Each year, as I prepare to ring in the New Year, I survey as many companies as I can on supply chain. This year was no different. It was great to talk to 53 companies that took my call. Of the 53 suveyed, 49 mentioned that supply chain is growing in importance. When asked “Why?”, the answer was all about “reducing costs.” As I hung up the phone from the last call, I was struck by a couple of thoughts:
- A lot has Changed, but NOT a lot has REALLY Changed. While companies almost unanimously state the supply chains are growing in importance, and cite growing complexity, rising customer demands, and the need to grow, the focus is on cost. The definition of the supply chain is traditional with a focus on deliver and a strong dependency on manufacturing reporting (over 50% of companies still report through manufacturing). (Manufacturing reporting relationships for supply chain are the most prevalent in asset-intensive industries that have strong needs for compliance: chemical, pharmaceutical, and pulp/paper.) Less than 5% extend into the definition of sales relationships and less than 15% extend into the definition of procurement relationships. Most of the ideas that are touted on agility, responsiveness and the advantages from becoming more demand-driven are not today’s reality. The focus is primarily on the response: effective supply. There is little focus on the improvement of the processes adjacent to supply chain in sales, finance and marketing. As a result, the areas of revenue management, improvements of receivables and financial flows, customer compliance, and the effective shaping of demand are ripe with opportunity.
- More Important. Less Excitement. Supply chains are more complex — more outsourcing, ever-changing global requirements, and greater demand volatility — but, the leaders are skeptics on technology. Few executives see anything that excites them to buy net new technology in the market, and most see little reason to invest in new technologies.
- We make Poor Preachers. While companies espouse goals of delivering supply chain excellence from the customer’s customer to the supplier’s supplier, in reality, the supply chain leader only has the span of control for 1-2 areas of the supply chain within the enterprise. As a result, the vision may be the end-to-end supply chain, but the reality is a focus on improving costs at the core of the enterprise. As a result, most speak with forked tongues…. The leaders cannot practice what they preach due to span of control issues.
Trends that I will be Following in 2011:
Due to these trends, the technology market stagnated in 2010. However, in 2011, I believe that we will see some new trends. These are the trends that i will be watching in 2011.
ERP Hangover. As the year progresses, I think that the ERP Hangover will hang over companies like a heavy cloud of dysfunction. In my survey, 23% of the companies surveyed had multiple-year ERP programs extending past 2015. While the ERP programs are the necessary to support global expansion, the organizations are tired. Many expressed frustration at the cost/value relationship of the project and the lack of supply chain innovation by ERP technology providers. In 2011, as inflation rises, budget pressures escalate, and IT costs get squeezed, I expect to see an ERP hangover. Organizations are going to wake up and say, Companies on multi-million multi-year evolutionary paths of ERP, are going to say, “Why?” And companies that have already spent millions of dollars are going to say, “I did what?” As a result, large consulting houses that have had a strong dependency on ERP implementations –Accenture, Cap Gemini, IBM and Infosys– will increase their focus on bringing software solutions to market and providing differentiated Business Process Outsourcing Services (BPO). Many companies in the survey were already backing away from the extended ERP vision giving room for new start-ups with innovative approaches to solving supply chain problems to get a foothold. In 2011, I think that we will see a rise of a new niche set of supply chain technology vendors.
End-to-End Supply Chain. Not as easy as an Erector Set. I remember over my many years as an analyst sitting across the desk from many CIOs that would waft-on and on about using ERP to assemble the inter-enterprise supply chain platform. The logic was if all companies had ERP system XYZ then it would be easy to connect ERP to ERP to ERP along the supply chain. It is now clear–even to this set of die-hard CIOs– that this erector-set approach is not going to work. It is just too simplistic. There are three quick stumbling blocks:
- Data model and system of record. The ERP data model is a back-office data model designed primarily for order-to-cash, revenue recognition and procure-to-pay. Companies are quickly realizing that ERP is not an enterprise data model, and that there is no system of record for changes in compliance, tracking sustainability goals (energy, water and carbon), or multi-party bifurcated trade to support demand shaping activities.
- Data translation. To be useful, the data layer between companies needs to be harmonized, synchronized and cleansed to ensure data translation. Key areas of emphasis are the product hierarchies, customer master data, calendar definitions, and item attribute information. Without translation, there cannot be the connection of usable data.
- Connectors. As companies do this work, they quickly find that Supplier relationship management (SRM) and Customer Relationship Management (CRM) are inadequate connectors for the end-to-end supply chain. The inter-enterprise supply chain needs a new set of connectors to support supply chain relationships. Look for social networking and community technologies to start to fill this gap.
