Demand shaping


by Lora Cecere on April 27, 2014 · 1 comment

sta•sis (ˈsteɪ sɪs, ˈstæs ɪs)
n., pl. sta•ses (ˈsteɪ siz, ˈstæs iz)
the state of equilibrium or inactivity caused by opposing equal force

It was 1988. I was involved in early Vendor Managed Inventory (VMI) pilots. In my work at Clorox we were starting to ship to Walmart using Retail Link. We were excited. It seemed like the start of a great thing. In the pilot, we were able to see retailer flows. We talked furiously about the design of the End-to-End Supply Chain (E2E).
At that time, the conference circuit was buzzing. The words collaboration, Efficient Consumer Response (ECR), Vendor Managed Inventory (VMI), and Collaborative Planning, Forecasting and Replenishment (CPFR) filled the air. The promises were thick. The concepts were right, but the execution was flawed. The processes were overhyped and companies rushed head-over-heels to join the throng.
Today, the average Consumer Packaged Goods (CPG) company has eleven VMI relationships and six VMI planners. Based on the research that we are doing, we can see that the programs are not growing. They are not contracting. Instead, they are caught between sales-driven and supply-driven processes. We have stasis.
While our initial energies were focused on large accounts, today’s VMI programs are getting the best traction in the drug and dollar channels. There are few VMI programs left with Publix, Safeway, Target and Walmart conspicuously absent. Kroger’s movement to Market6 added to the stasis. Companies are shipping fewer and fewer cases using VMI processes.
The programs operate as on an island. Only one company interviewed is actively working on the building of E2E processes, outside-in, connecting the flows of VMI. Ironically, while it is connected to the outside world, it is not well-connected to the manufacturer’s enterprise systems. Most companies’ demand-planning systems do not allow easy integration of retail data; and the connection to the planning systems requires an unwanted redesign that most companies try to avoid.

Figure 1.


We are now entering our third decade of managing VMI processes. Most of the programs have been inherited.  The teams running them were not part of the overhyped exuberance.
The teams running them are heads-down and in management mode. Most of the VMI processes report through customer service. The technologies are fixed and the processes are tried-and-true. These teams are not actively trying to design End-t0-End flows or synchronize the VMI programs with other demand signals. It just is. VMI has become a reliable part of the order flow.
At Supply Chain Insights, we are in the process of completing a study on VMI that will publish in our May Newsletter. (The study is still open. If you would like to participate and compare your results to those of the industry, just access the VMI Study through this link.) We currently have 35 responses and are trying to drive the response rate to at least 50.

A Head-Scratcher

In the study, the average company reduced the costs of transportation by 3% and reduced the order cycle time by at least a day. And, as shown in Figure 1, the orders are cleaner and more reliable. Customer service levels improve. So, why if the process reduces costs, improves order cycle times, and order reliability, are we not driving greater adoption? These preliminary results make me scratch my head. Why are we at a stasis? Why are we not taking advantage of VMI more actively? I think the answer lies in the fact that the program is juxtaposed between the opposing forces of sales and supply. When companies become market-driven and understand the differences between a sales-driven approach and a market-driven value chain, the processes take on greater value. The mapping of flows outside-in and horizontally across the company enables greater value.
The more research that I do, the more I scratch my head. The CPG organizations talk more about collaboration than other industries, but they have made less progress than high-tech and electronics or A&D’s work on Performance-based Logistics (PBL). We have had a lot of talk and flurry over initiatives, but we are at a stasis.
What do you think? I would love your thoughts. Why is VMI at a stasis?

It is ABOUT time!

by Lora Cecere on March 14, 2012 · 1 comment

Last week, when I attended the SAP CVN session on Supply Chain Management, SAP previewed their work on Demand Signal Management.  While the presentation was at a very high level – lacking the depth for an old analyst to sink her teeth into — I found the questions from customers to be fascinating. Here I share my insights on the release, and answer the questions.

Next week at SAP Insider, North American customers will gather to understand how SAP is redefining their supply chain management applications. For me, it is especially interesting because it is the debutante ball for the two SAP SCM HANA solutions:  Sales and Operations Planning and Demand Signal Management.  While I am excited to see SAP build new solutions following a five year drought of new products in SCM, I would caution that both of these releases are early and are only a good fit for the “early adopter”.  Here I will share insights on the Demand Signal Management product and later in the week, I will share my perspective on the HANA Sales and Operations Planning product.

What is the Release?

After seven years of pushing and prodding, SAP is finally releasing their version of a Demand Signal Repository (DSR).  Demand Signal Management is a new product from SAP that will ship in Q4 of 2012.  The good news for clients is that it is a true DSR: built with an enterprise architecture to embrace structured and unstructured data. I am very pleased that SAP is finally responding to the consumer product user group requests to build a DSR.

The product is built on an in-memory data base termed SAP HANA.  The in-memory capabilities should help consumer products companies with speed for reporting.  The Demand Signal Repository also capitalizes on the partnership with NetBase to harness sentiment of user-defined comments on blogs and ratings/reviews.  It is a huge step forward in the vision for a DSR platform.

The bad news is that the product is largely unproven and the positioning, as presented, is not clear to customers.  The pricing for the product is largely unknown.  For SAP to be successful in the launch of the product, they need to get clearer on product and solution positioning.  The answers to the questions, like those below that I heard at the session, needs to be clear and crisp.

What were the Questions?

