Posts Tagged ‘Enterprise resource planning (ERP)’

In October, SupplyChainBrain attended our annual Kinexions user conference. At our event they completed a number of video interviews with some customers, analysts, and Kinaxis executives. These videos are loaded with great information and we would like to share it with our readers.

Each week for the coming weeks, we will be highlighting a clip. Next up, a discussion with Procter & Gamble (now retired), Supply Chain Insights; NCR Corp. and Kinaxis.

Power of One: Collaborative Planning and Execution across the End-to-End Supply Chain

Breaking down functional silos to create transparent and responsive end-to-end supply chains has long been an intractable problem, but many companies are finding success using a Control Tower concept that gets everyone working off the same plan and focused on the same outcome. Discussing this approach, and the Kinaxis solutions that pioneered it, are: Paul Bittinger, former supply chain transformation manager, Procter & Gamble (now retired); Lora Cecere, founder and CEO, Supply Chain Insights; Don Gaspari, director, global materials and inventory, NCR Corp.; and Kirk Munroe, vice president of marketing, Kinaxis.
[Run Time (Min.): 18:21]

The Kinaxis bags are packed and we’re ready for a full conference schedule in the coming months.
Our next event is the IBF Supply Chain Forecasting & Planning Conference, which will be held February 24th – 26th, 2013 at the Hilton Resort in Scottsdale, Arizona.

Be sure to stop by the Kinaxis booth and say, “Hi!”

Event Details:
IBF Supply Chain & Forecasting Planning Conference will provide expert instruction on the Fundamentals of Demand Planning & Forecasting, based on IBF’s body of knowledge used by thousands of global companies. The hands-on interactive nature of the program will foster discussion and idea sharing with participants on topics such as:

• How to measure forecasting performance, a key to continuous improvement
• How to analyze and treat data before using your ERP System
• How to prepare baseline forecasts using Time Series methods

To learn more about the IBF Supply Chain & Forecasting Planning Conference,
visit: www.ibf.org.

In October, SupplyChainBrain attended our annual Kinexions user conference. At our event they completed a number of video interviews with some customers, analysts, and Kinaxis executives. These videos are loaded with great information and we would like to share it with our readers.

Each week for the coming weeks, we will be highlighting a clip. Next up, TriQuint Semiconductor!

Transforming Operations Planning at TriQuint Semiconductor

TriQuint Semiconductor didn’t worry much about planning when all its capacity was employed trying to keep up with demand, says Laura Dionne, director of worldwide operations planning. As the market changed, however, TriQuint needed a solution that would allow it to rapidly sense and respond to market changes; its search led to a partnership with Kinaxis.

[Run Time (Min.): 11:25]

In the original blog on this topic, John Skelton asked if I had not mistakenly used “too much inventory” instead of “too little inventory” in the highlighted section of the sentence below:

“If we determine safety stock based upon the average demand, which is the usual manner of determining safety stock, we are keeping too much inventory to satisfy ‘most’ demand – as measured by the mode, or peak, of the distribution – and yet too much inventory to satisfy peak demand – as measured by the upper 95% confidence limit.”

The graph below illustrates my position and also highlights the issue John is referring to in his question.  I’ve chosen to focus on the curves for a CoV=2.5 because they have the greatest difference.  At a 90% probability the LogNormal distribution’s value is 227 while the Normal distribution’s value is 420, meaning that by using a Normal distribution the peak demand is being overestimated by nearly 100%.  It is only at about 98.2% probability that the curves swap over.  Until then, the Normal distribution is overestimating the peak demand.

But John is correct above a 98.2% probability. By the time we get to a 99.9% probability using a Normal distribution, underestimates peak demand by 250%.  Typically a Z value of 1.64 is used in the standard safety stock calculations which equates to a 95% confidence level.  At this confidence level the Normal distribution is overestimating peak demand by 142%.

As Lora Cecere has pointed out in a blog titled “Three Lies and a Truth”, only High-tech has achieved a material reduction in inventory over the past 10-12 years. My take is that this is because High-Tech has had to adopt postponement strategies because of rapid changes in product portfolio driven by globalization of demand and rapid changes in technology. They have had to become more responsive to demand changes and translate that demand change into a profitable response very quickly.

