Posts Tagged ‘Collaboration’

With the rise of the BRIC countries – Brazil, Russia, India, China – we hear so much about manufacturing outsourcing and off-shoring. Of course with wage increases in these countries, ever relatively cheaper manufacturing countries such as Vietnam are being sought. Even in industries such as automotive, where outsourcing is less prevalent, the portion of the components used to assemble a car that are bought rather than produced by the OEM has continued to increase, in some cases representing as much as 75%. The pharmaceutical industry has an ever more complex supply network in which they may buy one active pharmaceutical ingredient from a supplier, which they then package and sell, and sell another active pharmaceutical ingredient to the supplier, which in turn packages and sells the 2nd pharmaceutical ingredient. Of course some of the greatest degree of manufacturing outsourcing occurs in semiconductor and high-tech, where, in many cases, the OEM does not manufacture any of the finished products. The same is true of apparel.

The key point I want to emphasize is that we are all aware that over the past 20 years the brand owner in the western world is doing less and less of the manufacturing, whether or not they are completely outsourcing manufacturing or buying more and more of the value of the competed item from suppliers. What I find intriguing, especially in the case where a brand owner has either sold off its manufacturing to a third party or started a subsidiary, is that the relationship that exists between the buyer and supplier is exactly that. In other words, it is driven by a procurement mentality that emphasizes cost rather than supply chain flexibility. This should not be a surprise since outsourcing is itself driven by the need to reduce assets on the balance sheet in order to reduce financial risk in the long term and improve financial performance in the short term. Admittedly, there has been a maturing of the approach to outsourcing in that many companies will now assess the total landed cost of supply, not just the manufacturing cost. 

But it is the relationship between the OEM and the supplier/contract manufacturer that I want to address in this blog. I would like to see this progress to a more mature relationship in which risks and rewards are shared. In other words, to a collaborative relationship.

Let’s investigate this loaded term “collaborate”.  According to the Merriam Webster online dictionary, it is defined as follows:

col•lab•o•rate
\kə-ˈla-bə-ˌrāt\ intransitive verb
col•lab•o•rat•ed  col•lab•o•rat•ing

Definition of COLLABORATE
1: to work jointly with others or together especially in an intellectual endeavor
2: to cooperate with or willingly assist an enemy of one’s country and especially an occupying force
3: to cooperate with an agency or instrumentality with which one is not immediately connected

In my experience most companies follow the 2nd definition in their approach to collaboration with suppliers, largely because it is driven by a narrow procurement mentality, not from an end-to-end supply chain value and effectiveness perspective. Therefore the relationship is mostly distrustful and adversarial. In some cases the discussions move from the 2nd definition to the 1st and get bogged down in endless meetings with little tangible progress. In some cases progress is made to the 3rd definition, which is what I mean by collaboration.

In a blog titled “Time to Broaden the Knot on your Bow Tie?” Lora Cecere discusses her experience with collaboration over many years of working in industry or as a supply chain analyst. Lora writes:

My goal of this blog: stop the madness. Reset expectations. Stop fooling yourself. What most people call collaboration is really data sharing. Collaboration can only really happen when you have a lasting win-win value proposition; and in this changing world of power structures, constraints, and demand volatility, this is harder than ever.

According to BusinessDictionary.com Lora is spot on in her statement (my emphasis).

Collaboration
1. General: Cooperative arrangement in which two or more parties (which may or may not have any previous relationship) work jointly towards a common goal.
2. Knowledge management (KM): Effective method of transferring ‘know how’ among individuals, therefore critical to creating and sustaining a competitive advantage. Collaboration is a key tenet of KM.
3. Negotiations: Conflict resolution strategy that uses both assertiveness and cooperation to seek solutions advantageous to all parties. It succeeds usually where the participants’ goals are compatible, and the interaction among them is important in attaining those goals.

Let’s not be naïve though. The Japanese Keiretsu has its legitimate detractors, as does the South Korean Chaebol. Clearly there needs to be some level of tension between the brand owner and contract manufacturer, otherwise there would be no point in manufacturing outsourcing.  But let us take the best part of the Keiretsu concept, which is about true collaboration between partners, and discard the less attractive financial aspects of cross holdings, which meant that poor supplier performance was often tolerated beyond what was reasonable.

