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.

Here are some points for consideration:

Perhaps a statistical forecasting package that could produce a more accurate forecast based on historical demand patterns is enough.  I would suspect otherwise though.  With things changing so fast, historical demand alone is an unreliable predictor of the future.

Would aggregation of multiple demand inputs take out some of the bumps?  If so, then a collaborative demand planning system could be considered.   This system would capture various inputs, (such as sales projections, marketing projections, management judgement, and possibly a statistical forecast) to develop a single collaborative forecast that would provide a more insightful view of the demand picture.  But here’s the catch, in today’s volatile marketplace, your plan will never be 100% accurate.  While you might be able to reduce forecasting error, better planning isn’t going to reduce demand volatility. 

So if you can’t accurately plan demand, then you need to respond to it.  That requires you to:

• Detect changes in real-time between the actual demand and your forecast,
• Change your supply plans in response to those changes, and
• Revise your forecast when appropriate.

But is this type of supply chain response agility enough?  Is improving customer service levels while reducing inventory risk in the face of volatility an urgent need?  If so, having the following capabilities can have significant impact on your performance:

• Determine target inventory levels and resulting replenishment plans in order to handle the “lumpy” demand.
• Detect when your inventory at various locations is in excess of current needs, especially if there is a shortage in that part in another location.
• Link replenishment to satisfy demand with your supply side planning to determine viability of potential changes.
• And when your supply simply can’t satisfy the demand fast enough, allocate the supply to particular orders or distribution channels, possibly based on a combination of fair share, equal share, and priority schemes.

That leaves just one more question:  What types of users do you expect, what actions and decisions do you expect them to take, and how do you expect people to interact with the demand management system?

In answering some of these questions, one might find that what they thought they needed would only cover some of the total demand management picture.  So, it comes down “what are you really looking for?”

• Customer side equations will take prominence over rest of value chain
• Supply chains will get more integrated with marketing and service chains
• Speed and responsiveness will be key drivers for spend on new initiatives
• Cost will continue to play critical role in decision making
• Asset Management will gain more prominence and will help in accelerating “green” initiatives

I responded to Atul in the following manner:

We too are experiencing that prospects and customers are focusing a lot more attention on customer satisfaction as it pertains to on-time delivery of orders, but also to the enquiry-to quote and quote-to-order processes.

I couldn’t agree more with your third point about speed and responsiveness. Overall the trend we are observing is that consumer behaviour is pervading B2B transactions with ever shorter lead times. Coupled with the adoption of Lean and postponement strategies, companies have to be very responsive to changing demand, blurring the lines between planning and execution. These are the business drivers for your third point about agility and responsiveness.

Cost will always be a driver in supply chain management. If we adopt any of the Lean concepts it should be the elimination of waste. All too often I come across situations where the information and decision lead time exceeds the physical lead time to manufacture and/or deliver the order.

But this got me thinking about several other reports and observations that have come across my desk over the past 12 months. 

First and foremost must be the article by Dan Gilmore at Supply Chain Digest highlighting the work done by Supply Chain Digest’s research arm CSCO (Chief Supply Chain Officer) Insights.  There is an excellent report titled ”Next Generation Supply Chain Management: Integrating Planning and Execution” available from this link. (Subscription required).  In the article, Dan Gilmore observes that “For many years, analysts and others have offered separate models of ‘supply chain planning’ and ‘supply chain execution’ processes, and the technology vendors were generally organized in that sense as well. You can find many diagrams that show hierarchical planning processes with no connection at all to execution, for example. The report argues, and the research supports, that this gap must be closed from a process perspective to meet the challenges of today’s supply chains.” I added the bolding because this is the key to being able to provide the speed and responsiveness to which Atul at Infosys refers.  Not only that, but also managing to contain if not reduce supply chain costs will depend on being able to reduce this gap between planning and execution.   

Traditionally we have used inventory to buffer against what we would like to happen (the plan) and what actually happens (execution).  But this is no longer possible.  As the graphic below illustrates, as long ago as 2004 postpone strategies had pushed much of the inventory up the supply chain to the suppliers.  They too have adopted Lean and postponement strategies, leading to even lower inventories.  And then there is the effect of the recent recession.  Nearly all the OEM’s I speak to are struggling to secure supply of components, clearly indicating reduced inventory levels in the suppliers. I wish I had equivalent inventory figures for 2009.  Anyone willing to provide these figures?

