But the highlight for me was the Influencer Panel I hosted as the last event of the conference.  We had great participation from:

• Andy Coldrick of Ling-Coldrick
• Bob Ferrari of The Ferrari Research and Consulting Group
• Russell Goodman of SupplyChainBrain.com
• PJ Jakovljevic of Technology Evaluation Centers (TEC)

While all the panelists added greatly to the discussion, two highlights for me were comments made by Andy and PJ.

Andy said that we have moved from thinking we need a single number forecast (and therefore single number plan) to understanding that we need a single perspective and a range of plans that cover range of possible business conditions under which we will operate over the next period. My take on Andy’s point is that “what-if” analysis is an absolutely core capability at every level of planning, be that strategic , tactical, or operational.  Being able to understand what levers are available to you and the impact that pulling these levers will have on financial and operational metrics is crucial to developing flexibility and agility in your supply chain and broader operations functions.

PJ used the dramatic failure of the Boston Red Sox in August to illustrate that planning is not enough.  As PJ told it, the Red Sox had done a tremendous amount of planning over the past few years which is what resulted in their great season up to August.  But what management failed to do is monitor the health of the star performers and only realized that some players had put on as much as 15 lbs.  Even worse their mechanisms for responding were not in place meaning that they had no way of getting relief pitchers or other key players at such short notice. PJ’s anecdote captured my view that planning is not enough very well.  It also ties in very well with Andy’s observation about a range of plans.

How Andy’s and PJ’s comments link together is that you need to monitor how your operations, particular customer demand, are matching up with what you anticipated (your operational plan), and respond very quickly when the two do not match.  Having pre-evaluated a range of possibilities means that you are able to respond with confidence, even though reality will never quite match any of the scenarios you had pre-analyzed

Planning is not enough, but we all have to do it. Not planning would be very stupid. But not building the capabilities to detect when reality does not match the plan very quickly and then respond profitably to reality is equally short-sighted. Plan-Monitor-Respond.

Unicharm is the largest manufacturer and distributor of diapers and other consumer sanitary products in Asia. They implemented RapidResponse (replacing existing supply chain planning solutions) so they could move away from the limitations of statistical-based planning systems. With RapidResponse, Unicharm can complete planning calculations in five minutes—a process that previously took 12 hours.

In a news release distributed today, Unicharm said:

“We chose RapidResponse for its unparalleled ability to allow us to effectively manage our supply chain in today’s environment given the urgent and explicit need for supply chain visibility, simulation, and collaboration capabilities.”

It’s so humbling hearing it directly from the customer! Check out what other customers are saying about us in the Executive Perspectives section on Kinaxis TV.

This Case Study provides insights on how Amgen transformed its supply planning processes and enabled rapid planning capabilities, with advanced planning capabilities and systems.

Key findings of the report include:

• Rapid demand and supply planning processes are foundational capabilities required for a multitier sales and operations planning (S&OP) process that can propel companies beyond simple supply and demand matching to conscious, value-driven business decisions.
• Life science manufacturers don’t often incorporate into their planning processes “what-if” scenario analysis to optimize supply. Additionally, many companies have disconnected their short-term planning from long-term capacity and supply commitment processes.
• By centralizing elements of its planning process and deploying the appropriate advanced planning tool, Amgen can now quickly model the impacts of various “what-if” scenarios and extend these analyses to multiple planning levels across the entire supply network.
• The company is now able to rapidly develop more-accurate supply plans that optimize capacity, inventory and product shelf life, decreasing the total planning cycle from 21 to 12 days. These consolidated, synchronized views of demand and supply across the entire product supply network are generated by the tool in minutes.

Download the newsletter here: http://www.kinaxis.com/campaign/kinaxis-gartner-pharma-newsletter/

You can check out the PPT deck from the event here: http://www.kinaxis.com/downloads/slides/Is-Forecasting-Fatally-Flawed-2011-04-14.pdf

Or view the on-demand webcast here: http://www.kinaxis.com/campaign/on-demand-ResponsivenessDemandForecasting/

Organizations are striving to be demand-driven, but they require some degree of stability in the supply plan for supply assurance and for managing their capacity constraints― both internal and external.