From a technology perspective, what caught my attention initially was Lora’s statement that “What most people call collaboration is really data sharing.”  EDI was a fantastic innovation in its time, but it is time to invest in the future based upon internet technologies. We have so often confused raw data with information. EDI only supplies raw data. How many phone calls and emails are required to supplement the EDI messages so that the buyer or seller has a full picture? Lead times as malleable. Due dates are malleable. A lot of supply chain data is malleable, but if all we receive is a binary/digital signal from a trading partner, we can only respond in a binary manner – yes or no.

Lora goes on to state that

Broaden your Bowtie: Conceptually, this approach has been around for a long time, but it has been difficult to execute. Just too time consuming to connect trading partner warehouse managers, traffic managers, customer service personnel, etc.  Not anymore. Use social technologies like Lithium and Jive as a core on partner extranets to connect people to people.  Complete with pictures, interests, microblogging, instant messaging, and fan pages.  Who says that supply chain cannot be more social?

There is no doubt that social media is catching on within companies to facilitate all manners of collaboration within the company. Why not leverage social media technology to transform data into information, adding all the nuances and subtleties of meaning and intent? But if you are using social media to add the additional content, why not exchange the raw data using social media too?

While using social media for supply chain collaboration is possible, it still does not go far enough for me. It most certainly helps to elevate data to information. But why not provide key suppliers, especially contract manufacturers, and customers limited access to your planning systems so they can participate directly in the decision process? You will have then elevated raw data exchange (EDI and transaction systems) to information exchange (social media) to true decision collaboration. This is possible today. (Don’t look to your ERP vendor for this technology. Their focus is inside out, not outside in.) Leave the final decision to the EDI messages and transaction systems, but the communication and collaboration required to reach a decision should be carried using internet technology. Decisions cycles are shortened dramatically in the examples where I have seen direct participation of key suppliers in the decision process. This is not nirvana. It is possible today. And a few innovative companies are taking advantage of this capability.

What do you think? Am I smoking an illegal substance? Do you have collaboration stories to share? What were the barriers? How did you overcome these?

For me one of the pleasures of being on vacation, as I was last week, is to read different newspapers and learn a bit about the local economy and politics.  While not quite as “local” as I would have liked, I happened upon the Caribbean version of the Miami Herald and was fortunate enough to run into an op-ed piece by long-time columnists Thomas L. Friedman of the New York Times titled “Really unusually uncertain”.  Many of you will have heard of Tom Friedman in the context of his book “The World is Flat”.  I stumbled across Tom Friedman in the late 1980’s – I think – and have been reading him avidly since.  Clearly I have completely plagiarized the title of Tom’s article, which in turn refers to US Federal Reserve chairman Ben Bernacke’s use of the term “unusually uncertain” to describe the outlook for the US economy. 

Of course this uncertainty is not restricted to the US economy, which is the point Tom Friedman makes by focusing on the German economy and how it relates to economic recovery in Europe.  In fact he points to three influences that will need to be reversed if the US and EU economies are to recover soon:

The first big structural problem is America’s. We’ve just ended more than a decade of debt-fueled growth during which we borrowed money from China to give ourselves a tax cut and more entitlements but did nothing to curtail spending or make long-term investments in new growth engines.

Second, America’s solvency inflection point is coinciding with a technological one. Thanks to Internet diffusion, the rise of cloud computing, social networking and the shift from laptops and desktops to hand-held iPads and iPhones, technology is destroying older, less skilled jobs that paid a decent wage at a faster pace than ever while spinning off more new skilled jobs that pay a decent wage but require more education than ever.

But the global economy needs a healthy Europe as well, and the third structural challenge we face is that the European Union, a huge market, is facing what the former U.S. ambassador to Germany, John Kornblum, calls its first “existential crisis.” For the first time, he noted, the E.U. “saw the possibility of collapse.” Germany has made clear that if the eurozone is to continue, it will be on the German work ethic not the Greek one. Will its euro-partners be able to raise their games? Uncertain.

Commenting on Bernacke’s statements, Jeannine Aversa of Associated Press writes that

Consumers have cut spending. Businesses, uncertain about the strength of their own sales or the economic recovery, are sitting on cash, reluctant to beef up hiring and expand operations. A stalled housing market, near double-digit unemployment and an edgy Wall Street shaken by Europe’s debt crisis are other factors playing into the economic slowdown.

