Market-Driven

Let the Design Begin…

by Lora Cecere on June 29, 2014 · 0 comments

This week, I spoke at the Llamasoft Summercon Conference. It was held at the University of Michigan in Ann Arbor. The conference was low-key. The University building was old, and well-worn. The doors hung precariously on their hinges, and the steps were uneven. The shelves needed a good dusting and the air was musty. It was far a cry from the neon and glitzy hotels of Las Vegas where I am often speaking.

On Wednesday, the theatre at the Michigan League was bursting at the seams to hold over 500 attendees. The theatre was packed. The attendees were sitting on the edge of their seats to hear about the next release of Llamasoft software. As I listened, I began to reflect.

Reflections

I remember the first time that I met the founders, Don and Toby. Don was quirky, and the company story was different. They came to Boston to tell us the story of Llamasoft. They also brought me and my colleagues at AMR Research stuffed Llamas. We laughed, and felt a bit silly, leaving the conference room holding our new furry tchotchkes. “What a crazy name! I wonder if they will make it?” we would exclaim.  In a fit of giggles, we slapped each other on the shoulder in the coffee room and kibitzed, “Can you believe they brought US these crazy animals?” And from time to time, when we were behind deadline, and teasing each other about the looming weekly post, we would throw our llamas from cubicle to cubicle.

Figure 1.

Design as a Standalone Process

Today, Llamasoft, and the management of design processes, is no laughing matter. The company has skillfully navigated the market to survive and now thrive.

Ten years ago Llamasoft was an unlikely contender. The market for network design tools was growing at a moderate rate, and most of the market had invested in technologies from either i2 Technologies (then termed i2 Strategist) or Logictools.  With the purchase of i2 by JDA, and Logictools by IBM, manufacturing companies serious about network design started looking for a company, with a well-established community, that was more serious about network design. The reason?

Today, supply chain design has become a process all to its own. In mature companies, it is no longer under the shadow of planning. As shown in the process flow, the design of the supply chain has become a closed loop process with planning and execution.  Why? There are seven reasons:

  1.  Customer Service. Demand and Supply Variability. With the rise in demand and supply visibility, it mattered more.  It could no longer be just about inventory levels. Instead, the design needed to be more encompassing. To balance new requirements for customer service with a wider product platform, the focus needed to shift to be on the form (raw, semi-finished goods, and finished products) and function (design of cycle inventories, seasonal builds, safety stock and customized product strategies) of inventory. This analysis needed to be completed monthly and fed to newer forms of inventory optimization technologies.
  2. Mergers and Acquisitions and the Management of Global Operations. With mergers and acquisitions, and the management of global operations, it could no longer be an ad hoc process. Instead, it needed to be steps of continuous designs. As labor costs in China increased, the network needed to be more flexible. With the shifts in tax structures, the network design needed to morph. As a result, the financial and strategy teams became more interested.
  3. Ensuring Profitability. As Sales and Operations Planning became more important, supply chain design became more systemic. The goal was to translate volume and unit-based data into a profitability “what-if” analysis. The advanced Llamasoft user has a model on a computer tablet (Sherpa product) that enables the visualization of S&OP trade-offs within the S&OP meeting.
  4. Criticality of Corporate Social Responsibility. As corporate sustainability initiatives became more important, the design for carbon needed to be determined. As shown in figure 1, the gap in measurement and design for carbon is still a major opportunity.
  5. Resiliency. To build the right buffers in the supply chain, it was no longer just about designing physical flows and buildings; instead, the focus was shifting to designing process flows and decoupling points.
  6. Value-based Analysis. While discrete industries are good at the management of cycles, and process industries are good at the design of flows, as companies worked on Lean programs for value-stream analysis, they found that it was about the design of flows and cycles together. Network design tools were essential to manage the improvement of both together.
  7. Cost-to-Serve and Top-to-Top Meetings. The largest opportunities for companies lie in the gaps between the links of the supply chain. As companies attempted to implement new programs, downstream customers asked for suppliers to redesign for value.

It does not look the same at all companies; and no company is actively modeling against each of these goals. In fact, design as a standalone process is still evolving. In our research at Supply Chain Insights, we find that one in three companies greater than $1 billion in revenue has a supply chain center excellence; but only 50% are satisfied with their capabilities.

The gap is tough. Most companies are still struggling with “what good looks like” and “what defines supply chain excellence.” Most companies do not know how to manage this thing called supply chain, that is a complex system with increasing complexity. What they do know is that supply chain design helps.