There are a number of factors that influence the master schedule. These may include:

a)  The implementation of a postponement strategy or ‘delayed differentiation.’ Organizations that implement postponement strategies design a generic configurable product with customization closer to customer demand. The master schedule is generated at the generic product level.

b) Organizations that outsource. If you outsource you may be providing your partner a production plan which represents the plan at a higher level in the hierarchy. For example, product family. The partner will then be responsible for translating this to the item level master schedule.

c) Sales profile. If your product sales accelerate significantly at the end of the quarter (typically driven by sales incentives), a master schedule decoupled from the sales plan may be more important to you than other organizations. This is particularly important if you have long lead times or capacity constraints. Level loading inside a firm horizon will reduce the risk of supply to support the end of quarter sales.

d) Asset Utilization. Your organization may have significant investments in capital equipment that influence the master schedule. You may be faced with tradeoffs between capacity utilization and lean JIT strategies.

Once the master schedule is created, a big challenge is the monitoring of the master schedule against your production plan and your sales plan. How do you ensure that you are building the right amount of product to meet your organizational objectives? This can be a fine balancing act.

You may want to ask yourself:

• Can you easily reconcile the production plan and master schedule at multiple levels of the hierarchy in units and value?
• Do you model your key bottleneck capacity constraints? Are they internal and external (ie. supplier) constraints?
• Do you have a clear view of your capacity constraints and their impact on your master schedule?
• Do you understand the impact your master schedule or changes to your schedule have on customer demand?
• Are you able to compare multiple versions of your schedule and analyze the impact on your KPIs?
• Do you use an alerting system to proactively identify when your master schedule is at risk of meeting your sales plan?
• Are you responsive enough to act before it is too late? What is your response management strategy?

We all understand the concept of creating a plan, but what about monitoring and responding to the plan? I am interested in hearing your point of view. Has the traditional role of the master scheduler changed? How important is this role in supporting an organization’s Sales and Operations Plan?

The need to reroute to Hong Kong is a great example of the difference between planning and response, and the costs that are embedded in a design or plan.  It turned out that for my original trip, given that I had three lay-overs of more than 24 hours, it made sense to buy a Star Alliance ‘Round the World’ ticket.  It was considerably cheaper than buying each leg from a different carrier, and considerably easier to book and manage given that there is a single web site and service center for all legs. In addition, the flexibility of the ticket is great though there are moderate change fees.  The catch is that the ticket is not refundable (in-built cost) and that you have to have at least three lay-overs of at least 24 hours (in-built inflexibility). With the Tokyo leg cancelled I still had to fly somewhere for at least 24 hours or forfeit the entire ticket. But I had to buy my ticket with sufficient lead time in order to get a good fare, meaning I had to buy it before the earthquake in Japan. However, had I bought a ticket at shorter notice to Shanghai and London only, it would have been quite a bit less if we include the costs associated with my stay in Hong Kong, not to mention the opportunity cost of me being away for longer.

What I find interesting in this description is to contrast it with a theme emphasized by several speakers at the Manufacturing Supply Chain Officers conference in Shanghai, particularly John Gattorna, but by others too (Incidentally we received a copy of John’s book titled “Dynamic Supply Chains – Delivering Value through People” as part of the event.)  The theme is that planning is good, responsiveness is expensive. The underlying assumption is that if we could only plan better we good run a very efficient (in other words low cost) supply chain. What we so often forget to evaluate is the in-built costs created by the plans we make. In my example above, I would have saved money by buying my ticket later. What cost me money was ‘planning’.  Being ‘responsive’ would have saved me money. But my management, all the way up to the CEO through the CFO would have shot me for buying the ticket within the 14 day period. My trip wasn’t any more expensive than if I had gone to Tokyo ($125 for a change fee), but I had to spend more than 24 hours in Hong Kong doing ‘nothing’.  Actually, I did some site seeing in the late afternoon and evening. Great for me; not necessarily the right thing for the company.

OK, I agree, on average it would be cheaper to buy the ticket 14 days in advance. But that is not my point. My point is that we measure the cost of responsiveness, but we don’t measure the cost of inflexibility. Had John Gattorna brought up the built-in cost of inflexibility and the need to balance between the cost of inflexibility and the cost of responsiveness, I would have no issue with his statements. But I would go further than this and say that there are ways of providing profitable response to changing circumstances, provided you haven’t built in too much inflexibility into your supply chain through ‘better’ planning.  I just don’t buy into the either/or assumption that is made about efficiency versus effectiveness in supply chain management.  We have to look for the AND.  To John Gattorna’s credit, he did bring up the issue of ‘brittleness’ of the supply chain, but only in the context of the last recession in which companies drew down inventories to unsustainably low levels.  I did not hear him state that ‘brittleness’ is a side effect of not only the recession, but also of planning and systems that only focus on efficiency. And that there are costs associated with this brittleness that we do not measure. Instead, I heard John state more than once that we need to plan better because responsiveness is expensive. Na-uh! It is only expensive if you approach supply chains from the perspective of efficient OR effective, rather than efficient AND effective.  To be fair to John, I have not finished his book yet, so I can only go by the statements he made during the conference.

