Big data supply chains

 

Throw a coin in the air. There is a 50% chance of heads and a 50% probability of tails. Today, based on a recent study with 113 process companies, an organization’s probability of success with an IT project is almost the same as the toss of a coin. Based on a recent study of 113 process manufacturers, only 58% of companies report that their projects meet their business objectives. So, within manufacturing organization, the chances of an IT project meeting successful business outcomes is about the same as a coin toss. Scary? Yes, I think so.

Lets face it, getting a new project kicked off is tough. The average company spends 1.7% of revenue on technology investments. More and more of this budget is allocated to maintenance support and systems support. As a result, the funds for new projects are fewer and far between. The IT budget is being squeezed. As a result, the hurdles to get money and kick-off a project are higher. There are fewer projects and the technologies are changing fast.

Does this mean that organizations should not attempt to do an IT project? No, we do not think that this is the answer. Instead, we believe that companies need to take five actions to improve their odds of success. These observations are based on work with over 500 companies over the past ten years.

Step 1. Educate the Line of Business User. Line of business users need to take responsibility for project success, but most business users do not know enough to scope and clearly define business requirements. In addition, the IT teams often work in silos. They understand IT, but lack the understanding of business requirements. Business users need to educate themselves through conferences, structured networking and work with strategic vendors. Action item: This can take different forms in different organizations. Experiment and define an approach that can work for you. There are many possibilities. Set aside funds within a supply chain center of excellence for education, and support innovation spending to better understand new technologies without being hamstrung to have a formal project with a well-defined ROI. Support technology innovation and test and learn. For example, one client that I work with hosts an annual IT innovation day and invites technology companies and consultants to participate.  The good news is that many analytics projects are small and incremental with sequential learning. (This is a very different approach than the big-bang approach of ERP.) Another organization that we work with funds innovation funds for business groups to tap to test and learn with new forms of analytics. Project teams submit a proposal to a cross-functional team that reviews potential projects.

Step 2. Consider the Redefinition of Career Paths. Some of the most successful companies that I have worked with have promoted a line-of-business leader into the role of the CIO. When this happens, the CIO has a greater tendency to serve the business. Additionally, the companies that I have worked with that are the most progressive in the management of successful IT projects have career ladders that encourage the cross-functional movement of IT and business leaders between organizations. In these organizations, there is a more natural interchange between groups. The bigger the walls of the silos, the greater the probability of project failure.  Additionally, the more IT outsourcing within the organization, the bigger this issue can be. Action Item: Consider redefining the organizational career paths to develop a greater opportunity for cross-functional process development.

Step 3. Get Clear before You Contact Solution Providers. Some of the largest project failures that I have witnessed started with a project team that was unable to make a decision on a project after an extensive vetting of technology options. When a project team is unable to sort requirements to sort out which technologies and approaches to create the most value, the project starts out badly and is doomed for failure. Instead, the team needs to start with business outcomes and work backwards to requirements. The danger of contacting technology suppliers and consultants first is that the larger technology ecosystem tends to think in feature and function language. As a result, it is important to get clear before you get started. Action Item: Define a project outcome and decision process to make a final decision before you get started. Send out fewer RFPs and work on more upfront definition.

Step 4. Be Realistic. Lets face facts. Today, getting technology funding is tough. As a result, many projects are doomed to failure before they get started because they are saddled with unrealistic expectations before they get started.  Action Item: Set reasonable expectations and stick to a focus on business outcomes.

Step 5. Don’t Hamstring the Project with a Sub-standard Solution from a Strategic Vendor.  Many companies have ERP backbones for transactions or an IT standard for analytics. Over the last decade, the business organization has been hamstrung by a well-intending IT organization to use these ‘more strategic vendors.’ There is a goal to have fewer vendors and one throat to choke. The unfortunate reality is that the gap between strategic vendors and innovation has grown in the past five years creating an opportunity cost of the organization. With today’s options for hosting and cloud, the organization needs to release these requirements and free the organization to drive new levels of innovation. Action Item: Help the organization make the right balance between IT standardization and evolving technologies. The pendulum has swung….

So, can you beat the odds? We hope so. Let us know how we can help. We think that a successful business project should have better odds for success on an IT project than the flip of a coin.

Did I miss any that you would add? Please let me know. I love getting responses on my blog. If you want to connect in person, next week, I will be speaking at the Quintiq world tour in Philadelphia and at Pivotcon on the Digital Supply Chain in New York. Hopefully, I will see you in my travels. All the best….

 

 

Do No Harm…

by Lora Cecere on June 16, 2014 · 0 comments

 

“…I will apply dietetic measures for the benefit of the sick according to my ability and judgment; I will keep them from harm and injustice….

…If I fulfill this oath and do not violate it, may it be granted to me to enjoy life and art, being honored with fame among all men for all time to come; if I transgress it and swear falsely, may the opposite of all this be my lot.”

—Translation from the Greek by Ludwig Edelstein. From The Hippocratic Oath: Text, Translation, and Interpretation, by Ludwig Edelstein. Baltimore: Johns Hopkins Press, 1943.

