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There used to be a commercial (with Orson Welles for Paul Masson wines) on television back in the 1970’s advertising that they would “sell no wine before its time.” This implied that they wouldn’t release any wine until it reached full maturity and perfection. I thought this would be a good analogy for the concept of time phased release of supply orders to the supply chain. Shouldn’t we want to release orders only when they reach full maturity and perfection?

The temptation is usually there to release supply orders as far out into the planning horizon as possible so as to give suppliers more time to deliver. But what actually happens when we do that in an MRP planning environment? It artificially lengthens lead times, and consequently, we are releasing more supply orders into an already overloaded supply chain. It seems to me that we should build a recovery reschedule of the past due purchase orders and cut the lead times to the bone, only releasing new supply orders in the near term when the master production schedule is more mature and firm.

The APICS definition of Time Phasing is:

The technique of expressing future demand, supply and inventories by time period. Time phasing is one of the key elements of material requirements planning.

This definition to me appears to be overly simplistic and deserves further expansion into specific scenarios and benefits. The definition doesn’t say anything about the benefits of time phased release of supply orders in small bites. It should also include the benefits of time phasing the release of supply orders, based on precisely defined lead times in the near term, resulting in greater ‘maturity’ and ‘perfection’ of quantities and due dates.

I think the old adage, “How do you eat an elephant? One bite at a time,” applies here. The time phased releasing of supply orders at the latest possible release date that would satisfy the minimal lead time requirement would result in only releasing supply orders when the production schedule is firm. This enables better accuracy in release quantities and due dates, and less disruption in the master production schedule.

We can look at our entire planning horizon pictured above as a time phased funnel depicting firmed or released supply orders at lead time (dark shading), unreleased or planned supply orders (light shading), and gross demand and forecasts input and the resulting shipments to the customer. This planning horizon is funnel shaped because forecasts are generally more optimistic further out into the future and then start to lean out when approaching lead time due to forecast consumption by actual demand, capacity limitations of the master production schedule, and actual customer shipments.

If we take a closer look at the dark shaded area (firmed or released orders), we can probably say that a large portion of our planning horizon for customer delivery has, in effect, been relinquished to the mercy of our suppliers. So shouldn’t we want to limit that dark shaded area so that we can maintain as much control of our planning horizon as possible?

Another thing that can be said for this dark shaded area is that it is the labor intensive portion of your total planning horizon because of near term supply chain volatility.  Suppliers that can’t deliver, lack of capacity, acts of God such as the earthquake in Japan, all of these and more can contribute to near term fluctuations to your master production schedule,which result in overtime throughout the company in order to resolve the issues quickly.  Buyer/planners in particular, perform lots of work expediting and rescheduling released purchase orders. Despite the temptation to artificially increase lead times and therefore release more supply orders earlier, this can ultimately result in the buyer/planners increasing their own maintenance workload… sometimes beyond their means. Most buyer/planners I know are responsible for three or four thousand parts.

In the light shaded area (unreleased or planned orders), your suppliers have no control over your master production schedule. You do. In this area of the funnel, volatility, resulting in additional laborious tasks is not a problem. The MRP software handles it automatically. All planned orders are automatically rescheduled during every MRP run. So shouldn’t we want most of our time phased funnel to be light shaded? In this area, we can also favor and easily maintain the formal system over the informal system of order launch and expedite hotlists.

Think about this the next time an overloaded supplier asks you for more lead time to dig himself out of a backlogged hole. You just might be supplying him with a bigger shovel.

More importantly though, I want to explore the difference between product design and supply chain because many of the mobility providers have had a rocky ride over the past 3-4 years, and yet many of them have excellent supply chains, and have been recognized by Gartner in the Gartner/AMR Supply Chain Top 25 over the past years for this excellence.  I have compared the list from 2008 to 2011 to highlight the fortunes of the mobility companies, which are highlighted in red below.  (I’ve excluded Microsoft from the list of mobility providers because of the failure of the Windows phone and because mobility represents such a small portion of their revenue. I’ve included Samsung simply because of the success they are having lately with their Android phone and tablet, but in reality Samsung has a much broader product portfolio than Apple, Nokia, or RIM, making a direct comparison difficult.)