I was perhaps even more startled by a presentation given by a company whom I will keep nameless other than to say that they are a mobile handset manufacturer. The central theme of the talk was don’t be different, because being different is expensive. Wow.  Needless to say, this company does not have a large share of the market.  But to be fair, the focus of the presentation was on logistics, and there I agree.  While there are opportunities to do Logistics ‘smartly’, it is a commodity and should really be outsourced to 3/4PL’s.  It was during the Q&A session that I was really surprised.  When asked (challenged?) about Apple’s success in this space, the speaker said that Apple doesn’t do anything different in there supply chain.  What?  Guess the speaker missed the part about Apple spending close to $4B earlier this year to buy up the majority of the flat panel displays used in mobile phones and tablets for the next umpteen years.  Obviously I am not privy to the actual contracts, but my interpretation of what I have read is that Apple hasn’t given the suppliers a long term delivery schedule by part, but rather they have put money on the table to ensure that they secure a huge portion of the available production capacity.  In other words, Apple made the decision that spending on flexibility is cheap.  This is smart.

So where do you think your next breakthrough in performance come from?  From learning to plan better?  Or from learning to respond profitably to real demand?

Develop mutual trust

The first thing customers want is a good personal relationship and a feeling of mutual trust. I find that the best way to start a successful relationship is to have a face to face meeting at the beginning of working together to define that relationship.  This includes defining a communication plan, who to communicate to, and when. Defining what kind of information will be shared amongst the two parties. But most importantly, develop a personal rapport with the customer.

Listen

Listening is critical. Customers want to work with people who will listen to them.  Listen to them about their business, where it is headed, and how it impacts the use of software. Many times this means that the customer will request enhancements to the software. Most software companies have mechanisms to allow customers to request product enhancements. However, a customer not only wants the ability to request a product enhancement, but also work with the software company on defining use cases to ensure the requirements are met. Most importantly, the software company must provide status of product enhancement requests.  Nothing frustrates a customer more than spending the time to request enhancements but never to hear anything back.  In a true partnership there will be regular communication between the software company and the customer to understand and communicate on product roadmap, customer business needs and how the two can work together to accomplish goals.

Both companies must also listen to each other when they need help. Customers need to feel that if they ask for help that someone will listen. I don’t think they expect they will necessarily get everything they want, but they expect a partner will make every best effort to help them to the best of their ability. If a customer feels like their vendor never responds to any requests for help they will likely look to replace that vendor with one who will help them when required. Conversely, when the software vendor needs help with references or case studies or something to that affect, they should be able to ask their customers for help.

Be flexible

Customers also expect their software vendors to be flexible.  If the relationship isn’t working, be flexible to change the terms. This could be developing relationships with new people at the customer or vendor. It could also mean changing the commercial terms, but really what it means is that customers want the vendor to listen to their problems and adjust the terms to help them. Customers also need to be flexible with the vendor. Occasionally the vendor may need to ask favors of the customer. Customers are much more willing to help the vendor if there is mutual trust and if the vendor has listened and helped the customer in the past.

I do believe software vendors and customers can form true partnerships based on trust and mutual listening. The key is for both parties to work on the relationship and be there for each other when required. What has been your relationship with your software vendors?  What can they do better to help you?  I am always looking for ways to improve relationships and would love to hear your suggestions.

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Seeing jack-o-lanterns, skeletons and witches on front porches and store-front displays reminds us that—as difficult as it may be to believe–the holiday season and end of the year are right around the corner. And while that’s historically good news because holiday-season sales play a considerable role in many companies’ revenues, the sales season this year looks to be challenging.

One issue is that as orders fell during 2009, inventory levels for many companies stayed high. Since then, they have been able to deplete that surplus inventory, which is good. On the other hand, with that safety stock now either gone or very slim, these companies have become much more dependent on their suppliers’ responsiveness and overall performance.

