Posts Tagged ‘A&D supply chain’

Is it something in the water? Or are competitors eating your lunch? Fickle customers, no brand loyalty? What to do??

There appears to be a high level of interest in supply chain transformation this year. The economy is showing signs of improvement and companies are recognizing that there needs to be a renewed focus on business, technology and process improvement. Did anyone read the Wall Street Journal last week  http://online.wsj.com/article/SB10001424052748704858404576128531221475772.html and see the article about Nokia Corp and Chief Executive Stephen Elop’s plans to turn around the ailing handset maker? Comparing Nokia to a man standing on a burning oil platform who jumps into icy waters to escape the flames, Mr. Elop says dramatic action is needed to reverse a decline that has left the Finnish company “years behind” the competition.
I realize that Mr. Elop is referring to more than the supply chain, but a best in class supply chain will ensure that the right products are available at the right time to deliver to the customer.
There appear to be three classes of companies. Leaders, LeaderWannaBe’s and Laggards. In my humble opinion I would characterize them this way:

Leaders:

• Visionary executives
• Manage risk
• Embrace change
• Empower the organization
• Never satisfied
• Consensus, collaborative decision makers

LeaderWannaBe’s:

• Not yet a leader but recognizes the opportunity and need for improvement

Laggards:

• Stuck in status quo
• Don’t take any risk
• Question and challenge change
• Still using 80’s processes and technology
• Make decisions in silos

I have the privilege of working with many companies, predominately high tech electronics, pharma, industrial, and aerospace and it typically isn’t too difficult to label the organization.

Leaders and LeaderWannaBe’s see opportunity and are focused on continuous improvement to widen the gap between them and the competition. Unfortunately, Laggards have their blinders on.

So I ask you …. How would you categorize your company and how can you influence the behavior? Nokia recognizes that it is time to act. Do you?

The heavy snowfall and freezing fog that closed airports and generally disrupted air travel in Europe the week before and during Christmas have me thinking about Donald Rumsfield and supply chain risk management.

Why Donald Rumsfield? While speaking about the government of Iraq and weapons of mass destruction in a 2002 press conference, Rumsfeld, who was U.S. Secretary of Defense at the time, noted that there are known knowns, known unknowns and unknown unknowns. In other words, there are things we know that we know, things we know that we don’t know, and there are things we do not know that we do not know. It’s these so-called “known knowns,” “known unknowns” and “unknown unknowns” that are at the heart of risk assessment mitigation.

The first step in risk assessment and mitigation is to visualize and analyze the known knowns. Think of the supply base for example—including your own internal manufacturing as well as suppliers. The supply management team must identify poor-performing, higher-risk and redundant suppliers, then transition away from them. When evaluating suppliers don’t forget that suppliers also have companies that supply them.  Your assessment should consider high risk components throughout the entire supply chain. Companies with many suppliers may want to do an assessment based on the value contribution of the components used (those components used in the highest revenue producing end items would be have their supply chain evaluated first).

The second step is to identify and assess potential risks to determine which ones have a probable chance of occurring based on the nature of the product and supply line. I’ll call these risks the known unknowns. So, for instance, supply managers realize that events such as the power outage that effected Toshiba’s production of NAND flash memory chips or inclement winter weather that wreaks havoc on supply chain operations can—and very well, may—come to pass. By proactively identifying, assessing and studying those events and potential resolutions, it’s possible to mitigate those risks using strategies such as developing plans to source from different suppliers, developing supply sources in other locations or using alternate modes of transportation.

At other times, however, an unanticipated event takes place that wasn’t planned for, so there isn’t a mitigation strategy. Alternatively, an anticipated event may occur, and while there is a mitigation strategy for the event, there are unanticipated complications such as material shortages or quality issues. I’ll call those the unknown unknowns.

In these cases, your ability to respond makes the difference between a minor blip or a full blown disaster.   There are several elements that are required for fast response;

1. You must receive a timely alert that indicates not only that the event has taken place, but more importantly that the event will have an impact on your business.  Consider two events occurring; a lost supply shipment of a commodity component for a low value, low volume item, and a shipment of a unique component for a high value, high volume end item that is delayed due to weather.  The first event may have no revenue impact at all.  The second event could significantly impact revenues for the quarter.  Without this differentiation, you might be spending your time dealing with the lost shipment when the late shipment will actually impact your bottom line.
2. You must have the ability to model the event. Your simulation must be backed by analytics that allow you to accurately model the event and the possible resolutions in real time.  While simulating the event and the resolutions, you must also be able to collaborate with other people and other teams to ensure that the resolutions take all factors into consideration and will have the best chance of succeeding.
3. Finally, You must be able to compare the different possible resolution options to determine which resolution will best resolve the situation.

