That webcast is now available on-demand.

Here is a little more about the session…

Translating business drivers into technology requirements: How to support today’s S&OP and SCM landscape

As a leading EMS provider, Flextronics is no stranger to supply chain pressures. Short product life cycles, demand volatility, supply shortages – all of which must be managed within a supply chain that crosses organizations, geography and time zones. As a result, there is a tremendous need for supply chain agility. One of the most fruitful ways to improve agility is to reduce decision latency throughout the multiple layers of the supply chain and throughout the various stages of the S&OP process.

Dave Smoley discusses the technology capabilities that are required to be a partner in their customers’ planning processes and pro-active in responding to their changing needs, thus avoiding the organizational chaos and business risks of being on the tail-end of a bullwhip.

Much has changed over the years since the 1980’s when few knew the term Supply Chain Management (SCM) and even fewer knew what it meant, including me.  The closest one could come to study SCM at university was Operations Research or Industrial Engineering.  Having done this at the graduate level, I can attest that the focus was very much on factory optimization with little emphasis on the inter-connectivity between demand, production, and supply.

I remember going to a pulp and paper manufacturer in Florida in the mid-1980’s because they wanted to optimize the utilization of their digesters, even though they were at over 90% utilization.  It didn’t take long to discover that there was over 9 months of finished goods and over 4 months of raw material on site. I had no idea and never bothered to find out how much finished goods inventory there was in the distribution channel.  Clearly, the company’s supply chain problems were not related to the utilization of their digesters.  However we had been brought by the plant manager to optimize the digesters and he had no responsibility for either raw material (Purchasing) or finished goods (Sales) inventories.  The question we were faced with was who owns the problem?  We could have gone to the Sales VP or to the Purchasing Director, but they each only owned a part of the problem.  Notice also the titles of the people responsible for Sales, Production, and Purchasing.  Eventually we managed to get a meeting with the CFO on the pretext of getting data for production costs.  The CFO was a lot more receptive to our message but really didn’t own the problem either, so he sent us to the CEO.  He thought we were a bunch of engineers, and he was right.  We couldn’t really articulate the issue in a manner in which he would understand.  Somehow, we managed to get enough across to the CEO to ensure that project focus changed to profitability rather than capacity utilization.

And yet, in a recent study by SCM World and Aberdeen titled “The Evolving Role of the Chief Supply Chain Officer”, there still appears to be a mismatch between the expectations of the C-suite and the people actually running the supply chain.  There have been a lot of positive developments since the 1980’s including the establishment of university courses and the knowledge of the function and strategic value of SCM within the C-Suite.  The use of the term “chief supply chain officer” is a testament to this change.  While the gulf between the C-suite and operations has narrowed, the very first chart in the SCM World report indicates a mismatch in objectives and perception.

The good news is that the C-suite is focused on using the supply chain as a competitive weapon; however, it reminds me of Peter Drucker’s definition of the difference between being effective and efficient.

“Efficiency is doing things right; Effectiveness is doing the right things.”

Perhaps this is the correct split in which the C-suite focuses on what should be done, while the rest of the organization focuses on doing this in the most efficient manner. The SCM World report indicates that there is a much closer alignment between the C-suite and the rest of the organization when it comes to the areas of efficiency gains.  However, even here it appears that the C-suite has a greater focus on the more strategic goal of restructuring the supply chain organization (effectiveness), whereas the rest of the organization has a greater focus on reducing inventory (efficiency).

I think there is still the need for people in the supply chain to understand the objectives and perspectives of the C-suite and to align themselves with these, and to communicate in the language of the C-suite.  The arrival of the “chief supply chain officer” in the C-suite is certain to close this gap.

Planning & Execution

Some months ago, Lora Cecere wrote a blog post about the gap between planning and execution, what she calls the supply chain black hole.

Lora states that:

Technologies are evolving to eliminate the supply chain black hole. In this first generation of supply chain applications, we have built a fixed response with very little sensing.

How can we effectively respond when we cannot sense?

Lora goes on to state that

The first generation of supply chain applications got us started down the path, but they must be cast-off to move forward.  ERP is not the backbone of supply chain management for the future.  The new technologies will not come from the ERP consolidators.

