth.

The question is not whether this is a trend or not.  The decision is very much dependent on which markets you serve, what product segments, manufacturing volume, and a careful analysis on the impact to margins.  The reality of today’s physical manufacturing footprint is that most of today’s supply chain still resides in Asia, at least in the electronics and high tech sector.    To near-shore such operations, there must be a compelling case for product postponement, in-region sourcing, couple with revenue capture opportunities you would otherwise not be able to capture.  If the margin equation does not deteriorate the overall company’s profitability performance, the case to near-shore must be investigated.

Kinaxis: As companies have outsourced, much to their consternation, their direct control of the supply chain has decreased.  They now need to participate in multi-enterprise supply networks.

• How do companies need to change their supply chain planning paradigm to compensate?
• With so little under the direct control of a company, of what relevance is a sales & operations planning ( S&OP) process?
• Are the advanced planning & scheduling (APS) and enterprise resource planning (ERP) solutions developed in the 1990’s still relevant?

Clarence: Operating multi-enterprise supply networks requires discipline in three key areas to ensure that the end-end supply chain performs.  The first is a focus by the brand owner or orchestrator of the supply chain to ensure the best demand signal quality possible.  Think of this as seeking to be a little less wrong with the forecast each cycle, and to understand the true nature of signal changes and inflection points.  To achieve this, the brand owner must assess multiple independent demand streams to develop its own opinion of the signal in order to effectively engage with those customers or channels that are providing the forecast.    Often a big mistake is for companies to be focused on a forecast sell-in signal versus the sell-through, which provides the better indicator of true consumption.

The second discipline is propagate that signal quickly and clearly across the supply chain and partners.  The signal quality often deteriorates as it passes from node to node, which each player in the supply chain adding or destroying value to the signal with their own interpretations.  The same collaboration with the customer is required with the supplier to ensure that right signals are transmitted quickly and that they are understood.  Companies can either generate an MPS signal across the supply chain, or have each node propagate the signal to the next.   In more innovative environments, we have helped clients with deep multi-enterprise supply chains develop pull signal mechanisms (Kanbans) to achieve Large-Scale Lean™.  This process removes signal noise, and maintains integrity towards true consumption.

The third discipline embodied in the earlier ones is to establish a collaborative relationship with all players across the supply chain, and put in place a set of performance metrics consistent with the brand owner’s objective and service level requirements.

For most of us, we’re experiencing unprecedented economic challenges. The implications to the supply chain management profession are profound. We’ve gathered some of the industry’s brightest minds to discuss these challenges and seek innovative solutions. We hope you enjoy the Kinaxis Supply Chain Expert Series as we challenge these experts on these issues.

Doug Lada, PMP
Program Management Consultant
CSC

Doug Lada is a Program Management Consultant with over 25 years of experience in the development and implementation of Supply Chain and Warehouse Management solutions.  For the past three years. Doug has been working with CSC and is responsible for all support and training activities related to a Kinaxis RapidResponse implementation at a major Aerospace and Defense corporation.  He works closely with the Supply Chain and Production Control groups to ensure they have the information they need to make the right supply and demand decisions.  Doug’s background includes developing and managing multiple Program Management Offices (PMOs), management of large international multi-site software and hardware system implementations, and the management of software development, implementation services, and project management services at several Supply Chain Management and Warehouse Management System software providers.

Doug is a certified PMP with the PMI and he teaches at the local PMI chapters’ PMP Exam preparation courses.  Doug also has an Electrical Engineering degree from Tufts University in Medford, MA.  Doug can be reached at dlada@csc.com or doug@mseconsult.com.

Kinaxis:  We are experiencing a rapid and perhaps long-lasting downturn in the economy.

• What lessons can be learned from the downturn that can be applied to supply chain management in the short term and in the long term?
• What specific supply chain initiatives can be applied in the short term that will have greatest effect on a company’s financial performance and sustainability?
• How can companies balance short-term cost cutting objectives with the need to strengthen their position for an eventual recovery?

Doug: I believe that companies need to ensure that they maintain their long term objectives for growth, inventory reductions, use of common tools, on time delivery, etc. while they review their short term financial situations.  I see a trend towards cutting core system application development and support without a formal analysis of the long term consequences.  Companies need to ensure they keep their ROI analysis in mind as they look as ways to save on costs in the near term.  It will not help the bottom line if you are able to save X dollars by cutting back on application support if this is going to result in incomplete or wrong data being presented to the supply chain buyers, where they do not order the critical parts in time to support your customer deliveries, and you end up paying expedite fees and/or late delivery penalties that add up to 5X dollars.