All of this must be accomplished in hours, not in days or weeks.

Risk assessment and mitigation clearly are important and should be part of a complete supply chain risk management strategy. However, the ability to respond quickly and effectively when the unexpected happens is also critical. Without both capabilities, your supply chain risk management strategy will be incomplete.

There is an interesting debate taking place amongst the commentators of IT trends and enterprise applications, particularly ERP and supply chain management applications, about the suitability and adoption of cloud or software-as-a-service (SaaS) solution to this space.  This is exemplified by the article from Todd Morrison at SearchSap.com that appeared on Dec 01, ’10 in which contrasts opinions by Liz Herbert of Forrester and Ray Wang, principal analyst and CEO of Constellation Research Group.  This debate is nothing new in that it has been raging since the advent of SaaS some years ago.

On the one side Forrester repeats the usual arguments against broad adoption of SaaS for enterprise applications, which, according the article with my emphasis, state that:

Organizations can also benefit from the Software as a Service (Saas) products that complement the core SAP applications they’re running, according to Forrester.
…  In addition, some organizations are also reluctant to put mission-critical operations, such as supply chain management workloads, into the cloud.

Ray Wang, on the other hand is quoted as stating that…

what’s holding back the adoption of SAP’s on-demand/SaaS offerings is a “lack of ease of use” and cutting-edge functionality such as offered by Kinaxis and Plex.

Liz Herbert’s opinion is these applications…

don’t offer the breadth of capabilities that SAP does and that companies are reluctant to deploy software from Plex and Kinaxis because they don’t have the established reputation that SAP does, and certain functions like SCM don’t lend themselves to on-demand applications.

There is no doubt that SAP has a much greater market share than Kinaxis, but I challenge anyone to call on our customers to evaluate our ‘established reputation’.  And these customers include the likes of RIM, Flextronics, Lockheed Martin, and Amgen, all of whom use an SAP ERP backbone.

And, by the way, they are all very large multi-billion dollar companies with operations around the world.  I state this because the other usual pushback against the adoption of enterprise on-demand solution is that they are fine for the ‘little guys’ but don’t play in the ‘big boys’.

Let me also state that while many of our larger customers initially chose an on-premise deployment, many have either converted or are in discussion with us about converting to on-demand.  More significantly, the majority of new customers are choosing to go on-demand.  This trend is also being observed by SAP as announced at their SAP Influencer Summit yesterday.  While I have to agree that Business ByDesign is aimed at small to medium enterprises (so the ‘little guys’, not the big boys’) SAP stated that on-demand inquiries have gone from 1 in 10 last year to 1 in 2 this year.

Let me also concede that for many ERP functions the only incentive for putting things in the ‘cloud’ is one of cost effectiveness because many of the core ERP functions do not stretch outside the organizational boundaries.  And yet two of the functional areas that are seeing huge increases in adoption of on-demand solutions are customer relation management (CRM), or sales force automation (SFA), and human capital management (HCM) or human resources management (HRM).  I don’t know what could be more confidential than a company’s sales order pipeline or their employee records, including employee evaluations.  OK, maybe I will concede that the core financials are more confidential.

But I do find it interesting that Herbert considers the core ERP capabilities to be most applicable inside the four walls of a company. What surprises me is that she considers supply chain management to be restricted to inside the four walls of a company.  Our observation is that that for most of our customers outsourcing has meant that increasingly little of the supply chain is owned by the companies, especially the brand owners.  If these companies had the myopic view of the supply chain being only that part of the process in which they own the materials or product they wouldn’t need any of the SAP supply chain management suite because they outsource most of their manufacturing, in many cases never touching the product.

