Supply chain planning

Time to Paint Outside the LInes

by Lora Cecere on July 7, 2012 · 3 comments

As a creative kid, I never wanted to paint within the lines. Did you? I found that it was just too confining. While my mother knew that the teacher’s goal was to help me develop fine motor skills, she let me race past the boundaries to make the picture my masterpiece… my expression of the day. She never forced me to paint within the lines.

As an analyst, in an attempt to explain supply chain planning to the potential buyer, I have not done as well.  I have unwittingly asked supply chain leaders to paint within the lines. The origins were well intended. In an effort to better explain technologies, I defined application areas. I drew lines and boxes and defined taxonomies. I rated vendors within these frameworks. These diagrams provided order in a crazy world. This was done in an attempt to provide clarity; but today, I find what I built ten years ago too confining. However, I still see them being used. I have unknowingly constrained thinking.

The analyst community traditionally penalizes technology vendors that do not fit into “nice and neat”  boxes. We unknowingly want the vendors to stay within the lines, and then ironically complain that there is no “innovation.”  (Admittedly, I am part of a tough group of characters.)

Let’s take a look at history. I was part of a group at Gartner Group that put Ariba on Problem Watch in 2001 (http://www.marketwatch.com/story/ariba-rebounds-after-it-replies-to-negative-report). We predicted that this builder of procurement networks would struggle and be acquired in 2002. We were wrong, Ariba had a good run for a decade after the report predicted its demise. The company was acquired in 2012 by SAP for 4.3 billion after establishing cloud-based networks for procurement. Cloud and networks were new concepts in 2001. They went to the cloud and painted outside the lines.

In a similar way, I feel that this bias limited the potential of vendors like  Kinaxis.  The overzealous coverage of i2 Technologies by AMR Research did not allow for others to shine, and Kinaxis did not fit into the “nice and neat” boxes. Quite frankly, understanding the value proposition of new technology vendors is hard.  As analysts we have to sort through a lot of hype to find out what is real. Many come and go. It took me two years to understand the value proposition of Terra Technology. I was dubious when I first encountered the founders of Open Ratings that was then bought by Dun and Bradstreet. I was also skeptical when I first met the founder of Enterra Solutions. All of these vendors have had the courage to paint outside the lines.

Recently, I was visiting the offices of a major ERP/APS technology provider. They were proud to show me some new software that ran the old definitions of supply chain planning faster in memory. They thought that I would be excited, and were a bit surprised when I was not. Initially the meeting was contentious, then they mellowed when I asked them, like I ask you, to paint outside the lines. As I drew what I think is the future of supply chain planning, the drawings were contested by the group; but as they left the room, they took pictures of the drawings before they erased the board for the next meetings. They wanted to be sure that they had them.

In this blog, I want to give my readers permission, even encouragement, to paint outside the lines.  The traditional definitions of supply chain planning are being redefined. The business problem has changed and new technologies enable new approaches. With the evolution of Big Data systems, new forms of analytics and greater power of in-memory processing, old architectures are antiquating. I believe that it is time for the old and traditional architectures to give way, and for gals like me to try to paint new lines and boxes within new frameworks. In this blog, I contrast the old and new views.

An Aside

As I have traveled the country and talked about the exciting things we are cooking up at Supply Chain Insights , I have had a lot of  push back on the name Supply Chain Insights.  This happens most often in Europe or in discussions with Indian system integrators.

As I describe the research agenda of my new company, and the aggressive publishing schedule, their standard comment is “You are covering so much more than supply chain.  Why did you name the company with such a limiting definition by using the term supply chain?” 

I smile. And then I respond, “I believe that we should be discussing how to connect the customer’s customer to the supplier’s supplier. I believe that we should not be marketing driven, but market driven.  I believe that the vertical processes of sales, marketing, logistics, manufacturing and procurement need to cede and give way to the building of outside-in horizontal processes. The traditional views are too limiting. We have built inflexible inside-out processes that need to transition to outside-in processes to improve sensing and drive an intelligent response. We need to start with the ends of the supply chain (commercial and procurement teams) and work back.  This is my mission.” They smile. Sometimes dubiously….

I know that it is a different world. I am painting outside of the lines again. Their world view is within functional lines that they are comfortable with. I am challenging the hard and fast lines that defined the traditional functional buyer of enterprise applications. I write for the buyer of enterprise applications that is pushing the boundaries.  As a result, I will always paint outside the lines.