OK, OK, so there is lots of economic uncertainty.  What do we do about it?  During my time as a management consultant I learned a fundamental truth: Analyzing a situation is fairly easy, defining a future state is a lot harder, but the really hard part is defining the path to achieve the future state. Not being an economist I can comment little on the efficacy of Tom Friedman’s suggestions for recovery, nor on Ben Bernacke’s for that matter.  My guess is that most of the readers of this blog fall into this category too.  Clearly we all want the same future state of a revived world economy and we are all too aware of the current state of the economy.  Of course we all have our opinions on the path to recovery, which we can express in elections, but for the most part actually pulling the levers of the economy is not something which is in our control. 

Which leaves us all feeling “really unusually uncertain”.

While we may not be able to effect change to the national or global economy, we do have some level of control over the economic performance of the companies for which we work.  As I commented in a previous blog titled “Why S&OP? Why now?”, this is where I see sales and operations planning (S&OP) playing a big role.  But for S&OP to be effective it must provide ways for people to evaluate and understand uncertainty.  There are 4 fundamental capabilities that are required to achieve this:

1. Capture of assumptions made about the future state for knowledge sharing and control
2. Facilitated collaboration across functional boundaries to get buy-in and inputs from multiple parties
3. Super-fast “what-if” analytics that allow organizations to evaluate and compare multiple scenarios in order to maximize performance and to mitigate any identified risks
4. Continuous plan performance management so that deviations are detected early and course corrections can be made quickly

The last point about performance management is often overlooked.  The more uncertain the future, the less likely it is that your plans will be achieved.  It doesn’t help much if at the end of the month you determine that the plan wasn’t achieved.  In a more stable economy this might have been sufficient.  In today’s volatile economy (which is the root cause of our uncertainty) it is really important to monitor performance continuously and to course correct as quickly as possible when significant deviations are detected.

However, what makes this all possible is super-fast “what-if” analytics.  Uncertainty is risk.  Without a mechanism to evaluate many alternative scenarios, your ability to evaluate and understand risk is reduced greatly.  Do you think Excel is up to this?  Do you think this can be achieved without any technology?

This is a follow-up to my post from a few weeks ago: Expediting versus Planning.  I received many comments and recommendations on this subject as to whether much of the expediting that occurs is in fact related to planning deficiencies.   After reading and reflecting on the comments I received, it seems to me that the premise that effective planning by itself will reduce the need to expedite is not necessarily true.  Obviously, effective planning is critical to reduce expediting.  Without a good plan, then what do we execute?  However, no matter how good plan is, it will always change.  Forecasts by definition are not accurate.  As we all know, changes and disruptions can occur in an almost infinite number of ways throughout the supply chain.  The best plan will always be out of date almost immediately after it is published.  (Just to be clear, when I say plan, I am referring to the MRP plan.)

Given the assumption that a plan is crucial, together with the realization that the plan will not be accurate, we are led to the conclusion that we need a stable plan, but be able to adjust the plan as and when needed. We need to be able to adjust the plan only when significant enough factors warrant a change to the plan, and with enough lead time and stakeholder buy-in to execute properly.  To restate, I believe that the following are important:

1. Plan Accuracy and Stability – The MRP plan needs to be stable enough to enable effective execution but we need to be able to detect exceptions that are significant enough to warrant a change
2. Responding to Change – The capability to effectively respond to required changes needs to be in place

How do we effectively accomplish the above?

Plan Accuracy and Stability

• First, the plan needs to start with an effective Sales and Operations (S&OP) process.  The more robust the S&OP process, the better that the high level plan will be.   
• We need to be able to detect or sense the need for changes, and once needed changes are detected, we need to be able to discern which are significant enough to warrant a change to the plan. 
• We also need to be able to prioritize these since there may be more than we can deal with. 

The key is that potential problems such as material shortages and late customer orders need to be detected for the future.  Obviously, once late orders or shortages have occurred, they are easy to detect (maybe even by way of angry calls from customers or buyers getting urgent messages from production regarding shortages.)

Referencing a recent blog post by Kerry Zuber, “Driving performance improvement through exception management“, Kerry states that in some organizations, there can be as many as 30,000 action messages generated by an MRP regeneration.  This exemplifies the complexity of the MRP plan and sheer volumne of exceptions in many organizations.  The organization cannot work all of these recommended actions, but which ones are the right ones to work?  Which ones signal that something in the higher level plan needs to be adjusted?  A second level, automated process needs to be in place in this type of environment to prioritize actions and also alert the responsible parties. 

