Archive for the ‘Supply chain risk management’ Category

Throwback Thursday: Competing against time. A concept worth re-exploring.

Published July 3rd, 2014 by Lori Smith 0 Comments

As the idea of “Throwback Thursday” grows in popularity, we couldn’t help ourselves but to jump on board!  Despite the temptation, we’ll refrain from posting pictures of women with teased hair and big shoulder pads; men with their bell bottoms; or adorable baby pictures from a time in our lives when we were all cute.  Instead, on this quiet holiday week, we’ll keep it professional and look back on a past blog post that covers a classic concept that remains as relevant as ever. This post certainly does not have to compete against time. Enjoy!

Originally published January 12, 2012 by Trevor Miles (@milesahead)

Every now and then a concept comes along that resonates very strongly with what I perceive to be key issues in operations in general, and supply chain in particular.  One of these is the seminal work by George Stalk of Boston Consulting Group titled Time—The Next Source of Competitive Advantage published in July 1988 in which he states that:

Today, time is on the cutting edge. The ways leading companies manage time – in production, in new product development and introduction, in sales and distribution – represent the most powerful new sources of competitive advantage.

Unfortunately Stalk decided to name the book he co-wrote on the topic as “Competing Against Time” which isn’t the point, although the subheading “How time-based competition is reshaping global markets” rescues the concept, which is really about competing against the competition with time.  It is all about being more agile, more responsive, to real conditions. Stalk sets out some Rules of Response very clearly:

  • The .05 to 5 Rule
    Across a spectrum of businesses, the amount of time required to execute a service or to order, manufacture, and deliver a product is far less than the actual time the service or product spends in the value-delivery system
  • The 3/3 Rule
    During the 95 to 99.95 percent of the time a product or service is not receiving value while in the value-delivery system, the product or service is waiting. (Stalk breaks this out into 3 components of waiting, hence the 3/3.) The amount of time lost is affected very little by working harder. But working smarter has tremendous impact.
  • The 1/4-2-20 Rule
    For every quartering of the time interval required to provide a service or product, the productivity of labor and of working capital can often double. These productivity gains result in as much as a 20 percent reduction in costs.
  • The 3 x 2 Rule
    Companies that cut the time consumption of their value-delivery systems turn the basis of competitive advantage to their favor. Growth rates of three times the industry average with two times the industry profit margins are exciting – and achievable – targets.

All too often though people get the impression that these rules are only applicable in the short term.  They are not.  The issue of responsiveness in operations is driven by the latency of the information and the time it takes to respond. In other words, the time to detect that something of significance has happened and the time to respond to the change, or correct the discrepancy. Reducing either of these will have a dramatic effect on a company’s competitiveness, whether this is a short term detection of demand change that requires rescheduling manufacturing or a longer term change in technology that requires the purchase of new manufacturing capacity.

Terms such as VUCA – Volatility, Uncertainty, Complexity, and Ambiguity – or PDCA – Plan, Do, Check, Act – don’t excite me because they are focused on removing volatility and complexity, usually promoting ‘stability’ at the cost of responsiveness, whereas Stalk’s concepts are all about being responsive, being agile. To me this is the correct emphasis. While of course there is an overlap in that a decision or manufacturing process that is overly complex will result in longer lead times, it is the overall sentiment of complexity and volatility being ‘bad’ expressed in VUCA and PDCA with which I disagree.  As I wrote in a previous blog from the 2011 Gartner Supply Chain Conference:

I say embrace VUCA. Accept that it is the new norm. Resistance is futile.

Similarly, Deming’s idea of PDCA is all about process improvement, it is about ‘managing’ complexity and ensuring ‘consistent’ processes. Again, I am not saying that these are bad approaches in and of themselves, only that they are insufficient.  Knowing that you are performing a process consistently doesn’t mean that you are performing it well.  It is like assuming that if you throw everyone in jail who has committed a crime that we will live in a crime-free environment.