It is our observation that leading brand owners in high-tech electronics, consumer electronics, aerospace and defense, and life sciences need greater visibility and control of the end-to-end supply chain in order to provide reliable promise dates and to be able to deliver according to the promises made.  As inventories have been squeezed out of the retail and supply chains locations, the need for greater responsiveness and agility has increased enormously.  Ask any electronics manufacturer about the availability of key components over the past 12-18 months and you will hear stories about commodity items that could be purchased with a 2 week lead time as little as 2 years ago that now has 13 week lead times if you can find a supplier.  Given the buy-sell relationship many electronics OEM’s have with component suppliers (in which they buy items from the component suppliers and sell these items to the contract manufacturers) it is clear that they need a lot more visibility into and control over the supply chain than is provided in ERP systems, which is the core reason for their increased interest in on-demand SCM solutions.

What about your company?  What sort of ‘cloud’ strategy are they adopting?  What sort of applications will they be most interested in deploying on-demand?

Welcome to the S&OP Experts Blog Series.  This series features a weekly Q&A with an industry thought leader on sales and operations planning trends and strategies. Follow-up ‘question and answer’ sessions are hosted in the S&OP section of the Supply Chain Expert Community.  Registered community members may submit their questions for the expert of the week.

Colleen “Coco” Crum, a managing principal with Oliver Wight Americas, is considered a thought leader and innovator in demand management and sales and operations planning.  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, telecommunications, pharmaceutical, biotechnology, steel, 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.  Colleen “Coco” Crum’s full bio can be found here.

Kinaxis: What do you believe is behind the surge of activity around S&OP?
Coco: As my co-author, George Palmatier, and I state in our book, “Demand Management Best Practices,” the pace for adopting business processes is slow. The earliest implementation of S&OP occurred in the early 1980s. We should know, as Oliver Wight pioneered S&OP at that time and continues to bring innovations to clients. As a result, today S&OP is transitioning into Integrated Business Planning (IBP). As you will read later, the benefits are dramatically higher for companies that do S&OP/IBP well versus those who do not.

Widespread use of sales and operations planning did not occur until the mid-1990s. In our experience, it takes a minimum of ten years for fundamental changes in business practices to become widely adopted. It takes another five to ten years for these changes to become a routine way of doing business for the majority of companies.

Today, S&OP is a “hot” for the following reasons:

1. It is becoming a standard practice and is now evolving into Integrated Business Planning for companies with mature processes. Companies that do not have at least a standard practice of S&OP, operating at a capable level, have more difficulty competing against companies that have effective S&OP/IBP processes.
2. Software firms have started to push S&OP, as software for S&OP/IBP has been lacking. Unfortunately, only a few software firms offer dedicated S&OP/IBP software that: a) integrates all elements of S&OP/IBP and b) provides both executive graphical views as well as quantitative and qualitative information required to support a robust S&OP/IBP process.

Kinaxis: Do you think the definition of S&OP is clear in the marketplace?  If not, is that a problem? How do you define S&OP?
Coco: The definition has become clouded. Some companies do integrated detailed planning over the short-term planning horizon without executive management involvement and call it S&OP. Some software firms, sensing that S&OP is hot, position as S&OP the use of multiple software modules for detailed planning, even calling it “real-time” S&OP.

Following is the widely accepted definition of S&OP/IBP:

A process led by senior management that evaluates and revises time-phased projections for demand, supply, new product development, strategic projects and the resulting financial plans. This is done on a monthly basis, on a planned 24-month rolling horizon. It is a decision-making process that realigns the tactical plans for all business functions in all geographies to support the company’s business goals and targets.

A primary objective of S&OP/IBP is to reach consensus on a single operating plan, to which executives of the management team hold themselves accountable, and allocates the critical resources of people, equipment, inventory, materials, time and money to most effectively satisfy customers in a profitable way.

Compare the above definition, especially the words that are highlighted, with your company’s S&OP/IBP process. Is your company really doing S&OP/IBP?

