The survey, 2010 Global Survey of Supply Chain Progress, was jointly conducted by CSC, Supply Chain Management Review (SCMR), and Michigan State University, with assistance by the Council of Supply Chain Management Professionals (CSCMP) and Supply Chain Europe magazine. Twenty industries were represented in this year’s survey, and respondents included representatives from both large and mid-sized companies, with sales ranging from $250 million to over $1 billion.

One of the surprising—at least to me, anyway—findings was that when asked about the overall impact of supply chain initiatives on cost reduction over the past three years, the number of respondents answering “none” or “don’t know/not sure” grew from 13 percent in 2009 to 20 percent this year. And as a follow-up, when asked about the overall impact of supply chain initiatives on increasing revenue over the past three years, the percentage of respondents indicating “none” or “don’t know/not sure” rose from 30 percent in 2009 to 47 percent in 2010.  How should that be interpreted?  Is it actually a lack of impact, or a lack of direct measurement to understand the impact?

I am encouraged by other results (which, to a degree, are counter-intuitive to the stats above). For instance, supply chain management is largely held to be of considerable importance. In fact, 82 percent of the respondents replied that supply chain management is considered to be a core importance for their organization, and when asked how much influence supply chain management has on running the business, 52 percent replied “to a great degree”–while another 35 percent indicated a “moderate degree.” 

Supply chain management also is a logical operation for companies to use to battle the effects of the economy. Indeed, 78 percent of the participants indicated that their firms increased emphasis on supply chain management this year. Additionally, given the growing emphasis on supply chain management, it only stands to reason that S&OP is increasingly valued as well. For instance, 66 percent of the respondents reported a moderate to high degree of impact using S&OP to improve the company’s agility so it can better respond to changes in customer demand.

I believe this will be a trend that will continue for a long time to come.  SCM and S&OP are sure to grow in importance given that increasing levels of outsourcing, globalization of demand, requirements for product innovation and demand volatility combine to have a profound impact on companies’ business performance.  Supply chain is becoming known as the sweet spot for impacting competitive advantage and operational and financial success.

Join next week’s live SCMWorld webinar to learn the methodologies and systems that are enabling some of the most advanced Biopharma supply chains to adapt and respond to changing customer demands, reduce inventory and improve financial performance while cutting waste and maintaining high service levels.

This presentation, which includes speakers from Amgen, Aberdeen Group and Kinaxis, will examine all of these issues, and give participants a framework of processes, tools and examples to help drive significant improvements within your global operation.

It’s one week away, sign up today!  Details below:

When: Wednesday September 15th 2010
11:00 (New York), 16:00 (London), 17:00 (Paris)

Speaker: Chris Roth, Director Corporate Planning, Amgen
Speaker: Elisabeth Kaszas, Director Supply Chain, Corporate Planning, Amgen
Moderator: Nari Viswanathan, VP Supply Chain Research, Aberdeen Group
Presenter: Trevor Miles, Director Industry Applications Marketing, Kinaxis

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

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

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

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

I think that most of us would agree that ideally, we would have a sound plan where there is accurate demand (forecast and/or actual), adequate resources and capacities are in place both in-house and at suppliers, and all the supply chain is on board and executing to the plan.  In reality, there is a lot of expediting that occurs, at least in my experience (the extent of which depends on the industry and the complexity of the products and the supply chain.)  A lot of manufacturing companies even have a formal position with a job title something like “Material Expediter” or “Production Expediter” (although the actual job descriptions can differ from what I am describing).

What I have found in working with some customers who do a lot of expediting, is a basic lack of maintaining data accurately in their formal ERP/MRP system.  A lot of the “planning” tends to occur off-line in Excel spreadsheets or other tools.  This may work in some isolated areas, but from an overall enterprise perspective, much of the supply chain does not have visibility into these off-line plans.  I correlate this to Project Management on a large project where there is no up to date project schedule that the entire project team can work to.   Team members work tasks that they are directed based on meetings, phone calls and other types of somewhat ad-hoc communication. 

This can be somewhat effective, but not having the formal MRP system reflecting the current plan disables the capability to orchestrate the entire supply chain and efficiently execute the plan.  This leads to a lot of expediting rather than planning and executing.  Why don’t we always keep the formal MRP system up to date?  There are lots of reasons, including:

1. too time consuming;
2. off-line tools are easier and more flexible; and
3. certain processes or functionality is not supported in the formal system.

An example of # 3 above, is provided in a blog post from a colleague of mine called Do YOU have enough Supply?   This describes a process to allocate limited supply to demands that recently, seems to becoming more prevalent in certain industries.  A process like this may not be supported in the formal MRP system, so it is likely done off-line.  Changing or enhancing the MRP system to support new functionality generally takes some significant time and money, and usually has to compete for priority with other fixes and enhancements needed.

I know that many of you will agree that this expediting approach is far from ideal, and also may say “not us, not me”.  But I also know from experience that this occurs and sometimes with some very practical reasons.  In situations like this, what can help solve the problem is a system with capabilities in a couple of key areas:

1. Detect and report data integrity issues in the MRP system for clean-up
2. Easily configurable to support additional planning functionality
3. Available for sharing and collaboration across the supply chain

I would like to hear any insights, experiences and suggestions you may have regarding this expediting versus planning situation.

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.

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.

