Downstream data

Bait and Switch

by Lora Cecere on April 17, 2013 · 2 comments

Bait and switch: A form of fraud. A dishonest marketing tactic where a marketer advertises a very attractive value proposition and then switches the offer to something else after gaining interest by the buyer.

Source Merriam-Webster Dictionary

DDSN. DDSC. DDVN. CDSN. The acronyms keep coming…. The cadence does not stop. Everyone seems to have a new one. Today, they swirl in the market forming a fog. The term demand driven has become vogue again, but what does it really mean? And, should it be taken one step further to orchestrate bidirectionally market-to-market in market-driven value networks? Or will companies stumble on the path by mistakenly implementing supply-centric processes and calling them demand-driven initiatives?

There are a number of newly anointed experts writing articles about becoming demand driven. They are piling up on my desk. As a writer of research on demand-driven supply chains for over eight years, I find many amusing. I like the idea that this old concept is gaining new steam; but unfortunately, too few people writing the articles really understand the concepts. Instead, I see a behavior that I call bait and switch. The article is written and the story is spun, but the solution offered is a supply-centric solution based on yesterday’s technology. The original principles of a value network that can sense, shape and translate demand with near-zero latency are being lost in the fog.

Why is this happening? The market for large ERP programs is slowing. The gravy train is coming to an end. User satisfaction with planning systems is low. The market shift is towards analytics, but this new market is confusing. It is still early.

Supply chain leaders feel stuck. Their current technologies are inadequate. They are struggling to manage the challenges of simultaneously driving growth, improving profitability, absorbing complexity and reducing cycles. Frustration is mounting. The concepts surrounding demand driven sound right. Companies are interested. As a result, articles are written proclaiming demand-driven results and then the reader is given a solution that is anything but demand driven. Each time that they are published, the Shaman sighs and chuckles in her little apartment in Baltimore.

The first definition of Demand-driven Supply Chains was pushed into the market by AMR Research (now part of the Gartner Group) in 2004. What the articles that flood the market do not tell you about is:

Slow Adoption. Eight years after the evolution of the concept, there are only a few companies making progress on demand-driven concepts. If asked, I would only cast a vote for the demand driven work that is happening at Cisco Systems, General Mills, Pfizer, PepsiCo, Procter & Gamble, and Kimberly Clark. Each of these pioneers would tell you that it is hard work. No one company—technology provider or supply chain line of business leader—has figured it out. Most have implemented the concepts in parts of their businesses. The most successful have used best-of-breed solutions. (We will show how the adoption of these practices have improved market capitalization in our webinar on April 25^th. Join us for the launch of the Supply Chain Index.)
Hard Work. Many companies that have started demand-driven initiatives have abandoned them. The rewards are high, but the cultural barriers are difficult. They are sometimes insurmountable.
Misunderstood. A frequent reason for failure is a lack of understanding of the basic concepts of demand latency, sensing, shaping and translation. As a result, many well-intentioned companies have mislabeled supply-centric initiatives as demand driven.
Demand-driven Concepts Are Not an Evolution. They are step change requiring either the redeployment of existing technologies or the purchase of new platforms. Details matter. Data model structures are the difference between success and failure. Today’s architectures are inside-out not outside-in, and to be demand driven, the process focus needs to change. This often means a reimplementation of APS, and a change in focus for the company.
Be Careful of the Word “Integrated.” The promise of the integrated supply chain sounds attractive, but tight integration of the supply chain has reduced agility and made the supply chain response less flexible. Today, due to tight integration, only 10% of companies are satisfied with their “what-if” modeling capabilities, and only 23% can model supply chain profitability. Both are essential. The goal should be synchronized demand and supply with role-based dashboards, workbenches and optimization engines that allow users to work across the supply chain. To accomplish this, demand has to be sensed, shaped and translated.
Change Management Issues Are High. The largest challenges are in the redefinition of process flows from inside-out to outside-in. Demand-driven concepts are expansive they extend from the customer’s customer to the supplier’s supplier, but the areas of sales and procurement are often very resistant to the demand-driven concepts. To do this companies need an end-to-end leader. Only 1% of companies have defined this role.
Most Have Defined “Demand” too Narrowly. Demand in the demand-driven network is about much, much more than forecasting.
It Needs to Be About More than Demand. Supply is volatile. Shortages abound. It is for this reason that I have defined market-driven value network processes in the book Bricks Matter. The definition is: An adaptive network focused on a value-based outcome that senses and translates market changes (buy- and sell-side markets) bidirectionally with near real-time data latency to align sell, deliver, make and sourcing operations.

As we move forward, there are no silver bullets. There are no well-defined industry platforms. I coach companies to take the following steps.

