Those top three challenges are:
Volatility—driven by global complexities and fluctuation in customer demand
Visibility—specifically the need for accurate, time-sensitive information
Value—continued corporate pressure for supply chain management and operations to create enterprise value

Those are indeed, significant obstacles. Fortunately, considerable progress can be made addressing them through the use of a supply chain management solution, and, more specifically, S&OP tools.

There’s been quite a bit of discussion about demand volatility here on this blog and in the Supply Chain Expert Community. For instance, Lora Cecere from the Altimeter Group addressed the subject in a webinar titled, “What S&OP capabilities matter most?” Trevor Miles has had some good posts on volatility too.

What Lora, Trevor and others have noted, is that in recent years, demand has not only fluctuated more significantly than in the past, but the frequency of change has also increased. The result is that forecasting by looking only at historic demand patterns is no longer sufficient. What’s needed instead, is the application of a robust what-if? capability to do range forecasting. That way, rather than a single number forecast, users can also test upside and downside scenarios to evaluate potential risks and mitigate against them.

It isn’t surprising that visibility—or, more accurately, lack of visibility—was cited as the second most prominent supply chain challenge by respondents in IBM’s survey. As today’s supply chains become more complex, visibility becomes more important. This is particularly true in industries such as high-tech electronics and consumer goods, where brand owners and contract manufacturers face high demand volatility and rapid product evolution. They also have increasingly complex operations where many critical activities take place outside the traditional four walls of the enterprise, and there are many geographically-dispersed sites and/or partners using disparate data systems.

I’ll argue, however, that the real challenge isn’t to simply gain visibility. It is a pre-requisite to the end-goal, not the goal itself.  Sure, visibility is vital but the larger business goal is to improve agility.

Many will promote “visibility” solutions and will tie that to statements like “sense and respond.” The problem is few, if any, are actually providing tools to enable the response process. They provide a limited level of visibility and leave users to determine how to benefit from it.  Visibility without the tools to drive action gives only minor advantages to the organization. One needs to be able to alter and analyze information, not just see it.

I’ll also add that collaboration plays a critical role. Having access to “actionable” supply chain information can set the stage for more meaningful and effective interactions between stakeholders based on informed decisions whereby the impact of decisions are understood and action plans are clearly defined.  To truly improve supply chain performance—and ultimately address that unrelenting pressure to add enterprise value—a company must first gain supply chain visibility, but then they must be able to collectively leverage that data to make rapid decisions and act accordingly. 

That is true value.

It begins with what he believes defines the customer experience value chain:

“Network of internal and partner processes, people and capabilities that translate innovation into customer value while delivering an unrivaled customer experience”

While closely formulated from Forrester’s definition, loosely defined as “activities through which companies create value, competitive advantage, and superior customer experiences”, what I find unique and interesting about Cisco’s definition is the specific attention and promotion of “people” and their “capabilities”. Perhaps this resonates so much with me because I have long believed that collaboration is the next supply chain “optimizer”, and collaboration is decisively a purpose-driven human activity. To be more precise, it is the unifying of actions taken by uniquely capable people for a common good (more on this later).

Angel identified four legs required to support the creation of strategic advantage; Customer Focus, Agility, Collaboration and Sustainability. At first glance, you might find these to be obvious and perhaps not so unique – and indeed, many companies are talking about these elements in one form or another. What is different about Angel’s message, for one, is the maturity and execution of the model. For example, I’ve never met a company who would say they are “not customer focused”; however, most continue to govern themselves according to traditional, and very operationally focused, metrics (e.g. cost, quality, delivery and speed). Cisco, on the other hand, measures their customer focus by focusing on perfect product launch, perfect order, order-to-invoice cycle time and last but not least “moment of truth customer satisfaction measurements” – thus, redefining their balanced scorecard to align with its customer focus.

A significant portion of Angel’s presentation was spent on the Flexibility/Agility leg. What caught my eye most is a theme I am seeing across multiple manufacturing segments, and is becoming a key requirement for many looking to improve their supply chain management and S&OP processes: the growing gap between Demand Chain and Supply Chain. Today, it is not uncommon to see completely disjoint demand side planning (S&OP) and detailed supply chain planning solutions, and yet, it is in between the two where a significant amount of efficiency and performance can be lost. I believe the gap is widening at a steady rate, and this is what is driving the need for new and innovative solutions to “collaborate and effect change in real time”.