However, other industries have a shorter order-to-delivery cycle coupled with longer supply lead times, and therefore they have struggled to reduce inventories. In order to reduce inventory beyond our current levels we need to approach inventory management differently.  We should be using inventory buffers to model fluctuation in demand and supply near the mode or ‘typical’ demand and address the issues of unusually large demand or unusually long lead times through risk identification and risk recovery mechanisms.  In Make-to-Stock industries the typical risk mitigation issue of running higher inventories is satisfying neither our need for reduced working capital nor is it fully accounting for the risks which we are mitigating.  This is a very ‘command & control’ approach which we need to augment with a ‘sense and respond’ approach which will allow us to reduce inventory while simultaneously reducing risk through early risk identification and rapid risk recovery.

Know sooner; Act Faster.

Of course the approach we will take will depend on our risk tolerance and ability to sense and respond quickly.

More blogs in this series:
Truth, Lies, and Statistical Modeling in Supply Chain – Part 1
Truth, Lies, and Statistical Modeling in Supply Chain – Part 3

I came across an article in Industry Week about a study from IFS North America (with help from Mint Jutras), which shows how traditional ERP vendors are not addressing the needs of project based companies.

The study looked at companies with more than $100 million in annual revenues that engaged in Engineer-to-Order manufacturing, delivered projects as an engineering, procurement and construction contractor or companies involved in batch process (which requires enterprise asset management of plants and equipment).

According to the article, companies find themselves needing to manage projects because  it is part of the way they deliver products (like Engineer-to-Order companies) or because they need projects to manage their capital assets (think about managing a project to replace a major piece of equipment).

There is potentially a third area for project management that impacts many more organizations which the article doesn’t touch on: New Product Introduction.

Most companies in the study (71%) use Microsoft project – so companies are using technology to help manage their projects. The challenge, however, is that for many companies (39%) the project data is not integrated at all with the other systems used to run the company.  Further, only 14% of companies consider their project data to be fully integrated and 4% use embedded project data as a native part of their ERP.

So, you may be asking why should project management data be integrated into the systems that manage the rest of the enterprise? There are obvious ties between project deliverables and financial reporting.  The timing of project milestones can result in penalties and can impact revenue timing.  There are also ties with procurement and with human resources.  The largest impact though is with supply chain.  In Engineer-to-Order companies, for example, where the company builds the components and then installs them, the ability to deliver a project on time depends on the ability of the company’s supply chain to deliver on-time.

Imagine the following scenario.  You are a project manager managing the building and installation of custom heating system for a large institution. As you leave for the weekend whistling a happy tune because the project is on-time and on budget.

You come in Monday morning and see an alert that your project is at risk of missing a major milestone and idling dozens of people poised to move on the next stage. More importantly, this milestone is tied to a penalty clause that will cost your company tens of thousands of dollars.  You look at the project plan to see what happened.  You can visually see the task that is now late.  As you look at the task details, you see that it is tied to the receipt of a manufacturing order that is now late.  With a click, you can see that this order is late because a component supplier several levels down the bill of material, at a different site, has revised a delivery date. A quick call to the planner gets things moving and before you can finish your first cup of coffee. The project is back on time.

Let’s look at what happened behind the scenes: the component supplier revised a delivery date for a component that goes into a sub-assembly (at a different manufacturing site) that went into the main assembly needed by the project.  The supply chain tool recalculated availability for the assembly based on this new date. Because the project is integrated with the supply chain, the impact on the project in terms of milestone dates, resource impact and penalties can be calculated.  Finally, because you set an alert to notify you if a key milestone slips, you got notified in time to resolve the issue before costs were incurred.

Does your company install the products you make?  Do you have significant maintenance projects that need to be managed?  Do you have extensive NPI projects?  In each of these cases there is a direct tie between your supply chain and your project plan. So if that is the case, why don’t ERP vendors do a better job integrating these two capabilities? (Actually, that question can be asked about a lot of ERP offerings…)

How do you manage projects that tie to supply chain?  Comment back and let us know.

I recently received a comment on a blog post I did back in May, where I discussed how technology has changed Supply chain as part of the SCM30 celebrations.  The comment was more of a question; “Can technology assist in creation of employment in supply chain?”  I was going to post a response (and still will) but thought that this question warranted a full blog post on its own.

So my answer to the question is “no”.

“Well, that’s simple” you say. “You didn’t need a whole blog post for that”. Ok, yes. There is more to it than that, much more.