Kinaxis: How important is a maturity model for S&OP?  Do companies have to be at the most advanced stage of S&OP to claim to be doing S&OP?
Coco: There are different levels of maturity for S&OP/IBP that range from:

1. Disconnected management processes, but there is a desire to do S&OP,
2. Foundational S&OP in which there is primarily a supply chain focus of balancing demand, supply, and inventory,
3. Capable S&OP in which all company functional plans are aligned (product and portfolio management, demand management, supply management, and financial management). The process focuses on making decisions to keep plans aligned and agreeing on the tactics required to execute the plan (with a strong set of KPIs),
4. Integrated Business Planning, which has a strong focus on identifying gaps between the latest projections versus the company’s strategic objectives. The process is used to focus on competitive priorities.
5. Integrated Business Management in which the process drives responsive optimization of the business in pursuit of business strategy. The process focuses on the use of alternative scenario planning to reconcile gaps between latest projections vs business plan and strategy and to perform contingency planning and risk management.

Results from Oliver Wight clients and studies by research firms, like Aberdeen and Ventana Research, show that companies at all levels of maturity achieve operational and financial benefits from S&OP/IBP. Companies operating S&OP/IBP at a higher levels of maturity achieve significantly greater operational and financial benefits than those companies that are not doing S&OP at all or have a Foundational process with a supply chain focus.

Kinaxis: Many are advocating the evolution of S&OP to Integrated Business Planning?  Are you a proponent of IBP? Tying the financial plan/measures directly into the process is a key component of IBP, what else distinguishes IBP from S&OP?
Coco: Oliver Wight has pioneered the evolution of S&OP to include product management and financial management. We also are leading the transition of S&OP to IBP. Here are the characteristics of IBP, which are the chief differences from S&OP:

1. More robust financial integration
2. Inclusion of strategic plans, initiatives and activities
3. More robust product and portfolio review
4. Improved simulation, modeling, and scenarios
5. Improved operational risk visibility and management
6. Gap identification and improved decision making
7. Easy, effective translation of aggregate plans to detail plans, and vice versa

George Palmatier and I have co-authored an article on the Transition of S&OP to IBP, which can be obtained here.

Kinaxis: Organizational thinking is often inherently bound by the dimensions of the “box” it is currently in because people don’t question working assumptions strongly enough. Do you believe “process inertia” is a barrier to advancing S&OP processes?
Coco: Companies certainly struggle with using assumptions effectively in the S&OP/IBP process. Planning over a 24+-month horizon requires an assumption based process.

In addition to developing competence in the utilization and management of assumptions, companies are hindered by software being quantitative based. Few S&OP software packages handle assumptions well – there are exceptions.

Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model?
Coco: One reason that companies do not evolve their processes and get stuck at the Foundational (supply chain) level is the lack of technology dedicated to supporting best practice S&OP/IBP. Spreadsheets just don’t cut it. Technology to support S&OP requires:

1. Executive management views of the business shown in graphical format so that exceptions can be quickly and readily grasped
2. Views of product and portfolio management; aggregate demand plans and assumptions;  aggregate supply plans, assumptions, and resource planning; and financial projections (revenue, margin, and inventory investment at a minimum),
3. Graphical way of portraying gaps between the latest projections and the business goal and strategies,
4. Documentation of assumptions, risks, and opportunities for all functional plans
5. Quick simulations of various scenarios and contingency modeling with “side-by-side” comparisons and documentation of assumptions, risks, and opportunities
6. Action item management.

Kinaxis: Is it possible to have an effective S&OP process that only looks at the aggregate or “volume” level? How important it is to consider the operational feasibility of the S&OP plan?
Coco: For more than two decades a best practice, or “Class A” behavior, for S&OP/IBP has been that all approved plans must be “doable.” This means that resources must be available and approved to execute all functional plans. Resource planning (manufacturing, operations, sales, marketing, product development, and financial) is a key element of S&OP/IBP.

Kinaxis: There is indeed a great deal of cross-functional cooperation and collaboration that is required for managing S&OP – how are companies enabling this, and are they doing it successfully?
Coco: It starts at the executive level. The S&OP/IBP process culminates each month in a Management Business Review in which the executive team reviews the latest projections, projected gaps in achieving business and strategic objectives, as well as resource projections and other needs in order to execute the plans.

With strong leadership by the president, COO, or GM (also called the “person in charge”), the leadership team over time begins to think in terms of the health and welfare of the company, rather than optimizing a function at the expense of the company. This is a chief difference between Foundational S&OP and Capable S&OP/IBP.

