Posts Tagged ‘Supply chain visibility’

Oliver Wight has long been at the forefront of Sales and Operations training and consulting – even to the point that many companies will tell you very proudly that they have attained Ollie Wight Class A certification for a variety of processes. Oliver Wight has also spawned several off-shoots, including Ling-Coldrick, who has done some really great work in getting S&OP started in many organizations. Oliver Wight promotes the concepts of their ‘Proven Path Methodology’ on a ‘Journey to Business Excellence’, which I have captured below. This is a business process maturity chart, ultimately ending up in integrated business processes.

Maybe it is just me being impatient, but whenever I look at this diagram, I cannot help wondering who is going to embark on a 10 year process. In the current market conditions who can afford to wait that long? Anyway, Ollie Wight has been doing process consulting and change management for a lot longer than me, so perhaps they are correct.  But it must be nice for Oliver Wight to get someone to commit to a 5-10 year project. Wow.

Having been around supply chain management since the early 1990’s, I wonder how many companies have progressed to Phase 3, and are nibbling at Phase 4.  Perhaps the answer lies with a different maturity model promoted by Roddy Martin, formerly of AMR Research, which is now part of Gartner’s Supply Chain Management practice.  Notice how there is a different value trajectory for the companies that are beyond Stage 3, when the focus is more on business value than operating efficiency.

Comparing these two maturity models I would say that Stage 2 of Roddy’s model equates to Phase 3 of Oliver Wight’s model, which is the focus on functional excellence supported by the automation of functional processes. Roddy contends that most companies are at 2.5 on the maturity curve, and some have reached 3.0, with Proctor & Gamble ahead of the pack at 4.7. In other words many companies have reached Phase 3 of the Oliver Wight model and a few have progressed into Phase 4.

It is in this context that I was fascinated by a recent daily email feed I get from George Palmatier of Oliver Wight in which he describes principles he wishes he had understood earlier in his life. (You can sign up for the daily feed here.)

It is the ‘Integrated Planning and Control’ aspect that I find really different and interesting. This equates to Roddy’s notions of ‘Demand Driven’ (Stage 4) and ‘Value Translation’ (Stage 5). Fundamentally it is the recognition that while planning is necessary, planning alone is insufficient. One point on which I disagree with George is that he refers to ‘changes in the market’ without acknowledging that most of these are not changes but rather evidence that we did not have 100% knowledge of the market in the first place, and we never will. The significance is that by using the term ‘changes in the market’ there is an implicit assumption that a perfect plan that captures market conditions exactly can be created. We all know that any plan we create is aspirational, especially the long term plans, which is why, to me, ‘control’ sounds too much like measuring a supply chain’s performance based upon Plan Conformance. If the plan was never 100% right in the first place, why are we forcing the supply chain to follow it? Instead of ‘control’ I would use Gartner’s term ‘Profitable Response’ (see the diagram below), which is the core message of the middle paragraph in George’s principle. The diagram is from a recent Gartner article titled ‘Elevate Your S&OP Process From Traditional to Demand-Driven’ (subscription required) published by Todd Applebaum and Jan Kohler in which they recommend that companies

Create a vision for S&OP that moves beyond operational planning to drive business value by driving profitable demand responses based on trade-offs and conscious choice.

Sounds to me like they are making the same point that George is making: Planning and XYZ. The important bit to me is the association of profitable response with demand sensing and demand shaping. What I like about the term demand sensing is the implicit recognition that we did not have a complete understanding of demand in the first place, whether in the long term, medium term, or short term. Obviously some of the need for demand sensing can be put down to ‘changes in the market’, not just lack of knowledge.

But what goes into being able to sense and shape demand, and then provide a profitable supply response? The strength of a large organization like Gartner is that there is often some really interesting work going on in multiple related areas. In June 2011 Roy Schulte, Janelle Hill, Nigel Rayner of Gartner published a report titled ‘The Trend Toward Intelligent Business Operations’ (subscription required) in which they address the Sense-Shape-Respond need from techy perspective, but the messages are consistent with what both Todd and Jan write (Gartner), and what George writes (Oliver Wight), and in which I believe. The key findings of the Gartner report on Intelligent Business Operations are

• The adoption of integrated analytics is increasing as business managers and knowledge workers are asked to make faster and better decisions, and thus need improved visibility into their operations and environments.
• “Real-time” operational intelligence serves different needs and uses different design patterns than tactical and strategic business intelligence (BI) and performance management (PM).
• There are two fundamental styles of real-time operational intelligence: analytic services that run on request and active analytics that continuously monitor conditions in a company and its environment.
• Organizations that pursue the business process management (BPM) approach to implementing systems are among the most enthusiastic and successful adopters of intelligent business operations, because business people and analysts can readily see where analytics and decision management should be used, and the project team has a commitment to explicit business process modeling and continuous process improvement.

My conclusion is that Gartner is seeing the need to plan, monitor, and respond in multiple business areas, not just supply chain management.  The necessary technical capabilities they describe are captured in the following diagram.