No, I don’t think technology will directly create jobs in supply chain.  In many cases, technology attempts to reduce labor within the supply chain. Whether it is robots, automated assembly lines or supply chain software, one of the goals of technology is to reduce the labor input into the value stream.  That being said, there is an indirect impact of technology on supply chain, in that technology helps us to be more competitive. Compare the printed circuit board assembly techniques from 20 years ago to the automated processes used today. Machines can stuff components onto a board at a blindingly fast pace, far outperforming what could be done manually, with far better quality.  The same can be said comparing automated painting systems, automated storage and retrieval; the list goes on.

On the supply chain side, advanced supply chain planning tools have significantly improved our ability to plan and more importantly respond to the rapid changes we see in supply chain today.

• Integration capabilities allow you to see data from across multiple systems so that there are no data walls – even if one location is using SAP, another is using Oracle, and a third location uses JDA.
• Alerting technology informs you that change has happened – and in more advanced systems, lets you know what the impact of that change is.
• Scenarios allow you to try different resolution options then compare them to see which option provides the best alternative.
• In-memory analytics and data models allow you to run these comparisons in seconds rather than hours (or days).
• Advanced reporting tools mean that you can visualize all of this information quickly and easily in aggregate or in detail.

Believe it or not, many companies are still trying to respond to urgent supply chain problems with big ERP suites that are based on technology from the 70s and 80s (Urgent problem? Need to know all locations that use this component? Sure, I can run that report – check back next week!)

Both of these factors show that technology can make your supply chain much more competitive. But how does that tie to jobs in the supply chain?  First, the fact is that supply chain jobs didn’t just disappear.  There are still lots of jobs in supply chain. But where are those jobs?  Right now, they are in Asia, Eastern Europe, India, etc. Why? These places have been more cost competitive than North America and so there went the jobs.   It stands to reason that, within limits, if North America can again be competitive on the manufacturing front, some of the jobs will come back.

Of course, the evolving manufacturing and planning technology means that the types of jobs available will change. There will be less of the basic manual or clerical type jobs; assemblers, inventory control, shop floor control type jobs will likely be replaced my automated systems.  However, the more interesting, value-add jobs in advanced planning and those associated with deploying, managing and maintaining these systems will grow. (See Trevor’s recent post where he talks about the future requirements for supply chain talent.)

To wrap, let’s bring it back “Can technology assist in creation of employment in supply chain?” Not directly, however eventually I see more but different jobs coming to supply chain as a result of changing supply chain technologies. The question is will we have the talent to fill the new types of jobs in supply chain? I’m hopeful, but only time will tell. What do you think the future of supply chain employment?  Comment back and let us know!

For many companies, it remains a significant challenge to bring projects in on time, on budget, and delivering expected results. This is particularly true for organizations that manage large, materially-intensive projects. Many software tools and solutions are available that support Project Management but very few fully model the interdependence between projects and material supply, a key project resource.  Businesses that do have the ability to link project schedules to the supply chain can actively manage the impact material availability can have on project schedules.

Problem – Changes in material supply, product orders, customer forecasts, or staffing resources can have a significant impact on project schedules in terms of having to accelerate or delay project delivery. Often, these supply and demand changes take too long to show up in project management schedules, resulting in missed milestones, “throw away” work, penalties, and cost overruns.

Need – Enterprises need a single management system that breaks down the silos between human resource management, supply chain management, demand planning, cash management, and project management to ensure that physical and human resource utilization is maximized.”

In fact, we’ve just published a white paper on this very subject.  The paper describes an integrated approach to project management which enables an organization to model all their projects and their entire supply chain together in one environment. I recommend checking it out to understand the business case for linking project management to the supply chain and to understand the specific capabilities that should be included.

With the question of why integrate project management with the supply chain answered, I offer some further insight into the how. In this, and upcoming posts, I’ll walk through the various considerations for establishing the link.

Implementing the New Link between Project Management and the Supply Chain.

Implementing Project Management tools linked to the Supply Chain is similar to the move from stand-alone MRP tools to integrated ERP solutions.  In a MRP to ERP transition, a major challenge is bringing finance and supply chain/operations departments together to understand each other’s data and functional needs, then configure both software and business processes to meet the new requirements. Adding project management to the mix and linking this function to the supply chain/operations and finance groups (who are hopefully already running flawlessly together in their connected ERP environment) presents similar challenges.

Implementation Success Factors
Successfully integrating project management capabilities with supply chain data includes;
1. Identifying variable(s) linking project management to the supply chain.
2. Knowing/Managing the data that impacts the linking variables.
3. Defining linking strategies.

