Supply chain planning

This week, I will speak at Llamasoft’s conference on improving supply chain network design. I am also busy this Saturday writing reports for our Tuesday newsletter. One of the reports that I am writing is on the state of Supply Chain Planning (SCP). While other analysts may put the vendors into a four-square evaluation model and declare it magic, I think that this approach does a disservice to the industry. Why do I feel this way?  The SCP market is a fruit basket of vendors with very different capabilities. It cannot be adequately equated in a four-box model. The capabilities are just too different. (Bear with me on this rant. This old gal has built hundreds of four-box models in her decade of being an analyst.)

By and large, no one is happy with SCP as it exists today. In the recent study of the Voice of the Supply Chain Leader, we find that the gaps are large, and growing. As shown in Figure 1, the gaps with the major categories of supply chain planning are great. I recently presented this slide to a group of consultants, and a person that I love in the audience raised his hand and said, “Lora, let’s just face it. No one likes what we have today. This slide supports that what we have today just sucks. What can we do about it?”

Figure 1.

My advice to him, and to all my readers, is to focus on what drives value. The gaps in our technologies are a barrier, but should not stop us from redesigning to improve performance.

While innovation has slowed in Enterprise Resource Plannning (ERP) and Supply Chain Planning, I am bullish about some of the innovation coming from the supply chain network design technology providers like JDA, Llamasoft and Solvoyo. These tools are now enabling new capabilities to make trade-offs between volume and cost while helping companies to redesign flows and decoupling points. I also think that Quintiq’s leadership in concurrent planning to solve new problems is promising, especially in the design of transportation and inventory flows.

Interview of a Supply Chain Leader: Redesigning for Value

While technology is both an enabler and a current barrier, for me, the journey is less about technology and more about leadership. One of my favorite interviews on this topic, that I recently completed for my upcoming book Metrics That Matter, was with Amway’s Chief Supply Chain Officer George Calvert. He is the head of operations for the direct-selling leader of health, beauty and home care products. They had just implemented a number of changes, and were proud of their progress.

Here are some excerpts from the interview:

Tell me about yourself.

My path into managing operations is different than most because of my background in chemistry. The path I took came through R&D where I had many different roles including R&D management and quality assurance. When my boss retired, I took over the combined functions of R&D and supply chain operations. You don’t often see R&D and operations together, but for me it is a perfect fit.

My skill set is really more focused on pattern recognition, and operations is a numbers-based business, making that easy to do in Supply Chain. I look at patterns to construct business models to deliver both on efficiency and effectiveness.

What have you learned?

Before we took on the supply chain redesign, we had a whole series of ideas that we thought we should be doing. When we started, we developed this big list of ideas on things that we could do. Turns out many of the ideas were wrong because they were not based in fact, just perceptions.

It wasn’t that easy. In researching the ideas, like moving a business to the point of sale, we discovered that the base numbers of the business revealed new strategies. For example, we discovered that transportation and duties are 5x the expense of labor and overhead. This is a very different mix of inputs than the garment industry where labor would be a major driver. The opportunity was in reducing the transportation and duty cost, not in moving to low-cost labor markets.

In prestige beauty and nutritional supplements, the cost to ship the product is minuscule. The product is light, compact, and high value.  However, this is a different story in home care where an item is mostly water. As a result, we had to analyze what the drivers were of the supply chain cost. And what the opportunities were by business line that were unique to our model.

We found that in addition to each country’s nuances, each business line had specific requirements. For example, people want prestige beauty from the US, Europe or Japan. Customers are not looking for prestige beauty from the emerging economies. Take another example – few people know where their TV was made, but the buyer cares greatly about the reliability of that product. Product reliability, in the case of durable goods, is the driving factor for product satisfaction. So, when you are designing your supply chain, it is just as important to analyze distribution costs, material variability, and the costs of labor, along with the perception that the consumer has with the country of origin. Through this analysis, you are able to develop an effective and efficient supply chain.

How did you redesign to improve value?

It took six to nine months to look at the numbers. To do this, great modeling is critical. The strength of your decisions is directly dependent on having accurate data going in. For example, we produce in Vietnam and China. We produce there because the regulations say that you need to manufacture there to sell there. Vietnam is a low-cost market to produce products. Our factory is efficient; yet, it costs us more to manufacture the product in Vietnam because of a lack of local raw materials – compared to manufacturing it in the US, shipping it, and paying duties on a landed basis. You have to have a model that helps you to see the interrelationships. Free Trade agreements also matter. In our business, there is not one lever, there are 20 levers.