Of course, many people, including me, have criticized the Gartner/AMR Top 25, but it is a consistent methodology that emphasizes both supply chain effectiveness and product innovation. It is in this regard that I want to comment particularly on Nokia and RIM. But the stock market is really the comparison that matters.   According to Google Finance, in the period since Jan 2005 the Dow Jones is up 17%, Apple is up 1213%, Nokia is down 67%, and RIM is down 56%. How I wish I had invested in Apple, even as late as in 2008.

While Apple has been the consistent winner of the Gartner/AMR TOP 25 for the past 4 years, Nokia placed 2^nd in 2008, 6^th in 2009, 19^th in 2010, and dropped off the list in 2011, even though from a stock price perspective Apple was out performing Nokia even in 2008.  Likewise, RIM wasn’t even ranked in 2008 and 2009, leaped into 9^th place in 2010, and up to 4^th in 2011, even as their stock price was taking a beating.  So Nokia and RIM were doing something right in their supply chain if they could be ranked as highly by Gartner in a comparison that includes product innovation.  And they were, both companies showing a lot of innovation in their supply chains.

If we look at the 2 graphs below we can see why Apple is the clear supply chain leader with much better performance over the past 3 years in measures such as RONA, inventory turns, and DPO/DSO ratio. But Nokia’s and RIM’s performance are very good with inventory turns greater than 15.  Even Nokia’s RONA is very good despite their relatively poor performance against Apple and RIM, which can be explained by the fact that Nokia’s manufacturing is mostly insourced while Apple and RIM have almost 100% outsourced manufacturing. But it is in Cash-to-Cash (C2C) that we can see the real dominance of Apple in terms of supply chain efficiency and effectiveness. They have reduced their C2C from -20 days in 2005 to an astounding -60 days in 2011. At their current cost of goods sold of $25.63B per quarter, the C2C improvement represents an additional $11B of cash released on an annual basis. Assuming a WACC of 10%, that represents a savings of $1B, which can fund an awful lot of product research or marketing.

Apple notwithstanding, because it is really an outlier, RIM and Nokia have posed very good supply chain performance numbers that, when compared with other companies, fully justify their ranking in the Garter/AMR Supply Chain Top 25.

It is when we look at Nokia’s and RIM’s gross margin and operating margin that we can see the net effect of their strained product portfolios.  In a 6 year period Apple has achieved a 10 % improvement in gross margin and a 15% improvement in operating margin, compared with  -15% and -25% for RIM, and -5% and -15% for Nokia. But I’ve got say that I still find the Blackberry more functional from a business use perspective and the Nokia a lot more intuitive from a novice user perspective, although these are the exact product characteristics that are hampering their growth.

I really hope that both Nokia and RIM manage to survive their current reversals in fortune because they are great companies with very efficient supply chains. They have fully justified their prominence in the Gartner/AMR Supply Chain Top 25.

The pessimist said worse. This answer feels like a self fulfilling prophecy. Let’s eat more and move less since it doesn’t matter anyway, at least our prediction will be right.

The optimist said better. One more binge of turkey and eggnog and then we’ll eat less, move more, and with a hope and a prayer the world will be a better place. From a supply chain perspective the optimist may have some incremental improvement strategies in place, especially after the disruptions of 2011, but deep down there is still an element of hope and prayer with the optimistic view (with all due respect to hope and prayer, they are good things!).

Taking a supply chain view, let’s look at the realist’s answer. The realist will agree with the optimist but with a few additional actions to ensure their prediction will come true. First, the realist will study the events of 2011. In a blog post from November 2011, “Trends I am Watching”, Lora Cecere calls out significant trends of 2011. For example, Lora highlighted the supply chain disruptions of 2011, the biggest of these being the results of natural disasters. There are two takeaways for supply chain leaders: The first is redesigning the supply chain to be “resilient” to change. According to Lora this requires the ability to sense change, have control tower analytics, and “what-if” analysis to understand and respond to change. The second takeaway it to think about where else the disruptions will come from. The supply chain has never been more politically, environmentally, and obviously economically intertwined. As an example, Occupy Wall Street protesters were planning to block ports along the West coast. For Swiss watch manufacturers, many of their components are supplied by Swatch, “a competitive supplier.” When Swatch was looking at a strategy to stop providing their components to ensure they could supply their own product in growing markets such as China, the other manufacturers where looking for help in a nationally regulated industry where mechanical parts must be manufactured in Switzerland in order for their watches to claim “Swiss movement.” One thing is for sure, there will be supply chain disruptions, but the causes may be different. The realist will reflect back on 2011, including the ones Lora highlights to understand how best to prepare for 2012. There is a great SupplyChainBrain Interview with Joe McBeth, vice president of supply chain for Jabil, from our Kinexions conference that speaks to this issue (free registration to view, but well worth it!)