The problem, as has been noted by both Bob Ferrari and Jim Fulcher, is that suppliers have had difficulty meeting their customers’ requirements this year. Texas Instruments, a supplier of several component chips for the DroidX, EVO and iPhone4 smart phones, is struggling to keep pace with customer demand. It is, however, far from being the only company with supply chain challenges. Mobile phone manufacturers themselves are responding to component shortages by switching to other components that may have more availability.

Furthermore, that situation isn’t just limited to the smart phone market. According to an MFG.com survey, 42 percent of small and medium-sized suppliers said they have received queries or work from larger companies that are urgently in need of assistance due to their own supply chain problems.

The second issue companies increasingly struggle with is demand uncertainty. Whether it’s toys, shoes or smart phones, no one really knows what future consumer spending will look like. In recent months consumers have shown a willingness—albeit somewhat guardedly at times—to spend. But with unemployment hovering around 10 percent and persistent fears of possible end-of-year layoffs, consumers may scale back their spending on holiday gifts this year.

The watchword in all of this then is “volatility.” That applies to suppliers’ ability to meet manufacturers’ demands as well as unpredictable consumer demand.

Addressing those market conditions requires companies to walk a tightrope of sorts. No one wants to lose possible sales and fail to meet customer expectations, so faced with uncertain demand and supplier volatility, the temptation is to build inventory levels. That way, there always is sufficient inventory on-hand to meet a potential sudden increase in demand. However, carrying that inventory presents drawbacks as well. Most notably, there is the high cost of carrying that surplus inventory—not to mention the possibility of being stuck with excess and obsolete inventories in case potential demand never materializes.

Use of S&OP helps alleviate these concerns because, as a cross-functional planning process, it helps organizations better identify and respond to demand so they can not only maximize opportunity—but also mitigate risk. That’s possible because S&OP helps users strike a balance between the sales and operations planning disciplines.

Key capabilities play an immense role. The ability to conduct what-if analyses–for instance—for both supply and demand is crucial, as is being able to evaluate analyses against both financial and operational targets. Secondly, event-driven S&OP is increasingly valued because it delivers the ability to actively monitor the current plan and notify the appropriate people when the plan is at risk. That, in turn, allows them to take immediate action to correct the course.

So, how is your S&OP process? Will you receive treats, or tricks, in the coming months?

Of course this uncertainty is not restricted to the US economy, which is the point Tom Friedman makes by focusing on the German economy and how it relates to economic recovery in Europe.  In fact he points to three influences that will need to be reversed if the US and EU economies are to recover soon:

The first big structural problem is America’s. We’ve just ended more than a decade of debt-fueled growth during which we borrowed money from China to give ourselves a tax cut and more entitlements but did nothing to curtail spending or make long-term investments in new growth engines.

Second, America’s solvency inflection point is coinciding with a technological one. Thanks to Internet diffusion, the rise of cloud computing, social networking and the shift from laptops and desktops to hand-held iPads and iPhones, technology is destroying older, less skilled jobs that paid a decent wage at a faster pace than ever while spinning off more new skilled jobs that pay a decent wage but require more education than ever.

But the global economy needs a healthy Europe as well, and the third structural challenge we face is that the European Union, a huge market, is facing what the former U.S. ambassador to Germany, John Kornblum, calls its first “existential crisis.” For the first time, he noted, the E.U. “saw the possibility of collapse.” Germany has made clear that if the eurozone is to continue, it will be on the German work ethic not the Greek one. Will its euro-partners be able to raise their games? Uncertain.

Commenting on Bernacke’s statements, Jeannine Aversa of Associated Press writes that

Consumers have cut spending. Businesses, uncertain about the strength of their own sales or the economic recovery, are sitting on cash, reluctant to beef up hiring and expand operations. A stalled housing market, near double-digit unemployment and an edgy Wall Street shaken by Europe’s debt crisis are other factors playing into the economic slowdown.

OK, OK, so there is lots of economic uncertainty.  What do we do about it?  During my time as a management consultant I learned a fundamental truth: Analyzing a situation is fairly easy, defining a future state is a lot harder, but the really hard part is defining the path to achieve the future state. Not being an economist I can comment little on the efficacy of Tom Friedman’s suggestions for recovery, nor on Ben Bernacke’s for that matter.  My guess is that most of the readers of this blog fall into this category too.  Clearly we all want the same future state of a revived world economy and we are all too aware of the current state of the economy.  Of course we all have our opinions on the path to recovery, which we can express in elections, but for the most part actually pulling the levers of the economy is not something which is in our control.

