Posts Tagged ‘Supply chain visibility’

I was asked the following questions the other day about companies positioning themselves for the recovery,  I thought I would share my thoughts with all of you too.

1. Bill, what are you hearing on your prospect and customer calls?

We are seeing companies that are taking advantage of current conditions to improve processes and put themselves in a position to capitalize on demand opportunities when they happen.

Consider AMR Research’s Supply Chain Top 25 for 2009 for example. AMR observed that, “Despite the fragile world economy, many of the companies on this year’s list remain convinced that winners will be those able to position for a return to growth. Privately, these companies will say that they expect to gain market share from their weaker competitors. Most saw the signs of trouble early and secured their cash positions well enough to maintain momentum on vital initiatives. 2010-11 will show where such foresight pays dividends, with greater supply chain agility enabling survivors to knock off competitors for good and deliver huge earnings in the climb out.”

2. Are there any specific areas companies are looking to improve?

In my position as a business consultant, I have the opportunity to hear directly from companies where their focus is. Quite often we hear from companies that are looking to improve their S&OP process. Demand planning and collaborative forecasting are among the top inquiries too. Inventory rationalization and reduction, plus improving supply chain performance are also up there.

3. What are you hearing when people inquire about improving S&OP?

People are realizing they have to let go of the anchors that are weighing them down and will keep them from being positioned for recovery. When we ask manufacturers how long it takes to complete an S&OP cycle, most reply at least a month. People can’t wait that long anymore to respond to a change that could negatively affect their strategy or to an opportunity that may present itself.

Getting access to the data that supports S&OP, running analysis, collaborating and conducting what-ifs (like price decreases or early new product introductions) and communicating that strategy to the rest of the organization, has to be as easy as searching for New York City on Google maps. Cycle time reduction of the S&OP process will be key to positioning for recovery.

4. Anything else people are asking for?

Sometimes it is surprising but people are still asking for visibility.

I like to call this “What-is” information. This continues to be a challenge in the global organizations, especially if different sites have different ERP systems or other sources of data. This consolidated view is much different than BI or a data warehouses. The visibility people are asking for will allow them to answer questions like, are there stranded inventories that could satisfy shortage conditions at other locations. Are there open PO’s with no demand? Are there integrity issues with my data I could easily fix?  Are there period ending shipment misses I could avoid?

This isn’t about comparing history but simply understanding the current state and where there are opportunities to reduce inventories, increase deliveries, and improve the integrity of SC data, all of which ultimately increases profits and customer satisfaction. Turning data into information is always something people need to do but struggle to do with current tools.

Aberdeen has just come out with a report entitled “Multi-Enterprise Manufacturing: The Role of Visibility and Collaboration in Driving Responsiveness”

The study highlights success strategies for managing integrated demand-supply networks.  In particular, the study finds that top performers have:

• More flexible supply and demand networks
• More granular visibility and traceability across more supply chain and manufacturing processes
• Higher level of supply chain integration and B2B connectivity
• Higher level of manufacturing and supply chain process collaboration

As per Nari Viswanathan, vice president and principal analyst of the supply chain management practice at Aberdeen (and co-author of the report) :

Companies can no longer rely on a core group of experts to make the critical decisions necessary to effectively manage a multi-enterprise global supply chain.  Improving supply chain visibility is top-of-mind for those companies looking to regain control of their supply chains and better manage those responsibilities, which have now been spread over the network.  We have entered a new paradigm of customer-driven, global supply chains, and those organizations with the agility to respond quickly and effectively to sudden changes will find themselves benefiting from Best-in-Class results.

Good news….as an underwriter, we can offer complimentary access to the report here.

The latest edition of IndustryWeek’s Manufacturing Business Challenge has been published. 

This month’s challenge discusses a high-growth telecom company (with facilities, outsourcing partners, suppliers and customers spanning the globe) which is struggling with getting the data it needs for solid decision making.