Far more interesting to me is the OODA – Observe, Orient, Decide, Act – idea from the US military strategist Colonel John Boyd.

The steps of the OODA loop are:

  • Observation: the collection of data by means of the senses
  • Orientation: the analysis and synthesis of data to form one’s current mental perspective
  • Decision: the determination of a course of action based on one’s current mental perspective
  • Action: the physical playing-out of decisions

While at first this may seem to be very similar to VUCA and PDCA, the key point to the OODA loop is that:

 

Time is the dominant parameter. The pilot who goes through the OODA cycle in the shortest time prevails because his opponent is caught responding to situations that have already changed.

 

In other words reduce the time to detect and the time to respond.  To put this into supply chain speak, it is all about:

  • Visibility – having access to the state of the supply chain across a wide span of operations, especially in outsourced environments, in order to detect misalignments
  • Alerting – knowing or calculating the impact of misalignments on key financial and operational metrics in order to understand the severity of the issue
  • “What-If” – working with others in the supply chain to come up with alternatives and evaluating these quickly
  • Collaboration – to reach a consensus on the best course of action that reduces risk while increasing performance

Another absolutely key concept expressed by Boyd is the need for ‘human judgment’, for the system to act as an organic whole to adapt to situations as they unfold at the location at which they unfold.  Having long chains of command that force front line people to get approval from HQ is antithical to this idea:

… large organizations such as corporations, governments, or militaries possessed a hierarchy of OODA loops at tactical, grand-tactical (operational art), and strategic levels. In addition, he stated that most effective organizations have a highly decentralized chain of command that utilizes objective-driven orders, or directive control, rather than method-driven orders in order to harness the mental capacity and creative abilities of individual commanders at each level. In 2003, this power to the edge concept took the form of a DOD publication “Power to the Edge: Command…Control…in the Information Age” by Dr. David S. Alberts and Richard E. Hayes. Boyd argued that such a structure creates a flexible “organic whole” that is quicker to adapt to rapidly changing situations. He noted, however, that any such highly decentralized organization would necessitate a high degree of mutual trust and a common outlook that came from prior shared experiences. Headquarters needs to know that the troops are perfectly capable of forming a good plan for taking a specific objective, and the troops need to know that Headquarters does not direct them to achieve certain objectives without good reason.

These are key concepts we at Kinaxis have been promoting for a long time.  Every second that we waste in making a decision is a minute less that we have available to actually respond to situation.  In sports, reaction time is a well recognized competitive advantage.  Reaction time is coupled with the ability to ‘read the game’ and, for example, to call audibles at the line of scrimmage in American football. (I have always felt more comfortable with ‘European’ sports, such as soccer, that are a lot less structured and orchestrated precisely because the players have a lot more decision making power.) So in the end perhaps Stalk’s title “Competing Against Time” was correct, but this is a process efficiency perspective.  I still prefer the OODA concept of competing with time because this is about process effectiveness.

Posted in Best practices, Miscellanea, Supply chain management, Supply chain risk management


Speed as the true Innovation in Supply Chain

Published December 10th, 2013 by CJ Wehlage 2 Comments

Wow, I am recalling a great three days in Dallas, Texas this past week at the WTG Supply Chain and Logistics North American conference.  I went for a run in sunny 75 degree weather!

Now, I’m back in San Diego and just finished reading a post from a friend who is an American Airline attendant. She came to Dallas the day after I flew out, to do Airbus training.  Her blog described how she was stuck at the airport due to hundreds of canceled flights – freezing weather that went down to 20 degrees!

It looks like I left just at the right time. As the saying goes, “timing is everything…”.  This saying is much like my presentation at the conference: the topic of speed as the true innovation in supply chain. Not just speed to be fast, but velocity, which is speed moving in a specific direction.

