Posts Tagged ‘Supply chain’

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Just back from the holidays and I learned that this blog has been included in a listing of “Top 100 blogs for small business cost cutting inspiration.”  There’s a long list of good sites worthy of review at this site covering a wide range of areas from general business to marketing to finance and supply chain.

The Business Courier of Cincinnati has an article entitled “P&G blueprints future supply chain“ that says the company is undergoing the most aggressive expansion in its history, with plans to build 19 production plants over the next four years.  Before you check to see if the date on the article is 2004 or something, I can tell you its current (December 12th to be exact).

Why would a company be doing this in the midst of this potentially historic downturn?  Because P&G takes a long-term view and uses a downturn to strengthen its position in anticipation of renewed growth.  According to P&G, the plan is necessary if they are to reach the additional 1 billion consumers it intends to capture by 2010.  It now reaches 3.5 billion people, of 6.5 billion worldwide.

Here’s a great quote.  “What we’re really creating is a road map,” said Keith Harrison, P&G’s global product supply officer. “What speed we’re driving down that road is a different question.”

This is an excellent insight into what makes P&G P&G.  They have a long-term view and they never take their eye off of those goals.  They may speed up or slow down depending on current conditions, but they never lose sight of that end goal.

Is your company doing the same?  I’ve had the fortune of speaking to some P&G executives in the past, and I can tell you they are an impressive company.  No matter what industry you’re in, I think P&G should be a benchmark company when you look at best-in-class supply chain management practices.

Among the many interesting things that Larry Lapide, demand management research director at MIT, covered at our recent Kinexions user conference, were his comments on balanced strategic supply chain management objectives.   Larry was talking about the critical need to align business objectives and supply chain management objectives when he put up the following graphic.

Larry’s comment was that every company’s supply chain management strategy fits somewhere within this triangle.  For example, WalMart aligns with the supply-side strategy since their goal is clearly to be the low cost provider.  A company with a goal to be the market share leader would align itself with a demand-side strategy and a company who’s goal it was to deliver the highest profitability and return on assets (ROA) would align itself with the supply-demand strategic supply chain management strategy.

But, Larry’s most critical point was that it’s essential that a company’s placement aligns with their business strategy.  You don’t want a business strategy focused on market share leadership but a supply chain management strategy focused on supply-side strategic objectives.  Unfortunately, it happens too frequently.

And, Larry cautions about sitting in the middle.  If you waffle in the middle, you don’t differentiate yourself in the market place.  You must pick a supply chain management strategy to excel at, and one that is aligned with your strategic business objectives.

Are your business and supply chain management strategies aligned?  Which one are you?  I think this is a good tool for company’s to pause and reflect on since the implications of mis-alignment are huge.

There’s a good article in Teradata Magazine entitled “Assembling the data-driven supply chain.”  Among other good insights, the article features a case study on Cisco under a section entitled Consensus forecasts blend analytics and insiders’ insight. The article discusses how Cisco is leveraging powerful analytics to create better forecasts.  The new process has given the Cisco supply chain organization a complete, unit-level demand forecast for a two-year planning horizon, a more transparent work process and noticeable reductions in forecast error and bias.

This process is then married to a very robust demand management process that facilitates rapid demand-supply balancing.  In an environment like Cisco, where change is a constant, this is essential to keeping alignment - which ultimately drives higher customer satisfaction while mitigating supply chain costs.

The importance of the demand management process - of rapidly aligning demand and supply - is of increasing importance to every company we speak to.  Especially in this economic environment where volatility is so high and demand predictability is so low, the ability to rapidly align demand and supply is the key to success right now.