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Today, nine out of ten supply chains are stuck.  Despite two decades of advancement in supply chain technologies, companies are struggling to gain balance at the intersection of operating margin, inventory turns and case fulfillment. Market volatility is increasing and supply chains can respond, but they cannot sense. They are slow to adapt.

Over the course of the last year, I have written about this extensively. The research that I have conducted has enabled me to look at this holistically. For me, this has been discovery.

I am an old gal. Like an artifact, I have kicked around in the supply chain space since the 1980s. I believed that the first generation of supply chain systems would improve operations to a greater degree than actually happened. As an analyst, I had predicted great things that did not happen. Recently, I did a mea culpa. I am sorry.

As a result, I am trying to be more careful to not overhype the market. When I left AMR Research I invested over 400K in building a database of supply chain financial ratios to correlate supply chain results. My goal is to understand the impact of technologies and processes. It is easier said than done. After three years of research, I have just refined the methodology to start to pull the trends.

I have learned that supply chain systems are more complex than I originally thought, and that the relationships between supply chain metrics are nonlinear. I have also learned that you need a large data pool to derive the type of analysis that I want to publish. It takes more than one or two respondents from a company.

I need to finish the work, but in the process—like the Hippocratic Oath above—I want to do no harm.

Why It Matters

Today, we have a number of burning platforms. Recently, I spoke to a major European retailer that lost 5% of their grocery revenues to Amazon in the first quarter of 2014. It is clear to them that Amazon is going to be anything that they want to be, and that they need to defend their turf. In a similar vein, a major 3PL that I spoke to last week at Eye for Transport is considering discontinuing the traditional storage of spare parts and initiating a new service to do 3D printing of parts on demand. There are many tipping points happening together, and companies want to know what can drive the greatest value.

What I See in the Data

In my work on the Supply Chain Index, I see that companies I recognize as doing network design well are rising faster on the list of the Supply Chain Index work. The network design technologies have changed a lot in the last decade. (I sometimes wonder if I should create a new class of technologies for the network design tools because they have changed so much.) The older tools from CAPS Logistics, SNO from Oracle, and Manugistics Network Planning are giving way to new technologies like the Logictools product (purchased from IBM), the Solvoyo product for concurrent planning, the Quintiq technology for concurrent optimization, and the Llamasoft technology platform for optimization and simulation.

These technologies are applicable to solve many problems. These tools allow us to look at sell, source, make, and deliver together. They also enable the evaluation of networks for both sales and procurement relationships to optimize the flows upstream and downstream. The technologies enable the evaluation of both volumetric flows and cost.  And optimization, as well as simulation, can now be done together.

I am a big fan of the use of these types of technologies. The work on the Supply Chain Index shows me that the companies that I consider to be the most mature in the use of these technologies—General Mills, Intel, Cisco, and Seagate—are outperforming their peers. Is it coincidence? I don’t think so. I think that it matters.

Next week I will be speaking at the Llamasoft Summercon conference (follow this link to see the slides). On October 15th, I will be speaking on the Qunitiq World Tour in Philadelphia. Along the way, I will be doing more work on network design case studies. In preparation for these speeches, I have recently completed some quantitative research on network design. Here I share a cut of the data.

Figure 1.

Where Would I Start?

In figure 1, from the research, I share the current state of network design usage. As you can see from the data, while companies have increased the frequency of network design work from yearly to quarterly, most of the work is still focused on basic network design. The focus is on physical assets. I feel that the opportunities are in flows. The greatest gap is in the design of supplier and manufacturing networks. I also think that there is a great opportunity for increased focus on flow-path analysis and a shift from optimizing inventory levels to optimizing the form and function of inventory in value networks.

Anyway, in my effort to do no harm, this week, in a series of blog posts, I outline what I would do if I was a supply chain leader managing a company that was stalled at the intersection of inventory turns and operating margin. My first investment would be in network design to holistically design the network. I would not stop with the physical design. Instead, I would look at network flows, the form and function of inventory, cost-to-serve analysis, and the determination of the supplier network. I would infuse it into S&OP, risk management, and supplier development. I would build an expertise system in the Supply Chain Center of Excellence. I believe that it matters. While there are many factors that affect corporate performance, I can see that the leaders in the implementation of network design technologies are rising up the ranks on the Index and outpacing their peers.

If you are interested in some of our other studies on supply chain planning excellence, consider participating in our study on Supply Chain Planning: Is Faster Better. And, in our Digital Manufacturing Study. Both of these studies are slated to close in a week to be available for our July newsletter. Companies participating in the planning study will be able to benchmark the number of planners needed by supply chain complexity and better evaluate the rate of implementation. In contrast, the digital manufacturing study evaluates the rate of adoption of new technologies like The Internet of Things and 3D printing to change manufacturing strategies. As always, when you give to us, we give to you. We never release the names or the individual responses of the respondents, but we always share the results in aggregate and offer a one-hour call for those that want to better understand the data.

All of these studies that we are doing this summer will be showcased in a series of infographics at our upcoming Supply Chain Insights Global Summit on September 10th-11th in Scottsdale, Arizona. We hope to see you there!