Which leaves us all feeling “really unusually uncertain”.

While we may not be able to effect change to the national or global economy, we do have some level of control over the economic performance of the companies for which we work.  As I commented in a previous blog titled “Why S&OP? Why now?”, this is where I see sales and operations planning (S&OP) playing a big role.  But for S&OP to be effective it must provide ways for people to evaluate and understand uncertainty.  There are 4 fundamental capabilities that are required to achieve this:

1. Capture of assumptions made about the future state for knowledge sharing and control
2. Facilitated collaboration across functional boundaries to get buy-in and inputs from multiple parties
3. Super-fast “what-if” analytics that allow organizations to evaluate and compare multiple scenarios in order to maximize performance and to mitigate any identified risks
4. Continuous plan performance management so that deviations are detected early and course corrections can be made quickly

The last point about performance management is often overlooked.  The more uncertain the future, the less likely it is that your plans will be achieved.  It doesn’t help much if at the end of the month you determine that the plan wasn’t achieved.  In a more stable economy this might have been sufficient.  In today’s volatile economy (which is the root cause of our uncertainty) it is really important to monitor performance continuously and to course correct as quickly as possible when significant deviations are detected.

However, what makes this all possible is super-fast “what-if” analytics.  Uncertainty is risk.  Without a mechanism to evaluate many alternative scenarios, your ability to evaluate and understand risk is reduced greatly.  Do you think Excel is up to this?  Do you think this can be achieved without any technology?

So what’s this got to do with supply chain management?  Well, I think a lot.  But I will expand on this later.  Let me first continue with the planning/response duality, and the effect technology has had over the past 20-30 years on one’s ability to be more responsive.

Our 2nd son has gone to Europe for some weeks in the summer.  I was equally fortunate after high school to get a trip to Europe, but that was in 1973.  The available technologies were very different…

                                              His base is an apartment in the south of France and he will be travelling to Turin, Venice, Rome, Paris, Frankfurt, Prague, and Munich.  Lucky guy, huh?!  As you can imagine, this trip has been in the planning stage since before Jan 2010.  Not only does he have an anxious father, he has a German mother, so meticulous planning was required.  This included searching for concerts/events across Europe on the internet and then booking Eurail tickets to get to the different destinations.  And finding youth hostels over the over the internet and pre-booking accommodation.  I, on the other hand, had a well thumbed paper copy of a “Europe on the cheap” guide.  Whenever I got to a new location, the first thing I had to do was to find a youth hostel for the night.  And believe me, English was far less prevalent in 1973.  So a lot of the planning and coordination which we did in 2010 that simply not possible in 1973.

Guess what?  He left the key to the France apartment at home!

He called in a panic from Zurich at 1:30am (parents not amused) using his cell phone.  We were able to find a hotel near the apartment using the internet and to book him a room for a few nights.  When I was travelling, I guess I could have sent my parents a telegram, but that would have only reached them later in the day, long after I would have had to try to sort something out for myself. 

And he has his own credit card.  I had to carry around a thick wad of traveller’s cheques and go to a bank – which were only open Mon-Fri from 10:00am to 3:00pm.  Actually, on Wednesday they closed at 12:00. 

Once he had checked into the hotel, he sent us an email to say that he was well settled, which we had in our inbox’s once we woke up again.

To get the key to him we went on-line to find the quickest (and cheapest) over-night service, and then emailed the concierge with the tracking number and expected delivery date and time.  He now has the key and hopefully the rest of his trip will be filled with as much adventure, but from positive experiences.

The key here is that we take technologies that are available to us for granted.  We forget how these technologies have changed the manner in which we can conduct business, and all too often the manner in which we use technologies in business lags the capabilities available to us.  So I smile when I hear people state that technology has no role in S&OP.  No business process is about the technology, but imagine if we did not use even a rudimentary technology such as EDI?  What about the ubiquitous use of Excel?  Let me tell you that in 1973 we were still using paper punch cards to submit a job to a data center.  The job queue was usually a few hours and when you came back you would discover that you had typed an S instead of a D, meaning the whole job had failed.

As my story about my son’s trip illustrated, technology has allowed us to shrink the time it takes to reach a decision and to include others in the process of compromise required to reach this consensus.  Not only that, we have mechanisms to know much sooner that an issue has occurred, which is of tremendous value.  The sooner you know about something happening and the quicker you can respond, the more likely you will be able to affect the course of events and reduce the risks or take maximum advantage.