For the less technically minded, the acronyms used in the diagram are as follows:

• BAM – Business Activity Monitoring refers to the aggregation, analysis, and presentation of real-time information about activities inside organizations and involving customers and partners.
• CEP – Complex Event Processing is event processing that combines data from multiple sources to infer events or patterns that suggest more complicated circumstances. The goal of complex event processing is to identify meaningful events (such as opportunities or threats) and respond to them as quickly as possible.
• CBO – Constraint-Based Optimization, in the context of supply chain management, is essentially what we have called planning, and is focused on functional excellence.
• BPMT – Business Process Management promotes business effectiveness and efficiency while striving for innovation, flexibility, and integration with technology.
• Sim. – Simulation is the imitation of the operation of a real-world process or system over time. The act of simulating something first requires that a model be developed; this model represents the key characteristics or behaviors of the selected physical or abstract system or process. The model represents the system itself, whereas the simulation represents the operation of the system over time.

But we can see all the elements of the integrated planning and control discussed by Oliver Wight and Gartner’s Sense-Shape-Respond. Both capture the essential point that while planning is necessary, it is not sufficient on its own.

Likewise processes and systems, such as event management, that can only alert you when a particular metric is out of whack without being able to tell you the downstream or upstream impact are insufficient. Similarly predictive analytics processes and systems that are based upon statistical analysis without any notion of the underlying model are insufficient.  This is the point brought out in the definition of ‘simulation’. And what better model of the supply chain do you have than the model you used to generate the plan in the first place?

Most supply chain planning systems fail to address the needs for ‘intelligent business operations’ described by Gartner because their entire focus is on creating the perfect plan. The term ‘supply chain planning’ indicates their focus. They do not provide the capabilities to monitor, manage, and control the business once planning is “done”. Where supply chain planning systems fail is in being able to

• identifying the upstream and downstream impacts of events
• directing the alerts to the people responsible for the impacts
• orchestrating the multi-functional simulation of ways to resolve the issues
• incorporating both operational and financial metrics in the comparison of simulations
• incorporate human judgment as the key element of making trade-offs across functions and competing metrics
• doing all of this quickly

Doing some of this is not enough. Doing all of it slowly is not enough. Doing all of it quickly provides the Sense-Shape-Respond capabilities described by Gartner that are required to satisfy the needs expressed by George Palmatier of ‘Integrated Planning and Control’.

Control Towers, perhaps the most important concept to come out of Supply Chain Management practices in some time, is a concept in desperate need of definition and description.  Aberdeen recently ran a survey of Business Intelligence (BI) looking for answers, and came away with some great insight and good direction. But BI does not provide the technology capabilities that were identified by Aberdeen as necessary to support a Control Tower.  I’ll explain later.

In the Aberdeen report, Supply Chain Control Towers: Concept and Impact, Bryan Ball defines the supply chain issues driving the need and interest in Operations Control Towers really well though, and in the process describes some of the key characteristics:

What if we could remove all of the information delay in supply chains and operate in real time when it comes to problem solving? … Responses to “what-if” questions could be determined in minutes rather than hours and days.

… the “Holy Grail” of supply chain leaders has always been to remove as much latency as possible in every aspect of the supply chain … latency results in inventory buffers …

The term “Control Tower” is … an end-to-end holistic view of the supply chain and near real-time information and decision making.

That is my bolding and underlining in the last sentence. This is because Bryan has identified an absolutely key differentiator between a simple alerting system and a Control Tower.  The visibility provided by the end-to-end holistic view of the supply chain is a necessary precursor to a Control Tower, but, without the ability to determine how to act (decision making) on the information provided, you do not have a Control Tower.

While nice in concept, the question is if removing latency has been the “Holy Grail” for some time, why is there now an interest in Control Towers? The answer lies in the business needs.

So it is the virtual storm between increasing customer expectations and increasing supply chain complexity that is driving the need for Control Towers. Perhaps more importantly is the process capability improvements that early adopters have achieved with the rudimentary capabilities provided by BI tools.

It is important to note that in the context of using BI tools to support the concept of a Control Tower, Bryan states that:

… we define the improvement in latency as a key to measuring the effectiveness of a Control Tower and we equate this to the “time to problem resolution”. This approach goes far beyond measuring the “time to alert” that is often touted by business intelligence (BI) providers and simple event management systems.

While undoubtedly a good way of looking at things, the  terms “time to alert” and “time to problem resolution” need to be explored some more. Each term starts with “time to …” indicating the importance of speed and echoing the early statement that

Responses to “what-if” questions could be determined in minutes rather than hours and days.

Time to Alert – Know Sooner

Key questions that need to be asked about an alert are :

• To whom?
• About what?

Let’s start with what simple event management and BI tools can provide in terms of alerting, which is ample, but not sufficient. They can, for example, in the case of a simple event management system, send an alert to a purchasing agent if a delivery from a supplier is late by, say, a day.  BI tools can be used to determine that over the course of, say, the last month the supplier on-time delivery performance has dropped below 95%.