Companies that achieve the greatest benefits from S&OP/IBP use the process as a collaborative executive management process for running the business – this is the essence of S&OP/IBP. Consider these results from an Aberdeen study, which provide hard evidence that it pays to do S&OP/IBP well:

Ask yourself:

• What would a profit margin of 12% above the industry norm and 21% above the laggard companies mean to my company’s stock performance and return to shareholders?
• What is my company’s customer retention rate? What would be the impact on sales productivity and marketing and sales costs if our customer retention rate was over 90%?

Is cost containment your main supply chain management goal? If so, do you think you’ve paid a price for taking that approach?

Given today’s business climate, I believe those are two valid questions. What’s more, if you think your company–or supply chain–has suffered as a result of focusing primarily on cost containment, you aren’t alone.

An article that recently ran in Aerospace Manufacturing and Design (AMD) reports on the findings of a recent KPMG International survey of nearly 200 senior executives from the aerospace, metals, engineering and conglomerates sectors. Nearly two-thirds of the executives surveyed reported that cost containment remains the top priority in managing their supply chains. What’s interesting here is that almost forty percent of the executives also acknowledge that driving down costs has damaged relationships with their suppliers. In fact, according to the survey results, new strategies for managing the supply chain that are designed to repair relationships with suppliers and weather changing economic conditions are gaining favor among industry leaders.

I have to say I agree with Jeff Dobbs, Global Head of Diversified Industrials for KPMG, when he says that’s an alarming statistic, and those businesses that continue to follow the traditional low-cost-or-bust model in supply chain management are at risk of losing a foothold in the market.  The encouraging news, however, is that according to the survey results, having stronger and deeper relationships with suppliers is now seen as a vital capability by leading companies. More than 50 percent of the respondents expect to enter into more long-term contracts but with fewer suppliers.  Phew!

It isn’t just duration of the relationships that’s changing; depth of the partnerships is also changing. Over half of the survey respondents say their companies plan to collaborate more closely with suppliers on product innovation and development, R&D and cost reduction. Furthermore, the article reports that in more detailed interviews with executives from several top-performer companies participating in the survey, several said they will be working even more closely with suppliers. Some of them said they are strategically investing in key suppliers or bringing parts of the supply chain back in-house, and are applying a mix of both regional and global supply sources to achieve the best combination of speed, quality and cost.

As Dobbs said,

“It used to be that sourcing decisions rested on routine considerations, like who could make the best bolt for the best price. This approach worked when there was little variability in the cost inputs. Now, leading supply chain strategies must involve detailed scenario modeling and the most successful companies will be those who build adaptability and flexibility into their supply chains.”

That’s sound advice. To me—and apparently half of the participants in KPMG’s survey–the days of being able to “beat up” on suppliers to get better pricing are over. If a company is truly going to build an agile supply chain that allows it to quickly seize opportunities, then it makes sense that suppliers must be seen as strategic partners.

It’s time for sharing business strategies, mutually investigating risks and threats, jointly looking at opportunities, developing and linking plans and targets … and treating key supplier as an extension of the business. By sharing more information and working more collaboratively with key suppliers, you can make faster, better decisions. With a more complete view of the facts, you can resolve issues faster. And with more mature business relationships, you can achieve better long-term results.

To be sure, cost containment will continue to be a key goal, but so will overall supply chain performance. Viewing the supplier relationship as a strategic partnership and working more closely with those trusted partners will enable companies to ensure supply, improve demand planning capabilities, manufacture more innovative products and, ultimately, improve the ability to get those products to the customer. Aren’t those the goals in the first place?

Welcome to the S&OP Experts Blog Series.  This series features a weekly Q&A with an industry thought leader on sales and operations planning trends and strategies. Follow-up ‘question and answer’ sessions are hosted in the S&OP section of the Supply Chain Expert Community.  Registered community members may submit their questions for the expert of the week.

Steve Puricelli is a Senior Manager in Accenture’s Supply Chain Management Service Line and he is also the North America S&OP Offering Lead. He has an extensive background in sales and operations planning including forecasting and production planning, both as a practitioner and as a consultant. Prior to Accenture, he worked at Information Resources Inc (IRI), HP, and General Motors. He has more than 15 years of experience working across the high-tech, consumer packaged goods, aerospace, and automotive industries. He holds a BS degree in mechanical engineering and an MBA degree in operations from Vanderbilt University. Based in San Francisco, he can be reached at steven.j.puricelli@accenture.com.