We’re seeing a growing emphasis in these capabilities both in the short and medium-term time horizons as companies struggle to deal with the unprecedented levels of uncertainty in their businesses.  As the article notes, the key to rapid response in these situations is to blend analytics and insider insight.  Analytics provide the sophisticated analysis of the current situation and an undersanding of the inter-relationships between demand and supply.  Analytics can instantly show you what an impact of a change in demand can have on supply, up and down the supply chain.  Insider insight is equally important, as most of the time misalignments require a tradeoff to be made.  Your people have the needed insight to know what real tolerance exists and can factor in the appropriate insights into the decision making process.  The combination of analytics and human insight are uniquely able to help you quickly realize the right course corrections to make for the business.

There’s a good article by Fortune entitled “The genius behind Steve” that profiles Apple Chief Operating Officer Tim Cook.  If you’re an Apple fan as I am, you’ll like the behind the scenes look at one of Apple’s key executives.  If you’re a supply chain professional, you’ll appreciate the prominence that supply chain excellence at Apple gets in the story.

It seems that far too often supply chain excellence is overlooked.  Supply chains are about cost cutting and a necessary evil seems to be the conventional wisdom.  What I found interesting about this story is that it took a much bigger picture view and recognized the strategic value of supply chain excellence at Apple.

Below is an exerpt from the article that illustrates the point:

Almost from the time he showed up at Apple, Cook knew he had to pull the company out of manufacturing. He closed factories and warehouses around the world and instead established relationships with contract manufacturers. As a result, Apple’s inventory, measured by the amount of time it sat on the company’s balance sheet, quickly fell from months to days. Inventory, Cook has said, is “fundamentally evil,” and he has been known to observe that it declines in value by 1% to 2% a week in normal times, faster in tough times like the present.

“You kind of want to manage it like you’re in the dairy business,” he has said. “If it gets past its freshness date, you have a problem.” This logistical discipline has given Apple inventory management comparable with Dell’s, then as now the gold standard for computer-manufacturing efficiency.

We know what you’re thinking: Why dwell on the backroom aspects of such a sexy company? Because that seemingly dull stuff is as important to Apple’s success as the gorgeous designs and ultracool marketing. Forecasting demand, for example, and executing against that forecast, are critical in the computer industry, especially when new products quickly cannibalize the old.

It’s great to see the strategic importance of supply chain excellence getting the recognition it deserves, especially at a company like Apple who is clearly renowned for its products more than it’s operations performance excellence.

AMR Research also recognized Apple’s supply chain excellence this year by naming them the top supply chain in their annual Supply Chain Top 25 ranking.  But it’s not everyday a Fortune magazine focuses on these issues.

I found this article today and thought it deserved comment (we’ve commented on this before here - “Not-so-perfect order performance management metric“).  In it, Justin identifies the idea that “Hero Culture” is no way to approach supply chain risk management.  What’s a hero culture?  It’s relying on someone to save the company from disaster in the nick of time. 

• It’s the buyer sourcing a replacement vendor when your primary supplier is on strike in time to make the quarter revenue targets
• It’s the production engineer that figures out how to leverage another piece of equipment to get the product out the door when the primary equipment has broken down
• It’s the marketing guy that figures out how to increase sales on a failed product release

There’s a number of reasons why given today’s environment this approach won’t work;

• The supply chain is global today.  You can’t call the vendor across town to make parts for you, instead you’ll be dealing with some company in China
• Customers just won’t wait. People expect to get what they want when they want it.  If you don’t have the product, they’ll go to the competition
• Shareholder expectations and fiduciary responsibilities dictate that you continue to grow the value of the business while not taking risks

While having smart, innovative people in your organization is always important, we can’t rely on them to save us from supply chain risks.  Instead every organization needs to have a structured supply chain risk management program in place that;

• Identifies and quantifies supply chain risk
• Develops and simulates mitigation strategies
• Continuously re-evaluates risk as product, market position and supply base changes

In case you didn’t see this…

AMR Research is planning a December feature to provide insight regarding steps to create a demand driven supply chain organization. Several of the questions they want to answer include:

1. How have leading supply chain organizations evolved and developed?
2. What are the key phases of organizational maturity?
3. What opportunities exist that tie demonstrated performance to effective organizational design?
4. Guidance on best practies in the construction, development and implementation of a demand driven supply chain organization

They have launched a 10 minute survey in order to collect survey information.  You can access the survey here if you’d like to complete it.  If you have questions, you can send an email to David Acquino.