That’s what I believe is the next innovation in supply chain. I grabbed some of my old AMR Research Top 25 data, and looked at the results of supply chain processes and tools.  It seemed like in a recession, supply chains focused on reducing costs. Lean was the top challenge.  In recovery periods, supply chains focused on improving efficiencies. Demand forecast accuracy was the top challenge. Supply chains responded in kind with functional lean efforts or functional demand forecasting projects. I love Lora Cecere’s (Supply Chain Insights) chart on “Progress in Inventory Turns and Operating Margin (2000-2012)”.  One of the best pieces of research data I’ve seen in a long while.

This shows pure “functional” focus from every industry.  Very limited “end-to-end” focus.  Consumer electronics shows a good 18% for consecutive improvement in turns and operating margin for two years.  But, for 3 consecutive years… 0%! For four consecutive years…another 0% !   Supply chains have been focusing on a few nodes of the network, and placing functional processes & tools in place to address the challenge.   If you ask a functional question to a bunch of functional systems, you will always get a functional result.   And functional results will never bring consecutive, sustaining improvements.

At Kinaxis, we have the motto: Know Sooner, Act Faster.  That’s the innovation.  Speed with direction.  Stop asking functional questions and ask end-to-end questions.  And that requires significantly faster analytics across the functional nodes.   Better said, significant velocity.  Yes, it does mean pure speed when a supply chain acts.  But, it also means speed in the right direction.  And speed comes from planning ahead, through simulating scenarios in advance of the challenge.  In fact, after reading the past seven years of Top 25 Supply Chain research, the one thing the best on this list do is: What-If planning. It is not a PhD in the corner working for days,but a core facet of their Planning.

I challenged the attendees on “Know Sooner, Act Faster”.  What do you truly “know” about your supply network.  One of the best ways to answer that question is “how much fire fighting do you do ?”.   If you are fire fighting, you are losing.  You haven’t planned ahead.  You are losing profit & margin to accomplish what an effective simulation could have prepared you for.   Tough words, sure, but great supply chain leadership should reward knowing sooner more, fire fighting less.

Then, we talked about “Acting Faster”.   I asked the audience what the first 10 minutes of every CPFR meeting was.  Answer =  Comparing Data!   That’s the best way to determine if you can act fast.  If you are checking which set of numbers each node is using, you will lose speed.  Every node has to be working off the same version of the plan.

The next great innovation in supply chain is Speed.  And, for the best supply chains, it’s quickly becoming table stakes to have your suppliers, distributors, shippers, etc, on the same plan, acting within minutes of a change, and simulating scenarios for end-to-end network turns and operating margin.  Why?  I say because the consumer is using technology to speed up their decision and purchase.  Every industry has seen their consumer build leverage, and demanding personalized attention.  Supply chain networks need to address this attention by knowing a lot sooner and acting a lot faster.

Enhanced by Zemanta

Posted in Demand management, Response Management, Sales and operations planning (S&OP), Supply chain collaboration, Supply chain management, Supply chain risk management


Next generation supply chain planner: How the role is changing

Published August 14th, 2013 by Lori Smith 1 Comment

TriQuint Semiconductor supply chain plannerWe try to keep the self-promotion to a minimum, but we have a great customer, TriQuint Semiconductor, that recently allowed us to update their case study  and I think their story has merit in sharing again.

The case study has lots of good bits on how they are using RapidResponse and the benefits they see (like realizing inventory reductions a month after the solution even went live). But the jewel of the story is where they say that, with RapidResponse, they “are changing the role of the supply chain planner to be more analytical rather than just the data hunter.”  A simple statement… with enormous implications.

From the corporate perspective, this means higher productivity, more value-added activity, and results-oriented decisions…all leading to better business results.   But equally important, from the supply chain professional perspective, think of the satisfaction that happens when someone feels equipped and able to actively and effectively contribute to the business.  It becomes not just about getting things done, but about making a difference.

JP Swanson of TriQuint said it best…

“Previously we spent so much time gathering the information that we weren’t able to spend enough time analyzing the information, understanding it and doing something about it…Our team likes the fact that they can use their minds more and they are getting to touch a different skill level because they have more time to do it and more information in front of them to do it with.”