Lora also highlights significant trends to watch for in 2012 in the same blog post. The other action the realist will take is to reach out to gather this type of information from the folks who watch supply chains for a living. It will help take the guess work out of preparing for 2012 and beyond. For example, Lora talks about “big data supply chains.”  New data sources and types of data are exploding, global partners are expanding and new product introductions come and go faster than our New Year’s resolutions. Supply Chain leaders need to stay on top of the curve when it comes to managing the “big data supply chain.”  As with the trends of 2011, the 2012 supply chain predictions will drive strategies to ensure 2012 is better than 2011. Lora’s other predictions for 2012 are well worth checking out.

So will 2012 be better or worse than 2011? I would be interested to hear your thoughts and any other resolutions! In the meantime let’s all eat less, move more, reflect on the past and keep our eyes and ears open to make 2012 an exciting time for supply chain. And for all you optimists out there, we’ll throw hope and prayer into the mix too! Happy New Year.

Recently I came across this post where the author has given a very good perspective of supply chain issues, mainly infrastructure (unpaved roads), taxation (tax on movement of goods) and has an interesting takeaway in the end, “Traditional methods of supply chain design and management do not always apply,” and I fully agree with that statement.

Let’s look at couple of success stories. In spite of challenges, there exist very good examples of six sigma supply chain setups in India, like Dabbawalas, which operates in the most populous city of India, Mumbai. Dabbawalas is a company which picks up and delivers fresh and home cooked lunch to office goers. It’s a highly specialized business service that involves various lunch box carriers throughout the city and they do close to 200K deliveries a day with less than one error in 6-million (if you are vegetarian you can be assured you never end up with chicken curry lunch). Readers may refer to Wikipedia for more details on their business and for more technical insight they may read the Harvard Business Review case study on in its success, and how FedEx learnt from it for better operations of its Indian BU.

Another good example of success in setting up a supply chain is major auto manufacturer, Maruti. By establishing close collaboration with its suppliers, it overcame typical challenges posed in the country.  Here’s a very interesting article in CIO India titled: How Maruti Identified a Smart Supply Chain System

Lack of a good infrastructure makes getting the raw materials and carrying out the finished goods distribution very complex ― there is more than an average number of distribution points or warehouses a product has to go through before reaching the end user. The current state of infrastructure in India forces companies to use several modes of transportation in the value delivery process. The highways and rail systems do not reach major portion of the country, and a product has to travel on train, truck, or auto/cycle rickshaw before landing into the end customer’s hands. Every time the mode of transportation changes, there is handling, sorting, and storage involved – this make the supply chain very complex and decreases the reliability of whole chain.

In my opinion, to have more reliable and successful supply chain setups in India corporations should keep these things in mind:

1. Visibility –   As the number of warehouses and distribution points grow, better visibility into your network becomes more necessary for customer service and a competitive edge. If youknow what is where, then you can control it.  Systems should be able to do all kinds of simulation for exceptions, so decisions can be made quickly.
2. Collaboration – As cited in Maruti example, the way to beat the supply chain challenges was to collaborate with suppliers and distributors. This makes the supply chain issue not a company issue, but an issue of the entire value chain – from supplier to end product distributor – and everyone tries to overcome it.
3. Simplification – Keep it simple, in fact, very simple. Use a system which is clear to understand, not only by your employees, but also by your customers and suppliers. India is a country of several languages and several cultures. There is huge risk of “lost in translation” if anything is complex. Use visual tools as much as possible.
4. Flexibility – Pick a supply chain solution which can work with several applications. When collaborating with local suppliers and distributors, it should be no surprise to discover that some of them still operate on dated custom-built systems. The supply chain solution should be flexible enough to work with all of them.
5. Mobile Phones – This is one technology that almost everyone has access to. Access to them is very inexpensive, and most people have them (over 800 million out of 1.2 billion in India).  Any supply chain strategy should leverage this, similar to how Marketing firms have used mobile phones very effectively with SMS campaigns.