Kinaxis: What do you believe is behind the surge of activity around S&OP?  What are the anticipated benefits?
Steve: A number of market drivers are putting pressure on supply chains and the S&OP process – specifically the volatility and uncertainty we’ve seen over the past 18-24 months. In addition, supply chains have grown more complex over the past decade, which has created a very dynamic operating environment. As a result, organizations are starting to realize that the supply chain and S&OP are important mechanisms to managing the business effectively. Traditionally, supply chains and S&OP are volume or unit focused, but now I’m seeing more senior executive involvement at organizations in S&OP because of the revenue and margin aspects it can control. Once viewed as simply the process or meeting to balance supply and demand, S&OP is evolving into a powerful mechanism to manage and shape business performance.

Kinaxis: How important is a maturity model for S&OP?  Do companies have to be at the most advanced stage of S&OP to claim to be doing S&OP?
Steve: An S&OP maturity model to me is comprised of a number of capabilities and is not a single entity – and understanding each capability and where your organization plots on the curve is certainly important. However, most organizations generally do not need to have, or be at the most advanced stage for each of those capabilities. In fact, I advocate that organizations selectively invest in those capabilities that drive value to their supply chains, and are on the leading edge of the maturity curve, while the other capabilities could reside lower on the curve. A term we use is Supply Chain Masters, and we’ve found through our research that leading organizations, or Masters, are not great at everything they do. We’ve found that these organizations selectively invest in capabilities that are critical to their business – and they are very comfortable and confident having capabilities lower on the maturity curve in those other non-critical areas.

Kinaxis: Can the S&OP process be carried out without technology? Does this relate to the S&OP maturity model?
Steve: The short answer is yes. I’ve seen a lot of organizations with “manual” S&OP processes that are also leaders when it comes to supply chain performance. Having said that, I’m a firm believer that technology plays an important role in a leading S&OP process, but it is not the driving capability. If you think about S&OP philosophically for a minute, it’s more than just a process or a monthly meeting; it’s actually a governance model for the supply chain comprised of organizational, process, and technology capabilities. I tend to see leading organizations, or Masters, focus more weight on the organizational and process aspects of S&OP over technology, but that’s not to say technology in these organizations is missing. In relation to an S&OP maturity model, there is certainly a correlation where technology plays a more important or less important role depending on the attributes or characteristics of the business. A supply chain with a small number of products, limited number of manufacturing and distribution locations, and only a few customers or channels – using a manual technology solution such as spreadsheets might be sufficient – or even appropriate. On the other hand, technology is often a key enabler for S&OP to scale – and providing the breadth and depth to S&OP is generally not achieved with manual approaches.

Kinaxis: There is indeed a great deal of cross-functional cooperation and collaboration that is required for managing S&OP – how are companies enabling this, and are they doing it successfully?
Steve: Building on the previous question and thinking about S&OP as a governance model comprised of three key areas: organizational, process, and technology capabilities – each area serves a distinct and important role to enabling cross-functional collaboration across the supply chain. The organizations that are collaborating successfully look at their S&OP capabilities holistically across each of those three areas. Addressing process without considering the organizational or technology capabilities may only yield marginal improvements. Each area plays a role in enabling cross-functional collaboration:

• Organizational capabilities are needed to help integrate more business functions into S&OP than are typically involved.
• Process capabilities should address and allow for integration into the upstream and downstream processes that S&OP touches.
• Technology capabilities should integrate and normalize the disparate data and system environments that generally exist with S&OP.

I’ve found that the leading organizations recognize there is no “silver bullet” when it comes to addressing S&OP effectively – just implementing a new tool or a new process isn’t going to enable S&OP. First and foremost, organizations that are doing this successfully have clearly defined ownership and accountability of S&OP and they also understand that all three components of S&OP should be addressed. But I’ve also found that the reality is that organizations need to manage and operate with limited budgets and resources and may not be able to address S&OP in this holistic manner. And leading organizations are not immune to these constraints either, but they approach the enablement thoughtfully, and with a well defined roadmap that address the three components of organizational, process, and technology capabilities in an integrated manner.