All good stuff, but are these isolated pieces of information important? Does it matter to the rest of the supply chain that the delivery is late?  If there is a significant impact, who should know? In my example, will the late delivery cause a production line to go down next week because of part shortages?  If it will, shouldn’t we alert the plant manager? What if the plant manager isn’t an employee but rather works for a Contract Manufacturer?

It is impossible to determine the future impact of an event without:

• A multi-tier representation of the supply chain that crosses functions and organizations
• A multi-tier BOM that links the late materials to end item customer demand
• Routings, manufacturing capacities, and transportation leg lead times
• Sourcing and allocation rules
• Costings for each of the supply chain steps from material supply to end item delivery

Simple localized event detection or historical performance analysis will not tell you the impact, if any.  This is truly complex event processing.

As Bryan describes, one of the primary purposes of an Operations Control Tower is to reduce latency, and yet supply chain complexity is only growing because of globalization and outsourcing.  So now you have put multi-tier BOMs and other capabilities into place so that you can determine the end-to-end impact of an event, but who should know?  Unless you can determine this very quickly (reduce latency), the downstream/upstream impact information is of little use.

This is where the concept of Responsibilities come into play.  Knowing who needs to know about an effect, not the event itself, is critically important.  Armed with both the ability to determine the downstream and upstream effects or impacts and whether they exceed acceptable control tolerance very quickly, and the ability to determine who needs to know very quickly.

BI tools and simple event management systems can’t do this.

Time to Problem Resolution – Act Faster

Undoubtedly knowing something sooner is important.  Knowing quickly that this something will have significant upstream or downstream effects is even better, and quickly telling someone that needs to know is significant.  So now what do you do?  If it takes you forever to determine how to either take advantage of the opportunity of reduce the risks associated with the event you might as well have not known sooner.

Remember that a key concept behind a Control Tower is that it is at least multi-functional, and, in many cases, multi-enterprise. So how are you going to resolve the issue at hand when it crosses multiple functions and multiple enterprises with competing objectives and metrics?  The Aberdeen survey highlighted complexity as one of the biggest challenges in supply chain driven by global operations and outsourcing. How do you know who needs to know about a situation and who can help you resolve the issue?  In a presentation at the Gartner Supply Chain Conference a number of years ago, Angel Mendez, at the time the head of Cisco’s Customer Value Chain Management organization, commented that Cisco had something like 20,000 people in their supply chain, only 2,000 of whom worked for Cisco. (The exact numbers may be wrong, but you get the picture.)  So how do you find the right person to speak to in this type of end-to-end supply chain. Every minute it takes to find the right person to alert and the right person to help greatly reduces the physical supply chain’s ability to respond profitably and quickly to the alert.

This is where the concept of Responsibilities comes to play, which is the ability to identify the people who need to know about the event, and also, and more importantly, the upstream and downstream effects of the event, and the people impacted by these effects.  For example, if a late supply deliver is going to mean a 2 week delay in delivering an important customer order, it is best to tell the customer before the agreed delivery date. And to correct this situation may require the reallocation of existing raw materials or even finished goods.  Alternatively, this situation could be resolved by expediting materials from an alternate supplier, but this needs to be evaluated against the impact on revenue, margin, and customer service of doing so. Spending time finding the right people who can act increases the time to problem resolution.

But another dimension to this puzzle that shouldn’t be lost is the time it take to come to an agreed course of action that is aligned with multiple, and often competing, performance metrics.  This is where What-If Analysis and side-by-side comparison of Scorecards on Dashboards becomes so important. Once you have assembled the team of people that are required to resolve an issue, they must be able to propose changes and evaluate the impacts quickly across multiple metrics.  For example, expediting materials from an alternate supplier may wreak havoc on the metrics of the Material Supply department, but may be the best alternative in that it has the least impact on revenue and customer service, and only a moderate impact on margin.

If it takes 8 hours to evaluate the upstream and downstream impacts of the proposed changes, let alone getting consensus and approval for the changes, the default behavior of the organization will be seat-of-the-pants firefighting, leading to all sorts of unintended consequences. The team selected to resolve the issue must have a collaborative environment in which they can propose changes, capture their assumptions, evaluate the alternatives, and vote on the outcomes.  All supported by a full audit trail to eliminate the ‘I didn’t know’ excuse. And the results of the what-if analysis must be computed in minutes, even seconds, not hours.

This is how you can act faster, and with confidence.

Outcomes

Without tangible results this discussion about the need for Control Towers would be theoretically interesting at best. Which is why I was so interested in the tangible results published by Aberdeen.

As anyone who reads my blogs with any regularity knows, Cash-To-Cash is one of my favorite supply chain metrics. To put it into perspective, a 7 day difference in Cash-to-Cash to a $10B company means a reduction in capital requirements of $191M.  And this is for fairly simple Control Tower capabilities provided by BI solutions that do not extend much beyond simple alerting systems.  When decision making capabilities are included in Control Tower capabilities the benefits are even higher.