Another worthy quote…

“It’s a great solution for many of our everyday problems. It is now our default when faced with an issue…”how can we model it in RapidResponse?”

A big thank you to TriQuint for letting us tell their supply chain story. We love what you are doing with the product!

In addition, here’s a snap shot of the TriQuint story from our techvalidate survey.
TriQuint Semiconductor supply chain

Enhanced by Zemanta

Posted in Best practices, Demand management, Response Management, Supply chain collaboration, Supply chain management, Supply chain risk management


Companies passionate about Integrated Business Planning. Supply chain risk management…not so much?

Published July 18th, 2013 by John Westerveld 3 Comments

Supply Chain Digest’s graphic of the week last week is from the 2013 Gartner Supply Chain Study.  It shows various initiatives that supply chain leaders feel passionate about like integrated business planning, government mandates, talent management, globalization initiatives, supply chain risk management and supply chain redesign.

Passion Index for the 2013 Supply Chain Top Priorities

Passion Index for the 2013 Gartner Supply Chain Top Priorities supply chain risk management

Two things really stood out to me: Integrated business planning is a very high priority and supply chain risk management is a relatively low priority.

Why does supply chain risk management score so low?

I can certainly understand why integrated business planning would score highly; it is the function within business that identifies strategic corporate objectives and aligns the company in achieving those goals.  What I (and the report author) found confusing is why supply chain risk management scored so low overall.

Perhaps, we have advanced far enough in supply chain risk management that it is no longer a concern (In my opinion, I don’t think so though…). Potentially, we think that there won’t be another Japanese tsunami or floods in Thailand or garment factory disasters in Bangladesh.  It seems to me that these types of disasters are getting more frequent, not less. Every time I turn on the news, it seems there is a story that has a global impact.
The only consolation I take from this is that any good integrated business planning process would include supply chain risk management as one of the factors considered in any decision made.    One can only hope so anyway.

What are your supply chain passions for 2013?

Why do you think supply chain risk management scored so low in this study?

Comment back and let us know!

 

Enhanced by Zemanta

Posted in Supply chain management, Supply chain risk management


Voice of the Customer: 70% surveyed improved response rates by 60% or more!

Published June 14th, 2013 by Melissa Clow 0 Comments

techvalidate - response ratesAs described in our first blog of the series, we recently completed a customer survey project with TechValidate and are very pleased with the response rates over 150 survey responses and the many stories we can share. And so, every Friday for the next few weeks, we will feature different customer results.

In this series, we will explore the following topics:

Voice of the customer part 1: Supply Chain Flexibility
Voice of the customer part 2: Supply Chain Visibility
Voice of the customer part 3: Supply Chain Planning
Voice of the customer part 4: What-if Analysis
Voice of the customer Part 5: Response Management
Voice of the customer part 6: Alternative Technologies
Voice of the customer part 7: Competitive Advantage

If you are eager to check out all the results, simply go to our TechValidate page. If you wish to use or share any of the content we’ve published to-date, click on the asset you wish to use and then select the download button to save. You can also choose the share button to distribute through various social media channels.

Next up, response management. We asked our customers how response rates had improved since implementing RapidResponse. As you can see from some of the responses we’ve captured below, customers have seen “exceptional” improvements in their supply chain. RapidResponse powers rapid planning and responses in their organization. Customers know the impact of simulated changes in seconds without having to rely on custom applications and reports; the result is instant impact analysis and the ability to identify the full impact of supply chain management decisions prior to execution.

 

See more results on response management.

 

Enhanced by Zemanta

Posted in Control tower, Demand management, Inventory management, Response Management, Sales and operations planning (S&OP), Supply chain collaboration, Supply chain management, Supply chain risk management


Statistical Modeling in Supply Chain Continued: When should we incorporate uncertainty into project schedule estimates?

Published June 10th, 2013 by Nazli Erdogus 0 Comments

A few weeks ago, Trevor Miles wrote a blog series entitled, “Truth, Lies, and Statistical Modeling in Supply Chain: Part 1, Part 2 and Part 3.