The capability is required to detect what future demand will be late due to the mis-alignment of supply schedules,  issues with capacity in the supply chain and other issues.  If the future state/impact cannot be detected, then adjustments or contingencies cannot be put in place to avoid or mitigate them.  And as mentioned, we also need to be able to determine which of the detected changes require action and by who.

Responding To Change

Once changes are detected, we need a process to effectively implement these changes. This involves two key process and system capabilities:  simulation and collaboration.

We need to be able to simulate what-if scenarios to determine how best to deal with the change.  For example, it is difficult to calculate what the impact of a supplier changing commitments on a PO schedule will be in many environments without being able to simulate what that change in the commitment does to the overall plan.  In developing a response to the change, we need to be able to simulate multiple action alternatives and assess how well they will solve the problem and also whether they are achievable.

These simulations cannot be done in a silo.  Any significant change needs to be collaborated on with the extended supply chain.  Collaboration is certainly required with other internal organizations and potentially with affected external suppliers.

I realize that the above is very high level and probably over simplified, but I believe the general concepts are necessary in a complex manufacturing environment to optimize planning.  Without an optimized plan, execution cannot be effectively and efficiently accomplished and we have to resort to a lot of brute force exercises, including expediting.  Even the best of plans needs to be monitored for required adjustments and we need to have effective processes and systems in place for responding to these changes.

Has your organization implemented a process for responding to change?

On June 15th, I had the privilege of presenting at the world first Chief Supply Chain Officer Summit alongside a very well-known and respected Supply Chain Leader. I say alongside because Angel Mendez, Senior Vice President of Customer Value Chain Management at Cisco (NASDAQ: CSCO), really did the majority of the work. On this occasion, his message focused on the path he’s taking towards creating the “Next Generation Value Chain to Deliver Customer Value” for Cisco. While still a work in progress, with over 9,000 strong under his influence across 90+ locations and 32 countries, my money is on Mr. Mendez succeeding with his endeavor.

It begins with what he believes defines the customer experience value chain:

“Network of internal and partner processes, people and capabilities that translate innovation into customer value while delivering an unrivaled customer experience”

While closely formulated from Forrester’s definition, loosely defined as “activities through which companies create value, competitive advantage, and superior customer experiences”, what I find unique and interesting about Cisco’s definition is the specific attention and promotion of “people” and their “capabilities”. Perhaps this resonates so much with me because I have long believed that collaboration is the next supply chain “optimizer”, and collaboration is decisively a purpose-driven human activity. To be more precise, it is the unifying of actions taken by uniquely capable people for a common good (more on this later).

Angel identified four legs required to support the creation of strategic advantage; Customer Focus, Agility, Collaboration and Sustainability. At first glance, you might find these to be obvious and perhaps not so unique – and indeed, many companies are talking about these elements in one form or another. What is different about Angel’s message, for one, is the maturity and execution of the model. For example, I’ve never met a company who would say they are “not customer focused”; however, most continue to govern themselves according to traditional, and very operationally focused, metrics (e.g. cost, quality, delivery and speed). Cisco, on the other hand, measures their customer focus by focusing on perfect product launch, perfect order, order-to-invoice cycle time and last but not least “moment of truth customer satisfaction measurements” – thus, redefining their balanced scorecard to align with its customer focus.

A significant portion of Angel’s presentation was spent on the Flexibility/Agility leg. What caught my eye most is a theme I am seeing across multiple manufacturing segments, and is becoming a key requirement for many looking to improve their supply chain management and S&OP processes: the growing gap between Demand Chain and Supply Chain. Today, it is not uncommon to see completely disjoint demand side planning (S&OP) and detailed supply chain planning solutions, and yet, it is in between the two where a significant amount of efficiency and performance can be lost. I believe the gap is widening at a steady rate, and this is what is driving the need for new and innovative solutions to “collaborate and effect change in real time”.

So we’re back to Collaboration – the third leg. In my humble opinion, it will be in this area where excellence will be won or lost. You might look at collaboration as the combination of people + processes + technology/tools, but I was very impressed to see a slight variant of this long standing equation. In Angel’s vision, it is “culture” + process + technology/tools. I admit never having thought about it as a cultural challenge, but having worked with many large organizations on this problem, I’ve come to realize how unique a problem this is… collaboration amongst peers and employees is often challenging enough across departments. The type of collaboration Angel is talking about is inter-enterprise – which means that on a given day, you may very well be collaborating with a complete stranger living on a different continent. Indeed, there are cultural implications to achieving this level of maturity.