List All the Forms of Demand Data and Map Its Usage. This includes unstructured text data (this can include data from social networks, ratings and reviews from blogs and websites, and channel data), weather data, and transactional data. Some supply chains also have inputs from the evolving world of the Internet of Things where machine sensors transmit frequent streams of data. This is the case for heavy equipment, vending machines in the field, and smart shelves.
Map the Process Outside-in from the Channel Back. Start with the channel, and map the requirements of the channel. Evaluate how to reduce latency by using downstream data to sense demand and implementing demand translation technologies to make the downstream data usable. These technologies include the work by Terra Technology and ToolsGroup. (While SAP has purchased SmartOps and is marketing a demand sensing/demand translation offering, I have not been able to validate the solution through references. It is clear that math matters. Neither Oracle or JDA references were able to meet the challenges in the field.)
Build What-if Analytics. Technologies like Kinaxis and Steelwedge are frequently undervalued for supply chain visualization and what-if analytics. Cloud-based analytics for sourcing and the management of supplier networks are evolving and should be embraced. Consider solutions from GHX, Elemica, E2Open and SCA Technologies to improve end-t0-end visibility.
Design the Network. Actively design the network with clear push/pull boundaries and right size buffers. The strongest solutions in the market continue to be Llamasoft, Insights and JDA. And, the strongest consulting partner for network design is Chainalytics. I also like the work that is happening at the Demand-driven Institute on the redesign of manufacturing to be more demand driven.
Focus on End-to-End Orchestration. Build processes that enable the alignment between demand- and market-shaping levers to orchestrate end-to-end bidirectionally through outside-in horizontal processes. Actively orchestrate demand through shaping, and the supply response through the market-driven levers below. Charter the end-to-end process manager to orchestrate a market-driven value network that connects and orchestrates bidirectionally between markets.
Use New Forms of Data. Embrace Digital. Think long-term on the use of digital signals. Map the use of mobile/social and eCommerce on the future of the digital path to purchase, and the impact of machine-to-machine interfaces in manufacturing on digital manufacturing. It excites me to see the revitalization of manufacturing applications to be more demand driven based on the Internet of Things in process industries and 3D printing in the discrete industries.
Experiment with Best-of-breed Technologies. This innovation is not going to come from the large players. It will require large manufacturers to take risks with smaller players like Applied Predictive Technologies, Enterra Solutions, Orchestro, Retail Solutions, and Signal Demand.
There Is No Substitute for Leadership. Success happens when there is an inspired leader that believes that the supply chain needs to own the supply chain from the consumer/user to the supplier’s supplier.
Focus on Building Horizontal Processes. These bridge the gaps between functions. The four main horizontal processes to tackle are revenue management, sales and operations planning, supplier development, and corporate social responsibility.

In summary, progress on supply chain cycles and margins, and balancing the trade-offs of complexity, has stalled. Over the last decade, the only metric that we have improved is revenue/employee (see below). Leaders do not know what to do to power themselves off of this horizontal plateau. The gap between what we have and what we need has widened.

Processes are evolving. Technologies are changing. There is no clear definition of what drives value. In an effort to try to drive progress, the system integrators and technology providers have started providing their own research. The problem is that it is not OBJECTIVE, and lacks research rigor. It is largely self-serving and is confusing the market.

As the research firms have consolidated, primary research is lacking. Consortia research has not filled the void. While these organizations have the reach, the organizations of APICS, CSCMP, GMA and SCOR lack the understanding of research processes.

I want to help. It is for this reason, that I have built this new company, Supply Chain Insights. I believe that supply chain matters. I can see the impact on balance sheets through the successful implementation of demand-driven concepts; and it’s even greater when the concepts are balanced by market-driven levers. I look forward to sharing these with you in our Supply Chain Index webinar. While it does not provide all of the answers, I look forward to sharing what we are seeing. We want to stir a healthy debate in the market, and would love to have you join us.

One of the things that you will never find us doing is promoting a bait-and-switch program. Our goal is to help supply chain leaders gain first mover advantage.

How Do We Heal the Healthcare Value Network?

by Lora Cecere on February 18, 2013 · 0 comments

Last week, at Supply Chain Insights, as part of our monthly webinar series, I hosted a panel discussion on the current state of the healthcare value network. Hosting this webinar series is one of the favorite parts of my job as the Founder of Supply Chain Insights.

On this webinar, we shared data that we have collected on financial metrics for the healthcare value network (see figure 1) and we asked a panel of Karen Conway from GHX; Ken Thomas, previously of Eli Lilly, and now the founder of Taith Group; and Roddy Martin, previously a Vice President at AMR Research and now at Accenture, the question ”How do we Heal the Healthcare Value Chain?” In this blog, I share the insights on the current state of the healthcare value chain and the recommendations of the panelists. (I would also like to encourage supply chain professionals in the healthcare value chain to share their opinions by filling out our survey on the current state of the healthcare value chain. This data will be combined with the financial ratio data and published in an Open Content Research report in April on the Supply Chain Insights Community. Here is a link to the healthcare research study in the field.