In it, he discusses how companies often model manufacturing and supply chain systems using deterministic models, when in fact everything around us is stochastic. I thought it’d be important to mention that we also model project management using deterministic models, such as the Critical Path Method (CPM). Yet, we are living in a world where projects and tasks might actually follow a stochastic trend.
An alternative to CPM is Program Evaluation and Review Technique (PERT), which is an effective method and gives you room to include as much variation into your projects as you want. It is used to analyze and evaluate the time needed to complete tasks in a given project, as well as to identify the minimum time needed for the completion of that project.

We know that a single task or project can be delayed for many reasons, such as unforeseen events, which force project managers to tie tasks to completely different predecessors or successors. This randomness forms a very important aspect for project management systems. We simply cannot assume any given project will be managed according to the targets set at the beginning of that project.

CPM was developed by Du Pont in 1960 and the emphasis was on the trade-off between the cost of the project and its overall completion time (e.g. for certain activities it may be possible to decrease their completion times by spending more money – how does this affect the overall completion time of the project?). CPM is used in production management for jobs that are repetitive in nature where the activity time estimates can be predicted with considerable certainty due to the existence of past experience.

When we look at the CPM being commonly used today, we see there’s something missing. This is due to the fact that CPM uses a deterministic model, which only incorporates a fixed time estimate for each activity. Although this is pretty easy to implement, it’s not sufficient for big-scale projects which can get complicated (and more variable) over time.

PERT was developed in 1958 by the US Navy for the planning and control of the Polaris missile program. The emphasis for this model was on completing the program in the shortest possible time. In addition, PERT had the ability to cope with uncertain activity completion times (e.g. for a particular activity the most likely completion time is 4 weeks, but it could be anywhere between 3 weeks and 8 weeks). PERT is often used in project management for non-repetitive jobs, for example, research and development work, where the time and cost estimates tends to vary.

PERT uses beta probability distribution, which in its essence, models the behavior of random variables and can be implemented by either using the statistical probability theory or discrete-event simulation. The way it is used in project management is through calculating the time allocated (Expected time) for the completion of a given activity. The way PERT deals with variation is its main differentiator. You determine the probability of any given activity to be successfully completed within three time estimates – optimistic (shortest), most likely and pessimistic (longest) times. These estimates (called random variables) represent the reasonable values you can give as the rate at which an activity can be possibly completed. Then, these time estimates are used in a weighted average assuming a beta probability distribution, and this weighted average forms the Expected time for a given task. Here`s how the Expected time is calculated:

Expected time = (Optimistic + 4 x Most likely + Pessimistic) / 6

 

Let’s dig into some background information now:

Pert Beta Distribution uses three parameters:

a: the optimistic time, which will be required if activity execution goes extremely well

m: the most likely time, which will be required if activity execution is normal

b: the pessimistic time, which will be required if everything goes badly

 

Depending on the values provided, the Pert Beta distribution can provide a close fit to the Normal or Lognormal distributions and it has:

Mean = (a + 4m + b) / 6

Standard Deviation = (b – a) / 6

 

Pert Beta distribution emphasizes the “most likely” value over the minimum and maximum estimates. It constructs a smooth curve which places progressively more emphasis on values around (near) the most likely value, in favor of values around the edges. In practice, this means that we “trust” the estimate for the most likely value, and we believe that even if it is not exactly accurate (as estimates seldom are), we have an expectation that the resulting value will be close to that estimate. Assuming that many real-world phenomena are normally (or log normally) distributed, the appeal of the Pert Beta distribution is that it produces a curve similar to the normal (lognormal) curve in shape, without knowing the precise parameters of the related normal (lognormal) curve.

