Posts Tagged ‘Inventory’

Your supply chain is costing you money – Reason #2 Poorly executed or non-existent sales and operations planning

Published September 10th, 2014 by John Westerveld 2 Comments

sales and operations planning gears

Reason #2: Poorly executed or non-existent sales and operations planning

Over the years, working for and with numerous manufacturing companies, I’ve seen many supply chain practices that cost companies money.  Over the next several weeks, I’ll outline these issues and discuss some ideas around how to avoid these practices. You can find the previous post here:

Tell me if you’ve heard this one before.  Your company has implemented an S&OP process.  At first it showed some promise, but now it has turned into a blamefest attended if at all by lower level representatives that aren’t empowered to make decisions.  No one trusts the numbers, inputs are late and you aren’t seeing any improvements month over month and people are starting to wonder “why bother”.  Sound familiar?

So how does a poor S&OP process cost money?

  • Excess and obsolete inventory. S&OP is all about aligning manufacturing and sales. When you don’t make what you sell and don’t sell what you make you create inventory.  Lots of it.
  • Lost sales.  This is the corollary to the above.  Typically companies with poor planning don’t have too much of everything.  They have too much of things that aren’t needed and too little of things that are.
  • Lost market opportunities.  Companies without an effective S&OP are typically much slower to react to market changes.  This means that their competitors will beat them into new markets and products.

A well-executed sales and operations planning process can transform a company; allowing them to better control inventory and costs while meeting rapidly changing demand pictures.  It does this by gaining alignment across the sales, demand planning, manufacturing and finance organization.  In effect making sure all areas of the company are working towards the same plan and towards the same goal.  5 years ago, I wrote a blog post in which I discussed the 3 pillars of S&OP. They are;

Process:  Trying to run sales and operations planning without a clearly defined process is like driving in a city where no one obeys the rules of the road….you probably won’t get where you are going.   If there were no process driving S&OP, then there is a very good chance that key information would not be presented (or presented poorly), key people would not be in attendance and that critical decisions would not be made.  It is important that the structure, timing and agenda of S&OP is documented, published and adhered to.   If the process needs to change due to changing business requirements, those changes need to be documented and published.

Executive Commitment:  It is very difficult (bordering on impossible) to implement an effective S&OP process without executive commitment.  Why?  First let’s ask what is the purpose of S&OP?  The purpose of S&OP is to align supply and demand and the various departments contributing to that alignment. Departmental alignment can only occur if the top level department executives are involved in the key decisions…because those top executives have the decision making authority.  Sales and Ops is a failure if the representative at the meeting needs to go back to their executive to get a decision.

Effective S&OP Tools: This includes the tools to analyze the data, present information and make decisions.  Effective S&OP tools also include the ability to integrate the data that drives S&OP.  While Excel can be fine to do the initial S&OP model, moving to the next level of S&OP effectiveness requires a more integrated, responsive and collaborative application.

S&OP is a powerful tool if performed well. Inventory reductions, improved efficiency, improved customer service and reduced expedites are all expected benefits.  However, If there is no buy in, if executive commitment isn’t there, if data isn’t reliable and doesn’t drive action your S&OP process won’t delivery these results.

Have you experienced poor S&OP planning processes?  How about excellent planning?  Comment back and share!

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

Elephant in the Room: Thoughts on Metrics That Matter in Semiconductor and Hard Disk Drives

Published August 29th, 2014 by CJ Wehlage 0 Comments

Metrics That Matter in Semiconductor and Hard Disk Drives

Supply Chain Insights recently published a Metrics That Matter report covering both the Semiconductor and Hard Disk Drive (HDD) industries. Despite being hit hard by the recent recession, overall the research shows that these two industries have fared well over the last decade and are positioned to continue that success.

Success, provided they monitor the 7 “elephants” in the room.


Notice in the Supply Chain Insights report, there are only two HDD companies.  That industry has already gone through consolidations.  Semiconductor is poised to consolidate, which will have huge impact on the metrics.  It’s already happening with Avago/LSI, RF Micro/TriQuint, Micron/Elpida, MediaTek/MStar and Fujitsu/Panasonic.  Speed to integrate the planning functions during an acquisition is critical.


With the OEM’s driving down the price, the semiconductor/HDD companies will have to follow (or innovate new products).  Lower price means lower profitability. This will begin to impact the semi/HDD ability to raise capital and innovate/expand.  Cost pressures and faster time to market in the planning processes will be required.

Global pressure

Consider that the Chinese and India governments are investing in the semiconductor industry.  With China already a source for semiconductor raw materials and the China/India end consumer market growing, there will be pressure to supply chips and hard drives to local China/India OEM’s first.  This could create a shortage in the US/Europe OEM chain.  Understanding inventory planning will take on a new dynamic.