We are at a discontinuity between inside-out and outside-in technologies.  The new technologies will be outside-in. They will help us sense before responding.  They will help drive an intelligent response.

Lora’s statements are supported very strongly by the findings of the SCM World study, with very clear differentiation between the best-in-class SCM companies and those that received an average rating.  In the case of closing the gaps between planning and execution, there is a huge difference of 17%, and 28% to the laggards.  While not as dramatic, there is also a significant difference in the degree to which information from trading partners is included in SCM processes.

How can you sense what is happening in your supply chain quickly and effectively if you do not get demand or supply signals from your trading partners?  Or as Lora states, “how can we effectively respond when we cannot sense?”  Sensing is only half of this statement, responding is the other part.  How can you have an effective  response without closed-loop integration between supply chain planning and execution?  As Nick LaHowchic states in an interview in SCDigest,

Companies need to respond much faster tactically. You can’t wait for a monthly S&OP meeting to make most of those tactical decisions any more.

Summary

These commentators and the results from the SCM World survey clearly indicate the importance and benefits of closing the gaps between planning and execution.  The business drivers behind this need start from customer expectations for reduced order-to-delivery lead times and competitive pressures to bring new products to market in ever shorter cycles.

But the gap is wider than just between supply chain planning and execution.  It starts from the gap between financial plans and supply chain planning.  This is, of course, the primary gap between the C-suite and the supply chain function.  One talks in financial terms and the other talks on operational terms.  One talks effectiveness, the other talks efficiency.

Perhaps the answer is to have a single integrated planning and execution system, from business planning all the way to execution, including S&OP in between.  Only then can we bring these gaps together.  Any change in the business plan will be reflected immediately as changes of goals and objectives for operations.  Equally, changes in planning and execution will give the C-suite visibility in future performance.

What are your thoughts?  Do these gaps exist in your organization?  How effectively do you communicate with the C-suite?

Just a reminder of next week’s webinar:

Part 1: Pharma 2020 – Maintaining competitiveness and operational advantage in a rapidly changing environment
Tuesday May 25th 2010,  11:00am ET
Live Webinar

Speakers:

• Hans Engels, CEO, DSM Pharmaceuticals Inc.
• Thomas Panzer, Vice President Global Supply Chain, Bayer Biotech
• Nari Viswanathan, Vice President, Aberdeen Group

Key topics will include:

• Optimization of inventory and manufacturing capacity across multi-tiered global pharmaceutical operations
• Driving working capital efficiencies
• Enhancing supply chain agility and flexibility to integrate and align supply and demand

Registration is complementary.

In working with clients, I have never seen so much interest in supply allocation options,  demand prioritization and customer segmentation. Companies are realizing that the FIFO approach to customer demand isn’t good enough anymore.  However, you do find some companies that think that they need VERY complex rules. Supply chain doesn’t have to be complex to be effective.  In fact, I would argue that the opposite is true.

Companies all want to maximize revenue and minimize stock levels. I believe that global competition has also had a significant influence on the need for supply allocation options. If you can’t satisfy everyone on time, which customers are most important and what impact will not satisfying some customers have on your business?  Many companies have top tier customers that represent such a significant portion of their business that they always need to satisfy.  Other companies are rewarding their customers with the best forecast accuracy.

Supply is being allocated at either the finished good level or the material component level. If you are managing the finished goods side of the business, you may need a combination of automated supply allocation rules and also the option to manually allocate or create firm allocations to distribution centers or regions.

There is no one rule however for supply allocation. These are collaborative decisions that need to be supported by software but not decided by software.

What has been your experience with limited supply? How are you solving this today and do you need a better way? I would be really interested in hearing your comments.

We are delighted to be sponsoring an upcoming webinar that will explore key issues for the global Pharmaceutical Industry and discuss the impact of these trends on supply chain development, response and go forward strategy.

Part 1: Pharma 2020 – Maintaining competitiveness and operational advantage in a rapidly changing environment
Tuesday May 25th 2010,  11:00am ET
Live Webinar

Speakers:

• Hans Engels, CEO, DSM Pharmaceuticals Inc.
• Thomas Panzer, Vice President Global Supply Chain, Bayer Biotech
• Nari Viswanathan, Vice President, Aberdeen Group

Key topics will include:

• Is the era of blockbuster new products over, and has the balance shifted to a new paradigm of competition on process and efficiency?
• Optimization of inventory and manufacturing capacity across multi-tiered global pharmaceutical operations
• Driving working capital efficiencies
• Enhancing supply chain agility and flexibility to integrate and align supply and demand

Registration is complementary.