Again, I might say there is nothing new about promoting collaboration as a key to success; however, it is what Cisco is doing about it that distinguishes them from the rest. They are leveraging many of their own technologies to produce what they call an “Integrated Workforce Experience” (IWE) platform capable of bringing teams together to collaborate and solve ‘moment of truth’ problems that occur in the gap between demand chain and supply chain planning. Unlike social networking platforms, such as Facebook, MySpace and the like, which use friends, family and fun as a hook, I believe platforms like IWE will motivate productive usage and involvement through content, context, and consequence.

Finally, we have Sustainability, which is extremely topical these days as we watch in horror the catastrophe still hemorrhaging under the Gulf of Mexico. Here, we heard some common themes on creating efficiencies and innovations in product design, educating and increasing employee involvement, and a particularly catchy tag line: “Don’t just ‘comply’, lead, innovate, differentiate”. The one resonating message around sustainability, more of a lesson really, is the reminder that sustainability should not be viewed as a factor for competitive advantage, but rather, the one common flag around which everyone can unite and learn from one another. Industry collaboration will be the key to effecting a meaningful and lasting change.

Does Angel’s vision align with yours? Do you see effective collaboration as an emerging competency that will distinguish your company’s performance?

By the way, if you missed the presentation, grab a soda and sandwich and watch the replay of this presentation by registering here.

Our very own John Sicard will be joining Angel Mendez, senior vice president, customer value chain management at Cisco Systems for a presentation on Next Generation Value Chain Best-Practices.

As part of the 2010 CSCO Summit, the free-to-attend virtual event taking place on June 15th and 16th, 2010, John and Angel will co-present the track entitled, “Creating the Next Generation Value Chain to Deliver Customer Value,” on June 15th, 2010 at 9:00 EST (14:00 GMT).

Attendees will learn about Cisco’s supply chain transformation from a cost-centre to a competitive advantage. In response to rapidly shifting business demands, Cisco has focused on integrating previously siloed back-to-front end operations into a single global operations group that covers the extended value network, from downstream suppliers through to upstream customers.  This session will provide critical insights on the lessons learned and the key focus areas to consider.

The CSCO Summit, a two-day event consisting of an agenda of 11 presentations, brings together an influential group of global supply chain, operations and procurement leaders to learn and share best practices around the critical factors driving strategic supply chain and operational agendas across multiple industry sectors. 

To register for this free event, please visit:
http://cscosummit.raptureworld.co.uk/register

I recently read a blog post titled “Beware Supply Chain Excel Users—YOU are DOOMED!!!!” by Khudsiya Quadri of TEC.  I completely agree with the author that there is a big risk to SCM Professionals who rely too heavily on Excel.  There are all the reasons listed in the article such as  lack of collaboration, visibility, control and no ability to perform “what-if” scenarios.  I would like to add some additional thoughts to this discussion.

A big limitation of Excel in my view is that it cannot mimic the analytics in the company’s source ERP system.  Why is this important?  If someone is using Excel to make business decisions without all the capabilities the ERP source system has, then they may not be making the right decisions.  How can you make planning decisions if your spreadsheet doesn’t take into consideration functionality like sourcing rules, constraints and order priorities?

A company’s supply chain map is very complex, typically there are internal manufacturing data sources, external manufacturing data sources, inventory site data, etc.  It is possible to get data from multiple sources into Excel, but the big challenge is that the data is not always the same from each source system, so many organizations may have multiple spreadsheets to perform the same function/analysis.  But can any of those spreadsheets be truly accurate if they don’t show a true picture of the whole supply chain? 

It is almost impossible to control the integrity of spreadsheet data and access to the spreadsheet.  With multiple people accessing the spreadsheet and no security, how can anyone have any confidence in the data?   In addition, most spreadsheets need to be reviewed by many people which typically requires pushing the spreadsheet around.  Without system standard security, data integrity could be an issue and auditing who made changes could be an issue.   How can there be a high level of confidence in the data and subsequent business decisions made?