So we’re back to Collaboration – the third leg. In my humble opinion, it will be in this area where excellence will be won or lost. You might look at collaboration as the combination of people + processes + technology/tools, but I was very impressed to see a slight variant of this long standing equation. In Angel’s vision, it is “culture” + process + technology/tools. I admit never having thought about it as a cultural challenge, but having worked with many large organizations on this problem, I’ve come to realize how unique a problem this is… collaboration amongst peers and employees is often challenging enough across departments. The type of collaboration Angel is talking about is inter-enterprise – which means that on a given day, you may very well be collaborating with a complete stranger living on a different continent. Indeed, there are cultural implications to achieving this level of maturity.

Again, I might say there is nothing new about promoting collaboration as a key to success; however, it is what Cisco is doing about it that distinguishes them from the rest. They are leveraging many of their own technologies to produce what they call an “Integrated Workforce Experience” (IWE) platform capable of bringing teams together to collaborate and solve ‘moment of truth’ problems that occur in the gap between demand chain and supply chain planning. Unlike social networking platforms, such as Facebook, MySpace and the like, which use friends, family and fun as a hook, I believe platforms like IWE will motivate productive usage and involvement through content, context, and consequence.

Finally, we have Sustainability, which is extremely topical these days as we watch in horror the catastrophe still hemorrhaging under the Gulf of Mexico. Here, we heard some common themes on creating efficiencies and innovations in product design, educating and increasing employee involvement, and a particularly catchy tag line: “Don’t just ‘comply’, lead, innovate, differentiate”. The one resonating message around sustainability, more of a lesson really, is the reminder that sustainability should not be viewed as a factor for competitive advantage, but rather, the one common flag around which everyone can unite and learn from one another. Industry collaboration will be the key to effecting a meaningful and lasting change.

Does Angel’s vision align with yours? Do you see effective collaboration as an emerging competency that will distinguish your company’s performance?

By the way, if you missed the presentation, grab a soda and sandwich and watch the replay of this presentation by registering here.

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

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

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

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

• There is a huge consumer market in the rapidly developing economies (these being principally the BRIC countries) largely untapped by companies in the developed economies.
• To reach the consumers in these markets will require a different type of innovation, exemplified by the Nirma case study, focused on product simplicity (and price) and distribution effectiveness.

In their April 15th, 2010 edition, the Economist ran a special report called “The new master’s of management” (subscription may be required) in which the authors state

“Emerging countries are no longer content to be sources of cheap hands and low-cost brains. Instead they too are becoming hotbeds of innovation, producing breakthroughs in everything from telecoms to carmaking to health care. They are redesigning products to reduce costs not just by 10%, but by up to 90%. They are redesigning entire business processes to do things better and faster than their rivals in the West. Forget about flat—the world of business is turning upside down.”  They go on to say “the rich world is losing its leadership in the sort of breakthrough ideas that transform industries.”

In a supplemental report “The world turned upside down”, the Economist states that

“They (the BRIC countries) are coming up with new products and services that are dramatically cheaper than their Western equivalents: $3,000 cars, $300 computers and $30 mobile phones that provide nationwide service for just 2 cents a minute. They are reinventing systems of production and distribution, and they are experimenting with entirely new business models. All the elements of modern business, from supply-chain management to recruitment and retention, are being rejigged or reinvented in one emerging market or another.”

On the issue of reaching the broad consumer market the Economist goes on to state that

“It is not enough to concentrate on the Gucci and Mercedes crowd; they have to learn how to appeal to the billions of people who live outside Shanghai and Bangalore, from the rising middle classes in second-tier cities to the farmers in isolated villages. That means rethinking everything from products to distribution systems.” (My emphasis.)