Kinaxis: If you had to name 3 priorities for a company looking to evolve their S&OP process, what would they be?
Steve: Use of the word “evolve” implies a good or an acceptable S&OP process is already in place and the organization is looking to improve or further develop their capabilities. Under that assumption, I would recommend the following:

• Incorporate financial information into S&OP. As I noted earlier, supply chains have been traditionally very volume or unit focused, and have lacked the information and capabilities to make decisions based on the financial impact to the business. We recently developed an offering called PS&OP or Profit, Sales, and Operations Planning that specifically addresses this issue of evolving an existing S&OP model into a more enhanced version that incorporates profitability into S&OP decisions.
• Enable what-if modeling and predictive insight capabilities into S&OP. The growing complexity of supply chains, and inherently S&OP, is creating an increasing number of trade-off decisions that organizations are faced with each and every week.  These trade-off decisions, such as revenue vs. margin or cost vs. service level, are also complex. Effectively analyzing and testing each of the various scenarios that present themselves during the S&OP cycle through the use of predictive what-if modeling capabilities should allow for improved supply chain performance.
• Instill commitment and patience into the S&OP evolution. S&OP is one of the more complex business processes – primarily because it is so cross-functional and touches so many different parts of an organization. Whether an organization is evolving or transforming their S&OP process – commitment to making changes and improvements is needed from the organizational leadership and patience is needed from those involved with S&OP.  Leading organizations, or Masters, understand that driving real change around complex business processes requires both of these characteristics, as well as the understanding that there is not a finish line, but rather it’s an ongoing journey to continually be nurtured.

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Nobody likes to receive parts, sub-assemblies or assemblies that aren’t up to spec from their suppliers or partners. It becomes a critical issue, however, for companies that have outsourced much of their production, such as those in the in the aerospace & defense industry.

Consider, for example, the case of Boeing. At the end of August, the aircraft manufacturer announced that its first 787 Dreamliner aircraft will not be delivered in December as scheduled—the project has already been delayed by more than two years. Instead, Boeing has now pushed delivery of its first Dreamliner back until the middle of the first quarter of 2011.

A story that ran in The New York Times, a couple of weeks ago reported that the latest setback came after a Rolls-Royce engine failed during a Boeing test earlier in August. Rolls-Royce—which is a separate company from the carmaker of the same name—says it can fix the problems. But, a Boeing spokesman says the company had been counting on using that particular engine in a Dreamliner making test flights this fall.

Unfortunately, Boeing’s supply chain problems extend to other aircraft. The company is updating its old 747 jumbo aircraft with new, fuel-efficient engines, but there are outsourcing problems with that program as well as well.

A story that ran in the ChicagoTribune earlier this week reports that as the 747-8 undergoes flight testing needed to gain certification from federal authorities, technical issues continue to become evident. What’s more, Boeing concedes it is now unlikely that the process will be completed this fall, as it had earlier predicted.

Many of the technical issues originated with contractors, say union leaders. For example, one recent cause for concern is whether air-bleed ducts that feed compressed air from the engines into the plane’s cabin pressure system will meet certification standards, Tribune sources said.

“There’s a lot of dreadful work coming out of the partners the company is working with and also some great work,” Ray Goforth, executive director of the union representing 21,102 Boeing engineers, told the Tribune. “But they’ve really saddled themselves with some partners who are just not capable of doing the job. Unraveling those relationships is going to take time and money.”

There are numerous benefits to outsourcing. In Boeing’s case, outsourcing design and manufacturing initially slashed development costs for the 787 Dreamliner, which features all-new technology.

The problem at Boeing, as the Tribune article points out, is that Boeing executives have admitted the company didn’t have adequate oversight in place. Additionally, engineers said the 787 and 747 problems were slow to be addressed by senior officials who often didn’t want to hear bad news.

So it sounds like Boeing—and I suspect there are numerous other companies in a similar situation—really has two problems to address. One certainly is to improve the way the company responds to disruptions – both in terms of how quickly they find out about a problem, and how quickly they can react to it. But it’s the second issue that is more challenging. That is: How can Boeing change corporate culture?

To be fair, Boeing has taken steps to remedy the situation. First of all, the company has taken direct control of more of the 787 process to limit how much work is outsourced. Boeing bought Vought Aircraft Industries’ 787 operation and its stake in Global Aeronautica, two early supply-chain bottlenecks for the Dreamliner. It’s also rumored, the Tribune reports, that additional work on the 787 and future programs will be “in-sourced” to Boeing’s factories.