Current State:

Costs are rising. Power is shifting to the hospital. Pharmaceutical companies are struggling with falling margins and rising inventories. Over the last decade, neither the pharmaceutical nor medical device manufacturer has been able to drive the revenue/employee productivity gains of their comparative peer groups. They each lag in their understanding of supply chain excellence, and are now struggling to build effective supply chain teams.

In our work with pharmaceutical companies, most executives wince when we mention inventories. However, most do not realize that the Days of Inventory for the industry has grown 33%. The level of growth is a surprise. For most, it is a sore point. When the panelists were asked why the level of inventory for the average pharmaceutical companies is 3X higher than their process peers in food, consumer products or chemical companies, Ken Thomas spoke of the need for high service and the commitment for patient care, but he also agreed that the current levels of inventory are not affordable. On the webinar, when the participants were polled on the reason for rising inventories, over 50% of respondents indicated that it was the lack of an executive understanding of supply chain excellence. I think both factors are at play.

Figure 2 contrasts the state of cash-to-cash cycles between 2000-2003 and 2008-2011. While hospital inventories are falling, the inventories of suppliers are rising. Unlike other industries that have lengthened “days of payables” and squeezed suppliers on payment, this is not the case in this value network. Instead, the primary driver of the longer cash to cash cycles for suppliers is simple. It is rising inventory levels.

What Can We Do?

The winds of change are gathering. Legislation and compliance is increasing. Big Pharma is facing a patent cliff (more drugs are coming off of patent protection than are gaining patent protection.) It is a complex problem. Change will not come quickly. For most companies in the healthcare value chain, supply chain processes are still evolving.

It is time to step up and drive change. All segments of the healthcare value chain lag in their understanding of supply chain leadership. In the past three decades of supply chain transformation, the greatest shifts happened through leaders. A.G. Lafley and Keith Harrison at Procter & Gamble. Angel Mendez at Cisco. Michael Dell at Dell. Sam Walton at Walmart. I feel that it is time for leaders in the healthcare value chain to stand-up and redefine the supply chain processes to make a difference.

For those considering driving this difference, the panelists on the webinar offered three pieces of wisdom for the healthcare executive:

Redefine Relationships. Focus on Value-based Outcomes. The industry has shifted from suppliers selling directly to the physician to a more structured selling approach, i.e. selling directly to the healthcare organization or Global Purchasing Organization (GPO) for a group of hospitals. This major transition has happened over the past ten years.

Today, most of the ” relationships” in the healthcare value chain are transactional: a buy/sell relationship between the head of procurement and the seller of materials. They are not based on value-based outcomes of the patient. The evolution of outcomes based on value-based engineering programs is still in its infancy. Leaders in supplier organizations can begin the transformation of selling relationships by redefining sales incentives from volume-based incentives to a value-based outcome incentive. They can also start measuring cost-to-serve and applying Lean principles to improving the extended supply chain.

Improve Visibility. One of the major obstacles to improving the healthcare value chain is the lack of downstream, or channel, visibility. This is an opportunity in the redefinition of selling relationships. In the redefinition of buy/sell relationships, suppliers can work with hospitals to improve visibility in the channel and drive integration with hospital systems. For example, on the webinar, Roddy Martin spoke on how Baxter had used RFID to improve visibility to the cabinets in the operating theatres to get a real-time read of the visibility of demand. This enables the development of a “pull-based replenishment signal” and the use of real-time demand data. Over history, the major shifts of value networks have been led by individual companies. It is no coincidence that Walmart improved the consumer value network through the building of RetailLink, or P&G drove the adoption of the bar code through the formation of what is now GS1.

Focus Outside-in through Horizontal Processes. Today’s supply chain systems are inside-out, they are not outside-in. The introduction of standards for medical device companies is a rallying cry for outside-in processes. The standards enable a “common language” and the mapping of the processes outside-in (from the patient back) enables the maximization or use of the data.

At Supply Chain Insights, we are committed to the use of our research as a backdrop for supply chain professionals everywhere to have great discussions. It is for this reason, that we have adopted a format that takes a piece of recent research and asks supply chain professionals to have a spirited debate on a topic. It is a continuation of our free webinar series that we host monthly at Supply Chain Insights.

Here is an on-demand link to replay the healthcare webinar.

We would like to hear from you! If you give us ten minutes to take our study, we will share the results in a one hour call with your organization.

Here are links to the studies:

Corporate Social Responsibility

Healthcare