Then there is the excellent blog written by Lora Cecere recently titled “Tackling the Black Hole in the Center of Your Supply Chain” in which she states “We now know that fixed data integration, one-dimensional rules mapping, and traditional master data techniques from ERP to Supply Chain Optimization are insufficient.  As a result, plans are created and consumed in isolation, and transactional systems hum along with little– to no — guided intelligence.”  So as the speed of business has increased – some would describe this as volatility – the supply chain systems have not kept up. 

And most of the information is now external to your organization.  Companies have being trying desperately to get point-of-sale information to get early trend analysis of sales.  At the same time, many brand owners have largely outsourced manufacturing, not only lengthening the physical supply of goods, but also the time and effort it takes to make a decision.  All of these factors are only making the gaps between planning and execution even wider.  But the business need is to close this gap; to respond to demand changes quickly and effectively.  As Lora Cecere, states, the solutions from the 1990’s have not kept pace with the business needs.  Throwing more ERP at the problem isn’t the solution.  At their heart, all ERP systems are essentially accounting packages.  They deal with your data – financial and operational – but provide very little help in dealing with the majority of the information, which now exists outside of your organization.

What are your thoughts?  Do you experience this gap?  Are your systems able to cope.  Will your next breakthrough in performance come from learning to plan better, or learning to respond to plan variance?  In other words, closing this gap between planning and execution.  Robust debate encouraged.

In the presentation, Wayne highlighted the key characteristics and trends of the modern-day pharmaceutical supply chain, and Elisabeth discussed how Amgen is effectively managing their complex supply chain despite the challenges inherent to the pharmaceutical industry.

The webcast was both well attended and well received.  It’s worth taking a look.

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!

It is this re-emergence of e-commerce that has given the consumer the buying power.  Of course, the recession has had a role to play by making price a key buying criterion, possibly the key criterion.  But e-commerce allows the consumer to compare several alternatives, in terms of both brand and price, in a fraction of the time and with greatly reduced effort.  While mall shopping isn’t going away any time soon, there is no doubt that e-commerce has shifted the buying power to the consumer through ease of use and ease of choice.  For example, my daughter went to the mall with a friend and came home excited about a skirt she had seen in a store but couldn’t afford it.  My wife called her friend to get a few more details and then spent about 20 minutes on the internet finding the best deal, which was 30% less than the store price, including shipping.  It would have taken her at least 20 minutes to drive to the mall and the 30% reduction does not include the cost of driving to the mall.  And it arrived in time for Christmas.  What’s not to like about this story?

So how does this relate to our market, which is much more in the low volume, high mix and build-to-order category, rather than the high volume, low mix and make-to-stock environment typical of CPG?  As has been commented by many people before me, retail-like behaviour is being adopted in more industrial environments.  I visited a fab-less semiconductor manufacturer in late December that is wrestling with increasing demands for a much wider choice of product capabilities coupled with expectations of greatly reduced order to delivery lead times.  The lead time expectation is a lot less than the manufacturing lead time so the semiconductor manufacturer is looking at postponement strategies including, very importantly, die reservations in the foundry, which of course they do not own.  Because of a greater product portfolio they cannot afford to keep the same levels of inventory because of the associated risks of price reduction and obsolescence.  As I stated in the opening paragraph, the adoption of consumer behaviour in a business-to-business environment has been increasing over the past few years, and will only accelerate.

Perhaps it is Lora’s point about the effect Wal-Mart is having on the supply chain that best captures the impact consumer and retail behaviour is having on the larger manufacturing sector.  Because Wal-Mart is such a dominant player, initiatives enforced by Wal-Mart soon trickle down the supply chain through multiple tiers of supply and affect other industries too.  Lora selects 3 initiatives: “sustainability scorecards, rethinking inventory strategies, and the initiation of the Supplier Alliance Program.” 