So where are you on this journey to ‘an end-to-end holistic view of the supply chain and near real-time information and decision making’? Studies out there indicate that most companies are still at an early stage of maturity focusing on functional excellence with some early stage adoption of cross-functional capabilities exemplified by S&OP. So don’t be intimidated by the achievements of the visionaries.  It is a journey, but every journey must have a destination, and there is no doubt in my mind that Bryan Ball describes the ultimate Control Tower destination very well.

In the 1980’s, Europe had what was colloquially known as butter mountains and wine lakes. Farmers in the EU under capitation grants were being paid to produce product for which there was no market. The overhang was enormous, and this inventory glut of unsold butter and wine went on to impact the price industry could command for these products. Europe is still paying the price with what is now known as decapitation, effectively paying farmers to leave land fallow in order to try and manage the supply demand imbalance.

China, and more widely the Asian region, is not immune to the global economic downturn despite growth figures their western counterparts envy. Europe & the US are still struggling. China’s input and output figures released for August are lower than expected. They have also reduced expected growth rates for 2001/2012 by 1/5 to 1 %. The upshot of this to a regular consumer is quite staggering, and to business worldwide. China is a country of production. If we, and in we, I mean all of us, don’t buy, or more accurately can’t buy, where does all of the production stuff go? Into warehouses. And that’s when the problems really begin. Building inventory mountains is a major problem. Masking the problems and creating falsified growth make it much more difficult to manage. So, what can you do to avoid it, and if not avoid it completely, best manage it?

The moral to the story is this: Know your inventory. Here is the key:

Make inventory management a direct part of S&OP, not a by-product of the process. There is a difference.

With the trend of outsourcing still strong, inventory planners cannot go down to an inventory floor and visually see what they are managing. Your CM’s contractual obligations can also be negatively impacting you. Harsh sale or return clauses on VMI (Vendor Managed Inventory) can negatively impact your bottom line. And depending on your forecasting model, you could be contributing to the problem.
Having, and managing key inventory metrics are key to knowing your position, and enabling you to react. Often, S&OP can be implemented with inventory falling out as a by-product of S&OP policy, not as an integral part of it. Linking dynamic inventory management to S&OP is the key.

Maintaining strong E&O (Excess & Obsolete) reporting, measuring DoS (Days of Stock) and ToR (Turns of Ratio), reviewing contractual VMI clauses, and closely monitoring forecast accuracy is the best way to keep your inventory glut to a minimum.

Forecasting accuracy is the bugbear of the supply chain. With business building to forecast as opposed to real demand, this is shortening lead-times and enabling responsiveness. All good. But, and it’s a big but, it only works if you closely monitor forecast consumption and adjust your horizon accordingly. Use market trends to help determine the right statistical model to use. Regardless, historical trends should be an indicator, but not the only consideration. Given economic instability, what was in the past, may not be the future and determining the weight you apply to historical is key.

This nicely segues into VMI. Depending on your contractual obligations to your CM— normally a 60 day sale or return policy— you could end up with a large inventory bill on your P&L statement that few companies have the luxury to absorb easily. Ensure your figures look like they should.

Trending DoS and ToR of your inventory will allow for intelligent analysis. If the numbers are rising for DoS and lowering for ToR, this should be reflected by your CM’s figures and is an indicator of forecast consumption.

Growing inventory mountains bring bad news. It reduces product value, negatively effects employment therefore reducing consumer spending power, and floods the market with cheap goods. It is crucial that inventory management is treated within the S&OP process as an integral part of planning strategy, and not a by-product.

In the current corporate climate, most companies are seeking to increase market share by flexing their supply chain to meet the needs of both the company and the customer. The question for many corporations comes back time and time again to: How can market share be retained or even post gains with on time performance? Many companies over the last few years have been holding onto cash due the economic downslide along with cutting jobs and any other way of reducing cost. It has been noted that the economy will not improve unless we change that way of thinking. Promoting jobs, promotes spending. It’s simple yet complex at the same time. In my opinion, large companies hoarding cash is not the way to stimulate growth in this country.

As many of us are aware, supply chain management is a challenge for companies of any size. I have spent many years in both distribution and manufacturing helping to streamline business processes and have learned that it is a continual evolution. In my years of consulting on the business side of things, I always found that effective and innovative Supply Chain Management plays a large role in increasing revenue. Years spent working with implementations of ERP business systems have taught me that there are several ways to increase productivity, reduce costs and streamline business processes from quote to cash. Most focus was spent working with inventory management, procurement and lean manufacturing processes in order to help companies become more profitable. During this time I found that responsiveness to customers is directly linked to capturing more revenue opportunities. The supply chain planning process along with inventory and procurement has always been the focus to increase profitability in distribution. Manufacturing is not much different, just a few more processes, but cost reduction and process improvement in the manufacturing cycle can greatly improve revenue. Sales always seem to have the need to be competitive and so there is very little room there to increase revenue only through pricing measures. Today, with the economy being down makes it harder to increase prices without losing sales and customers.