Identifying key variable(s) should be the first focus.  A ‘key’ variable is one that if it’s changed by one department, the change impacts decisions and metrics used by another.

For example, when shifting from MRP to ERP systems, a key variable is the goods movement transaction.  Once linked, goods movement transactions result in real time shifts of assets in financial summaries.  In a RapidResponse example, the Constraint Management Resource was added in a recent release; key variables linking the Constraint Management Resource to Planning Resources were constraint capacity variables.  If constraint management is utilized, real time changes in Planning Resource data occurs as constraints are changed.

With the introduction of the RapidResponse Project Management Resources, the key variable linking it to RapidResponse Supply Chain Resources is the linked order ‘Material Availability’ date (the date an order is expected to be available given other supply chain dependencies.  This often varies from an order due date).  Changes in material availability can be configured as a hard link to immediately automatically shift project management tasks in or out, or a soft link to allow for warnings when out of sync that must be manually acted upon.

In all of these examples, configuration settings and business processes for the existing software/RapidResponse Resources were defined before the new linked software/Resources were adopted.  They weren’t initially set-up to meet needs of linked software/RapidResponse Resources/departments.  In the pre-implementation phase it’s time to re-evaluate, and as needed, re-design business processes and software configurations to ensure the key linking variables meet goals of all parties to minimize “discovering” them in the course of normal daily work.

In this latest integration effort, one doesn’t want to link project management tasks to orders without first communicating with the supply chain group to understand how material availability changes over time.  In some cases, shifts in order material availability may be the ‘exception’ that project management should be aware of immediately.  However, in other cases, material availability may have significant swings on daily/weekly basis.  Are both situations acceptable to directly impact a project management schedule with a hard link?  Should a soft link be used where only warnings appear to be manually reacted upon in the Project Management Resource?   What is the root cause of the variance and should/can it be eliminated?  All are good questions for…

Future Posts…

• Do you know your data?
• To Link or not to link. That is the question.

It is many years since Gartner started discussing demand-driven value networks. This concept is central to their ideas of an S&OP maturity model in which the most mature level, “Business Orchestration”, is all about what Gartner calls demand translation. The diagram below is from a Gartner webcast (Delivering Business Value from S&OP, Applebaum, T., Kohler, J., 29 March 2012). While this was presented on Mar 29, 2012, the earliest Gartner reference to demand-driven value networks dates from the early 2000’s.

In a public report Demand-Driven Value Network Orchestration Key Initiative Overview), Lord, P., 3 February 2012) Gartner defines demand translation as

Demand-driven value networks (DDVNs) integrate processes and data in the supply chain to enable collaboration, as well as orchestrate a response to demand that creates value and mitigates risk.

A broader definition of DDVN available on the Gartner website states that

A demand-driven value network is a business environment holistically designed to maximize value across the set of processes and technologies that senses and orchestrates demand based on a near-zero-latency signal across multiple networks of employees and trading partners.

In a recent report, (Definition: Demand-Driven Value Networks, Burkett, M. 13 July 2012) describes the required attributes of DDVN as

• End-to-end alignment and synchronization of demand, supply and pr noduct cycles across multiple enterprises
• Ability to better manage demand through sensing and shaping processes
• Ability to translate demand to deliver a profitable and sustainable supply response
• S&OP that links execution with strategy to facilitate conscious trade-offs across demand, supply and product networks
• Metrics driving joint value for customers, suppliers and shareholders
• Technology architecture enabling collaborative relationships, end-to-end visibility, responsiveness, and fact-based decision making to maximize value and mitigate risk
• Culture that develops and/or acquires talent to enable transformation and that encourages new learning, while also gaining scale by sharing standardized and proven practices

What I find fascinating is that other companies are now promoting this concept, not the least of which is Boston Consulting Group (BCG). In an article (The Demand-Driven Supply Chain: Making it Work and Delivering Results, John Budd, Claudio Krizek, and Bob Tevelson, 30 May 2012 – free registration required) they give a practical example of how DDVN can reduce the overall cycle time of responding to a demand spike.