Design Processes Grow Up

What is clear is that more and more companies are not willing to inherit their supply chains. They are on the journey of active design. The design of cycles and flows is becoming more important. It is serious business. So, as I cleared my throat to present at the Summercon conference, I looked into the eyes of over 500 supply chain professionals. It was the  gaze of a serious crowd.

I smiled as I began to present the story of the “Metrics that Matter.” I was excited to share that companies that more actively design their supply chains outperform against their peer group on the Supply Chain Index. I encouraged them to be aggressive.

I look forward to writing their stories…. I am convinced from three years of work on the Supply Chain Index that it matters.

Was Integrated Planning a Hoax?

by Lora Cecere on June 20, 2014 · 8 comments

Hoax: An act intended to deceive or trick.

Integrated Planning: Tight Coupling of Enterprise Resource Planning (ERP) to Supply Chain Planning (SCP)

Was it intentional? Or accidental? We will never know. However, what is clear from our recent study of 73 manufacturers using supply chain planning is that companies using best-of-breed solutions implement faster, achieve a quicker Return-on-Investment (ROI), and are more satisfied. When companies tell me that they need to exchange their current Supply Chain Planning (SCP) from a best-of-breed provider to get a leg-up, I ask, “Why?” It makes no sense to me. In this post, I want to make my argument and stir a debate.

Let’s start with a definition. The term integrated planning, as used in this blog, defines the relationship between Enterprise Resource Planning (ERP ) and Supply Chain Planning (SCP). (It should not be confused with the term Integrated Business Planning (IBP) which is the process and technology integration of business and supply planning in S&OP.) Over the last decade, many supply chain experts advocated that tighter integration of SCP with ERP would deliver higher value. However, this is not supported by the facts of a recent study. (At Supply Chain Insights, we conduct twenty quantitative studies a year to understand the impact of technology and process decisions on business results. This is one of the studies in this series.)

 

Background: My Personal Experience

In the period of 1985-2000, the SCP market was defined by a list of best-of-breed vendors that included names like American Software, Chesapeake, Demantra, Fygir, i2 Technologies, Logility, Manugistics, Mercia, Numetrix, Red Pepper…. The list is long, and most are history. Today, in many organizations, these solutions are legacy.

The SCP market has consolidated. These companies were merged into other entities and/or changed their names. JDA acquired Manugistics and i2 Technologies; Fygir and Mercia rolled up into the INFOR platform, and Oracle combined the assets of Demantra, Red Pepper, and Numetrix through their multiple acquisitions. Webplan changed names to Kinaxis. Only Logility and American Software have the same name and business structure. We now have new technology players entering the market like AIMMS, Enterra Solutions, OM Partners, Quintiq, ToolsGroup, and Terra Technology. For many, it is confusing. It keeps old gals like me in business.

The period of 2000-2010 was turbulent for these best-of-breed APS technologies. Their available market contracted. There were several forces:

  • M&A: Through many mergers and acquisitions, the available market for solutions shrunk. This is a barrier for innovation.
  • Competition: The aggressive marketing of the Enterprise Resource Planning (ERP) vendors introducing planning suites (led by SAP with a product named SAP APO) took the market off course. As SAP APO skyrocketed to capture the dominant market share, the best-of-breed vendors could not shake the perception that an “integrated solution” was better. It did not matter that most of them had integrated to SAP suites for over a decade.

During this time, I worked for Manugistics. As I watched the hype of “integrated planning” swell, I asked, “Why?” It did not make sense to me. After Manugistics, I worked for two analyst firms; Gartner and AMR Research, and I continued to question if the extended ERP platform that included SCP delivered greater value. I did not see it. The implementations were longer, the purchase costs were higher, and the functionality was less robust and lacking flexibility. Yet, the positive market perception continued. It was largely sustained by consulting partners that made more money on the implementation of larger, and more costly projects of less capable solutions.

During this period of time, I tried to highlight the gap in my writing. However, it is tough for an analyst to take a stand against the larger ERP vendors. The ERP public relations machines are mighty; and they invest heavily in the larger, more established analyst firms. As a result, it is hard to take a tough stand in the more established analyst worlds. Not so today, I am independent. I can voice the truth. I can call a spade a spade. I have raised the ire of both Oracle and SAP multiple times in an effort to help businesses identify the best partner for SCP to propel their supply chains forward.