Recently I came across an article by Hitachi Consulting that talks about the “Six Key Trends” for changing Supply Chain Management today. These may be some keys to success, but I believe there is more to it, but it’s a great place to start.

I believe one way to improve supply chain performance and efficiency is to use technology to continually improve upon business processes. This has become the widely accepted element of an overall business strategy — to improve the supply chain, thus increasing value for the customer resulting in a more profitable company.

Let’s face facts. We as consumers all look for the same product, but try to find the best affordable price. Corporations know this to be true and must look for ways to cut cost, retain revenue and provide better service and value to the customer so as to retain that customer. Technology plays a vital role in that (and specifically as it relates to the six trends discussed below).

Here are the six key trends for supply chain management today highlighted in the article, with my thoughts on a few aspects of those themes:

Demand Planning
There have been new approaches to demand planning in manufacturing. Plant level production planning is costly and does not directly influence what products sell most. Instead, having a demand driven focus will influence the sales focus on what products are “wanted” in the market place and therefore drive a more customer focused approach to managing supply chain effectively without sacrificing operational efficiency.

Consensus demand planning has become critical as all leaders in a company must be in agreement with a demand plan in order for it to be successful. This requires capturing all influencing factors and cross functional input, such as customer demands, new potential products, product improvements based on market trends and competition, market conditions, current market acceptance and services needed to support such products. These factors need to be continually evaluated and the demand plan must be changed accordingly for continuous improvement and forecast accuracy.

Analytic tools available today help reveal the flaws in most ERP systems that can be fixed. The key is to know where to look to find the root of the cause and fix it. ERP systems are designed to “run the business” from ‘quote to cash’.

For example, MRP will show you what needs to be purchased or made to meet the forecasted demand, but the demand plan could be flawed (and often is) and without the ability to analyze “why”, we follow orders based on straight demand from the system.

Only after the fact did we realize that we don’t need to make 1000 of something. Somehow, a minimum was set wrong or safety was set wrong on the part and no one caught the exception because ERP systems don’t warn you that this is not an independent or dependent demand. If we could proactively analyze the supply and demand on an ongoing basis, we could see when there is a problem and fix the root of the problem. Some systems afford the ability to create queries, but again, this is more often after the fact, and by then it’s too late, or the queries put too much strain on the system to run often and as needed (MRP takes usually 8 hours or more to run on average).

Only after the fact did we realize that we don’t need to make 1000 of something. Somehow, a minimum was set wrong or safety was set wrong on the part and no one caught the exception because ERP systems don’t warn you that this is not a independent or dependent demand. If we could analyze the supply and demand with tools, we could see when there is a problem and fix the root of the problem. Some systems afford the ability to create queries, but again, this is after the fact and by then it’s too late or the queries put too much strain on the system. MRP takes usually 8 hours or more to run on the average.

Globalization
The business world is becoming more global both in supply acquisition and sales. This is mostly due to communication, internet and the digital age. A global customer and supply base has greatly affected the supply chain. Most corporations are looking for the best place to manufacture product cheap, without sacrificing quality, as well as looking for the best place to buy supply needed to manufacture product.

Container shipment volumes have increased over the years and some ports have capacity issues related to customs or trans-shipping, thus forcing companies to logistically re-route, which has a major effect on the overall cost and efficiency of the supply chain network. Changing the point of entry for inbound shipments can have a positive impact on the “total landed costs” due to factors such as customs clearance times, capacity and better efficiency of transporting materials. Alternate ports would need to be evaluated for supply chain costs and efficiency.
A well thought out global network design can optimize a supply chain network, reduce overall costs and obtain maximum performance due to a better flow of materials to the “end point” — be that a customer or the manufacturing facility.

Increased Competition and Price Pressures
As with most brands in the past, if you had a unique product that was in high demand (such as an iPhone) than you could stay ahead of the competition and focus on improvements. However, today that is not enough to remain competitive in the market place (Android is closing in on market share). There are too many competitive products in every category. Price is the factor that is driving demand in most cases due to a challenging economy, but it’s not the only factor. People will sacrifice a better product for a cheaper one if they cannot afford it. So to diversify, suppliers can differentiate themselves to OEMs by offering value added services such as VMI, Drop Shipping and collaboration to name a few. Ultimately, better collaboration among OEM, CMs and suppliers across the global network can lend itself to value added services for end customers, which can keep your company competitive by building better relationships with customers. Many consumers do take into account quality, support and services when evaluating products for purchase.

Outsourcing
This one is debatable in a lot of areas.

Outsourcing some or all of your supply chain can be advantageous if you have all the right control measures in place and manage the process from end to end. But we have seen over time that it can be dangerous and can cause loss of customers if this part of the supply chain breaks down. In my opinion, the US has outsourced too much and it has had a direct impact on the economy. By trying to save money and outsource manufacturing operations, we have caused the loss of jobs and growth to which in the end, has resulted in less US revenues for companies, because many individuals have curbed their spending.