Let’s start with inventory.  For centuries, inventory has been used as a buffer between demand and supply, starting with grain silo’s and other food stores.  The fab-less semiconductor manufacturer I mentioned above is, like many other manufacturers, adopting postponement strategies including reducing inventories to preserve cash, while at the same time being faced by the need for shorter order to delivery times.  Obviously there is a lot that can be done to improve manufacturing flexibility and shorten change-overs, but the biggest gains are to be had in reducing the order processing times, especially the time it takes to determine if the order can be delivered on time and in full.  Given the reduction in inventory, the issue has gone from available-to-promise (promising from finished goods inventories) to capable-to-promise (determining if the products can be manufactured in time), blurring the distinction between execution and planning.

The sustainability scorecard will perhaps have the biggest and widest long term effect on the supply chain.  As stated in a New York Times article, “In the future they may also have information about the product’s carbon footprint, the gallons of water used to create it, and the air pollution left in its wake.” With the impact of environmental legislation also trickling through the supply chain, particularly the electronics supply chain, it will only be a short time before a full product sustainability scorecard will be required including “carbon” accounting.  I think it is only some time before we will have a “carbon cost of goods sold.” And, as commented on in the NYT article by Tim Marrin, associate director of external relations for Procter & Gamble, “The last thing a supplier really wants is when you’re doing a separate index for every retailer.”  Wal-Mart has the market “muscle” to see this through and to ensure a standard is adopted across the industry.  For assembled products, such as consumer electronics, this means that the suppliers to the brand owners will also have to conform.  Which is how we will see the “trickle down” effect influence the adoption of a sustainability index on labels permeate other industries.  To be fair to high tech, particularly computing, they have had a start rating in effect for some years.  But the Wal-Mart initiative will take this to a whole new level of detail and accountability.

Am I just still too full of Christmas “cheer”?

The presenters include  Elisabeth Kaszas, director, supply chain at  Amgen;  Wayne McDonnell, research director, life sciences at AMR Research and well…me, but I’m the afterthought.

Full details below – register today – it is less than two weeks away!

Prescriptions for the Modern-Day Pharmaceutical Supply Chain
December 17, 2009
12:00 p.m. CST (1:00 p.m. EST)

The healthcare supply chain is faced with some unique challenges, especially for bio-pharmaceutical manufacturers. Given that many drugs are critical to patient health, much of the lean inventory practices employed in other industries (particularly popular for high-tech/electronics) are not acceptable options because of inventory shortage risks. As well, the typical pharmaceutical supply chain faces many regulatory bodies that are required to approve any changes in manufacturing or packaging, which limits the flexibility of the supply chain and adds to the challenges of inventory management and production capacity.

Regardless, there are a lot of efficiencies that can be gained nonetheless through the deployment of technology that can aid a company to:

• plan production and distribution to meet anticipated demand,
• monitor performance against financial and operational targets, and
• respond quickly and effectively to ongoing changes in demand or supply.

In this presentation, AMR Research will highlight the key characteristics and trends of the modern-day pharmaceutical supply chain. And learn first-hand from Amgen how they are effectively managing their complex supply chain despite the challenges inherent to the pharmaceutical industry.

This month’s challenge discusses a large, multinational manufacturer of industrial equipment that is looking to improve its purchasing practices after discovering that they were literally leaking money by not fully leveraging its purchase volumes and buying power.

I took part in providing one of the solutions, as did Corey Billington, Professor of Operations Management and Procurement at IMD.

Tell us what you think of our responses to the challenge as described below:

I am the CFO of Tevper Performance Products, a large, multinational manufacturer of industrial equipment. Tevper sources hundreds of thousands of components, materials, and services every year, which account for billions of dollars. The VP of procurement and I have convened a team to review and improve our purchasing practices throughout the organization.

The impetus for the review was discovering that we are literally leaking money by not fully leveraging our purchase volumes and buying power. I don’t expect all of our 13 production locations to source in an identical manner: Many have total-cost formulas that are best served by tapping into local suppliers. Others require nearby sourcing to reduce lead times. Some are constrained by how and what their outsource manufacturers choose to purchase. But even after lightly scratching the surface, I see countless missed opportunities for Tevper to lower our costs for direct and indirect materials. For example, at our Arizona location, I can find a variety of suppliers, product numbers, product names, and pricing for the exact same component. This must stop.