3D TVs were the big story at the CES show in January and  now I’m starting to see them show up at Best Buy.    While I tend to be in the early majority of the technology adoption curve, I don’t think I’ll be buying a 3D TV any time soon.   So, am I representative of the population, or am I just receding to the technological late adopters side of the curve? Is my geekiness declining as my age advances? Or are others as apathetic about this as I am?

On the one hand, there is definitely a “gee whiz” factor that you simply can’t deny.  It’s that coolness that have been drawing people into 3D movies since the 1950’s   Classics like House of Wax and  It Came from Outer Space drew people into the movie theatres  despite having questionable plots and an excess of things flying out of the screen at you.  Recent hits like Up , Avatar and Alice in Wonderland are fanning the flames of interest in 3D.  Now you can have this experience in your home.

On the other hand,  there are several issues that could impact the adoption of 3D;

• Glasses – Today’s TV and movie theatre technology requires you to where special glasses to view 3D. A CNET article points out that the 3D glasses are specific to a given set and cost as much as 150 per pair.  This might not be prohibitive if you are just watching yourself, but if you have a family, you need a pair for each person.  And what if you have friends or family over for a visit – do you need a pair for them as well?  Besides…I have enough trouble keeping track of my remote control; who needs another thing to look for?
• Content – Aside from a few movies, and some sporting events, there is not a whole lot of content currently available.  Similar to the implementation of HD, there will be more and more content coming as devices become available and more common.  It’s that traditional chicken and egg problem.  From the consumer’s perspective;  What is the point of spending thousands of dollars for a new TV if there is nothing to watch?  From the content producers perspective; Why should I spend millions making 3D content when there are very few people with 3D sets? 
• Consumer fatigue – Many consumers have just upgraded their home theatre set-ups to allow them to consume high definition content;  Large 1080p televisions, HD Tivos, new set-top boxes from the cable company or satellite provider and of course new upconverting DVD players or Blue-ray decks.   Those who have just recently upgraded are not likely to want to go back and buy another new system.   Those who haven’t yet gone HD will likely not go 3D when the time comes to replace their systems.
• Technical issues – multiple formats, differences in perspective (kids see 3D differently than adults do because their eyes are closer together), all put the market in a high state of flux.

So the question then becomes if you are a TV manufacturer and are offering a 3D TV, how do you forecast future demand?  Do you go bullish and forecast big sales?  Or do you play conservative and risk stockouts and the loss of significant potential revenue?  

The big concern is that the technology is still in a state of flux and if you are holding significant inventory when the next advance hits, you could be stuck with a lot of obsolete inventory.  One example of potential game changing technology is the introduction of 3D televisions that don’t require special glasses.   You don’t want to be sitting on a pile of old stock when that change hits.

Traditional forecast accuracy mitigation issues can’t help in this case. Normally, you could use techniques like postponement strategies to limit inventory costs while improving responsiveness.  With 3D TVs it is entirely likely that technology changes and that the majority of your strategically placed inventory would need to be replaced. 

So what to do?  Personally, I’d probably go conservative, but as I’ve already pointed out, I’m not that excited about 3D. Let’s hear from you…  Are you excited about the upcoming “3D revolution”?  If you were to forecast 3D TV sales, what factors would you consider?   Comment back and let us know.

I do not know what the details are around the supply of this product, whether the forecast was low or manufacturing capacity was just not there, or if it was just a distribution issue, but it got me thinking about what can be done by OEMs to mitigate this type of situation.  The situation being that at some point, the forecasted demand was a lot different than the actual demand.  As I was taught years ago, the first rule of forecast is that they are always wrong.  My conclusion is that since the forecast is always wrong, the solution has to be in quickly responding to the changes or variances between the forecast and the actual demand.