The figure below shows three such distributions.

multi-tier statistical modeling supply chains

As I said, Pert Beta distribution emphasizes the “most likely” value over the minimum and maximum estimates. The figure below illustrates this effect and shows the various density function shapes that occur as m varies from 1 to 9 when a is 0 and b is 10.

multi-tier supply chainsLet’s now take a look at some characteristics:

CPM PERT
Deterministic Probabilistic
Estimates are based on historical data Estimates are uncertain, there`s a probability that an activity will fall into a certain range
Concentrates on Time/Cost trade off More suitable for planning
Scalable for smaller projects Suitable for R&D projects
Explicit estimates on time and cost Includes subjectivity, depends on judgment for optimistic/pessimistic time estimates

 

So knowing the characteristics of these two different models, which one do you really need to implement? This totally depends on what type of project you are dealing with. Since PERT concentrates on variation and thus gives you the ability to be more flexible time wise, an R&D project would be a good fit considering the uncertainties a development work could have in the earlier phases of the project.

The following decision tree model can help you answer this question.

Still undecided? Well, consider that PERT can answer questions not applicable in CPM such as:

  • What is the probability that my task will take longer than…?
  • What is the probability that my task will be finished by…?

And, PERT can also be used for risk analysis and to identify potential opportunities and difficulties for the activities, as well as for the calculation of the worst case scenario. Imagine a famous band going on a world tour. They are on their way to play another concert that day in a neighboring country, but production trucks cannot cross the border because there is a strike at the border of the country they are currently in. To make it in time to perform, the truck has to cross the border by a certain time. In such a case, it’s out of the organizer’s (or project manager’s) control to project how long it will take until the production truck makes it to the concert area. To avoid such a situation, it’s more realistic to have implemented PERT, allowing some buffers between ongoing tasks, much like transporting rock stars between concert venues.

If you are managing a more conventional project with more predictable durations that can be accurately calculated and there’s no need to factor a possibility of changing requirements, then CPM is a good fit. For all other cases (and there would be many!), I recommend going with PERT. After all, like the transportation algorithm is a special case of the regular simplex method, CPM is simply PERT where a = m = b.

Enhanced by Zemanta

Posted in Control tower, Demand management, Inventory management, Response Management, Sales and operations planning (S&OP), Supply chain collaboration, Supply chain management, Supply chain risk management


Does IBP Make Supply Chain Empty Nesters?

Published June 6th, 2013 by Lori Smith 0 Comments

Does IBP Make Supply Chain Empty Nesters?I know, I know.  Do I really want to open up the debate on what is IBP?

I understand that it has been discussed ad nauseum, but I have to say that Michael Uskert’s presentation (Deconstructing Integrated Business Planning) the other week at the Gartner Supply Chain Executive Conference did a good job with making some clear distinctions between S&OP and IBP and breaking down the process. For me, it all boiled down to a very evident analogy. IBP results when the supply chain has been a successful parent.

Consider this…

The supply chain gives life to new supply chain processes, grow it into S&OP, and help it mature.  In this stage, they are the owners of the process (the parents of the child).  They make most of the decisions and bring other people into fold as and when needed/desired. They are largely in control of the process and the outcome. And the network and circle of influence of S&OP for the most part is the supply chain (the parents) with specific involvement from neighboring functions (close family and friends).

But at some point, it’s time to fly the nest.  The process that the supply chain gave life to becomes bigger than them.  S&OP evolves into a business process (IBP), not just a supply chain process. The supply chain (the parents) remains a critical piece of the equation as an integral contributor and supporter, but it is no longer in the driver seat.  The process (the child) has grown and now has the foundation to mature beyond the home.  The original child, now an adult, makes decisions and takes actions that not only have a greater magnitude but they also impact and are influenced by a larger network of people. IBP spans multiple functions (including supply chain, marketing, sales and finance) across all time horizons, and is ever closely aligned with business strategy.  Its goals are broader and more strategic in nature.

A mature sales and operations planning is a foundational prerequisite for achieving IBP.  Eventually an adult will leave the nest, but they had to first be the child.  And as with parenthood, IBP is not a project, it’s a journey.  And given the state of S&OP right now, it would appear there is a lot of parenting for the supply chain left to do.