World class Supply chain is the mantra for building competitive advantage; having good understanding of country specific needs and having solutions for them will enable corporation to be world class across all geographies.

It has been said that Henry Ford used the two-bin system in the early production of his automobiles.  As you know, each bin had to be equal in size to hold the quantity used during the lead time of the part with a little extra for unforeseen emergencies.  When the first bin was emptied, a reorder card was sent to Purchasing to reorder another bins worth.

The two-bin system assumed, falsely, that all demand quantity was, for the most part, steady and continuous.  Because of this false assumption, there were many problems with stock shortages and inflated inventories.  There was also a problem where you had to stock lots and lots of different sized bins to operate such a system.

In the 1930’s some mathematicians worked to eliminate the “lots of different bins” problem by devising the Reorder Point quantity formula.  Here they said the reorder point quantity on hand was equal to the demand during lead time plus some added safety stock (RP = DLT + SS).  This formula allowed the two-bin system to still be used and stocked on any shelf without the bin problem but still falsely assumed all demand to be steady and continuous while still generating stock outs and inflating inventory levels.

Can you see the magic in the two-bin Reorder Point formula?  A lot of people can.  Reorder points are still used in many of the new sophisticated ERP software packages today.  Heck, I even read a published article where one author thought that MRP didn’t work for whatever reason and suggested we should do away with MRP in favor of a 3-Bin Kanban with two bins on the shop floor and one at the supplier.  After reading this I remembered the old saying that “Those ignorant of history are doomed to repeat it”.

By now you can figure out that I don’t believe in two-bin, reorder point magic, however I do believe in statistical forecast models.  I believe that all forecast models are wrong.  I don’t like to forecast at all but I realize that sometimes you just have to.  I’ve been trying to come up with a forecast model for the six numbers of the Powerball drawing for years.  When I come up with an accurate model, I’ll let you know.

Forecasts are simply guesses requiring constant vigilance and adjustments to history.

Two-bin reorder points assume parts are totally independent of each other so you have to forecast for every single part.  That’s a lot of guessing and adjustments to history which requires a lot of maintenance.

The MRP planning process was devised to avoid most of the smoke and mirrors hocus pocus by a dramatic reduction in the amount of forecasting (guessing) you have to do.  MRP has product structure.  The idea here is only to guess where you have to (Independent Demand) and derive (Dependent) demand from those fewer guesses via a product structure therefore requiring much less maintenance.

When you need reorder points for “C” items use the MRP generated Time Phased Order Point (TPOP) which utilizes independent, derived, unsteady and discontinuous demand, a future blog topic of mine.

Imagine what it would be like if:

• Every one of your employees made a difference every day
• Every one of your stock holders could see the difference every day
• Every one of your customers would want your difference every day

Sounds idealistic but supply chain practices need to improve. One such idea that is being turned into reality within many supply chain organizations is that of a control tower. You immediately think of an airport control tower and that is very similar to a supply chain control tower. Air traffic control is fundamental in the airline industry so why wouldn’t we embrace this role in the supply chain? Think of the complexity across multiple industries today – aerospace, high tech, pharmaceutical, retail, CPG, industrial…..Organizations are global in nature with numerous distribution centers, manufacturing centers, inventory stocking locations and very very volatile demand. How does that get managed without a control tower? Unfortunately, we are conditioned in supply chain to think in silo’s. Siloed software solutions, siloed geographies, and siloed business processes.

A control tower solution integrates all of these silos. It does the monitoring and provides predictive visibility and the “Supply Chain Traffic Controller” is alerted to conditions that require their attention and works with others to resolve the conflicts. It can support numerous supply chain processes from demand planning, to supply planning, project management, and P&L. Processes that will improve the overall effectiveness  of the supply chain become part of that organization’s control tower.

If you haven’t already you will hear about visionaries within supply chain organizations, analysts and software companies working together to deliver state of the art control towers. I highly recommend Capgemini’s article on Global Supply Chain Towers (full report).

I am interested in your opinions. What do you see as opportunities or challenges in implementing a control tower approach in your organization?