 Study Results

In early 2014, using the principles of open research, we at Supply Chain Insights hosted a study on Supply Chain Planning. We currently have 73 company respondents, representing 133 planning instances. We have left the study open, and would love to hear from you. If you share the data from your implementation, we promise to never share your or your company’s name. All of the results are reported in aggregate. Here are some of the results that we have collected so far:

  • Extended ERP Solution Implementations Are Longer with a Less Favorable ROI. The implementations of extended ERP solutions for demand and tactical supply planning is 20 months while the best-of-breed solution deployments are averaging 11 months. (The predominate ERP SCP solution for the respondent in the survey is SAP APO. There are few implementations of Infor and Oracle.) The time to achieve ROI averages seven months for a best-of-breed provider and over 13 months for the extended ERP solution.
  •  Demand Planning Implementations Are Faster with Fewer Issues Than Supply. Demand planning is less industry specific than supply. While 67% of the demand planning implementations were at and under budget, 55% of the implementations of supply planning are over budget. My take? Supply planning requires a more detailed understanding of SCP. The models are industry specific. These solutions require greater insights and understanding by the manufacturer and implementing company. Over the last decade, many consulting partners have not been equal to this challenge.
  •  Does Integrated Planning Make Sense? Really? The average company greater than $5 billion has five ERP instances, three instances of demand, and three instances of supply planning. The enterprise environment is complex. It is not as simple as one ERP instance connected to a single SCP implementation. As a result, there is a greater and greater need for a visualization layer and planning master data system. As a result, the basic tenants and assumptions of integrated planning dissolve and become less relevant. The argument is becoming less and less germane.
  • Organizations Are Not Static. If this is not complicated enough, just when many IT managers build a system for tightly integrated planning, there is an M&A event making the IT environment even more heterogeneous. In addition, with over 30% of manufacturing and 55% of logistics outsourced, it is now a business network, not an enterprise, planning problem.
  • Ability to Use Data. While the extended ERP solution architectures make look nice on paper, the reality is that line-of-business users struggle to use the data for “what-if” analysis or business analytics. The supporting analytics around the extended ERP packages have not been equal to the business requirements.

What Should You Do?

This post is part of my series of “Do No Harm” which is a focused series to help line-of-business leaders get their supply chains unstuck. (In prior posts, I have written how nine out of ten supply chains are stuck in their ability to improve operating performance on the Effective Frontier of managing growth, profitability, inventory turns and business complexity.) To move forward, I recommend the following:

-Recognize the Facts. Each of the ERP providers is at a very different place.

  • SAP. The SAP team has built an incredible system of record to enable flows from ERP to SCP, but has failed to deliver a solution to deliver SCP planning excellence. In companies with an SAP APO environment, companies should use SAP APO as a system of record and buy other optimization solutions that are industry-specific to improve decision support. In addition, line-of-business leaders should push for clarity on the SCP footprint and the supporting business intelligence strategy to ensure that they can get data in, do “what-if” analysis, and get data out. Question the consultants that come to your door stating that, “… 80% is good enough.” The study clearly shows that it is not.
  • Oracle. The Oracle solution is strong in demand and transportation, but weak in tactical supply and production planning. It is not a good system of record. Oracle has cobbled together the acquired assets from the SCP market. Oracle has delivered neither a system of record, nor differentiation. It is integrated only by the words on the contract. Instead, what you have is one throat to choke; but, by and large, the references are unfavorable.
  • Infor. In contrast, Infor has done a better job. The ION integration layer attempts to provide a system of record and the many SCP solutions acquired through their mergers are being rolled up into a framework that is starting to make progress.

-Don’t Wait. A ROI in less than a year in today’s market is an opportunity. Why wait?

-Use Talent from the Technology Provider to Implement. The participants in the study that use consulting talent from the solution providers are more satisfied than those that implement using larger consulting firms. Use the large firms for program management and change management, but let the SCP providers tune  and implement the technologies in the SCP market.

Next Steps:

Is this a fluke, or a market reality? We are trying to gather more data. We would love to hear from you. If you fill out our survey on integrated planning, we will be glad to share the results with you and your team. Your responses on our survey are always kept confidential. We do not share the survey results of any individual. All of the responses are reported in aggregate. In addition, with more responses, we want to correlate these results to the corporate financial ratios to see the impact of supply chain planning choice. We hope to hear from you!

In addition, at our Global Supply Chain Summit in Scottsdale Arizona, on September 10th and 11th, we will have a facilitated breakout session for business leaders to network with each other on the future of demand and supply planning. It is a closed-door session with no technology or consulting partners. With SAP APO moving to a HANA architecture, the business leaders have requested this, and we want to help. We would love to see you there!

This week, we also kicked off our Supply Chain Planning Benchmarking Service with a webinar yesterday. We have five customers signed up and we are hoping for another twenty. We want to kick-off this project during the summer to gather more data around “What Drives Supply Chain Planning Excellence.”  Let us know if you are interested.