 

Enhanced by Zemanta

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


400 Miles in the Desert: What happened to my Supply Chain Top 25 Picks?

Published June 3rd, 2013 by CJ Wehlage 0 Comments

Supply Chain Conference

What a week we had at the Gartner Supply Chain Executive Conference in the wonderful venue of the JW Marriott Desert Ridge!

I missed the event at Palm Springs last year, so it was great to catch up with many old friends from my AMR Research days—from analysts to account leads to supply chain leaders.

After the event, I drove back from Arizona to San Diego. Six hours in the desert brings clarity … or insanity … well, there’s a fine line between them.

So, I’ll take the heat up front. I challenge you as a reader to respond…

“There needs to be a structural change to the Top 25 method”

Why? Well, six hours of staring at the desert made me reflect on my “Bold Predictions for the 2013 Top 25” blog post from a few weeks ago.

I had Amazon at #1, Coca-Cola at #2 and Intel at #3. I had Dell falling out of the Top 10. At least I got the Dell pick correct J

Intel did move up, but not to #3. They got #5. I was directionally correct. Intel has been out there speaking about their supply chain success, as well as creating end-to-end supply chain strategies with their partners. I’ll put some of the blame on my good friend Stan Aronow. Stan took the High Tech role I left at AMR, and my one piece of advice was to push his old company’s supply chain. I did that with Apple, and Stan is doing a bang up good job with Intel – he got them to #3 in the Gartner opinion vote.

Coca-Cola was off. They came in at #9. Aside from Samsung, Apple, and Amazon, Coca-Cola had the highest 3-year weighted revenue growth for those above them, and the 4th highest peer opinion vote. I do think their strategy on the bottling model will improve their margins & ROA, so I expect them to finish above #9 in 2014.

I would like to say something on Unilever at #4 and P&G at #6, but will leave that up to my buddy Roddy Martin’s blog J. Plus, while Roddy gave me a ton of insight, I forgot to bring a pen & notepad to the après Top 25 dinner gathering at the outside patio.

Then comes Amazon. I had them at #1, but Amazon came in at #3. However, since they got 3,315 in peer opinion vs. McDonald’s 1,197, I think I’ll give a nod to my Amazon #1 pick.

Wait you say … what about Apple at #1?

Apple at #1 is exactly why I think the structure of the Top 25 Supply Chain model has to change. Apple received the highest peer opinion vote and the 6th highest Gartner opinion vote. I love Apple. Apple was one of the best companies I’ve ever worked for. I love their products – my wife and kids are addicts to the next release. But, supply chain knowledge of Apple? What did Foxconn say as a key supplier? I’d love to hear what the channels say. Have you been to the AT&T store a month after a release? They can’t tell you when they will have product available. Outside of a few suppliers, who has talked in depth with Apple executives —Jeff, Ber, Dierdre, Rita, Sabih— about their supply chain strategies? Ok, Ok, I’ll stop venting … all this dry heat from the desert….

Ultimately, the Top 25 model should change because the purpose has changed. AMR started the Top 25 to “raise the awareness” of supply chain in the company. Well, we got it. Most supply chains are part of the corporate discussion. Thanks, in part to the recession for shining the light on cost controls.

There’s a new purpose I believe. And it came from Steve Steutermanns’ opening theme – FAST. Not in our Plan/Buy/Make/Deliver functional silos, but rather in the END-TO-END. Top 25 supply chains should be measured on their speed to control end-to-end processes. And in this measurement, there needs to be a unique set of people to validate this end-to-end speed.