However, one can outsource certain parts of the supply chain and be successful. Many factors come into play such as, provider selection, competency, performance, capacity limitations and financial due diligence on the provider/supplier to name a few. There also must be focus on proper management, communication and control variables of outsourced providers and process, this would be key to manage the processes efficiently and be proactive in monitoring the various components of this particular outsourced supply chain part/product line.

Sometimes outsourcing can be harmful if not properly managed and can affect the breakdown of the complete supply chain.

Shortened and More Complex Product Life Cycles
This one key trend in my opinion is the most challenging. Companies looking for the cheapest method to manufacture, as well as the cheapest components to build their products in order to keep the cost down, are taking risks that far outweigh the cost benefits. If the product fails too soon or the quality is spared as a result of this process, the consumer is left with a bad experience and with consumers having such a strong and far-reaching online “voice”, for the offending company, a poor reputation is very hard to recover from.

A well thought out, engineered PLM (Product Lifecycle Management) process will greatly benefit companies by reducing risk of obsolete components and materials. The struggle today remains with products not sharing common components, operations, or materials with the newer products that will take the place of older models. There needs to be a better focus on managing new product design with product discontinuation in mind, and designing for manufacturing using similar processes so as to gain leverage across the entire product line. This will help reduce costs and complexity, as well as increase/improve product life cycle times without sacrificing quality.

Product lifecycle management also encompasses adherence to local packaging, labeling regulations, development costs (engineering) and final entry to market. As the economy becomes more Global, all these factors must be considered in order to promote effective distribution of the product, whether targeted to region or consumer.

Collaboration Between Stakeholders in the Extended Supply Chain
Collaboration across all lines of the supply chain is critical. This increases visibility and coordination across the supply chain and that allows all involved to make good decisions which will affect the total value. The right tools (software), processes and organizational structure will make effective supply chain collaboration achievable.

Consumers, suppliers and manufacturers need to be in alignment in order to improve upon supply chain value.

Recently Sales & Operations Planning has emerged as the main vehicle for collaboration and a way to help increase value by maintaining a well-coordinated, valid operating plan in support of customer demand, business planning and strategy. S&OP bridges the gap between sales/forecasting and supply chain. This is needed to make critical, informed decisions.

S&OP also allows for greater visibility across the entire value chain. This cross-functional (and even cross-company collaboration) will lead to a better PLM process, improved demand planning, minimized inventory, reduced costs and will help achieve superior customer service and fulfilled customer expectations.

In conclusion:
As a whole, these trends seem to be what most corporation are taking into account when evaluating their current supply chain. No doubt that technology is needed to address these key trends, and that includes:

• ERP to run the business efficiently, supplemented by
• Added SCM solutions designed for today’s complexity and volatility and targeted at creating an integrated, streamlined, and agile supply chain.

As the market changes, so too must the companies serving it. The bottom line is that if the supply chain performs poorly, the effect is felt across the entire business causing possible long term failure in performance of an otherwise successful business.

We recently completed a Celestica case study entitled Dramatic Gains in Order Promise Efficiency and Responsiveness. As any vendor will tell you, sometimes good customer case studies are hard to come by, so it is with both great pride and appreciation that we are able to tell the Celestica story. I’ve included the highlights below:

The Goals
With a global manufacturing footprint and inherently complex supply chains, Celestica sought an opportunity to:

The Gains

It is companies like Celestica that we feel so fortunate to call customers. Sharing the vision and supporting the leading edge practices of our customers is ultimately the fuel of our success.

In our ongoing series to celebrate the 30^th anniversary of the term “supply chain management,” Lori Smith posted the question:

What things do supply chain professionals worry about today that they didn’t worry about 30 years ago?  And what things did we worry about 30 years ago that we don’t worry about today?

First let’s talk about your TOP 10 list that illustrates what you DON’T have to worry about today as compared to 30 years ago…

1. Your massive stack of green line paper doesn’t get delivered to your desk on time
2. Your secretary is away and can’t mail your supplier’s purchase orders to them
3. You stock status cards are filed incorrectly
4. You forget to update your stock status card and you order the wrong amount
5. There is a bottleneck in printing and you have to wait two weeks for a spec to be printed
6.  There are dangerous fumes coming from the manufacturing floor into the office
7. You are burdened with the overhead, cost and space required to support all aspects of your manufacturing
8. You have to be competent in everything related to manufacturing and selling your product
9. What is this new thing called MRP?
10. You don’t know how to promote and market your product globally

Now, this is your TOP 10 list suggesting what you DO worry about today…

1. How can you support your organization with visibility and planning intelligence across your global footprint?
2. How do you maintain some level of control of your distributed and outsourced supply chain?
3. What more can you do to reduce latency across processes and increase your responsiveness?
4. How can you know sooner and capitalize on market events that drive increased market share penetration?
5. How are you going to differentiate yourself from your competition knowing that brand loyalty is a thing of the past?
6. How do you improve customer service and reduce costs at the same time?
7. How do you take processes like S&OP and modernize them to be more integrated and collaborative?
8. How do you involve your partners in a more collaborative and win/win business model?
9. How do you move from a silo approach to supply chain planning to a integrated end to end supply chain approach?
10. Do you have the right skills in your supply chain organization to effectively execute to a new vision?