Here are just a couple of key considerations;

1. Are you just looking for strategic advice on what to do?   Some consulting firms specialize on strategic thinking and the outcome of an engagement can be a well articulated change strategy along with the outline of an implementation plan.     More often than not, engagements with these companies can be relatively short (although usually quite expensive), and they may not want the work associated with the lower level deployment activity or system integration.   Deployment work is difficult, and for almost any project, the devil is in the details.    So many things can go wrong during deployment that it seems a lot safer to stay at the advice level.   I’ve also been led astray a couple of times when it proved that the consulting firm didn’t have the implementation experience to deal with the challenges that surfaced.   Even if you only want strategic advice, I still recommend selecting a firm that has a proven deployment track record because their deployment plan recommendations are likely to be more realistic.
2. Are you looking for detailed deployment or system integration guidance?   Some consulting companies specialize in this area and my personal fear (led by my experience) is that they are incentivized to lengthen the project (especially where the project is on a time and material basis).   Does the advice provided by these firms really serve your best interests or theirs?   What if the firm has the option of suggesting a solution approach with a 90 day deployment or one with a 180 day deployment?   Will you even hear about the 90 day option?   I’d suggest two things to make sure you get what you need.  First, get references for the firm where the clients had projects similar to yours and take the time to ask about what they did and did not do well.   Secondly, independently investigate some of the possible system or deployment options and directly question the firm on the advantages or disadvantages of these options.    I’ve seen major consulting firms lose their trusted advisor relationships because they failed to meet some reasonable standards for unbiased advice. 
3. When selecting a consulting partner, do you know who is going to be assigned to the project?  On more than one occasion I’ve seen consultants assigned to project activity who are poorly suited to the project because of either a lack of experience and/or knowledge.  This not only increases the project cost, but introduces risks that are unwarranted.    Some of the companies that have most effectively leveraged consultants perform screening with nearly the same level of scrutiny as hiring a new employee.  While there are certain structures to the consulting process that help to contribute to a successful project, most of the value is delivered because of the skills and knowledge of the individuals assigned.   Meeting with an experienced and knowledgeable consulting executive does not guarantee that the people assigned will meet the standard required.  I would also demand project assignments that will last the duration of the project to avoid consultant rotations. 

The bottom line is that you will pay handsomely for consulting whether it is valuable or not.   You can increase the odds for success but not without some due diligence.   And remember, not all consulting firms are created equal and few if any are suited to solve every problem.

Financial services and telecommunication companies have pioneered the use of business intelligence (BI) solutions to enable them to analyze massive amounts of data they have accumulated over the years. As a result, considerable insight was gained from data mining and data analysis and thus, the need for BI capabilities grew in the ’80s and ’90s in other industries as well. But despite being a topic explored and written about extensively, there has been only a moderate uptake and mediocre results. Why?

Pure business intelligence (BI) tools suffer from two major drawbacks that prevent them from providing greater value and therefore obtaining greater adoption: They cannot identify causality and, as a consequence, they cannot provide a prediction of future performance.

In the past 5 years, the interest, and indeed the need, for real-time access to operational data has increased dramatically. The promise of real-time operational BI that goes beyond the capturing of static data snapshots and enables users to identify and analyze risks and events, is of major interest to supply chain management (SCM) managers. Driven to improve operations performance, supply chain managers know that better information about their operations and processes lead to better decisions and better supply chain performance.

What do you say when the CEO is asking whether the company will hit its revenue targets for the current reporting period? Can you tell the CEO instantly which customers may be facing late delivery, and which orders may not ship and why? Can you tell the CEO what is causing the late deliveries and how the company could get back on track? You should, because it is in these answers where the business value lies.

We just posted a paper that highlights what’s at the heart of evolving business intelligence into business value. Download it today.

• 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.

The key point I stressed in my answer was to bring in fresh ideas from other industries.  Drug companies, specifically the pharmaceutical companies, have enjoyed very high gross margins – often as high as 85% –  for many years based upon patent protection and good portfolios of new drugs coming to market.  This has led to the slow adoption of Lean principles and little focus on supply chain innovations and efficiency when compared to other industries, particularly high-tech/electronics or consumer packaged goods.  These industries experience much lower gross margin, sometimes as low is 10%, meaning that their supply chain operations have to be much more efficient.  Some key metrics, averaged over the last 4 quarters, that illustrate the differences are below.  Notice the considerably longer cash-to-cash cycle, largely due to much higher inventory levels.

Telling an industry that they need new ideas is not always the sure way to a long term future in that industry.

Thankfully, I came across an article in the Wall Street Journal about the new CEO at Novartis, one of the largest drug companies.  (A subscription may be required to read the full article.)  As per the WSJ, Joe Jimenez “has led Novartis’s largest division—its prescription-drug business—for the past two years, overseeing strong growth. He joined Novartis in 2007, having spent most of his career at HJ Heinz Co., Clorox Co. and ConAgra Foods Inc.”

These are all consumer packaged goods companies. To quote the WSJ, Mr. Jimenez called the food business a “leaner industry” that was better at responding to changes in the marketplace, including changing consumer preferences.  “Margins are lower and the time with which you have to move is quicker,” Mr. Jimenez said of the food business. “The pharmaceutical industry in the past has not been focused on taking out non-value-added cost because the growth has been very good,” he said.

So there might be a future for me in the pharmaceutical industry after all.

More seriously, the business drivers for the increased focus on supply chain efficiency are directly related to the product portfolio performance.  Many of the larger companies are reaching the end of the patent period on their stronger performing drugs and do not have drugs coming though the development stage that will replace the older drugs.  Another contributing factor to an increased awareness of the importance of greater supply chain efficiency is the debate over healthcare reform in the US.  In addition, there has an increase in the competition from drug companies in the so-called BRIC countries (Brazil, Russia, India, and China) especially in generics. Although these countries are less of a factor in the prescription drug business at the moment, they are likely to be a much bigger factor  in this part of the business over the next 5-10 years.

What do you think?  Will the pharmaceutical industry transform itself internally, or will “fresh blood” be needed?