Nick LaHowchic brings up some very interesting points in the interviews on “sense and respond” conducted by Supply Chain Digest, specifically the fact that many companies collect information on demand at a customer/item level and then aggregate it up to a regional or, even worse, corporate level, largely because the companies do not have the systems, processes, and skills required to process the data at the granular level. This issue is closely related to the interview of Nick LaHowchic on “integrated planning and execution”, also in Supply Chain Digest, in which he discusses the organizational barriers, amongst others, that need to be overcome in order to facilitate integrated planning and execution. Nick correctly identifies one of the primary motivations for S&OP being “… because the companies are simply dysfunctional”.
The current organizational and management structures where developed for highly integrated manufacturing environments in which the telephone was a new form of communication, “tabulators” were a rarity, and computers a figment of the imagination. In this environment it was necessary to have a Plant Manager reporting to a Manufacturing Manager reporting to a Regional Manager reporting to HQ in order to have adequate spans of control. These organizational and management structures in turn informed the manner in which organizations planned and executed to the plan, and the latency of communication and effort required to capture and consolidate information determined the frequency of planning. The direct result is annual Operating Plans, quarterly Sales & Operations Planning, monthly Demand Planning, monthly Master Production Scheduling, etc. These planning structures and cadences are in turn reflected in reporting methods which are after the fact and too slow, leaving far too little time to respond effectively to changes that remained undetected for perhaps as long as a quarter. The current economic climate is shining a bright light on many of these process shortcomings. The evidence we see is that most IT organizations are operating without an annual budget, which is a result of the fact that the economic environment is changing so quickly that budgets are obsolete before they can be acted upon.
Supply chain management practices, developed in the late 1980’s and early 1990’s, reflected these organizational and management structures, the result of which was the strategic – tactical – operational – execution planning hierarchy adopted by many of the Advanced Planning Systems developed in this period. This has lead to supply chain management practices and processes which are unresponsive and too rigid, with a lot of latency in the core processes used to manage and monitor the supply chain. But these inefficiencies have been masked by the booming economy for much of the last decade. The advent of outsourcing and the globalization of demand have rendered, and continue to render, many of these processes and organizational structures obsolete. Perhaps obsolete is too harsh, but the current organizational and planning structures are at the heart of what Nick LaHowchic calls “dysfunctional” companies and he goes on to identify the need for “… organizations to become flatter, and operate in more of a team environment”.
The team environment is even more important in a multi-tier, multi-enterprise outsourced supply chain. Yet too often the relationship between a brand owner and a contract manufacturer is relegated to that of a relationship driven by procurement and more appropriate to the supply of a commodity. Far too often the relationship is adversarial rather than collaborative. We have confused a financial instrument (outsourcing) with the need for operational effectiveness. Angel Mendez, SVP of Worldwide Manufacturing at Cisco, has stated that Cisco has over 7,000 people in their supply chain, fewer than 2,000 of which work for Cisco. What is interesting to me in this statement is the recognition that these people are part of the Cisco supply chain. An adversarial relationship based upon the cheapest price is probably not the most effective over a longer period of time because it does not foster the trust required to deal with supply chain issues in a collaborative manner in order to reach a compromise suitable to all parties. While undoubtedly hard numbers should be the basis of all decisions, any model, whether a very simply Excel spreadsheet or a very sophisticated optimization model, is first and foremost an approximation and, as a consequence, produces an approximate result. In addition, there are many so called soft issues, where ambiguity is the norm, that are extremely difficult if not impossible to represent in a model, and yet are so important to the acceptance of the outcome. It is far better to allow human judgment to prevail in these ambiguous situations backed up, of course, by models which provide hard evidence in which to evaluate the benefits and risks of making certain decisions.
While there may be short-comings in existing organizational structures and planning paradigms, companies need structures, techniques, and tools to functional effectively in the emerging supply chains. These emerging supply chains require more collaboration and less control; more coordination and less optimization. Lahowchic and Supply Chain Digest have identified the twin pillars required:
- Sense and Respond, which is the ability to
- detect that something has changed
- evaluate the consequences of the change
- identify who is responsible for the consequences
- elaborate and discuss alternatives in a collaborative environment
- compare and contrast the alternatives based upon agreed metrics
- apply human judgment to sifter issues so that compromise can be reached
- create actionable decisions to which the team has agreed
- Integrated Planning and Execution, essentially the Respond part of Sense and Respond, which is the ability to
- plan, monitor, and respond in a single system and in near real-time
- run S&OP much more frequently, possibly even on an “as needed” basis
- create scenarios in real-time and to compare and contrast several scenarios to each other and to targets
- provide senior management near real-time feedback on actual and projected financial and operational key performance indicator target attainment (Sense)
- have senior management adjust targets which are immediately reflected in the planning systems at the tactical and operational level