I recommend you read the short white paper “Are Yesterday’s Solutions Conflicting with Today’s Challenges?”, by Charlie Barnhart when he was with Technology Forecasters.  While the paper was written a bit ago, the premise remains very true. In this paper, Charlie describes a response management approach to dealing with change (such as variations between forecasted demand and actual demand) especially in an outsourced manufacturing environment and given shrinking product life cycles and rapidly shifting customer preferences.  Also, some interesting points are raised in the white paper as to why increasing inventory is not a viable solution.  As stated in the paper,

“Response Management provides organizations the ability to rapidly test and score options for responding to change by identifying what’s possible today with today’s resources”.

What are your thoughts?  Do you have any insight into this particular supply issue with the Wii Fit or similar ones?  Do you feel that the response management approach described in the white paper can effectively mitigate forecast errors?

Each week that I went to the store and saw a sign “Eggo Waffles are temporarily experiencing a shortage” on the freezer door my heart started pounding thinking about the drama I would have to endure at home.  This made me think about the whole issue of the supply chain breaking down for this product that is beloved by so many people.  I can’t remember in recent history (other than Elmo at Christmas) any time where a consumer product was missed so much by so many.  How could this happen??

Obviously, you can’t predict a natural disaster or even some technical repairs, but you could prepare for both of these unpredictable events if you had the ability to simulate these types of changes and understand the financial and operational impact in advance.  With a capability to simulate demand changes or supply changes, a company could put in place backup measures to ensure that if this event occurs they could minimize the disruption to their business.  Being able to respond to unpredictable events is clearly not unique to Kellogg’s; it is something all manufacturers should think about.  The world today is very unpredictable with many natural disasters, the state of the economy, political issues, etc.; I think it would be wise for everyone to plan for the unexpected and be able to respond quickly to change… as I would hate to go through the “Great Eggo Disaster” again with any other product.

I’m sure no one was predicting the need for these products in 100ml sizes a couple of years ago. And what if the airlines lifted the size requirement on liquids or reduced it to 50ml? What chaos would that cause the demand planners of the world? Walking to the front of the store I noticed some Olympic wear. As you know, Vancouver just finished hosting very successful Olympic and Paralympic games. I could only imagine the heroics and horrors that were experienced to make these games the success they were. Everything from scheduling materials for the new venues to the clothing, flags, food and everything else required for the games. Will the promotions to sell off Olympic paraphernalia make up for the excess inventories now on the shelves and in the warehouses?

In a discussion thread on the supply chain expert community, Joshua Gao asked what your “Vision of the Supply Chain” is?  Well, if we look to the past many things are different from our grandparents’ supply chain. Two of the biggest stand out.  First, customers are more demanding. I mean that in a positive sense, in that customers can quickly research products, understand trends in technologies and purchase what they want with a few clicks of a mouse. The second is that supply has become more fragile. Outsourcing, margin pressures and even catastrophic events can cause supply challenges. So this gets us back to the vision of the future and the question, how accurate does the forecast need to be.

In the past, good enough may have worked because there were fewer demand and supply pressures. But today and in the future, is it better to have an accurate forecast or should the focus be on handling the deviation?

If the focus is to manage the deviation and leverage your supply chain as a competitive advantage, then how much effort should go into developing the forecast if you know it is going to be wrong anyway? This is where it would be helpful to get your feedback since the answer may vary based on industry etc. Does the forecast need to be more accurate given the supply chain challenges of today or do you just need some number to start with since you will have to handle change regardless what the forecast states? How close does the forecast need to be, 40%, 60%, 80%?

Just one final request for feedback: if you were involved in any Olympic related supply chain stories, it would be great to hear them. Maybe your story will make the podium and win gold, silver or bronze!

Here is more about it:

“Using Segmentation Strategies for Better Demand and Supply Balancing in the Mid-Market”, presented by:

• Jeff Range, VP, global operations and customer service, March Networks,
• Nari Viswanathan, VP and principal analyst, supply chain planning practice, Aberdeen Group, and
• Trevor Miles, director, industry and applications marketing, Kinaxis.

Mid-market OEM’s are faced with unique challenges in today’s world of outsourcing. An effective balance between demand and supply in this environment is crucial, yet difficult to achieve. Learn how March Networks has used product segmentation processes and systems to overcome some of the supply chain challenges presented by outsourcing.

This 60-minute webcast presentation will be held on March 3, 2010, at 1:00 pm EST.