And then there is Apple, with record sales into the BRIC countries confusing the issue.  A Wall Street Journal article in September 2009 titled “Apple Rides Recent Growth in Asia to Earn Top Honors” states that “Apple held just a 1.6% share of the personal-computer market in Asia in the second quarter of this year, and a 0.6% sliver of the region’s mobile-phone market, according to technology market-research firm IDC.”  It is Apple’s latest results that are startling.  Shipment of iPhone units grew 474% in Asia Pacific, 183% in Japan, and 133% in Europe. Total revenue from iPhones was $5.45 billion, and China accounted for $1.3 billion, up 200% following the iPhone’s launch at China Unicom.  I am not sure what this means in terms of market share growth, but the unit growth is impressive.

I must say I consider Apple’s results to be the exception rather than the norm.  I think Nokia’s approach is a safer bet for most Western companies that do not have the “trendiness” of Apple, even though Nokia’s stock price has plummeted on the back of Apple’s gains.  Focus on bringing innovation to large populations, not the elites in the BRIC countries.  Work out how to get your products to the “last mile” in countries that do not have the most sophisticated infrastructure.  On the other hand, perhaps Apple’s approach is correct because of the huge increase in disposable income in the BRIC countries.

Whatever your approach, I think it is absolutely necessary for Western companies to place a lot of emphasis on their growth in the BRIC countries.  Many of the large companies are doing this already.  What about the mid-sized companies that employ the bulk of the people in the Western countries?  What are they doing in terms of supply chain innovation to reduce costs?  I’d really like to hear your stories and opinions.

• Customer side equations will take prominence over rest of value chain
• Supply chains will get more integrated with marketing and service chains
• Speed and responsiveness will be key drivers for spend on new initiatives
• Cost will continue to play critical role in decision making
• Asset Management will gain more prominence and will help in accelerating “green” initiatives

I responded to Atul in the following manner:

We too are experiencing that prospects and customers are focusing a lot more attention on customer satisfaction as it pertains to on-time delivery of orders, but also to the enquiry-to quote and quote-to-order processes.

I couldn’t agree more with your third point about speed and responsiveness. Overall the trend we are observing is that consumer behaviour is pervading B2B transactions with ever shorter lead times. Coupled with the adoption of Lean and postponement strategies, companies have to be very responsive to changing demand, blurring the lines between planning and execution. These are the business drivers for your third point about agility and responsiveness.

Cost will always be a driver in supply chain management. If we adopt any of the Lean concepts it should be the elimination of waste. All too often I come across situations where the information and decision lead time exceeds the physical lead time to manufacture and/or deliver the order.

But this got me thinking about several other reports and observations that have come across my desk over the past 12 months.

First and foremost must be the article by Dan Gilmore at Supply Chain Digest highlighting the work done by Supply Chain Digest’s research arm CSCO (Chief Supply Chain Officer) Insights.  There is an excellent report titled ”Next Generation Supply Chain Management: Integrating Planning and Execution” available from this link. (Subscription required).  In the article, Dan Gilmore observes that “For many years, analysts and others have offered separate models of ‘supply chain planning’ and ‘supply chain execution’ processes, and the technology vendors were generally organized in that sense as well. You can find many diagrams that show hierarchical planning processes with no connection at all to execution, for example. The report argues, and the research supports, that this gap must be closed from a process perspective to meet the challenges of today’s supply chains.” I added the bolding because this is the key to being able to provide the speed and responsiveness to which Atul at Infosys refers.  Not only that, but also managing to contain if not reduce supply chain costs will depend on being able to reduce this gap between planning and execution.

Traditionally we have used inventory to buffer against what we would like to happen (the plan) and what actually happens (execution).  But this is no longer possible.  As the graphic below illustrates, as long ago as 2004 postpone strategies had pushed much of the inventory up the supply chain to the suppliers.  They too have adopted Lean and postponement strategies, leading to even lower inventories.  And then there is the effect of the recent recession.  Nearly all the OEM’s I speak to are struggling to secure supply of components, clearly indicating reduced inventory levels in the suppliers. I wish I had equivalent inventory figures for 2009.  Anyone willing to provide these figures?