The audience peppered the session with questions.  It was unclear to the attendees how to fit the application into their current infrastructure and how this product augmented and supported other applications.  Here are the questions that I heard.  <I answer them below.>

What is the purpose of the application? How will the demand signal be used in other SAP applications?

Does this replace Relational Solutions or Retail Solutions?  (The two RSIs in the market.)

What does this mean for my relationship with Terra Technology?  SmartOps?

How does this redefine your relationship with Vision Chain (previous partner).

What is the cost of the product?

The Shaman’s Point of View:

When customers ask questions in large audiences that I feel strongly about, I have a hard time sitting in my seat.  Especially if it is in an area of research where I have passion.  And for the readers of this blog, you know that the SHAMAN has passion about demand signal management.  It took a lot of energy for me to stay mum and place my thoughts on mute, these were the answers that I would have given if I was presenting on the topic.

What is the purpose of the application as you have built it? How will the demand signal be used in other SAP applications?

The current application is architected to be an enterprise reporting solution. While the work with customers on reporting is promising, at the current time, SAP does not know what they do not know about how the demand signal and how it can be used.  The SAP team has the opportunity to transform ther applications within the SAP suite to make them demand driven<finally>.  The introduction of the Demand Signal product, will put pressure on SAP to redefine SAP APO DP (Demand Planning) and transform the demand signal into SAP APO PPDS (production scheduling).  In the launch, they will learn five things the hard way:

  • The Hard Work is not Done.  Retail data is dirty and requires transformation and synchronization.  There are three elements that must be synchronized: product hierarchies, calendars and item definitions.  Retail data cleanliness varies day to day. It requires knowledgeable intervention.
  • They will get Bad Data.  Consumer products data is also dirty. The product that is sold at the shelf does not match the back-office item master. To avoid paying slotting allowances many companies use old item definitions at retail to introduce new products.   The signal will require translation. Each customer’s challenges will be different.
  • Reporting is not Reporting.  The data needs to be visualized in role-based definitions that are quite different for sales, category management and supply chain leaders. This will require some extensive work to define the user views.
  • It will Require Predictive Analytics.  The right mix of demand data –store level data, retail warehouse replenishment, perpetual inventory signals, manufacturing inventory signals– will change based on the level of demand shaping and market pull.
  • Change Management issues Abound.  Syndicated data is dirtier than the consumer manufacturer would like to admit.

Does this replace Relational Solutions or Retail Solutions?  (There are two RSIs in the market.) Or Market6? 

The short answer is NO.  I would not recommend replacing sales account team reporting systems with the new SAP Demand Signal Management product.  My logic is based on many reasons. 

1) The current technologies within the sales account teams are defined to translate the downstream data for a specific retailer into usable formats for the sales account team.  They are very “retailer specific.  While SAP has done work in the area of retail definition, this still needs testing.  Sales teams will not be patient for testing. 

In the short-term, I recommend layering the SAP tool on top of these sales account team specific databases and using them as inputs into demand signal reporting for the enterprise.  E.g. Synchronization of signals from multiple channels and multiple retailers into a common format augmented with user-based content.  The goal is to get a common view of what was sold when, but to augment this with user-based content to better understand the why.  And, why would companies want to do this?  The business benefit is in decreasing demand latency.  This tool, after evolution and stabilization, should be able to bring a consolidated view of what is sold when and why to the enterprise user two weeks earlier than a report based on syndicated data or the recognition of a pattern in order data.  Companies that understand why the order signal is not a good signal for demand are SAP’s best prospects.

I am also excited about the predictive analytics on shelf sensing for out of stocks that is happening with Market6 and Vision Chain.  Over time, this type of predictive analytics will drive decisions for the sales teams.  SAP has deep work to do in this area.

In time, after testing, consider replacing the sales demand reporting tools. 

What does this mean for my relationship with Terra Technology?  SmartOps?

In 2012, I believe that SmartOps and Terra Technology will become direct competitors.  SmartOps has a tighter relationship with SAP, and companies that have a preference for SAP partners will start development work with Smartops on the use of the demand signal for demand sensing.  I believe that this will  put pressure on Terra Technology to build a more complete solution.  The market for demand sensing applications will become more mainstream. 

As companies go through the holy math wars, buyers should harken back to the advice that Dick Clark, now deceased and previously Demand Planning Global Process owner at Procter & Gamble once said at a conference,  ”The wrong appproach with the right math is bad… and with the wrong math disasterious.” Companies that do not have a demand sensing application should make their decisions based on proof of concept pilots and client references.

How does this redefine your relationship with Vision Chain (previous partner).

The partnership with Vision Chain was opportunistic.  It did not do much for either company, and the freeing of Vision Chain from the chains of the SAP partnership will allow them to do deeper client work out-of-stock sensing and develop mobile applications for market execution.  Vision Chain had a good year last year.  I believe that it will have no impact on Vision Chain’s viability. 

What is the cost of the product?

This is unknown.  However, the Shaman expects that it will be expensive.  The four letters of HANA usually translates to multiple zeros at the end of the quotation. 

In summary, I believe that there is too much at stake in this release for SAP to make it a “flash in the pan”.  While Oracle attempted to bring a DSR to market three years ago, and has gotten no adoption, I believe that SAP will define the true “enterprise” DSR.  It will take time.  And, there will be a number of redefinitions of products along the way.  It has been too long coming.

What do you think?

I will do a similar posting on SAP’s S&OP release in a couple of days and then share some exciting research from my book before I go to the SAP Insider event.  Will I see you there?