A specific initiative that supply chain managers should always apply (and focus on even more in this economy) is inventory reduction.  Through the use of analytical tools, supply chain managers can quickly see what their excess inventory position is over time.  Identifying parts with current excess supply and no future demand should drive buyers to cancel any open purchase orders and look to find ways to use this excess to fulfill other existing demands (i.e. through the use of substitute or alternate parts, etc.).

Kinaxis: Most governments in the developed and developing world have announced stimulus packages, some more ambitious than other.

• Will this prevent the failure of certain manufacturing sectors, such as the automotive sector in the US?
• Are there some existing manufacturing sectors that will not require stimulus?
• Will the stimulus packages spawn new industry sectors, and how soon will these have an effect on the economy?

Doug:  I don’t think the stimulus package by itself will prevent the failure of the automotive sector here in the United States.  The fact that the government has now stepped in to run GM directly might have more of negative effect than a positive one.  What will be the effect of a US government controlled GM on sales in Europe, Asia, the Middle East, and Mexico/Latin America?  Will this end up hurting GM sales, which have historically been neck and neck with Nissan in Mexico?  Will GM lose any of their 9 to 10% share of the European market?

What I do see happening in the automotive sector is a new opportunity for small to medium size suppliers to step in and start providing parts to the automobile manufacturers.  Theses smaller companies might be willing to take a larger risk in delayed payments in order to create a significant percentage increase in their business.  Some of the larger suppliers might be willing to walk away from their losses during the upcoming restructuring and bankruptcies of GM and Chrysler and re-group to focus on industries outside of the automotive sector.

Kinaxis: Outsourcing has been widely adopted in the developed world over the past two decades

• Will brand owners, in particular, continue to adopt contract manufacturing as a way to reduce overheads?
• Will the trend of using off-shore contract manufacturing continue, or will near-shoring and even local sourcing become more dominant?

Doug:  I think that many companies are now realizing that the true cost savings from off-shoring of resources is not what they had planned for.  An example of this would be the use of off-shore call centers.  While the per call cost of handling a customer request may be less, how many customers have become frustrated with the service level and/or confused due to language difficulties and have then decided to cancel their service with the company?  With the economy in its current state, there is increased availability of qualified local resources to satisfy these needs.  I believe that more companies will increase the use of local or near shore resources as a risk reduction strategy.  What benefit do you get from a 50% cost savings on your call center operational costs if you lose a significant percentage of revenue as a result?

In February 2009, United announced that they were planning to move 165 call center jobs back to the United States.  Delta just followed suit in April, announcing that it was going to pull 2,000 jobs back as well, claiming customer dissatisfaction after six years of having their call services outsourced.  In these economic times, I think we can expect an increased trend of looking to local sourcing for contract manufacturing.

Kinaxis:  Ford a century ago used to have a fully integrated supply chain from steel manufacturing through to the sale of a car. Now other companies make the steel, most of the components are manufactured by other companies, and yet other companies sell the cars.

• Will this trend in supply chain specialization concomitant with outsourcing continue at the current pace?
• What will be the effect on the supply chain if this trend continues?
• Is there a “natural” number of actors in a supply chain which gives greatest flexibility while limiting complexity?
• What will this mean in terms of systems requirements to support supply chains with many actors?

Doug:  The issue of accurate communications must also be taken into consideration.  The number of communication channels is defined as n * (n-1) / 2, where n is the number of parties involved.  In Ford’s original model, there were no communication channels to deal with, everything was internal.  In a simple supply chain with 10 suppliers, one factory, 2 dealers, and one finance company, you have 91 possible ways to communicate the wrong information.  Add to this the fact that 23 -27 % of a message can be lost in upwards communications and it amazing that our car manufacturers are able to get the right parts at the right time to the assembly line from multiple suppliers in order to deliver the right car at the right time to the right dealer.

What these complex integrated supply chains need is a common communications vehicle to share information… accurately.  The right tool can provide this solution by allowing factories, suppliers, supply chain buyers, and management to all pull their information from a common source.   This mean that the supplier needs to be able to provide an updated delivery date for a critical part that then gets passed to the buyer and the factory, who will then re-plan the manufacturing schedule, which must then get rolled up into a business heath metric on a scorecard for management.  The entire infrastructure and data process to make this happen automatically is what industry needs to survive in the world of complex integrated supply chains.