Then there is the excellent blog written by Lora Cecere recently titled “Tackling the Black Hole in the Center of Your Supply Chain” in which she states “We now know that fixed data integration, one-dimensional rules mapping, and traditional master data techniques from ERP to Supply Chain Optimization are insufficient.  As a result, plans are created and consumed in isolation, and transactional systems hum along with little– to no — guided intelligence.”  So as the speed of business has increased – some would describe this as volatility – the supply chain systems have not kept up.

And most of the information is now external to your organization.  Companies have being trying desperately to get point-of-sale information to get early trend analysis of sales.  At the same time, many brand owners have largely outsourced manufacturing, not only lengthening the physical supply of goods, but also the time and effort it takes to make a decision.  All of these factors are only making the gaps between planning and execution even wider.  But the business need is to close this gap; to respond to demand changes quickly and effectively.  As Lora Cecere, states, the solutions from the 1990’s have not kept pace with the business needs.  Throwing more ERP at the problem isn’t the solution.  At their heart, all ERP systems are essentially accounting packages.  They deal with your data – financial and operational – but provide very little help in dealing with the majority of the information, which now exists outside of your organization.

What are your thoughts?  Do you experience this gap?  Are your systems able to cope.  Will your next breakthrough in performance come from learning to plan better, or learning to respond to plan variance?  In other words, closing this gap between planning and execution.  Robust debate encouraged.

The rules, with direct quotes from the article, are as follows:

• The .05 to 5 Rule
  Most products and many services are actually receiving value for only 0.05 to 5 percent of the time they are in the value-delivery of their companies
• The 3/3 Rule
  The waiting time has 3 components, which are the time lost while waiting for:
  - Completion of the batch a particular product or service is part of
  - Completion of the batch ahead of the batch a particular product or service is part of
  - Management to get around to making and executing the decision to send the batch on to the next step of the value added process
• The ¼-2-20 Rule
  For every quartering of the time interval required to provide a service or product, the productivity of labour and of working capital can often double, resulting is as much as a 20% reduction in costs.
• The 3 x 2 Rule
  Companies that cut the time consumption of their value-delivery systems  experience growth rates of 3 times the industry average and 2 times the profit margins

It was really the .05 to 5 rule that caught my attention because it is the driver behind the rest of the rules.  In his description of the rule, Stalk states that “… a manufacturer of heavy vehicles takes 45 days to prepare and order for assembly, but only 16 hours to assemble each vehicle.  The vehicle is being worked on for less than 1% of the time it spends in the system.”

Ok, so maybe Lean has improved the time it takes to take orders in the time since the article was written, but Lean has also reduced the time it takes to manufacture the product, so the ratio has likely remained the same.  What I find interesting in this split is that much of the non-productive time is spent working out when the order can ship, what components are required, if the capacity is available, …  And then there are all the changes that need to be accommodated, starting from order delivery date and quantities, perhaps even configuration/design changes, through to component delivery schedules.  Outsourcing and off-shoring have only made this situation worse by increasing the number of people/organizations required to participate in the process and extending the delivery time.

Spreadsheets emailed around the world or EDI transactions aren’t going to make a dent in this ratio.  I think Hau Lee has it right.  As I commented recently on a presentation Hau gave, this can only be achieved by “extreme information exchange”.  As importantly though, is “extreme analysis”, or the ability to consume and evaluate lots of data in a short period of time.  Machines can churn through vast quantities of information in a short period of time, humans cannot.  At the same time nearly all supply chain decisions need to be made in an environment of ever changing and ill-defined rules, constraints, and objectives.  Humans can deal with this uncertainty, machines cannot.  What is required is a unique combination of human intelligence and judgement coupled with the processing power of machines to turn what Hau calls “extreme information exchange” into “extreme decision making”.

Change is the only constant.  Dealing with the constant change is where the competitive edge lies today.  As always, let me know what you think.

But while technological innovation has made the old world of local landline carriers increasingly less relevant to modern telecommunications, there is still a question about whether breaking up Ma Bell has helped or hampered innovation in the telecommunications market. A. Michael Noll, a professor emeritus at the Annenberg School for Communication at the University of Southern California and a former researcher at Bell Labs, says that breaking up AT&T has actually been detrimental to the advancement of technology in the United States. In particular, he cites the negative impact that the breakup had on his former employer Bell Labs and its ability to innovate.