In my five years at Tevper, we’ve taken a light hand toward strategic sourcing, believing that well-trained, local procurement departments would make the right decisions: implement sourcing processes and systems that enable them to understand, aggregate, and control procurement activity that is occurring within their location or division as well as make purchasing decisions consistent with other business units. I have respected their autonomy, but cannot afford to do so any longer.

The VP of procurement, the review team, and I must, first, uncover the most egregious purchasing problems and put an end to them as quickly as possible. But, more importantly, we need to begin developing the means and systems that allow comprehensive and real-time tracking and reporting required to achieve high levels of purchasing performance even within our diverse and distributed business model. It will be a challenge, and, as word has leaked out, I am seeing the emails stream in: “Our supplier relations are unique,” “You’ll never get our purchasing data to be compatible,” and “We don’t have time to make every purchase align with corporate mandates.”

I don’t have time for their excuses. And my future with Tevper may rest on my ability to install a major strategic procurement program. Can it be done?

See our advice here. What advice would you give?

In this particular article, it quotes the Chief Executive of Nokia as saying “We would have sold more phones in the third quarter without the capacity constraints.”    Because production was lowered dramatically during the recession, some companies – in consumer electronics in particular – are now seeing spot shortages due to unexpected demand increases.  As the article points out, “ The coming months could be tricky…Manufactures must gauge demand accurately among economic uncertainty.”  Therein lies the rub: How to balance the opportunities to capture all demand while mitigating against the risks of excess and/or obsolete inventories.

Demand planning is going to be key without a doubt, but equally important will be demand responsiveness – acting quickly to the unexpected – and overall supply chain agility.  Even before the recession, companies struggled with demand volatility because of increased competition, decreasing customer loyalty, constant new product introductions etc.  But in today’s grave economic climate with major demand swings and declining spending overall, planning for future demand based on historical data is now virtually impossible.  With inventories at an all time low, retailers and suppliers will need to respond rapidly to actual demand.   Companies need the ability to detect demand trends early so that they can ramp up production accordingly in order to avoid the situation Nokia described in the article.

Solving the rapid response challenge will require:

• accurate and timely demand sensing to quickly understand demand shifts
• collaboration: both with customers to gain consensus on true demand, and with internal colleagues and supply partners to develop and analyze resolution alternatives; and
• decision support that drives profitable responses through shaping demand and allocating finished goods supply as appropriate

I believe achieving excellence in responding to changing customer demands has become the number one challenge facing enterprises today and can represent the largest opportunity for companies to increase customer service, enhance margins and attain more predictable revenue across the entire value chain.

In a recent Wall Street Journal article, “September Sales May Foreshadow Holidays,”  it is stated that stores are slashing inventories to avoid price cutting. Inventories are at an all time low. How will retailers and suppliers respond when demand changes?

Per the article “Retailers and analysts will be closely watching September sales reports due Thursday from key store chains for any sign they may need to adjust their already-gloomy holiday forecasts. ”

There is always a fine balance between meeting profitability targets and revenue. In the retail business, competition is fierce and retailers need to have the product ready to ship. With the current economic uncertainty, retailers are choosing to stock less with an expectation that they will be able to respond to the market demand when it improves. However they are faced with global supply chains, long lead times and there will be a capacity constraint on suppliers when the demand increases.

There are a number of approaches that retailers need to consider:

• Get closer to customer demand. Analyze point of sale data
• Analyze demand trends (units and $) by product, by region, by time
• Apply supply risk management strategies (minimize single sourcing, establish VMI hubs, standardize on components or materials across products, identify product configuration alternates)
• Have the ability to make the appropriate decisions regarding allocation (by region, customer segmentation)
• Perform contingency planning scenarios – adding capacity, alternate shipping methods
• Have the tools in place to remove the latency from the change in consumer demand through the supply chain to the individual manufacturer. Ensure that any change is communicated throughout your supply chain in minutes to hours, versus days or weeks.

History will not predict the future in consumer spending. Crystal balls won’t work either. Retailers will need to watch consumer demand patterns very closely and be ready to engage their supply chain at a moment’s notice. Collaboration will be required between the trading partners. In today’s economic climate, speed wins.