What caught my attention, and made me late for an appointment, was when the discussion turned to what was right or wrong about Newton’s Laws of Motion and Law of Gravity, which are so apparent in our everyday lives. I am an engineer by training and therefore I have a greater interest in the pragmatic than the theoretical, so when Prof Randall challenged the interviewer’s comment that Newton’s Laws have been proven to be wrong I was very interested. Prof Randall’s comment was that it isn’t so much that Newton’s Laws are wrong, but rather that they do not apply in all circumstances. In the scale of everyday life – time, size, distance – they are extremely good at predicting, for example, the flight of a football out of Tom Brady’s arm, to the distance a car will take to stop given its speed and the surface area of its tires on the road.

Prof Randall went on to explain that it is at large distances (universe scale distances), high speeds (approaching the speed of light), and very small distances (micro-atomic sizes) that Newton’s Laws fall apart. The pragmatic engineer in me scoffed “who cares?!”  But she had a really interesting point that at high speeds, the more fundamental theory that emerges is Einstein Law of General Relativity. And if we go to really small distances, the more fundamental theory that emerges is Quantum Mechanics. She went on to say that while we wouldn’t ever calculate the trajectory of a ball using anything other than Newton’s Laws, these other theories are more fundamental. Of these, Prof Randall says that Quantum Mechanics is “…more violating to our intuition…the idea that there are probabilities rather than definite predictive statements.”  Perhaps most intriguing to me is “dark matter”, which Prof Randall says is “…defined by the property that it interacts weakly. It interacts gravitationally, but it doesn’t interact with light…so it can’t be detected.”

So what has this all to do with supply chains?  Well little directly, but there are analogies that bring out concepts that aren’t necessarily new, but are not that well understood.

First and foremost is that for the most part, we treat the supply chain as if it conforms to the APICS definition of Manufacturing Resource Planning (MRP II), which I see as the equivalent of Newton’s Laws, meaning that MRP II certainly has merit but does not necessarily apply or is sufficient for all circumstances, and I contend that the number of circumstances in which MRP II is relevant is diminishing. I include the Oliver Wight standard supply chain planning processes in this perspective. For the most part MRP II can be used to generate a good plan.  But, and it is a big but, the business context in which we operate supply chains has changed sufficiently so that we need to reevaluate some of our approaches to the topic.

So what is different?

• Large Distances/Dark Matter
  Globalization and outsourcing have extended supply chains to the point that many products have circled the world several times by the time we buy them from a retail shelf.  And the full effects and costs of moving materials such large distances are only recently being understood with concepts such as Total Landed Costs (TLC), but as the article referenced points out, TLC is not easy to calculate because of constantly changing fuel prices and labor costs, but more importantly because there are so many factors that go into getting an accurate measure of TLC that the author states “I wondered if it was even possible to accurately calculate a company’s true landed costs.”

  If you can’t measure it, you can’t manage it.

  Well, not to the degree to which we would like to think we can manage it.  And I contend that the degree to which we can measure and manage TLC decreases exponentially with an increase in globalization and outsourcing, which is consistent with Complexity Theory. This is because not only is it difficult to get a good initial/annual measure of TLC, but also that the variables that go into calculating TLC are changing constantly and, in some cases, are barely recognizable from the assumptions made a year ago during a budgetary cycle.

• High Speed/Relativity
  Ok, so I am a late Boomer, and every generation has thought that life progresses more quickly, but few can argue with the fact that especially since 2008 we have seen huge and frequent swings in business cycles compounded by natural disasters.  In fact, we can extend this observation to the mid-1990’s as the internet began to take root.  As an aside, I had a great-grandmother who died at the age of 98 in 1974, so she would have been born in 1876.  In her life time, she experienced the advent of electricity, cars, steam ships, television, telephone, x-ray, penicillin, … Wow.  Back in modern life, we see the ever shrinking product lifecycles coupled with the ever shrinking dominance of companies.  Who would have predicted in 2005 that by 2010 Microsoft would be a “has been” in terms of driving innovation and change?  Oh, I know there are lots of people that will raise their hands now and say “I did. I did.” But these voices were few and far between in 2005.