I took part in providing one of the solutions, as did Nari Viswanathan, vice president and principal analyst for the Aberdeen Group’s Supply Chain Management Practice.  Tell us what you think of our responses to the challenge as described below:

Over the course of 15 years I have grown FNZZS Inc. from a “geeky” little tech startup to a moderate-sized player in the telecom industry. We provide corporate wired and wireless communication systems for offices and field staff that incorporate voice with internet, email and social networking and blogging services. I started with two programmers, one tiny assembly facility, a handful of suppliers, and customers in a few states. FNZZS now produces for customers in 68 countries from eight global plants (six of our own facilities and two sites to which we have recently begun outsourcing subassembly) and works with hundreds of suppliers. Business has boomed, but so, too, has our supply chain management headaches.

The data we need to make literally any decision — mundane day-to-day actions to critical strategic planning — resides in different ERP systems, applications, and who knows how many spreadsheets (our own and that of customers, suppliers, and outsourcing firms). The timeliness and efficacy of our supply chain decision-making has suffered: we have repeatedly missed market opportunities, overlooked collaborative cost-savings with supply chain partners, and mismanaged regulatory adherence and customs/trade issues. It will only get worse as FNZZS continues to grow and rely on partners that hold key data outside of our direct control. My fear is that the patchwork of systems, applications, worksheets, and languages will grow and increasingly hide all kinds of data (manufacturing performance, design plans, customer orders, shipping schedules, etc.).

FNZZS is a cutting-edge technology company, and it must be able to swiftly make collaborative decisions with our supply chain partners to capitalize on lightning fast market changes. If we don’t, we’ll fail. I don’t see how that can happen in our current enterprise setup.

See our advice here. What advice would you give?

There’s a good article at Supply Excellence entitled “Has the Economic Recovery begun? Are you ready?” that I provided feedback on and wanted to include here as well.

### My comment ###

Having had the privilege of meeting with executives of many manufacturers in the US over the past 12 months, one common dialog seems to be prevalent—first, what should we do differently to avoid a latent response to a future downturn and all the pain that implies, and second, how do we posture for the inevitable recovery while everyone around us appears to be operating with a heightened sense of insecurity. It is easy to say that “responsiveness” is at the heart of both of these problems, however, for many organizations, like the titanic, it is difficult to move quickly regardless of advanced warning of risk.

Given that supply chain is a team sport, what I’ve heard, and would be interested in further commentary from the readers, is that responding to downturn risk is more about individual play; that is, each enterprise must take responsibility for their own responsiveness to a downturn. There may be some that would say “we were just following our customers forecast”. Without a doubt, it is the more agile players that avoid injury.

Preparing for the economic recovery, which I believe has already begun in many sectors, is more about team play. Regardless of how agile and responsive an individual player in the supply chain is, winning big during a recovery requires that everyone on your supply chain team be equally responsive and agile. Leading manufacturers are busy working with their suppliers to establish transparency in supply/demand data, and working hard to improve synchronization through tight collaboration.

The top 3 strategic improvements that would improve an organizations operations performance would be to:

1. Gain control over your data, whether it belongs to you, or partners. If it can adversely, or favorably affect your business, you need the visibility to the data.
2. Establish a robust supply chain surveillance system. Knowing sooner about impending risk or reward on either side of the supply chain is key to breakthrough business performance.
3. Empower people within the supply chain to collaborate. I’m not saying this doesn’t happen, but many people think inter-enterprise collaboration is about system-to-system data exchange, and not the old fashion human collaboration factor.

I read the white paper ‘One-to-Many – Establishing a common platform to address multiple supply chain applications’ with interest.

I’m going through a house renovation project right now and quite a few of the points brought out by the author associated with challenges in today’s distributed supply chains reminded me of the issues I’ve come across with the project at home. I can’t do a lot of the work myself (hey, I’ve got a day job), so I have to sub it out to a whole host of suppliers. As with ERP, I’ve only got visibility to what happens locally (i.e. I see what’s been ‘delivered’ every day when I return from work). I don’t have visibility into the sourcing of lumber, cement, nails, and gravel since I’m trusting my subs to do that properly because they have the experience and I can’t watch the work as it’s being done because I’ve got other higher value-add tasks (i.e. go to work) that I need to complete. I do manage the sourcing of certain ‘key components’ (windows, doors and brick) that I feel are the most critical to the quality of the finished product.