Of course, like any industry, Semiconductor and HDD manufactures are faced with a set of unique challenges in their space that puts their supply chain at risk.  The largest risk being a balance between shrinking product lifecycles in the OEM world versus expensive asset utilization.  We are at a time where consumer electronic brands have a 9 month (that’s 270 days) lifecycle, while Semiconductor & HDD supply chains have 6 month component lead-time, with 3-5 year depreciation of capacity.  After reading the research, I would summarize the main obstacles as follows:

Position in the Supply Chain

As suppliers of technology embedded in more complex products, Semiconductors and HDD manufacturers find themselves further back in the supply chain, often 3-5 levels down. This can make it difficult (compared to those closer to the front of the supply chain) to find balance in what Supply Chain Insights calls the Effective Frontier – growth, profitability, cycle and complexity. The ‘bullwhip effect’ certainly plays a role here, creating wide fluctuations (over and under) of supply and demand – due to disorganization, lack of communication or miscommunication, incorrect demand information, etc. – as information moves down the supply chain to the manufacturer.

Potential for Tightening Margins

Related to their position in the supply chain, competitive and consumer pressures that drive down pricing are often pushed down the supply chain, forcing suppliers to tighten their costs.

Supply Chain Length

Reliance on suppliers beyond the US borders has extended the length of the supply chain, and opened it up to significantly more risk, as demonstrated by the impact of the Thailand flooding on both the Semiconductor and HDD segments.

Growing Complexity

As one of several suppliers contributing to the creation of a single product, Semiconductor and HDD manufacturers are susceptible to issues experienced by others in the supply chain, as explained by Broadcom in the Supply Chain Insights report: “Our products are incorporated into complex devices and systems, creating supply chain cross-dependencies. Accordingly, supply chain disruptions affecting components of our customers’ devices and/or systems could negatively impact the demand for our products, even if the supply of our products is not directly affected.”

Despite these challenges, the Supply Chain Insights dive into financial data shows that these two industries have fared well, thanks to strengths in product innovation and supply chain planning functions. More specifically, the research shows strong year-over-year growth and large (and increasing) operating margins (with minimal impact -so far-on from upstream cost pressures).

On the downside, it appears that these industries are struggling with inventory issues. The research shows the cash-to-cash cycle has increased, as have days of inventory, and inventory turns are on the decline. Supply Chain Insight’s look at four key Semiconductor companies and two key HDD companies indicates these inventory issues are not the result of poor inventory management but rather an industry trend. The research suggests that both product complexity and the length of the supply chain are contributing factors.

Based on the above, it seems clear that putting a focus on optimizing inventory management practices, making risk management initiatives a priority, and building strong collaborative S&OP practices with their customers, will help Semiconductor and HDD manufacturers continue to see success in the coming years.  This comes with a solid planning system of record.  One that will remove manual steps in the process, drive real time information from the semiconductor/HDD testing to the OEM demand, and connecting the end-to-end decisions with the planning model.

P.S. The Supply Chain Insights’ research report covers additional areas than what I’ve summarized here, and supplies comparative financial data. If you’d like to read the Supply Chain Metrics That Matter: Semiconductors and Hard Disk Drives report in its entirety, you can download a copy here, with no registration required.


Posted in Demand management, Inventory management, Supply chain collaboration, Supply chain management

Know Sooner. Act Faster. Not just a supply chain software conference theme

Published November 6th, 2013 by John Westerveld 0 Comments

We recently held our user conference, Kinexions, in Scottsdale Arizona. Attendees from around the world gathered to learn, laugh, share and connect. The event was kicked off by an address from Kinaxis CEO, Doug Colbeth. This was followed by an inspiring talk by Sir Ken Robinson discussing finding your passion: how you need to find what you love to do and then you’ll never have to work a day in your life. That was followed by several customer presentations describing how they’ve used RapidResponse to know sooner and act faster. And actually, that was the theme of the show…“Know sooner, act faster”.

If you are a Kinaxis customer, you know what this tagline means. For those who aren’t, this is what we are talking about:

Know sooner: Imagine that you have a supply chain disruption. Your supplier’s line has gone down and they’ve decommitted the next few weeks of orders while they make repairs and get caught up.   Imagine you found this out first thing Monday morning.  With your current ERP system, how long would it take you to understand what that delay would do to your production schedule?  What customer orders would be impacted?  What does this do to your weekly, monthly, quarterly revenue targets?  Maybe the supply delay really only impacts safety stock and minimally impacts actual customer orders. Perhaps the supply delay impacts millions of dollars of revenue.