Our operations serve the globe. We are in 100 countries and territories around the world. Our activities are broad. We are engaged in everything from raising crops to making home deliveries.

Service level is our most important metric. If someone is building an Amway business, they may choose to primarily focus on selling water treatment systems.  If we do not have them in stock and available, that Amway Business Owner is out of business. We must be responsive to demand, and be diligent to reduce demand interruptions. We must also have a consistent supply of quality product. As a result, our focus is to make it right the first time. Reliability in both of these metrics is critical.

Most companies inherit supply chains. To a great extent, we inherited the supply chain that we had. When we got into it, some things did not make sense. If you are not going to add value, why do it yourself? The question we always asked was,  “Why?” For example, we made our own corrugated packaging. The equipment was 20 years old. It did not make sense, so we outsourced it and focused our efforts on what we are good at – nutrition, beauty and home/personal care products.

We invested, where it made sense. We grow and process many of our own crops. Our investment focus shifted to getting the right seed, controlling the planting, and ensuring quality conversion all the way through finished products. We have three large-scale farms heavily invested in the production of botanicals and an ongoing $332 million manufacturing expansion supporting the many new nutrition plants needed to support our growth.

What suggestions do you have for others?

Communication to the work teams is critical. Go slow and be clear. Don’t expect that something that took you nine months to figure out is going to be effectively communicated in one meeting. It has to be communicated in the right way. Our restructuring of operations meant a lot of communication. We believe in transparency, and we told people why we were making the decision, and shared the drivers. We were going to invest where it made sense.

My second suggestion to other supply chain leaders is to seek to understand your model and the fundamental drivers of your supply chain. Find out what it is. Is it labor? Is it duties, or is it transportation? Actively define both efficiency and effectiveness.

We started with consultants, but we kicked them out after a few days. I trusted my team to know the business. Collecting the data is not easy. I suspect that many companies have great capabilities to get data, but we did not. We spent the time to overcome our data challenges. We made better decisions doing it ourselves because we know the business. We were not impatient. We asked ourselves hard questions. I think that our results are better because of it.

Summary

I love George’s wisdom in this interview. I especially value his quote, “Communication to the work teams is critical. Go slow and be clear. Don’t expect that something that took you nine months to figure out is going to be effectively communicated in one meeting.” When he said that in the interview, I softly whispered, “Amen” under my breath.

In closing, I want to thank all of my readers for their help during my 2 1/2  year journey as the founder of Supply Chain Insights. On this Saturday, I will write our 45th report, and ready all of our blogs for our monthly newsletter. It is a monthly cadence of working on what we hope you believe is insightful research. It is never pay-for-play, and it is always available for you, and your teams, in front of the firewall. We believe that research should be actionable, independent, and accessible.

It is a process where you give to us and we give back to you. In the process, we keep all of our responses and contacts confidential. Interviews like this one with George Calvert are based on a detailed process of interviews, edits and approvals. We do not take this process lightly. We value the input and support of supply chain leaders. We want to give supply chain leaders a voice through our webcasts, blogs and podcasts. (We now have 95 podcasts available through iTunes and Stitcher.)

We are on countdown for our Global Summit of 230 supply chain leaders that is limited to 15% attendance of technology and consulting providers. It is designed for supply chain leaders to network with supply chain leaders. It is deliberately located at the Phoenician to enable the networking in a beautiful place where you can hike, golf and even complete a 5K with other supply chain leaders.

During the countdown for the Summit, we are completing research studies on Big Data Analytics, Supply Chain Talent, Supply Chain Planning, and Digital Manufacturing. If you complete one of our surveys, we will share the results with you and your team in a one hour call.

We are also releasing the work that we are doing on the Supply Chain Index in a series of reports and webinars. It is a methodology that is applicable to all public companies to judge supply chain improvement against peers. We think that the definition of a measuring stick is important. In the countdown for the summer, we will be getting your input to understand which supply chains have made the most progress for the period of 2009-2012. In the spirit of open research, as we learn, we share it with you. We would love to hear from you on the methodology.

This week, I will be in Chicago on Monday and Ann Arbor at the end of the week. Next week, it will be time in New York. I would love to catch up and hear your thoughts on what we are doing. Until next time….

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.