I have known many supply chain companies who do make critical business decisions based off of spreadsheets.  For example, one company would use spreadsheets to analyze big order drop ins.  If they had a big order drop in they would use their spreadsheet(s) to determine the effect on their business and when they could commit to the customer to deliver the order.  This would typically require multiple spreadsheets getting data from multiple sources, tons of manipulation, trying to tie data together, and many different users from the organization looking at their piece, which would take several days and by then the data had changed and the end user would only have a 50% confidence level in the answer back to their customer.  This can be crippling if your products are very expensive like in the aerospace industry where the products are multi-million dollar and the customer is the government who may impose penalties if orders aren’t delivered when promised.

You need to:

• get all the supply chain data in one place for visibility (with frequent data refreshes),
• mimic the source system analytics,
• have all the system standard security functionality and
• output data in a familiar “Excel-like” format. 

True nirvana is: one source of the truth, multiple users having access at the same time, data integrity, “what-if” capability with the power and flexibility of “Excel-like” outputs.

Collaboration is without a doubt a key component in many companies’ strategic initiatives.    The touted benefits (the good) are significant and they extend well beyond the financials, to include service improvements and risk sharing.    While some companies have begun the journey with collaborating with their customers, others have elected to start on the supply side.  In virtually all cases, the challenges of making collaboration successful are a series of painful lessons in the dynamics of people, process, and technology.  Attempts to initiate collaboration without a careful consideration of all three elements (the bad) can lead to projects that only deliver a fraction of the promise.  This in turn leads to faulty conclusions concerning the value of continuing the journey.    

I was recently exposed to a project where the customer collaboration project was focused on establishing a clearly defined process leveraging the limits of the existing legacy systems.   The ugly result was overtly complex and I seriously questioned it’s sustainability.  In this case, the relevance of technology as an enabler to simplify and accelerate the exchange of data was being ignored.    On the other hand, investments in technology without serious consideration on the impact to the people and processes can be equally fatal.   

I would strongly encourage any company traveling down this path to evaluate how new technologies are dramatically simplifying collaboration tasks.     My experience in implementing lean systems has shown that high quality results are best achieved when the human component is simple, repeatable, and designed with mistake-proofing in mind.   Consider whether the tools currently at hand will meet these standards and if not, then invest in learning what is available to help deliver the full value of the collaboration promise.

I was reading the article: “2010-Risk or Opportunity?” on SupplyChainBrain.com and it got me thinking about 2010 and the author, Mark Woodward’s comments.

The first topic the author discusses is “Multi-Tier Functionality”.  As more and more manufacturing operations are outsourced it is difficult for a company to have any control over their supply chain because they lack data.  I agree with the author that this becomes an imperative in 2010.  The economy is showing signs of improving however, all of the companies I speak with say the only sure thing is volatility.  No one really knows how the business will be so they will need to be able to react and make decisions very quickly up and down the supply chain.  This requires not only visibility into the supply chain data from suppliers, but the ability to simulate changes in demand and supply to determine how best to make business decisions based on fluctuations in a company’s business.  Ideally, the customer would have the ability to explode the full BOM to be able to make decisions at any level.

As the author states there needs to be a focus on relationship building.  The article talks about the relationships between trading partners and brand owners becoming true partners.  I absolutely agree. Having visibility into data and the brand owner being able to make better business decisions should help the brand owner make better business decisions about what they need from the trading partner and hopefully improve the trading partner’s business as well.  The customers I work with who do this well are able to create many different types of scenarios the simulate changes in demand which allow both parties to keep the lowest amount of inventory and lower their costs.

In addition, I think the brand owners need to focus on the relationships with their customers (as the author states).  Manufacturing companies I talk to are very worried about any significant change in their relationship with their biggest customers.  Typically, the biggest customers not only comprise a large portion of a company’s revenue, they also can be the engine for a company to acquire new customers.  If a top company in a field is using someone, then smaller companies in the same field may want to use that company as well.  So, the ability to collaborate with your biggest customers through a portal, VMI or just sharing data can be critical.  These relationships are also important in the sales and operations planning function for a company.  The best way to have true visibility to demand is a good customer relationship.  I do believe in this volatile market that sales and operations planning for a company will be key to their success in 2010 and good relationships and collaboration will be key.

All in all, 2010 is going to be an unpredictable year for manufacturers and the more visibility companies have in their supply chains, the more they can simulate changes in demand and supply, the better relationships they keep, the better off they will perform next year.  It will be interesting a year from now to see if the best performing manufacturing companies have implemented some of these capabilities. 

Happy New Year!