What I find most interesting in this diagram is the manner in which they describe a different information layer that crosses organizational boundaries. In the top half of the diagram, the “traditional” supply chain we can see data flowing between systems, usually between ERPs with EDI signals, that is a cascade, starting from demand and bubbling up the supply chain to raw material. The information first has to go from the retailer’s store to the retailer’s warehouse, and then to the manufacturer’s warehouse, etc. I think we can all recognize this as the most dominant form of demand propagation in place today. The reason is that demand translation – the conversion of a demand signal into an appropriate supply signal – has to take place at each level (and node) of the supply chain before the signal can be propagated to the next node. It is difficult enough to do this with standard products at a finished goods level. Try doing this with a configurable product that is made up of 100’s of components, in an outsourced and distributed supply network.

An interesting characteristic of a DDSC described by BCG is that

A DDSC requires a scalable architecture that is flexible and robust enough to dynamically incorporate changes as they arise.

This is where the need for the “Real-Time Information” layer comes into play. Clearly this layer has to be enabled by something other than semaphore, an abacus, or Post-It notes. For far too long we have tried to enable this layer with email and Excel, a clear indication that our core transactional layer is not satisfying this need. But as I stated before, the dominant mechanism of moving data between functions and organizations is still overnight (at best) EDI between ERP systems. The use of email and Excel is merely a mechanism used to try to overcome the limitations of operating an end-to-end supply chain with cascaded EDI transfers. But even if you manage to get beyond email and excel, how do you know that the calculations performed at each level of the supply chain in the “Real-Time Information” layer are consistent with the calculations performed by the ERP at each level. It defeats the whole purpose of the “Real-Time Information” layer if at each level the MRP or planning analytics have to be invoked in the ERP system. At the very least, doing this will eliminate the real-time aspect of this layer. And yet it is necessary for this layer to translate the demand at that layer into a required supply in a manner that is consistent with the underlying ERP system. In other words a truly functional DDVN must be able to emulate the policies, bills-of-material, routings, sourcing rules, lead times, capacities, and manner other aspects of the supply chain model in order to perform the demand translation required to provide an end-to-end profitable response.

In a Supply Chain Insight’s report (Building Market-driven Value Networks – Driving Differentiation in Supply Chain Processes Market-to-Market, Cecere. L, 11 July 2012) Lora Cecere uses the following diagram to describe a similar concept.

In the report Lora defines supply chain agility as the

ability to recalibrate plans in the face of market demand and supply volatility and deliver the same or comparable cost, quality, and customer service.

More interestingly Lora states that

In the adaptive supply chain, the processes first sense and then shape demand based on revenue management practices. This is sometimes termed “a demand-driven supply chain.” Demand shaping includes the active processes of new product launch, price management, trade promotion management, marketing and advertising, and incenting sales against revenue management processes. They build processes outside-in to evaluate what “really matters to customers.” Companies that mature in this capability usually are also mature in the processes of analyzing customer profitability through cost-to-serve analysis and looking at product profitability to determine the right product portfolio. They actively manage complexity.

All of these comments have described a technology layer that far transcends what some commentators and technology vendors are portraying as “control tower” solutions.  These almost never go beyond simple visibility and alerting solutions.  As in many situation, visibility is a precursor, but not an adequate definition.  Without a doubt the descriptions used by Gartner, BCG, and SCI all go way beyond this simplistic perspective. Even if we extend visibility to alerting we are in no way even approaching the sophistication described by Gartner, BCG, and SCI.  Do we know the downstream/upstream impact of the event causing the alert to be issued? Isn’t the impact what actually determines whether the event is important or not?  How does one even determine to whom the alert should go when much of the supply chain is outsourced? 

Imagine the consequences if an airport control tower could only alert someone if a plane was in the wrong position but not tell that person that if the plane does not move in the next minute there will be a collision with a second plane. As importantly, imagine if the system couldn’t even detect, let alone alert the control tower, that the second plane was on a collision course.  After all, in a purely event-based system, there is nothing to indicate an alert condition for the second plane because it is being viewed in isolation.  This is what you will get from solutions that don’t incorporate all the capabilities described by Lora Cecere, Mike Burkett and others.

Is this really the supply chain control tower you want?

Going beyond simplistic 1990s event alerting to true risk/opportunity analysis and rapid, reasoned response is available today.  This is not Star Wars or a mission to Mars, though even those idioms have lost their sense of impossibility lately. It is a journey of maturity, and as our skills, processes, and technology mature we need to both grasp the opportunity and extend the art of the possible. 

I’d love to hear from people where they think they are in this journey and the steps you are taking to achieve it.