  Perhaps we haven’t reached the point of warping the time and space continuum, but it does feel to me that we have reached the point that the speed of business has increased to the point that we need to examine the processes and manner by which we operate companies.  I am definitely hearing a lot more about rolling budgets, quarterly budgetary cycles, and even ad hoc or continuous budgetary cycles. I am definitely hearing and reading a lot about the merging of Financial Planning & Analysis (FP&A) with Sales & Operations Planning (S&OP). Perhaps I am hearing about these two processes being executed in lock-step whereas in the past there was minimal interaction.

  By warping, I mean changing processes to accommodate the speed of business. We cannot accommodate new scales of speed using organizational structures and business processes designed in the mid-1900’s.

• Small Distances/Quantum Mechanics
  This is the one that is really near and dear to my heart, because, as Prof Randal says, this is the one that challenges our intuition because of “…the idea that there are probabilities rather than definite predictive statements.” Most of us who work in supply chain management or operations are engineers, if not by training, then at least by nature.  We believe in things that are tangible, measurable, predictable.  So what do we do with systems that are not fully predictable?  We assume that they are predictable, and, even worse, we act as if they are predictable. The most obvious of this phenomenon in business is the uncertainty related to the revenue/sales forecast.  We use terms such as demand variability or demand volatility instead because they imply that yes, demand is variable/volatile, but it is predictable, if only we knew all the variables required to predict demand exactly. But the term uncertainty makes us feel, well, uncertain. How can we have confidence in our models if we are uncertain about a key input variable?

  But uncertainty permeates supply chains and operations. From yield uncertainty, to cycle time uncertainty, to transportation lead time uncertainty, to new product adoption uncertainty.  And many more. I contend that we are far better advised to focus on the skills and processes required to be agile in the face of uncertainty than in the effort to understand “all” the causes of uncertainty and, by extension, to try to remove all uncertainty from our understanding of the market conditions in which we operate.

  Planning is important, but the skills and processes for early detection of discrepancies between reality and what we predicted, and the agility to respond quickly and profitably to these discrepancies should be equivalent skills.

  Let us learn how to absorb and respond to uncertainty rather than thinking we can design it out of our operations and processes.

My take is that each of the concepts that Prof Randall described as challenging Newton’s Laws have an equivalent not only in supply chain management, but more importantly in the more general concept of Business Operations, which, in Wikipedia, is defined as:

The outcome of business operations is the harvesting of value from assets owned by a business. Assets can be either physical or intangible. An example of value derived from a physical asset like a building is rent. An example of value derived from an intangible asset like an idea is a royalty. The effort involved in “harvesting” this value is what constitutes business operations cycles.

As we can see from this definition, supply chain management is a more specific definition of Operations applied to companies that have physical products, but even in these companies Operations is a broader concept that relates to the business activities that even manufacturing organizations carry out in order to satisfy customer demand and, hopefully, make a profit, including Marketing, Product Design, etc.

In other words, balancing supply and demand of anything is everything.

As always I welcome comments, arguments, and contrary opinions.  They drive our collective learning.

Generally, IT organizations aggressively discourage this approach of groups within the business that are outside of IT creating applications. There are significant drawbacks with this type of approach:

1. The support, reliability, and scalability are dubious
2. Data is outside the formal IT managed systems
3. Incorrect or outdated versions can be used – to name just a few drawbacks

IT may be unaware of these user applications until they break and the business comes to them for help. The systems in which companies run their businesses on, need to be robust and reliable, requiring careful management and support to ensure accuracy and continuity.

Why within our current state of maturity with technology and expensive ERP systems, do these offline systems and processes continue to exist?

I think there are several key reasons why supply chain applications created by users commonly exist:

• The supply chain organization wants (needs) to be agile, to continuously improve and adapt processes to changing requirements and situations.
• Business users understand their requirements more deeply and coherently then IT business analysts, and when a few develop the required technical skills, they can create applications that fit their needs more closely than IT.
• The modern, mature IT organization is structured and formal and will implement sound and robust improvements to systems, but in many cases at a pace slower (and more expensive) than the supply chain expectations.