The Old Lines

The old lines of supply chain planning were hard and fast.  The traditional supply chain frameworks had a strong focus on vertical process focus.  Supply chain execution (SCE) was only defined as systems – transportation, warehouse management, and order fulfillment– that improved order to cash processes. Demand planning was defined tactically, but lacked an operational component. Demand sensing definitions evolved in the past five years to fill this void to replace rules-based consumption with short-term forecasting processes, but it is not sufficient.  Customer Relationship Management (CRM) has never lived up to its believed potential.  The ends of the supply chain –sales and procurement — are weak links, and a barrier to forging the end-to-end supply chain.  We will never build strong value networks with the current definitions of enterprise applications.

My New Lines

Today, I think the processes need to start outside-in. They need to be constructed from the customer back to the supply chain within the enterprise. The focus needs to be on value-based outcomes.

Long term, I think that the architectures will have a collaborative layer, a transactional layer and will be enriched and supported by a new Business Intelligence (BI) architecture.  Companies will also realize they need to build an inter-enterprise system of record.

The purple areas in the drawing are new forms of analytics that are evolving to help organizations better sense and respond to market shifts. I also believe that in this next decade we will see our current transactional systems (often termed ERP, CRM and SRM) become legacy applications.

Business differentiation will occur through new forms of predictive analytics and pattern recognition that will happen within the new suites of emerging applications by vendors that paint outside the lines.  Look for them in the areas of sentiment analysis, natural language processing, text mining, advanced pattern recognition, rules-based ontologies, and advanced optimization techniques.  I think we will get new sets of “black boxes” that will combine these techniques for the supply chain.

Within the supply chain planning suite within the enterprise, I predict that the new world will be based on analytics.  Demand signal repositories, supply signal repositories and enterprise data warehouses. There will be a shift from transactional systems to Business Intelligence (BI) architectures.  BI will mean much more than rows and columns and reporting. This drawing is aspirational, it is not today’s reality.

There are eight shifts in the drawing that are a major shift from the traditional view portrayed above.

1) Shift from Vertical to Horizontal Processes.   While there has been a resurgence in Sales and Operations Planning (S&OP), there is also slow momentum growing for revenue management and supplier development programs. There is slow realization that CRM and SRM architectures are not sufficient to drive compliance and orchestrate reliable networks. As a result, companies are beginning to invest in three, not one, horizontal processes (definitions listed below): revenue management, S&OP, and Supplier Development.

2) Demand Translation and Demand Orchestration.   With the increasing volatility of commodity markets, companies need to quickly translate demand implications of channel strategies and orchestrate them bidirectionally market-to-market through demand orchestration. In demand orchestration, advanced analytics are used to rationalize customer, product and material strategies to predicted shifts in commodity markets against market potential.  An early example of this type of functionality is Signal Demand in the process industries.  The work by Cargill Beef and Fonterra are case studies to follow closely.

3) Management of the Supply Chain Planning Market -to-Market from Contract-to-Contract. Contract management has not played heavily in supply chain planning.  With the slowing growth and increased market volatility, this is changing.  In the future, I believe that text mining and natural language processing will be used to translate contract terms to demand orchestration processes. Early work in this area is seen in contract compliance by  Enterra Solutions’ work at Conair and Newell Rubbermaid.

4) Completion of the Demand Management Footprint.  Traditional demand planning was defined as a tactical planning process with no tie to market execution.  As demand sensing capabilities are replacing rules-based consumption, there is the evolution of a demand execution footprint complete with forecast value-added analysis (FVA) to evaluate continuous improvement programs in demand management.  Look for new footprints in this area from SAS and Terra Technology.

5) Building of Demand and Supply Sensing Capabilities. The use of unstructured and structured data to sense demand and supply capabilities will first evolve through Big Data Services and then be integrated with enterprise data repositories.  Bazaarvoice’s listening service for ratings and reviews and Dun & Bradstreet’s listening for supplier performance are early examples of this type of service.

6) New Capabilities for Demand and Supply Execution. Long term, both demand and supply execution and functionality for demand and supply networks will be constructed from the outside-in. This is where the average company will first encounter Big Data concepts as they try to fuse streaming data, geolocation and mobile data, and large transactional data sets.  Kinaxis’ work in in-memory processing of supply data is an early form of this functionality.