With the holiday season upon us, many of us are concerned about making the numbers for the year. Most midmarket companies, whether they are public corporations or privately held enterprises, have revenue targets for each reporting period, usually by fiscal month, quarter and year. These revenue targets are obviously an important part of the financial plan and operational performance for the company.

With manufacturing enterprises, a variety of unforeseen events can occur on a daily basis related to customer demand and the supply of the manufactured goods, as well as the supply of required purchased components from vendors. Even with the best of plans going into a reporting period, actions need to be taken to adjust for these unplanned changes in demand and supply in order to meet the revenue target.

I read the recent report titled “Performance Management in the Midmarket“, by David Hatch and Max Gladstone, from the Aberdeen Group, dated November 2009. The thing that struck me is that based on data collected for the report, the top pressure related to performance management for both midmarket and large enterprises is “lag times and the inaccuracy of operational business decisions”. What is stated is that operational performance is negatively impacted when “the lag time for determining operation performance is greater than the decision window (the opportunity to affect performance based on taking or changing an action)”.

The report goes on to identify the major stumbling block is the identification of source data: “During a fiscal period review process, or within an operational performance review meeting, senior executives often ask for metrics and analyses that send their business managers and teams scurrying to find the data that supports the desired answer”. From my point of view, the problem is that data is not readily available to the decision makers. In addition, reports and analytics need to be available against the data for review and to enable effective operational responses. The data and reporting cannot just be looking at the past, but the analytics need to be forward looking to provide information to decision makers so that actions can be taken to meet the performance metrics.

The operational requirement to meet revenue goals for reporting periods is a common concern among midmarket enterprises and could also be viewed as a fairly standard process across entities. Also, given that the absence of source data and the required reporting and analytics is also common, there exists a real opportunity for a standard solution. Midmarket companies can increase their effectiveness at meeting revenue goals by implementing an out of the box solution. The best solution will have the following key attributes:

• Standard integrations with various MRP/ERP systems
• “Cloud computing” enabled – midmarket companies can subscribe to the software rather than having to stand up and manage the infrastructure and software
• Simple to use with little or no training required
• Easy to tailor and configure if needed

Of course, many other operational issues could be targeted other than revenue management and with today’s technology, many solutions that only large enterprises have the resources to invest in can be made available to the midmarket. What do you think?

Many supply chains have more links in them than is initially evident.  The time it takes for information to flow up and down the supply chain can be directly proportional to the number of these links.  Moreover, some of these links in the supply chain can distort, as well as delay the information that needs to flow.  Most importantly, the right information needs to flow through the supply chain.  The speeding up of incorrect information or the wrong plan will only result in more churn, which can result in decreased customer service as well as increased inventory.

What is needed is the capability to simulate changes, determine the best response to these changes, and then communicate the response rapidly across the supply chain.

Consider the following diagram:

Based on the diagram above, there are at least two dimensions of links in a supply chain:  external and internal.  The external dimension is the links between one entity and another, such as a manufacturer and a supplier.  The internal dimension is reflected in the Bill of Material structure within an entity.

Each of these links can delay or distort the information flow along the supply chain.  Related to delays, a signal for a supply or demand change needs to likely flow via an MRP execution, normally only run nightly at best,  then there are potentially orders in place where the MRP execution creates exception messages that need to be acted upon by a planner or buyer before the change signal will flow.  In most cases, planners and buyers receive many more MRP exception messages that can be acted on within a day.  Obviously, since there can be at least several days of delay at each link, and considering these internal dimension links, the overall delay will sum up to a considerable amount of time.

Related to distortion, order policies to bucket orders into lot sizes or minimum buy quantities can magnify the change signal as it flows up the supply chain resulting in the traditional “bull whip” effect.  Given this, the wrong change signals can be continuously flowing through the supply chain.

Many manufacturers have attempted to reduce the delays and distortions along the supply chain by implementing automated rescheduling of placed orders, EDI, schedule sharing, supplier portals, small lot sizes, pull systems and the like.  All of these efforts help, but a more comprehensive solution is required to optimize the flow of the right information rapidly through the supply chain.

The comprehensive solution needs to provide the following capabilities:

• The ability to simulate demand and supply changes within multiple scenarios that can be evaluated against each other for the optimal response plan
• Provide the option of auto rescheduling orders and removing or changing lot sizes
• Include visibility into key supplier data and include in the simulation
• Evaluate the impact throughout the supply chain and communicate and collaborate the needed changes quickly

How many links are in your supply chain?  Have you considered this internal dimension of links?