A side vent: leveraging one’s cash and market share position to force your suppliers and channels to jump should not be considered successful collaboration J

The Voters Need to Change:

I give great props to my friend Lora Cecere. She advocates doing a top supply chain by Industry. I think that’s a great concept. It would even make the Top 25 Dinner more interesting: something like a Top 10 by Industry. It would open up the possibility of having smaller companies be recognized. And, the most important part of this change would be to identify those key leaders in the Industry to vote. These leaders are more likely to know the inner workings of the companies for whom they are voting. Jake Barr is a great example for CPG. Roddy Martin is a great example for Food and Beverage. Dave Aquino is a great example for Apparel. Hussain Mooraj is a great example for Life Sciences. Angel Mendez is a great example for High Tech. They could come from any area: supply chain leader, vendor, analyst, etc.., but they would fit unbiased criteria, for example:

  • they know the end-to-end supply chain network in the respective industry;
  • they’ve “talked” with at least 25 companies in that industry in the past year;
  • they can speak to the talent and leadership of each company, and
  • can validate their end-to-end focus.

The Metrics Need to Change:

I understand the need to have “readily available, audited” numbers, and that’s why there is revenue growth, ROA and inventory turns. But, there’s got to be some better metrics to reflect Stage 4 & 5 (end-to-end success!). Otherwise, iTunes and french fries will keep crushing the “turns” competition….

If things were done by Industry, then ROA could be acceptable. Companies in Chemical, Semiconductor, and Life Sciences would be compared equally. I do agree with Lora that ROIC would be a better metric than ROA, as some companies are building assets to enable future growth. Look at Amazon’s ROA – 1.9%. That got them slotted behind McDonald’s, but that investment in Services and Cloud infrastructure is the right strategy. As well, depending on the life cycle of a drug, some Life Science supply chains may be great, but get low votes on ROA and revenue growth. Just wait until that drug hits the market ….

My Solution:

Make it a Top 10 by Industry. Have the #1 from each industry come up on stage at the Top Supply Chain Dinner and accept the award, and let them make a pitch for their supply chain success. Then, put all the #1’s from each industry on stage. Have everyone sitting at the dinner get on their mobile devices and have a live vote for the overall #1. It would make for a fun evening and an exciting conclusion.

Make Four Key Metrics

1. End-to-End Focus:

  • Do they have an integrated end-to-end business planning process?
  • Can their outcomes be measured against value?
  • What is their speed in responding to change, and how many nodes can they accurately assess the impact?

2. Ability to Translate Demand into a Profitable Response

  • Measure of their marginal profitability – e.g.: what is their ability to achieve and maintain profit levels?
  • Market share – are they #1 or #2 in their market?

3. Leadership and Talent

  • This is a soft measure, but can be seen in a supply chain’s ability to reach out and learn. Do they engage externally with the academic world? Do they share their supply chain successes and strategies?

4. Agility in the Supply Chain Network

  • Ask their top 2 Suppliers to rate them on flexibility
  • Ask their top 2 Customers to rate them on flexibility

I’ve tested some parts of this model. One company that has nailed the end-to-end focus gets praises from their suppliers, engineering team & customers/install partners, and has one of the top leadership teams country is NCR. There’s been some papers written about NCR, but this is the classic example of a top tier supply chain that didn’t make the 2013 Top 25 and seriously should have. (I think it is because they are under $5B in revenue, and those “small” companies are not considered.)

So, this is it. My new Top 25 Supply Chain Model. It’s going to take some adjustments and elbow grease, but let me know your thoughts, and I will take it to Oz and see what can be achieved!

In Closing:

We are past the challenge of making the CEO and the “Board” aware of supply chain. It’s time to redesign the structure. Steve Steuterman had it correct. “Fast”. There’s a foundational shift in supply chain. Gone are the days of functional excellence. Gartner calls it Stage 4 and Stage 5. I call it end-to-end engagement —knowing a LOT sooner, and acting a LOT faster – regardless of the functional tools, functional processes, and functional data. I’ve been doing this supply chain gig for 24 years, and I’m more excited today than ever about what’s happening. You can see those companies that are acting end-to-end. They have the ear of the CEO, and they are executing a new supply chain concept – the end-to-end value concept.

 

Enhanced by Zemanta

Posted in Control tower, Demand management, Inventory management, Response Management, Sales and operations planning (S&OP), Supply chain collaboration, Supply chain management, Supply chain risk management