Listening Posts. How do we listen and then respond? While all agree they should listen to the customer, none have systems–despite the evolutions in technology–to truly listen to customer. Sadly, in companies today, there is no REAL customer service organization. We have an order management group that is often named customer service or we have a service/warranty organization that does service, but less than 1% of organizations surveyed have listening posts to actively listen to their customers and use the voice of their buyers in supply chain decisions. This outside-in approach is most often found in short-life cycle, high margin high tech and electronics goods where companies are using Business Intelligence (BI) tools to synthesize consumer sentiment from reviews, social media networks and blog posts. I find this shift exciting and plan to follow it closely over the course of 2011. It is ironic that supply chains want to serve the customer, but have no real way to listen and then drive the response. For example, I recently worked with an automotive manufacturer that was focused on building listening posts for marketing to understand the impact of promotional activities with dealers. This automotive manufacturer has been VERY active in US House of Representative hearings in 2011 on automotive recalls and failures. When I asked, “if they would also like to focus on implementing listening posts to sense early product failure issues and use them to close the loop with design teams”, the answer was “it would be a good idea, but we are not ready.” Sadly, most are not ready…. However, in 2011, I will be actively covering this technology area because they are going to need to get READY!
Sensing. How do we sense and then respond? 99% of the supply chain effort in today’s supply chain is about response. It is sad, but true that supply chains have little sensory capabilities. Historically, the focus is on response; and in most organizations, it is a blind, inflexible response. While companies talk about sense and respond, the focus is on respond not on sense. In 2011, I will continue to look at the evolutions in demand sensing. I am excited by Market 6’s new work, the evolution of the Terra Technology platform for demand sensing, the deepening of optimization and pattern recognition in SAS Demand-driven Forecasting and the continued evolution of pattern recognition usage in downstream data repositories like RSI, Relational Solutions, and Vision Chain.
Demand Orchestration. Buckle your belt. It is going to be a tough ride. For many companies surveyed, commodity prices are undermining their abilities to hit Wall Street. Oil will be $100 a barrel. Cotton is at a record price. Food companies are facing rising prices of food ingredients. Shortages abound in rare minerals. As leaders face this problem, demand orchestration–the mapping of sourcing and demand shaping alternatives horizontally and bi-directionally within the corporation to maximize profitability with the goal to balance customer facing-market decisions with commodity market conditions –will grow in importance. To accomplish this, the use of what if analysis and simulation of demand variability will increase as companies try to rise above inflationary pressures. Interesting technologies include Jonova, S&V Management Consultants, Signal Demand To meet this need, companies will need to invest in manufacturing flexibility –alternate formulations/bill of materials, agile supply chains that can flex sourcing based on changes in supply, and parallel sourcing–to rise above getting caught by fluctuating commodity markets. Today, we see demand orchestration capabilities the most frequently in high tech and electronics and food manufacturing companies like Del Monte, Intel and Samsung. As the year progresses, we expect demand orchestration to grow in acceptance.
New Forms of Supply Chain Intelligence. One of my favorite trends that I am following is the changing world of supply chain intelligence. New capabilities are evolving that can deepen our abilities to design, sense and respond value networks. Historically, supply chain intelligence has been limited to simple work rules, optimization and simulation. The use of Software as a Service (SaaS) changes the game for optimization. The use of SaaS enables parallel processing, expert tuning, data cleansing, and benchmarking opening up new horizons. I am also following the use of artificial intelligence to map “multiple ifs” to “multiple then” conditions, advanced pattern recognition to drive listening and sensing platforms and the use of optimization in combination with simulation to model the feasibility of solutions to drive the best answer. Technologies to watch include Enterra Solutions, Predictix, Revionics, SAS, Sockeye Solutions, Solvoyo, and Terra Technology. This is a great trend to watch in 2011.
Organizational Design. Twenty-five years ago, there was no supply chain organization. Today, the supply chain organization has matured, but is squarely focused on supply. Over the next ten years, supply chain organizations will bridge to end-to-end processes expanding to cover the design of buy and sell-side relationships. When it comes to organizations, one size definitely does not fit all. There are five trends that I am watching over the year:
- Design of supply chain centers of excellence.
- Cross-functional promotional ladders that cross IT and Line of Business.
- Extension of supply chain thinking into relationship definition of both buy and sell-side relationships.
- Reporting relationships and how they are changing.
- How companies are organizing to build buy and sell-side relationships.
Integration of the Financial Supply Chain. In the past year, I have completed two surveys to understand the advancements in the management of bifurcated trade: multi-party trade agreements for trade promotions, rebates, and new product launch. I am surprised that in both consumer products and health care that the management of these flows is in the financial organization with little influence by the supply chain. The profit leakage to streamline bifurcated trade is a large opportunity. As revenue management grows in importance in demand orchestration, it is my hope that we will start to systemically tackle this important area at the interface of finance, sales and supply chain. Interesting technologies to watch in this are include Accenture (CAS), Adesso, Demandtec, IRI, MEI, M-Factor, ModelN, Oracle, SAP andSynectics.
OK gotta run. The plane is landing. I love WIFI in the sky.
What do you think are trends that I should be following? Did I miss any?