So, why don’t I feel entirely comfortable that the project plan and building design will come off without a hitch? We’ll as Burns’ poem To a Mouse (The best-laid plans of mice and men / Go oft awry) points out, no plan is fool-proof and no one can be completely prepared for the future. A septic tank ended up being the wrong size for the type of installation. Do I just cover it in? No, I have to get it replaced with the right one. We had a huge rain storm the day that the foundation walls were back-filled. Do I trust that the new walls won’t collapse from the extra pressure or do I get the contractor to add some bracing? Nobody could have predicted the abnormal rainfall but it did require immediate action to address. You have to treat the plan as ‘best case’ but be prepared to address surprises as soon as they occur. Why would a supply chain plan be any different?

As the author points out, you have to change the mindset of managing based on optimization and control to one of collaboration and coordination. I have set the expectation with my subs that daily status calls will occur and that I should be advised if any serious concerns come up during the day. This ‘foundation’ gives me the key capabilities of visibility, alerting, and collaboration needed to ensure that the lines of communication stay open. The nature of the project is such that the other capabilities - evaluation and resolution - can be worked out through our conversations.

Supply chain management is of course more complex than a house renovation, but doesn’t that speak to a greater likelihood that things will go awry and therefore a stronger argument in favor of the author’s recommendations? It’s folly to believe that one can control and optimize today’s inter-connected supply chains given the variation in cultures (both societal and business), regulations, technological and data standards especially given the amount of change that is occurring in all of these dimensions at the same time. Of course you need to plan, but communication and collaboration are the keys to ensuring that the plan is executed as closely as possible to its objectives.

Forbes magazine recently published an article titled  “What’s wrong with Toyota?” where the author describes that critics are wringing their hands that capacity was built too fast to capture the truck market in the US.

The article describes how even Toyota is not immune to the troubles facing the automotive industry and that, in spite of the short term impact this economy is having on Auto/Truck sales, critical questions are being raised.  Should Toyota continue its aggressive pursuit of market share in the US truck market, or retrench and go back to basics with smaller cars?

Could Toyota, known for its long sightedness in a near sighted marketplace, have anticipated this recent economic downturn, which put a halt on consumer spending from electronics to automobiles? One could argue that if Toyota, with its Toyota Production System (TPS) which is known as the leanest and best manufacturing system in the world, if they cannot adequately detect and respond to sudden changes in the economic climate, what hope is there for any of us in manufacturing?

There are some clues in the TPS that tell us why Toyota can and will respond to these market changes and will continue to grow and dominate the automotive market.  It has to do with the embedded culture of the Toyota Way.  The first two principles of the Toyota Way :

• Base your management decisions on a long term philosophy, even at the expense of short term goals.
• The Right Process Will Produce the Right Results: Create a continuous process flow to bring problems to the surface.
   

One of the key elements of the TPS is Jidoka. Jidoka is the ability for anyone involved in the manufacturing process to see what’s going on and if necessary, stop the production line, bringing problems to the surface. Basic empowerment at all levels to ensure that errors that can cause defects (in materials, equipment, process) are monitored and detected right away in order to ensure they get passed on to the next operation.

In order for all employees to see what’s going on with the process, it seems like the traditional tools of management need to be shared with a larger audience.  What manufacturing process wouldn’t benefit from having more eyes on it?

Not even Toyota has a crystal ball and can predict the future. But they do understand that by monitoring the critical process inputs and outputs, performed with the right tools in place, and coupled with the Jidoka mindset, the organization can learn, respond and re-engage.