7) Closed Loop Processes for Demand and Supply. Large scale parallel processing and advanced optimization and new predictive analytics techniques will allow companies to sense, respond and evaluate.  This will evolve to listen, test and learn strategies for both demand and supply over the course of the next five years. 

8) Building of Supply and Demand Networks. The traditional programs for Vendor Managed Inventory (VMI) and Supplier Managed Inventory (SMI) systems have been implemented, but never tightly integrated because the enterprise data models were inside-out not outside-in.  As the enterprise architectures are redefined, VMI and SMI will become tightly integrated and enriched with unstructured data like quality, return, warranty and social data.  This will redefine demand and supply visibility.

 Where are you Drawing the Lines?

Supply chain architectures are in flux.  I would love to know your thoughts.  While I hesitate to replace one set of boxes and lines with another, I know no other way to communicate the changes.  However, this does not mean that you or your teams need to paint within the lines. All I know for sure is that the traditional architectures are too constraining and no longer meet the business need; and that new forms of technologies allow us to rethink how companies can draw the lines.

OK, enough from me on a sizzling July afternoon.  Drop me a note and let me know your thoughts.  I would love to hear from you on where you are drawing the new lines.

Next week, I am attending the SAP Base Camp followed by  a full agenda to work with clients on these concepts in strategy workshops. I have made good progress on my new reports. I should publish four by Friday next week.  Things are exciting in my new company.  We appreciate your support of Supply Chain Insights.

 

Definitions: For those that have not read some of my fundamental writing on these topics, for clarity, I list the definitions of the terms below.

  • Demand Sensing: Shortening the time to sense “true” market data to understand “true” market shifts in the demand response.  This is in contrast to the use of order-to-shipment data that can have 1-3 weeks latency in translating “true” market demand.
  • Demand Shaping:  The use of techniques to stimulate demand. This includes new product launch, price and revenue management, assortment, merchandising, placement, sales incentives and marketing programs.
  • Demand Translation: The translation of demand outside-in from the market to each role within the organization.  Recognizing that the requirements for distribution, manufacturing and procurement are different.
  • Demand Orchestration:  The process of making trade-offs market-to-market based on the right balance of demand risk and opportunity.
  • Demand Shifting: The shifting of demand from one period to another through advanced shipments, and moving more products into the channel without stimulating base demand.
  • Revenue Management: The process of stimulating demand through demand shaping efforts and carefully managing payment capture to ensure that the changes in payment terms do not result in deductions. Evaluation of the effectiveness of demand shaping programs through sales analytics.
  • Supply Sensing:  The use of unstructured and structured data to sense supplier failure and pending supply shortages.
  • Supplier Development: The process of supplier selection, training, onboarding and adherence to supplier policies.  Supplier development programs have increased in importance to accelerate innovation, improve supply and ensure compliance to corporate social responsibility initiatives.

 

March Winds Signaling Spring?

by Lora Cecere on March 8, 2012 · 0 comments

I live near the water in Baltimore; and as I write this blog, the spring winds are blowing hard against my windows.  The glass is rattling in the panes. They are trying hard to withstand the forceful gusts.  All day, it was ferocious. The whistling winds are signaling the end of winter, and the start of a new cycle called SPRING.  As a gardener, I love SPRING!

I think that March Winds are a great metaphor for this blog.  Supply Chain Management (SCM) applications have had a long, cold winter.  The market has never fully recovered from the BOOM and BUST cycle, or the failed promises, of i2 Technologies and Manugistics.  Advanced Planning Systems (APS) technology applications failed to meet expectations either as stand-alone technologies or as an extension to Enterprise Resource Planning (ERP).  However, I think that there are new winds blowing.  I think that SAP is getting serious about SCM again. I firmly believe that this is good news. Here I share what I think that it means for you, the market, and the greater world of enterprise applications.

Background

This week, I was one of two analysts invited to SAP’s Customer Value Network(CVN) conference in Newtown Square, PA.  (Can you say “I attended the SAP CVN SCM Event” without cracking a smile?  I cannot.) SAP is KNOWN for their acronyms. This event was NO exception.)

With attendance by over 240 attendees from 97 manufacturing/retail corporations, SAP met their goal to have a well-attended customer event.   The audience was primarily IT (CIOs and Directors of IT). (I seldom see Line of Business leaders at SAP events…this remains an achilles heel.)  In many ways, for me, it was like old-home week. (I enjoyed catching up with many clients and discussing my new business model over a glass of wine.)  For SAP, I felt like it was a warm-up event for the larger and more popular SAP Insider event in Orlando on March 21st (http://www.scm2012.com/). (You will be able to follow SAP Insider at twitter hashtag #SCM2012.)  In this blog post, I share highlights, insights; and of course, the SHAMAN’s point of view (POV).