Not knowing means either lost time working on minor problems (while more significant issues are ignored) or potentially not working a problem that could impact your company financially. Now, what if you had a system that would notify you when something like a supplier line down occurred.  Imagine if you could configure the system to only notify you if this change impacted customer revenue? Further, what if this system could lay out for you what the revenue impact was and the items causing these orders to be late. That is how you know sooner.

Act Faster:  Now imagine that the line down situation described above actually does drive millions of dollars of lost revenue? What would you need to do to recover? Do you find another supplier?  Can you substitute the late component with another equivalent component?  Can you offer customers a higher end product in place of the ones that are short? Or is it better to just accept that the late/lost revenue? Each of the possible resolutions have cost, revenue and customer service implications.

If you are using a traditional ERP system, you will need to pick one approach and go with it because you cannot effectively simulate different options, and even if you could, with the limited reporting capability inherent in today’s ERP systems, you can’t easily see the impact of those options on revenue, margin and customer service.  To act faster, you need to be able to identify those people affected by a change, collaborate with them to simulate the possible resolution options and then compare those resolution options  to see the revenue, margin and customer service impact.

When plans and events create risk/opportunity for you, the speed at which you bring together the right people to collaborate will make or break your operations performance.

It’s not difficult to see that knowing sooner and acting faster is a competitive advantage. Other factors being equal, reacting to changes in your supply chain faster than the competitions means that you will win more business, hold less inventory and earn more profits.






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

How First Solar is Achieving End-to-End Supply Chain Alignment: A Case Study

Published June 18th, 2013 by Melissa Clow 1 Comment

First-Solar and Supply Chain Alignment We recently completed a case study with First Solar entitled: How First Solar is Achieving End-to-End Supply Chain Alignment.

First Solar is a maker of solar panels, as well as builder and manager of solar power plants. They have a complex product that’s part of an intricate supply chain; the Tempe-based business manages over 3500 suppliers and globally has over 33,000 people in their supply chain network.

This case study provides insights on how First Solar is operating effectively amid a volatile environment by achieving high levels of supply chain agility.

As an example, First Solar is able to monitor inventory and understand inventory positions in minutes. They are also modeling sales orders, forecasts and shipments in RapidResponse along with finished goods inventory and projected supply. The team can now provide their Sales team with exact figures of what is available to sell. Within three months of using RapidResponse, they saw a ten percent reduction in overall inventory.

Here’s a quote from First Solar’s VP of Global Supply Chain, Shellie Molina:

“The implementation of RapidResponse as our single demand planning tool has given us the cross-functional visibility that we never had before and has opened up the opportunity for us to replace our siloed goals with common goals and objectives across planning functions.”

To learn more, download the case study here:

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

The Effective Supply Chain Frontier – Fact or Fiction?

Published May 27th, 2013 by Trevor Miles @milesahead 1 Comment

Lora Cecere over at Supply Chain Insights has been writing for some time about Conquering the Supply Chain Effective Frontier. Lora characterizes this as a focus on long term resiliency of the supply chain, not just short term cost efficiency. She is right.

Supply Chain Frontier

Lora writes that

As shown in the Supply Chain Effective Frontier framework it needs to recognize the impact of corporate trade-offs, business investment strategies, supply chain trade-offs and the degree of complexity in business policies. These together form the system definition of the Supply Chain Effective Frontier. … While students of economics might caution that this is the efficient frontier, we have consciously chosen not to define this as the “Efficient Frontier.” Companies have traditionally defined the most efficient supply chain as the most effective supply chain with the lowest cost per unit. It is our belief that the most effective supply chain is not always the most efficient.

In other words the primary focus of the supply chain function should be the conscious trade-offs between customer service and cost-to-serve. These trade-offs can only be made horizontally, across multiple functions and even trading partners. This becomes more obvious when discussing the trade-offs needed by, for example, a pharmaceutical manufacturer when trying to determine how to respond to a tender. This requires the evaluation of long term profitability of the tender considering the costs associated with non-conformance, both immediate and long term. These need to be balanced against satisfying non-tender business, which is both a lot more uncertain and more profitable over the life span of the tender. How does accepting the offer impact capacity needs? Will the capacity be required beyond the life span of the tender? Will inventory need to be placed closer to the market?  How will planning introductions of the same into new markets be impacted?  These are not decisions that can be made in isolation by Demand Planning, or Marketing, or Sales, or Inventory Management, or Manufacturing, or Purchasing. These are decisions that have to be made horizontally, across these vertical functions, and often in conjunction with Contract Manufacturing Organizations (CMOs) and Third-Part Operators (TPOs).