I think it is fair to say that a very similar debate can be had in terms of outsourcing and off-shoring.  Much of the article focused on the design process and AT&T’s access to intellectual property and the latest technologies.  However, it is very clear that the total value to AT&T includes manufacturing and other supply chain processes.  Nothing exemplifies this better than the statement from AT&T, with my emphasis, that

“The Domain Supplier program will facilitate a more collaborative relationship with our network technology suppliers,” Harden said. “It also enables AT&T to minimize risk to our supply chain, improve supplier performance, and increase the speed of introduction of new products and services while offering AT&T the best technologies to serve our customers.”

What is great about this statement that it captures the benefits of closer collaboration to all the participants in the value chain, most of which are supply chain related even though the strategic need is to get the latest technology into AT&T’s customers hands.  There are any number of companies which would echo these benefits.  But many companies struggle with the level of commitment required to establish and maintain this level of collaboration with suppliers.

What are your experiences with outsourcing and off-shoring?  Has this reduced your companies visibility and flexibility?  What are your experiences with collaboration?

Nari Viswanathan
Vice President & Principal Analyst, Suppy Chain Management
Aberdeen Group

Nari Viswanathan heads up the supply chain planning practice and counsels enterprises on their supply chain planning strategies in areas such as sales and operations planning, demand management, inventory management, network design, and customer/ supplier collaboration with specific emphasis on financial performance.  Nari also covers the Software as a Service, B2B collaboration and process integration coverage areas. Nari is part of the SCM research team, and possesses a very strong understanding of adjacent supply chain areas like TMS, WMS and Distributed Order Management.

Nari is a well recognized industry expert with extensive experience across product management/marketing, consulting, solution design/development and presales. Nari recently gained industry recognition as a Pro to Know by Supply Demand Chain Executive Magazine.  Nari has also published extensively in magazines like SCMR, GLSCS, Supply Demand Chain Executive, Internet Retailer, Industry Week etc.

Kinaxis: We are experiencing a rapid and perhaps long-lasting downturn in the economy. 

• What lessons can be learned from the downturn that can be applied to supply chain management in the short term and in the long term?
• What specific supply chain initiatives can be applied in the short term that will have greatest effect on a company’s financial performance and sustainability?
• How can companies balance short-term cost cutting objectives with the need to strengthen their position for an eventual recovery?

Nari: In order to understand the primary concerns companies are facing with respect to their supply chains, it is critical to understand the key events that happened in 2008 which resulted in the need to redesign supply chains (Figure 1). There has been extreme fluctuations in customer demands based on market conditions as well as due to other macro-economic conditions (54%) as well as the volatility in fuel prices that was experienced in the second half of 2008 (51%). In addition the impact of the rise in fuel prices was a sharp increase in raw material prices. The shortage of food commodities also resulted in a cascading increase in raw material prices (45%). Finally there were shipment delays and other execution related issues that resulted in companies looking to redesign their supply chains.

Figure  1: Key Supply Chain Events that Necessitated Redesign of Supply Chains

Source Aberdeen Report Survey 2009

Given these critical challenges that companies are facing, it is important that there is a focus on short term ROI initiatives.

One of the key areas where companies need to focus on in the current economy is working capital. In these times of economic uncertainty and global credit crunch, companies need to actively seek out best practices in how to move from working capital optimization theory to practical initiatives that will improve corporate financial performance while maintaining customer satisfaction. Supply chain, procurement and financial professionals have an opportunity to use working capital innovations to create a market advantage for their companies. Cash velocity can be a competitive differentiator and companies need to assess a variety of breakthroughs in working capital management to keep pace with their peers.

Kinaxis: As companies have outsourced, much to their consternation, their direct control of the supply chain has decreased.  They now need to participate in multi-enterprise supply networks.

• How do companies need to change their supply chain planning paradigm to compensate?
• With so little under the direct control of a company, of what relevance is an sales & operations planning (S&OP) process?
• Are the advanced planning & scheduling (APS) and enterprise resource planning (ERP) solutions developed in the 1990’s still relevant?