In summary, Toyota can and will make mistakes like the rest of us, but the key differentiator is they have the tools to learn faster, and they take advantage of institutional knowledge, and empower all employees to think from a management and customer’s perspective. This strategic advantage will ensure Toyota remains in leadership of any market it enters.

The good news is that these principles and visibility tools to see what’s going on in the process are available for all manufacturers to leverage.

IBM published an interesting report in early 2009 titled “The Smarter Supply Chain of the Future” and recently commented on the report in an IndustryWeek blog post titled “Volatile Times Demand Pervasive Visibility and Flexibility to Mitigate Risk” in which they “… take the position that tomorrow’s supply chain will be Instrumented, interconnected and Intelligent.”  The core theme of the blog post is that all too often companies need to convene an emergency task team to deal with spikes in demand, as an example of volatility.  The example used in the blog post is of a spike in ‘flu vaccine for the H1N1 virus.

As the authors quite correctly ask, “Why in this data and networking-intense world today does it still take an emergency task force to respond to a spike in demand?”  While I cannot argue with the authors’ claim that visibility is the answer, I would like to address a related issue of perception.

At the core of the issue is volatility.  All too often volatility is treated as an exception rather than the norm.  This is a mentality that dates back to Henry Ford’s comment that “They can have any color, as long as it is black”.  Manufacturing organizations and all the related training, on-the-job or at university, are focussed on maximizing utilization rather than throughput. Even Lean, which has had a dramatic effect on the productivity of manufacturing organization, has as one of its core tenets the concept of “level loading”.  Many of the Lean consulting companies promote this perspective, even quoting Ohno that “The slower but consistent tortoise causes less waste and is much more desirable than the speedy hare that races ahead and then stops occasionally to doze. The Toyota Production System can be realized only when all the workers become tortoises.”  I cannot argue with the perspective that indeed a level load may reduce waste in production, but equally it may create excess inventory and be too slow to react to changes in customer demand.

Fundamentally mass customization and global outsourcing are here to stay.  Both of these introduce tremendous volatility into the supply chain.  Mass customization is the greatest cause of volatility in the sense that even if the total demand remains the same, because of the increase in the number of end items, the demand for each end item has decreased a lot and therefore the volatility has increased. Say for example that a company had one product with a total demand of 10 units per week.  Because of mass customization they now have 10 variants of the product, each with an average demand of 1 unit per week.  It is immediately apparent that producing 1 unit of each variant, which seems natural from a “level loading” perspective, is likely to mean that a lot of demand is missed and that the company will need to keep quite a lot of inventory.  When we now add the long supply delivery times which result from off-shoring and outsourcing of manufacturing, we can see that volatility is the norm.

The key findings of the IBM study are that supply chain visibility and risk management top the concerns of the companies interviewed for the study.

I think the primary cause of risk is volatility.  Volatility can come in many guises including supplier failures, hurricanes, and customers changing their minds.  A recent study by AMR identified supplier failure as the greatest supply chain risk, but as Kevin O’Marah points out, only a year ago the biggest risk was commodity prices and transportation costs. A colleague of mine, John Westerveld, points to the hurricane season as a key contributor to risk.  All of these are expressions of volatility, but admittedly not all risks are directly related to volatility.  But if we look through the AMR list of risks below, 25% contain the work “volatility” and at least another 25% can be grouped into the change/volatility category, such as supplier failure and regulatory compliance.

In a previous blog post tilted “Nearly all supply chain risks are unanticipated” I discussed our concepts of risk identification, risk mitigation, and risk response.  Much of the risk management literature is focussed on risk identification and mitigation.  Many very good ideas have come out from the risk management guru’s, but most of the analysis and approach is focussed on removing volatility.  Almost no attention is paid to how companies should prepare themselves to be “change ready” or “risk robust”.  That is, without building unsustainable levels of inventory.  Risk comes in many forms, from catastrophic natural events through mid-term supplier failures and on to day-to-day demand volatility that leads to lost sales or excess inventory.