In the spirit of continuous improvement or because of changing priorities and requirements, new and modified processes or techniques are required by the supply chain organization. Implementing these new supply chain processes in most cases requires the support of IT to make modifications or changes in configuration to the formal MRP system. Generally, in larger organizations, changing the MRP system requires a formal process that includes advanced planning and competition with a lot of other projects and demands that are placed on the IT organization.  For what seems to be straight forward supply chain process changes, it can take several or even many months to get the projects chartered and then actually executed, where the requirements and priorities may have actually changed in the mean time.  It is therefore somewhat frustrating to the supply chain professionals and the result is the use of spreadsheets or other means to implement processes outside of the formal MRP system.

If you are in the “business” – a.k.a. the supply chain organization – you may think these applications are great; they are flexible, quickly modified, and they tend to support very closely the intended functionality. If you are in IT, these applications are inherently bad as they are not formally controlled and supported. It seems that there needs to be a middle ground where the platform is reliable and stable, the data has integrity and ties to the formal systems, but the functionality can be quickly adjusted to new processes and priorities. There are some systems are available and in wide use within industry that support this middle ground - some data warehousing solutions come close but generally lack the deep analytics associated with planning and supply chain execution and management. A step beyond are the advanced planning and response management systems that do contain the supply chain centric analytics and also allow the users to configure and develop reporting and more complex solutions.

I feel that to be an agile supply chain organization, and maybe to develop some tactical or even strategic advantage, the extension of supply chain applications needs to be supported by a platform where:

1. The system is managed and maintained by IT to ensure continuity and scalability.
2. The system is central and has accurate, consistent, and timely data
3. Supply chain professionals who have the fundamental and clear understanding of the business requirements are in control of configuring the applications and reporting

I would be interested to know if you have any similar perspectives on end user developed applications and also if your organization has dealt with this in some way?

This forces companies to then rely on increased safety stock buffer points to reduce lead times to customers, or to avoid missed delivery dates, a key customer metric. All this adds cost or reduces customer satisfaction, leading to a deteriorating competitive position and a reduced bottom line.

The question is, how can this situation be improved? The answer is: forecasting should be viewed as an important tool in meeting corporate goals for growth and profitability, not just as a budget exercise. In order to leverage forecasting as a vital asset to the enterprise, following issues need to be addressed:

1. Forecasts are a dynamic variable, so they can change significantly over even a short period of time. This means the forecast process needs to be much more frequent than annually, preferably monthly. While a baseline is needed (budget) for financial accountability, the demand picture needs to adjust to reality.
2. Forecasts should cover your longest lead time items, in order to properly anticipate demand and not be caught short. This means forecasts need to roll forward, covering the full length of the demand horizon at any point in time.
3. In order to support a more frequent forecasting cycle and improve accuracy, the forecast must be streamlined and easy to use. A forecast which takes a month to prepare is already out of date by the time it is released. This requires good data to base assumptions on, and a tool which can quickly and accurately generate forecasts for analysis, preferably with the ability to quickly compare various scenarios in order to determine the optimal one for the current environment.
4. The forecasting process must be viewed as integral and important tool in the overall functions of the company. The people generating the forecast must be aware of its importance to the strategic interests of the enterprise.

I have heard some people comment that, “Our forecast is always wrong, so we need to look at better safety stock management tools.” While safety stock is an important tool to buffer against unanticipated demand fluctuations, a better strategy would be to invest in instituting a continuous forecast process as a competitive tool.

We are currently going through another tough phase in the business cycle, with consumer demand softening and business spending becoming very conservative. This slowdown is causing even more volatility in the market place, which will require even better and more frequent analysis in order to able to respond to the fluctuations taking place in demand. Having an accurate, regularly updated, long range forecast to provide guidance to the supply chain is more important than ever. A tool which can quickly and easily supply such a forecast is a must, as is a process to provide feedback on forecast assumptions to enable corrective action to keep the enterprise on track.

Unicharm is the largest manufacturer and distributor of diapers and other consumer sanitary products in Asia. They implemented RapidResponse (replacing existing supply chain planning solutions) so they could move away from the limitations of statistical-based planning systems. With RapidResponse, Unicharm can complete planning calculations in five minutes—a process that previously took 12 hours.

In a news release distributed today, Unicharm said:

“We chose RapidResponse for its unparalleled ability to allow us to effectively manage our supply chain in today’s environment given the urgent and explicit need for supply chain visibility, simulation, and collaboration capabilities.”

It’s so humbling hearing it directly from the customer! Check out what other customers are saying about us in the Executive Perspectives section on Kinaxis TV.