More importantly, Jim Albaugh, who stepped in as president of Boeing’s commercial airplane business last fall, has hired a consulting firm to deal with cultural and communication problems. That, to this observer anyway, is the pressing concern. It’s one thing to receive a critical part or assembly that fails during testing. But when that does occur—especially given a time-sensitive production schedule—action needs to be taken quickly. That type of response requires senior management to be both receptive to hearing bad news and capable of acting quickly.

What do you think? Does product you receive from suppliers and partners meet your expectations? If it doesn’t, is senior management receptive to hearing about it?

Here are two Microprocessors.  They look the same.  They have the same part number.  One will work fine.  The other?

The other, while it appears to be the exact same part is a cheaply made counterfeit.   If you’re lucky, it will fail as soon as you put it in.  If you are unlucky, it will fail as it is being used by your customer.  Depending on what this chip does, the failure could simply result in a return and an unsatisfied customer.  However, it doesn’t take much of an imagination to see that if this chip is part of a critical component in an aircraft, automobile or healthcare product, the failure could result in injury or death.

As I started to look into this subject, I came to the realization that it is HUGE.  To help me keep things straight, I’ve broken counterfeiting down into two broad categories;  Counterfeit retail products  and counterfeit components.  Both have different risks associated with them and have different mitigation strategies that should be considered.

We’ll look at retail products first.    People have been selling cheap knockoffs for as long as I can remember; clothes, purses, shoes and jewellery ($10 Rolex anyone?), and more recently, DVDs and video games.  If counterfeit watches and DVD’s aren’t enough, we are starting to see counterfeit medication too.  Everything from Tamilflu to Viagra have been counterfeited and sold as the real product…at significant risk to the person using the drug.

Ominously, counterfeit products and components are making their way through the military as well.  Counterfeit components are finding their way into missile systems, fighter jets and nuclear submarines.  Recently, the FBI discovered 400 routers in use in military installations were counterfeit and likely have been used for espionage.

From the brand owner’s perspective, counterfeit products are very damaging;  they impact sales, they drive up costs, they impact your good name, and they can harm your customers.

It seems that protecting yourself from counterfeiters is devilishly difficult.  Options include;

• Holographic labels (like you have on  your credit card)
• Micro-print (I’ve seen these on cheques)
• Unique / obscure marks (small dot on a label)
• Serial numbers
• RFID tags.

Unfortunately, counterfeiters keep coming up with ways of fooling the unsuspecting public. However scientists and engineers are also working to find ways to identify the real thing and have developed new ideas like  nano-artwork.

Let’s look at the supply chain side now.   Counterfeit components can range from relabeling of components (from a generic brand to a known brand), to a replacement of good parts with non-functioning mock-ups. A few months ago, NewEgg discovered that they had been shipping new Intel I7 processors that were in fact clever reproductions of packages that contained non-functioning models of the processor.  I’ve talked about counterfeit components of a different nature in an earlier blog post that talked about components manufactured on a ghost shift.

From the supply chain perspective, counterfeit components are a disaster waiting to happen. This disaster can occur at many levels;  counterfeit components intercepted and identified as part of incoming inspections has the least impact on your company.  If the counterfeit component is caught before your product leaves the factory, you have also been lucky.  Once the product containing counterfeit components gets into  your customer’s hands, failure of the component is your fault in the customer’s eyes.  A more distressing problem is what will happen when that component fails?  Will it just go pop?  Or will it burn like a poorly made lithium ion battery?

To avoid counterfeit parts, here are some ideas

• Beware of prices well below market values
• Know your suppliers
• Test your components often.  Ensure your testers are well versed in counterfeit detection practices including x-ray imaging, solvent body softening, component de-lidding and jet or plasma etching (these methods allow you to see below the surface of a chip and compare to a known good item)
• China is one of the leading sources of counterfeit electronic components.  While it’s difficult to avoid sourcing from China, be aware of the counterfeit risks.

Additional information on avoiding counterfeits can be found here, here and here.

Do you have a counterfeit story?  Do you have advice on how to avoid falling prey to counterfeit components or products? Comment and let us know.