Without a doubt visibility is a key component of being “risk robust”.  Knowing sooner about a situation that could cause harm to your company allows much more time to determine the consequence and devise ways of addressing the associated risk. But equally important is a collaborative environment in which several stakeholders can discuss and evaluate alternative courses of action rapidly and effectively by comparing each course of action against corporate metrics and against other proposed courses of action.  This allows human judgment to be used to create innovative solutions while providing fact based evaluation consistent with overall corporate objectives, while full audit trails that provide full visibility to the decisions made and by whom the decisions were made ensure reduced “gaming” of the system.  In this volatile world being responsive to risk is as important as identifying and mitigating against risk.

A recent blog by Justin Fogarty at Supply Chain Excellence entitled “Hurricane season: are you and your suppliers ready?“  highlighted the importance of factoring the risks associated with environmental events.  In his blog, he used the coming Hurricane season to emphasize the point.   Four points were mentioned as means to mitigating the impact of these natural disasters.

• Get proactive, rather than reactive – If you’re creating a contingency plan when a storm or longshoremen strike is imminent, it’s too late. Few options will be on the table as the procrastinators all scramble. Since you can always be certain there will be events beyond your control in the next few months, it’s certainly worth preparing for them ahead of time. 
• Do the math – Floods in the Midwest forced shippers to use more expensive modes of transportation. Modeling costs to determine when it’s wise to pay the premium or wait it out will help you make critical decisions quickly. There are almost always options – the question is whether or not they are worth the added cost. 
• Beware the Bullwhip Effect - As we all know, one thing now can have huge impacts down the road. So understanding the inherent inputs, cost drivers, and risks to your supply chain will help you cope with disruptions so they don’t reverberate across your materials, production, distribution, and customers. 
• Have a game plan for natural disasters – Obviously, each and every event will be different. But having a plan and an established decision making chain of command will go a long way. The last thing you want is a “Heck of a job, Brownie” situation where everyone is hoping someone else will step in and sort things out.

Given the increased supply-chain complexity and inter-reliance of partners across the globe, it quickly becomes clear that a storm anywhere in the world can immediately impact your organization.  With this in mind, I would like to add one more point to the list.  That would be to emphasize the importance of increasing visibility and collaboration across your supply chain.  Nobody understands the risks associated with the Monsoon season better the suppliers in its potential path.  Similarly, the North American Hurricane season may cause those suppliers unneeded disruption if they do not have visibility of your contingency plans. 

Working with your supply chain partners across the globe in an effort to simulate potential high-risk events may seem unattainable to some, but with an open supplier relationship and the right tools it could in fact turn into an everyday occurrence; and an occurrence that happens for much less dramatic events.

In John Sicard’s white paper, “Four Steps to Take to Prepare for the Recovery”, you don’t have to look any further than the second line of the white paper to understand the value delivered in the content. That line is, “Strategic Supply Chain Management Strategies to Maximize Operations Performance over the Long Term.” The important point to understand about the white paper is that the four steps John describes to prepare for the recovery is not a “throw away” effort once we start to bounce back from the recession will benefit companies for the long term in any economic condition.  The strategies described will serve any company well regardless of what “chaos” is inflicting pain on their supply chain or what state the economy is in.  Let’s take a closer look at the four steps.

The first step involves getting data. It is critical to establish “one version of the truth”. The challenge for most companies in getting to one version is including all data regardless if it resides in a single instance of ERP or disparate data sources across the globe. Getting a single view of your supply chain data is the enabler, as John describes, for “embracing the chaos.” Even in stable times, imagine the value of being able to respond to a customer request in seconds? This is only possible when a user has access to a single version of the supply chain and also the ability to instantly model the request or change to understand impact and decide on the proper response. As suggested, getting to this point requires a methodical, phased approach but will be well worth the effort.