Nari: Seventy-one percent (71%) of the participants in a recent Aberdeen study indicated that they were removed from their end customers by at least two levels of the supplier chain (tiers). In addition, rising supply chain costs, escalating customer service demands, an increasingly global operation and increasing number of value chain partners have resulted in increased complexity. This complexity has resulted in companies gradually losing visibility and control over their network-wide supply chain operations and performance metrics.

Visibility in such a multi-enterprise environment cannot be enabled fully through a traditional ERP or APS approach. There is a need for a comprehensive business process layer that ties existing investments in ERP and APS systems with add-on business components that can fill gaps in capabilities. In other words a key ingredient for enabling multi-party SCM is a Business Process Management layer that can support multi-party business processes.

A true multi-tenant on-demand application is an example of a multi-party SCM solution. Many on-demand providers also come to the table with networks of pre-connected suppliers and carriers, which helps to further reduce rollout times and increase trading partner acceptance.

Enabling support for unique business processes by customer, product line, or channel, an on-demand technology platform can lay a foundation for richer data exchange and more flexible process collaboration.

Kinaxis: We have seen the globalization of demand, especially in the BRIC (Brazil, Russia, India, China)  countries.

• Notwithstanding the current economic downturn, will this trend continue?
• How will this impact the supply chain, especially with respect to outsourcing, which has tended to look at the BRIC countries as cheap(er) manufacturing centers?
• How will this impact product development, and by extension the products available in the developed countries?

Nari: Today’s economy is a global one in the true sense of the term in that companies both source and compete for customers on a global stage.  This has been made possible due to the lowering of tariff barriers and the improvement in communications mechanisms. Earlier approaches to global markets, followed primarily by large manufacturers, included vertical integration – operating plants in every country to serve customers in these countries.

Today’s focus, however, is creating more collaborative relationships with channel partners like distributors, wholesalers, retailers, etc. This has resulted in the need for improved demand management practices as lead-times across the value chain have increased. In addition, it is important to analyze channel sell through data to better predict end customer demand. In other words, globalization has resulted in increased customer-centricity for companies that were hitherto removed from end customers.

This increase in the need for customer-centricity has, in turn, dramatically increased the need for improved demand management.

Best-in-Class companies are ahead of their peers in being able to recognize a problem that is only emerging within the marketplace, namely the globalization effect. Fifty percent (50%) of Best-in-Class companies indicate that many of their supply chains do not have normal demand distributions, making traditional forecast modeling difficult, whereas among other companies only 15% indicate the same. Traditional forecast modeling was designed around the premise that there are a few critical customers who determined the forecast volumes whereas the rest were not so critical and hence the normal distribution. With elongation of the supply chain on both the customer and supply sides, the long tail effect associated with a larger number of customers sharing a smaller piece of the revenue pie has become a critical issue. In addition, these customers are demanding differentiated products faster and at a lower price. One approach by which Best-in-Class companies are working around this issue is to become more market responsive by reducing overall lead-times.

Many of our most sophisticated customers are still struggling with approaches to ensure that as demand changes occur, the entire supply chain is correspondingly adjusted.   To make the point clear, imagine a string of cars on the highway that are only 10 feet apart but all traveling at 60 mph.  If the first car suddenly slows down, only the second car in that string knows that anything has happened and even a minor delay in response will increase the risk of crashing.     With each successive car the opportunity for safely adjusting their speed diminishes, until at last you have one enormous pile of wreckage.    Instead, imagine if all the cars had radios so that the first car could broadcast the fact that he was hitting his breaks.   All the cars would slow together, and thereby avoid the resulting accident and rising insurance costs.

The challenge of connecting the supply chain is no small task as many of the players are using different ERP systems and lack the sophistication to properly establish or adjust ROP (reorder points) values based on the changing variables (demand, yields, etc..).   This is an area where RapidResponse with its ease of integration to disparate ERP systems and  exceptionally powerful analysis and reporting tools can be an instrumental part of the Lean value chain synchronization process.   As demand changes at the brand owner location, and assessment of the risk and need for Lean related adjustments across the entire supply chain can be made.    If adjustments are needed, they can then be communicated simultaneously.