Your worry list is rather daunting, but nothing is better than a good challenge. With the right people, processes and tools, organizations are extremely successful in meeting the challenges of the 21st Century Supply Chain.

Rami Karjian of Flextronics casually threw out the comment that “data is the new oil” during a session at the recent Gartner Supply Chain Conference in Palm Desert. The session titled “New Business Rules – The Flextronics Next-Generation Supply Chain Strategy” was hosted by GT Nexus. Given Flextronics’ role as a contract manufacturer in the high-tech/electronics supply chain space, with aspirations of providing supply chain managed services, it is immediately obvious how they can make very effective use of data, especially extended or “true” end customer demand data and “true” component availability data. Of course, this is true for any number of participants in the supply chain and there has been a lot written about the use of social platforms to capture ‘big data’ on consumer behavior. But anyone who has worked with the likes of Flextronics will recognize that the ‘speed’ of their business (driven by low margins, high volumes, and rapidly changing products) is like no other. Knowing sooner and acting faster are core capabilities and competencies they must have in order to survive. It is easy to see where data fits into this equation.

But I hope Rami will not be upset with me when I state that the term seemed too catchy to have come from a supply chain guy (I am writing as a supply chain guy, so I mean no disrespect!) The catchiness of the phrase just reeks of Analyst or Strategy Consultant. So I went Googling for the term.  I was correct. The term seems to have been used originally by Andreas Weigend of Stanford in an interview with Forbes dating from September 2011. (One caution: The interview is sponsored by SAP.) In the interview Weigend says, with my emphasis, that

“Most people try to play the social media game faster, but it is not your game to play anymore. To be successful, you have to understand what the game is made of . . . it is data and identity. This forces the change from a transactional economy to a relationship economy. The companies who get this, will win.”

There is no doubt that Weigend is referring to the customer or demand side of the supply chain, really to ‘big data’ epitomized by social media platforms such as Facebook and Twitter. But here is the problem for social media: Customers aren’t compelled to engage in any manner with the OEM; Suppliers are. So while undoubtedly social data can be mined for information, social data cannot be relied on as the sole source of information to drive the business. Instead, social data can be used to augment, to enhance, the structured data that is being used to drive the business.

I was struck by what Ray Wang said in this context in the same Forbes interview, namely that

“The market has moved beyond just marketing, service, and support use cases,” says Wang. “We see 43 use cases that span across key enterprise business processes that impact eight key functional areas, from external facing to internal facing including PR/marketing, sales, service and support, projects, product life cycles, supply chain, human capital management, and finance.”

Companies will get real value within the internal and supply sides from platforms that are social in nature, whereby social concepts will finally make collaboration a reality by adding context and nuance to ‘dumb’ EDI exchanges of data between computers. The activities of cross-functional and cross-organizational exploration and discovery through what-if analysis followed by negotiation, which are so important to decision making processes. These capabilities, which are required for decision making are not supported by EDI and ERP platforms, which instead focus on executional or transactional processes. This point was made very strongly at the Gartner Supply Chain Conference by Jim Cafone of Pfizer who said that

“ERPs are great if you want to talk to yourself, but who can afford to do that in today’s value chains?”

Jim was referring to the fact that much of today’s value/supply chain exists outside of the four walls of the organization because so much of the supply chain has been outsourced leading to the conclusion (using the context of ‘data is the new oil’, that ERP is like crude oil) - it needs to go through refinement and to be augmented by additives to be useful. It needs to be refined and augmented because, in order to operate a value/supply chain effectively today, it is necessary to reach across functional and organizational boundaries even for so-called structured data, making even structured data ‘big data’. As Jim Cafone stated, without reaching across the organizational boundaries, you are only ‘talking to yourself’. We cannot operate today’s supply chains effectively with this lack of visibility. (And let’s face it, many ERP deployments resemble an oil spill – the mess you’re in isn’t what you expected, and it’s going to cost an awful lot to fix.)

To be of any value, the data provided by visibility needs to be ‘refined’ by being broken down into ‘specific useful parts’, turning visibility into actionable insight. I don’t mean to diminish the value of visibility because without it there can be no actionable insight. The true value comes from the supply chain orchestration made possible by actionable insight.

So let us decompose ‘actionable insight’ quickly.