The Headlines

The headline news was all about products. SAP has invested in two new solutions built on the HANA architecture (Sales and Operations Planning and Demand Signal management) and they have more closely partnered with three solution technology providers– ICON-SCM, Llamasoft, and SmartOps — in the building of the SCM framework .  The roll-out of SAP’s supply chain execution applications –Transportation Management and Enterprise Warehouse Management (EWM) is maturing, and there is stability in the product team. (I have worked with 20 of the 22 people on stage for the past five years.  Hans Thalbauer, now head of SCM Solution Management for SAP is shown on the left and Stephen Kreipl, SAP AG,  is shown in front of the Demand Signal Management presentation below.)

The solution architecture has deepened to include a collaborative application –Streamworks – for internal collaboration and there are now cloud-based solutions in the stack.  Not everything must be on premise.  Both of these developments are still a bit awkward within the TRADITIONAL SAP organization, but they signal needed change.

The SCM spring is also spawning a new consulting ecosystem. The event was sponsored by consultants, many of which, I had never heard of before. Have you heard of the names of Logistar, Intrigo, ITC Infotech, GOPA, K2 Professional Services, MySupplyChain, or Linear Logistics? For me, these were new contacts. They were joined in sponsorship of the event by names that I knew well like Bristlecone, Catalyst, Cognizant, Hitachi Consulting, Llamasoft, and Plan4Demand. Conspicously absent at the event were Accenture, Deloitte, Cap Gemini, Infosys, and Tata Consulting.  There is so much to tell the reader about the products, that I think that I will break the insights into a series of posts over the next couple of days.  In this blog, I am going to share the high level overview.

The Unspoken

In the sessions, there were often more questions than answers.  There was no pricing information available on the new applications, and SAP could not answer how the solutions were to be priced.  It was obvious that the pricing strategy is still an intense discussion amongst and within the team.  My experience with customers is that anything that uses the word HANA is an order of magnitude more expensive.  So, if you are interested in the new applications, buckle your belt.

The user of SAP products can expect no relief on maintenance revenue costs to fund these new products. While SCM budgets have grown from 38% spending on maintenance to 45% spending on maintenance, there is no relief in sight for the SAP user.  I believe that SAP’s goal is to sell more and still maintain the license fee structures.

The partnerships with three solution providers listed above is deepening.  The rest are becoming less important.  The original promise of Netweaver partnerships offering clients a choice of multiple partners has been replaced by deeper relationships with a few companies.  Additionally, the old partnership with LogicTools for network design has been replaced with the partnership of Llamasoft and the old partnership with Vision Chain has taken a back seat with the pending release of the Demand Signal Management. The software partners of choice in SAP’s launch of the new solutions framework are now clearly ICON SCM, Llamasoft and SmartOps.  The product discussions even include development of intense roundtrip integration with ERP ECC 6.0 (e.g. Deep integration like the CIF interface in APO.) with this set of suppliers.

There is some very new stuff bundled in this footprint.  I am excited to see the inclusion of Sentiment Analysis (data from a partnership with NetBase) as part of the discussion in Demand Signal Management.  This is the first example of a Demand Signal Repository (DSR) that combines structured and unstructured data to not only answer what was sold when, but why.  (Look for more on this in later blog posts.)

Net/Net.  This is the most new news that I have seen from SAP in a LONG time.  And, you know that the SHAMAN has been covering SCM for more years that she would like to count.

The Shaman’s POV:

While the overview of the individual products was clear, the roadmap of how to use the products within the suite is not.  At the end of each presentation, there was a Question and Answer session. Each session’s Q&A was peppered with user questions on when to use solution XYZ with approach PRQ or solution ZDN.  SAP was not ready for the questions.  It is not clear today, for either the SAP team or the customer, how these solutions fit together to solve industry-specific problems. It is my hope that this becomes a sharper message before the SAP Insider event.  If not, the sessions at Insider will transgress quickly into confusion.