Author: Chuck Thomas, Director, Professional Services, Kinaxis

In our new white paper, “Why you need to re-evaluate your approach to supply chain planning,” there’s a discussion about the increasingly complex and distributed supply chain that made me think of how supplier rationalization drives the need for better tools.  This rationalization is driven not only by the continuous improvement initiatives of brand owners that have outsourced their manufacturing but also by contract manufacturers that expand and contract through acquisition and divestiture.  I have seen a growing number of situations recently where brand owner expectations and contract manufacturer objectives evolve to an out-of-sync condition resulting in the shifting of some or all of a brand owner’s business to other manufacturers.  While this rationalization is proving to be a fairly common practice, it adds additional complexity and unpredictability to an already complex equation.

Moving production from one source to another is seldom easy and it puts additional strain on the organization because execution to current plans must continue while making and executing new plans to effect the desired changes in the supply chain.  Large ERP packages were not designed to adequately support the rigors of these simultaneous activities.   What-if analysis and scorecarding are two significant levers that can be used to help with the significant level of change wrought by supplier rationalization just as they can be used with day-to-day execution challenges. 

Once the decision is made, the execution strategy associated with moving production from one source to another is typically one of avoidance – to avoid disruption in supply.  This generally supports the prevailing paradigm that shortages are much worse than too much inventory so it always safer to err on the side of inventory.  Whether you are a brand owner or contract manufacturer, the improved tools the paper describes help provide continuous supply chain visibility to both sides of the shortage-excess challenge so that continuous course corrections can be made throughout the entire sequence of events, rendering a better outcome for the business.

Dan Gilmore poses some excellent questions in an article entitled “Recession and supply chain transformation ” over at Supply Chain Digest.  He talks about the current state of the economy and asks whether or not you should be thining about supply chain transformation right now.

I sent my comments to Dan and have included them here as well.  What do you think, is now the time to be thinking about supply chain transformation?

## My Comment ##

Dan – I agree with your thoughts overall.  These are tough times to say the least.  And, that’s going to bring more pressure on supply chain professionals to come up with even more cost reductions to help dampen the blow from dwindling demand.  I think the last several years had actually seen a renewed awakening that the supply chain was able to contribute to the top line growth of a company and not just the bottom line, which has long been the view.  Unfortunately, the events of the last several of months will set that movement back as the focus shifts fully back to cost reductions.

As you said, this does open a new window for supply chain transformation initiatives, but I don’t think large, wholesale change oriented projects will get funded in these times.  I think supply chain professionals would be better served by having a bold vision for supply chain transformation initiatives but to gain approval for and implement them in a more incremental fashion.  And, each initiative needs to be tied squarely back to a tangible impact on the financial bottom line of the company to gain support.

I also think companies would be best served by thinking beyond this period to when growth returns.  I know, that’s easier said than done right now, but the reality is that when a downturn reverses, the companies that come out strong are the ones that use the downturn to position themselves for the next growth period.  These companies use this time to transform themselves into stronger players.  The companies that will struggle when things turn around are the ones that act very tactically only during this downturn and fail to take the steps to enable growth on the other side.

As bad as things look right now, they will improve at some point – they always do.  Nobody can predict with accuracy when that will happen, but now is not the time to solely think short-term and tactically.

The price of oil over the last year has had a dramatic impact on supply chains around the globe.  In this video, we spoke to Larry Lapide, MIT demand management research director, about the implications of oil prices on the supply chain and on supply chain management processes.  Larry describes how superior supply and demand matching can provide a more energy efficient and green supply chain.

If you are unable to view the video above, please try this link: Larry Lapide, MIT - Greening the supply chain.

You can see more in our series of discussions with Larry here:

• The future of supply chain management
• The effect of oil prices on the supply chain