Turning Data into Visibility
Existing social network platforms, such as Facebook, are principally about sharing or “pushing” information, but most business processes require an interaction between at least two people, each of which is responsible for an aspect of the decision and who need to reach a consensus and compromise in order to take action. Often these interactions require input from as many as 5-10 people. Identifying who needs to know can often be an insurmountable barrier to reaching a timely decision. I want to draw the distinction here between the people who need to know, which implies responsibility to take action, and the people who want to know, which implies an interest but not a responsibility. Existing social technologies address the ‘want to know’, but not the ‘need to know’ aspect. On the other hand, existing machine-to-machine exchanges of structured data between organizations are desperately in need of the context and nuance provided by social platforms. Having both turns data into visibility.

Turning Visibility into Insight
Knowing the state of something – inventory, capacity, etc. – in the supply chain, which is what visibility provides, is useful, but not valuable. Value is derived from knowing what that state means to your financial and operational metrics, and, perhaps even more importantly, to your projected operational and financial metrics. To achieve this insight you must be able to compare the current state to a desired state and to evaluate if the difference is important, which you can only determine by having a complete representation of your supply chain – BOMs, routings, lead times, etc. – so that you can link cause to effect. You cannot do this by ‘talking to yourself’. Only if you have and end-to-end representation of your supply chain can you link a tsunami in Japan to your revenue projections for the next 2 quarters. Of course many people can do this given enough time. Doing this quickly – knowing sooner and acting faster – is what brings value. While events as large as the Japanese tsunami make the linkages between the supply chain nodes obvious, the daily operation of a supply chain is subjected to thousands of little ‘tsunamis’, the compounded effect of which, in terms of reduced revenue and increased costs, can often be the difference between making or missing a quarter.

Turning Insight into Actionable Insight
Knowing that something is not quite right – visibility – and knowing the financial and operational impact or consequence of this mismatch – insight – is only valuable if you can act on this insight quickly – actionable insight. To do this you must be able to link the impact to the person responsible for the impact, not only the cause. People take action. Of course under certain circumstances decisions can be automated, but only mundane decisions, decisions that make little difference, can be automated. ‘Big’ decisions should always be left to human judgment. And to do that we need to link the cause and effect to the people who need to take action. Hence actionable insight.

Turning Actionable Insight into Orchestration
Supply chain is a ‘team sport’. Each function may have their own span of control and metrics, but any decision made by one function will almost always have an impact on at least one other function and more likely have multiple impacts on multiple functions. But currently, each node in the supply chain, in fact each function in the supply chain, usually operates in isolation with Engineering making design changes with little thought as to how these impact Manufacturing or Procurement, with Marketing planning promotions with little consideration of available capacity or material availability, with Sales accepting order quantities and delivery dates with little consideration of the cost required to achieve both. Orchestration is the coordination and synchronization of these separate functions into a unified response to real demand. To achieve orchestration requires a platform on which a team of people across functional and even organizational boundaries can explore and understand the financial and operational consequences of possible actions quickly and collectively.

Turning Orchestration into Competitive Advantage
Too often when I write about these topics I forget to include the word ‘projected’. Without a doubt a great deal of value can be derived from risk recovery, but risk avoidance and risk mitigation are even more valuable. Being able to determine that revenue or margin targets will (future) not be achieved by the end of the quarter if we continue to create in the current manner is a lot more valuable than being able to determine why we have (passed) missed the quarter. Knowing sooner that something will happen if we do not change course allows us time to investigate ways to avoid the risk or to take the opportunity. But knowledge without action brings little benefit. I have written in the past about George Stalk’s concept of Competing Against Time and the related OODA concept – Observe, Orient, Decide, Act – idea from the US military strategist Colonel John Boyd, both of which explain very crisply the competitive advantage of knowing sooner and acting faster.

We recently published a newsletter which includes complimentary access to a Gartner research report titled “Multitier Supply Chain Visibility Improves Supply Chain Relationships and Reduces Risk” (R. Barger, M. North Rizza, B. Kraus, 12 August 2011).

The loss of supply chain visibility as a result of outsourcing manufacturing operations is of real concern to brand owners. But it’s the subsequent loss of control over orchestrating activities across the multi-tier supply chain that is creating the most risk.

A tactical exchange of data node-by-node through the global supply chain is no longer sufficient to achieve effective collaboration between brand owners and suppliers in today’s volatile business environment. What is required is a holistic, end-to-end supply chain planning and response management system, where everyone can understand the consequences of decisions up and down the supply chain.

Case in point, Agilent.

Agilent undertook a supply chain improvement program which included the creation of a vertically integrated planning process that consolidates all of its different MRP and those of its contract manufacturers, to create a single plan (via BOM integration) with minimal data latency. RapidResponse is the foundational platform that merges all the information systems and provides the supporting capabilities to create and manage a single vertical supply chain.

In the newsletter:

• Gartner’s analysis on how leading organizations are undertaking collaborative initiatives with their suppliers and technology providers to obtain near-real-time visibility for functional stakeholders
• Kinaxis’ view on what’s required for brand owners to gain supply chain coordination by planning and collaborating across multiple tiers of the global supply chain
• Agilent’s story on how they used RapidResponse to establish a virtual, vertical supply chain

Download the newsletter here (available for a limited time)