The tender process is only one example of the increasing need to focus on horizontal process enablement in order to make the conscious, risk adjusted trade-offs Lora is writing about.  It is time that the ‘war room’ concept – a co-located cross-function team which is often used to deal with crisis – became standard operating practice. We have to look beyond the ‘divide and conquer’ concepts dating from the 1980s, which broke up planning into multiple function and time horizons, such as in the diagram below. Many of us may feel uncomfortable with this idea because it challenges our pre-conceived notions, how we were taught to view supply chain as a practice. Change can be difficult, even when it is good for you.


Change starts by recognizing that an approach that puts horizontal process effectiveness first is far superior to an approach that only focuses on functional excellence. It starts by recognizing that harnessing and harmonizing human ingenuity and imagination across functions trumps functional optimization every time. It starts with the recognition that the ‘divide and conquer’ approach that guided the development of all legacy APS solutions is no longer enabling, but limiting progress. Yesterday’s approach fails todays dilemma.

All the APS suites were developed in this ‘divide-and-conquer’ paradigm with individual applications being developed for Demand Planning, Inventory Planning, Distribution Planning, Capacity Panning, Master Production Planning, …  To be fair, technology in the 80’s and 90’s was not able to support the data scale, speed, and analytics required to connect horizontal business processes in real-time. In fact, the only partially successful attempt to do so was ERP, but with a batch oriented computational engine that took hours, often days, to run. Technology limitations are no longer an excuse with the advent of the internet, social, and in-memory computing.

And it isn’t all the fault of the vendors. There is a great article just published in Modern Materials Handling titled “JDA Focus Challenges Attendees to Think Outside the Silos” which comments on the first conference of the joint JDA/Red Prairie operation.  According to Modern Materials Handling Tom Kozenski of JDA states that

“Optimization is a funny word,” he says. “You can optimize a WMS. You can optimize a TMS. But if you optimize a platform that sits above them, it might be one plus one equals three. We love to pitch the platform approach [such as in JDA eight], but the customer buys by silo. They think the platform is interesting, but only as long as it solves the problem in the silo. For many of them, siloed behaviors, thinking and budgets are hard to get away from.”

While I praise JDA for raising this issue of silo buying, solving it from a solution perspective will take much more than simply integrating the functionally focused applications through an integration framework. This approach will do little to address Lora’s Effective Frontier of providing horizontal conscious trade-offs, which is the fundamental reason for connecting these processes in the first place.  Connecting the data without connecting the people still promotes a siloed decision making approach focused at functional expertise. Unfortunately, in many cases the people do not want to be connected, which is the point being made by JDA about siloed behaviors, thinking, and budgets in the user community. Only strong executive leadership will drive an organization to conquer the supply chain Effective Frontier with a strong emphasis on horizontal processes supported by functional excellence.

It isn’t just the so-called East-West, or horizontal, integration that has been lacking in processes and technology, it is also the North-South integration between financial and operational plans. Executives have long experienced the side-effects that result from trusting a thin S&OP process disconnected from its deeper operational implications, namely misalignment between objectives and achievements.  Leaders are now expecting full and deep alignment between their highest level plans, and their lowest level operational constraints. Far too many companies believe that they cannot operationalize the S&OP plan, let alone the Annual Operating Plan (AOP), because it can only be developed at a corporate level in aggregate form and in chunky monthly buckets, at best at a Business Unit level. The net effect is an AOP that is, at best, a very loose statement of intent rather than an alignment between intent and feasibility.

I’d like to see all of us in supply chain management – executives, practitioners, analysts, commentators, and vendors – lift our heads to focus on the art of the possible. We have the opportunity to rewrite how supply chain management is conceived, enabled, and performed by focusing on the Effective Frontier.

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

SupplyChainBrain Video Series Part 8: Celestica’s Supply Chain Collaboration Center

Published May 16th, 2013 by Melissa Clow 0 Comments

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, we have been sharing the clips. The final video in our series is Celestica!

Celestica’s Supply Chain Collaboration Center

Celestica’s collaborative initiative comprises three elements – inventory visibility, much closer relations with suppliers, and optimized inventory management, says Erwin Hermans, vice president of supply chain solutions at the contract manufacturer. [Run Time (Min.): 12:22]


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

SupplyChainBrain Video Series Part 7: Agilent’s Vertically Integrated Supply Chain

Published March 20th, 2013 by Melissa Clow 0 Comments

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 past few weeks, we have been highlighting clips in the series. Next up, Agilent!

Agilent’s Vertically Integrated Supply Chain

Yoke Sun Lieu, head of supply chain engineering at the Electronics Measurement Business Group of Agilent Technologies, talks about the supply chain challenges of a high-mix. Low-volume business and describes Agilent’s two-level supplier collaboration model.

[Run Time (Min.): 5:50]


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

SupplyChainBrain Video Series Part 4: Transforming Operations Planning at TriQuint Semiconductor

Published February 18th, 2013 by Melissa Clow 0 Comments

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]

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