There is growing unrest within the SAP client base on total cost of ownership.  The original promise was that the selection of SAP would reduce TCO.  Many CIOs that I have talked to within the last month are angry that they have gotten very little industry-specific user enhancements for their maintenance dollars.  They see it as an increasing “tax”.  For these organizations, a sales call with an unclear solution positioning for a new SCM footprint with a high price tag will not be a pleasant experience for the sales team.  (One that the Shaman would love to have on tape….)  I think that this is a shame, because it may shut down a discussion to try SAP’s first real release of S&OP or the maturing, and promising, supply chain execution solutions. It will put increasing pressure on replacing best of breed solutions.

I am disappointed that the solution framework does not provide an answer to the increasing pressures for Master Data Management (MDM).  I think that SAP needs to own and provide a solution for this increasingly problematic area.

While I am delighted to see the inclusion of a collaborative application in the enterprise suite of products, buyers of the product need to realize that is only a baby step.  The collaborative application is not integrated with a Business Process Management(BPM) tool to guide collaborative workflow or business analytics to guide learning.  It is not as deep as Salesforce Chatter or as useful as an internal Jive or Lithium platform or as easy to use as Socialcast.  Those without an enterprise social networking tool may find it useful as a starting point; however, the expectations for a more mature group need to be calibrated.  It also does not meet the traditional SCM collaboration definition. The use of collaborative tool along with workflow management with SAP SNC to do true supply chain collaboration would be a beautiful thing.

To answer the questions of how to use these solutions properly, I think the right answer is “it depends.”  The answers to many of the questions that SAP was being should have been framed based on supply chain maturity and the goal of the business process.  If I were presenting the materials, I would encourage the audience to step-back and answer some basic questions and then design the framework for usage around the industry-specific business requirements.  The questions that were paramount for me leaving the session were:

  • Why does real-time parallel processing in HANA make a difference, and where should it be used?  What is the advantage of real-time data?  When does it make the supply chain more nervous (reactively twitching) and when does it make the supply chain more responsive?  Should it be real-time data or right-time data?  I think that the best use of HANA will be in Available-to-Promise (ATP), response management and advanced analytics. However, there are more questions, at this time, than there are answers.
  • What is the role of the order in this new footprint?  What is the role of the forecast in the new pprocess?  My point of view is that as the organization becomes more market-driven, that the order becomes less important as a SCM signal. I also believe that the forecast becomes more important.  For process-based industries like consumer products and chemical industries (due to the ability to be more demand driven based on the use of downstream data), the supply chain becomes more pull-based using channel data; and similarly, in discrete industries, that the order-to-cash process is substituted with a contract-to-delivery focus. I also believe that revenue management grows in importance to support this maturation process.  Revenue management as a topic was consicuously absent.
  • What is the role of optimization in meeting the goals of the supply chain?  And, the role of planning?  SAP’s traditional audience has been focused on transactional efficiency.  The emphasis of the presentations at the CVN event was on improving operational decision making.  I believe that this is not enough.  It is easy for companies to confuse the urgent with the important; and I believe that planning represents the important.  I would have liked to have seen SAP pull the discussion up a level.  I don’t believe that you have a shot at delivering supply chain excellence without a firm foundation in optimization and planning; and for SAP customers this means redefining and enhancing SAP APO as opposed to throwing the baby out with the bath water.
  • What is really needed in integration and synchronization to support this new footprint?  How well does this footprint meet the needs of the extended supply chain? I believe that increasingly supply chains need to sense.  The signal needs to be outside-in not inside out, and that the focus needs to be on the evolution of horizontal processes.  SAP’s new solution make progress in two of the three areas, and it is an important step; but today, it is not a home run.

What do you think?  How are you feeling about SAP’s new releases?

I will write more on the specifics of these SAP solutions throughout the week. However, I do think that we are seeing the spring thaw in the evolution of supply chain applications through the cold, barren winter period of post-acquisitions for SCM vendors.

Summary

This week, I should finish the manuscript of the book that I am writing with my co-author Charlie Chase. The book is titled Bricks Matter.  The manuscript is due on March 15th, and I will be doing a happy dance as I touch the keys to finish the last of 98,000 words.  It will publish on August 8th.

Next week, I am spending time with clients discussing change management and S&OP.  This seems to be a hot topic.  I will be doing some video shoots tomorrow on the research in this area and posting them on my new u-Tube channel.  Until then, you may want to check out my video on what I am up to in my new company( http://www.youtube.com/watch?v=rFhpk-3CE64).  Hopefully, the new website will be up next week along with two new reports.  Until then, all the best!