Step two is described as establishing “a robust supply chain surveillance system”. This really comes down to knowing sooner. Many times, if a person just knows sooner they can respond more effectively and in a timely manner. The other key ingredient to knowing sooner is to know the impact sooner. It is one thing to know there will be a supply disruption, for example an order will miss its due date. Perhaps the material was not actually needed on the due date and this order could have been delayed in the first place. On the other hand, the late supply could seriously impact the delivery of key customer orders. Cutting through the noise and getting to those issues that need immediate attention will allow users to know sooner AND respond sooner. This leads us to the third step.

The third step is empowering people to collaborate. When people know sooner, as described in step two, resolving issues is rarely done in isolation. The best solutions are collaborative. It will be the people that will formulate and decide on course corrections and as John quotes this will be the difference between success and failure. It is this collaboration the will enable step four.

Merging supply chain planning and execution will be dependent on the first three steps. Consider Sales and Operations Planning (S&OP). Getting data and establishing one version of the truth will allow you to see impact at the lowest level when establishing demand plans and modeling such changes as a forecast decrease, price reduction or new product introduction. No longer will you have to take the “swivel chair” approach to understand the impact your plan will have on the rest of the supply chain. Providing transparency and establishing the surveillance system will alert all participants of changes that impact the plan or the ability for operations to execute. Finally getting consensus on the plan requires the human element John describes in step three. You need all participants at the table to formulate, approve and course correct as required. This is something no mathematical model will ever be able to do. Taking S&OP from a monthly cycle to “S&OP on demand” will also differentiate the winners and losers.

Most likely the companies who will take action to execute on these four steps have already been continuously improving their supply chains long before the economic downturn hit, but as John alludes to, technology has finally caught up so that these supply chain leaders can take their performance to the next level. Fortunately for the rest, there is still time to catch up to take advantage of future opportunities.

I saw a discussion posting on the Supply Chain Movement discussion group in Linked-in.  The discussion was around the fact that a company had difficulty getting accurate forecasts.  To compensate, they’ve been increasing their buffer inventories and were looking for metrics to monitor their inventory levels.  There were many suggestions around the best metrics to track and a couple suggestions for increasing forecast accuracy.  All great stuff.  I had a different approach that I thought I would discuss here.

As was pointed out by one of the commenters, there are strategies to improve forecast accuracy that should be explored. The problem is that no matter how much you try, the forecast is always going to be inaccurate to some degree. Traditionally, we would add buffer inventory to cover the demand fluctuations, but this is expensive. So how do you deal with forecast variability and reduce inventory costs? It comes down to your ability to respond when changes occur.

There are two factors to being able to improve responsiveness; 1) Reduce replenishment lead time – Use lean techniques to evaluate your value stream and reduce lead times. Most inventory levels are maintained to cover demand during lead time. Safety Stock formulas use variation during lead time as a key factor. Reduce your replenishment lead time and you can reduce inventory levels. 2) Reduce the lag between sensing a demand change and reacting to it. In other words, how long does it take before the event (a new order in excess of forecast for example) is recognized, the impact understood and an action plan is in place?

In many traditional systems, this can take days. This is time lost before the supply chain even knows about the change! Why so long? Traditional ERP systems perform planning in a batch process that can take hours to run. Often, this means MRP processing is run daily or sometimes weekly. This means that an order added first thing in the morning doesn’t get visibility beyond the top level assembly until after the next day. Then we still need to determine if we can accommodate the change and if not, what changes need to be made to the plan to make this happen. Traditional ERP tools are just not responsive enough.

What is needed is a response management tool. A response management tool provides visibility to the entire supply chain, models and emulates the ERP logic in each ERP system in the supply chain, allows the creation of simulation scenarios to try different response approaches, provides collaboration capabilities to bring those that can contribute together quickly, provides reporting tools including comparative scorecards that allow you to evaluate the impact of a change and the effectiveness of your solution. Finally, once the decision is made, a response management tool allows you to communicate the changes throughout your supply chain so that all are in alignment.

Reducing your replenishment lead time and improving your ability to sense and respond to changes in demand can result in the ability to absorb some amount of forecast error while lowering inventory levels.