Supply sensing

Corporate Sustainability: Are Companies Vulnerable?

by Lora Cecere on March 10, 2013 · 1 comment

“Supply chain sustainability” is the management of environmental, social and
economic impacts and the encouragement of good governance practices,
throughout the life cycles of goods and services.

Supply Chain Sustainability (definition)
United Nations Global Compact

The first corporate social responsibility statement was published by Dow Chemical in 1996. Since then, how have supply chain leaders and corporate sustainability leaders defined supply chain initiatives? What are the priorities? Where are the commonalities? Are they aligned? How has the focus on carbon reduction, water usage minimization, zero waste, conflict minerals, and labor practices changed supply chain? What has it meant to supplier development? We wanted to know, so we worked in concert with GreenBiz to get answers from 64 supply chain leaders and corporate sustainability officers.

Within an organization, it can be known by many names: the green supply chain; the good citizenship report; Corporate Social Responsibility (CSR) policy; or fair trade. The programs can have different names, but the goals are focused on creating a better balance between the corporation’s efforts to manage profit, people and planet. For many, this can be a stark contrast to the traditional supply chain goals of the right product at the right place at the right time.

To meet the stated corporate goals for sustainability programs, it is critical for supply chain and corporate sustainability teams to work well together. The success of one is dependent on the success of the other. Over the last ten years, corporate sustainability goals have transformed supply chain objectives causing companies to rethink their definitions of supply chain excellence. Much is in flux.

While the importance of these programs has grown over the last decade, in recent research, that will be presented this Friday during a Supply Chain Insights webinar, we find two disconnects. The first is the ability of the company to meet its stated goals based on the scope of activities. As shown in figure 1, 92% of companies surveyed have a public statement or declaration of goals and policies for corporate sustainability. It has also grown in importance to the definition of the brand promise. In fact, today, 74% of manufacturers connect their success in sustainability to their brand statements. For many, the goal is to use sustainability as a brand advantage.

Many companies are vulnerable.  The greatest impact on corporate sustainability (often 60% to 65% of resources consumed) is outside the company’s four walls; yet, as shown in figure 1, only 20% of companies are focused on the entire value network (from the customer’s customer to the supplier’s supplier). While the most common focus is on the enterprise, the greatest corporate risk lies outside the four walls of the enterprise, and companies are staking both their corporate and brand reputations on their abilities to deliver.

The second disconnect is decision making. The two sets of processes lack common processes and definitions for governance. Many of the decisions are ad hoc. As a result, when given a choice between supply chain and corporate sustainability policies, as shown in figure 2, over 50% of companies will choose the supply chain priorities. The primary drivers of the decisions are profitability and customer service.

Supply chain versus corporate social responsibility

At first, progress is easy.  The traditional supply chain and the sustainability objectives align closely in the beginning. As companies adopt CSR programs, initial results reduce costs and improve waste, and all is well between the two groups.  However, as the programs become more systemic, especially in the area of supplier development, pressures on program alignment increase. For example, the most sustainable decision on a supplier may be higher cost. Companies are currently struggling with the right mechanisms to get balance and alignment between the two programs.

What do you think?  We hope to have you join us for our webinar this Friday, March 15th at 10:00 AM eastern.  Join the audience polling and listen to the joint discussion of the results.  I will be joined by John Davies, Vice President and Senior Analyst of GreenBiz, and guest panelists Peter Murray, Supply Chain Development and Innovation Leader of DuPont, and David Lyons, Sr. Vice President, Operations & Supply Chain of Wells Dairy. All have great insights. A sneak preview of the results is available on slideshare.  To Register click this link: https://supplychaininsights.webex.com/mw0307l/mywebex/default.do?siteurl=supplychaininsights&service=6.

Epitaph

by Lora Cecere on March 3, 2013 · 0 comments

epitaph n.  An inscription on a tombstone in memory of the one buried there.
 A brief literary piece commemorating the deceased.
A final judgment on a person or thing.

  Here lies EIEIO, EIO, MEIO, DIO, Powerchain and all of their descendants.

At the beginning of the third decade of supply chain management, a new class of applications was born. They were born from well-intentioned, bright professors from great schools –Boston College, Carnegie Mellon, and Massachusetts Institute of Technology (MIT)– in operations research. Each had cool math and wanted to make a name for themselves… as well as a couple of bucks along the way.  They knew little about the software market.

Today, I write the epitaph for this market. It was called multi-enterprise inventory optimization. It is no more. The players have now been absorbed into the larger ecosystem.

In the beginning, the inventory management solutions of LogicTools, Optiant and SmartOps pushed to take operations research to a new level through supply chain optimization.  As the leaders in the Advanced Planning Solutions (APS) market consolidated, and innovation slowed, the new inventory management startups brought energy into a market that was losing its luster.

Last week, one of the last survivors from the software inventory optimization software market ceased to exist as a stand-alone software company. SmartOps was purchased by SAP. Like its predecessors, LogicTools and Optiant, the company stopped functioning as a stand-alone software provider due to acquisition. If you do a google search, you will find lots of accolades and positive press on the acquisition of SmartOps by SAP, but the Shaman is a skeptic.

SmartOps entered the supply chain optimization market in 2000 and became an SAP partner in 2006. The press release last week cited the reason for the acquisition, “…as part of the strategy to build a real-time optimization solution for S&OP on SAP HANA.  SAP released an S&OP solution using HANA in 2011. (For more on this announcement reference the Supply Chain Shaman blog post, Third Time the Charm?) However, the picture is not that rosy. For more, read on….

Background

When I became an industry analyst at AMR Research, I was told that I needed to write about this “hot market”  of inventory optimization. I shrugged my shoulders and asked myself, “Why?” The market seemed ancillary to the larger supply chain planning market, and I expected it to be short-lived. I should have followed my intuition. Against my better judgement, I wrote two reports and many alerts over the course of five years on the multi-enterprise inventory optimization market. This market shone brightly for only five years before it was extinguished by its own flame.

The sales cycles were heavily contested. They were brutal and bloody. The solutions were expensive. Over the last decade, I helped many clients navigate what I termed the “holy math wars” that were brought to market by these well-intending professors.

Results stagnated. Over the course of the decade, the inventory optimization market stalled. Levels of inventory did not go down, and many companies began to question the value of the software.  Only one out of every ten customers, that I helped in sales cycles, were able to optimize and reduce inventory through the solution. They were the exceptions, not the rule.  Only companies like Stanley Black and Decker, Hewlett-Packard, and Procter & Gamble were able to realize the value proposition. The problem was seldom the math. The problem was larger and rooted in organizational issues. There were three common characteristics for failure:

  • Fit. The capabilities of the technologies were often more advanced than the processes of the manufacturers and retailer. As a result, the technologies were implemented, but they were not sustained. In fact, 25% of the companies actually installed multiple inventory optimization technologies with all projects suffering the same fate.
  • Focus. To use the software there needed to be a shift in understanding.  The processes were more mature. The focus needed to shift from looking at inventory levels versus the form and function of inventories.
  • Ownership.  In the organization, no one individual owned inventory in the organization. Instead, it became the outcome of multiple functional decisions and processes. It was a piece of a larger puzzle.

What Can We Learn?

At the end of the day, I wanted to use this as an opportunity for reflection. I think there are four things that we can learn:

1. Inventory Optimization Should Not Be a Stand-alone Market. Inventory decisions are more important, but they are not stand-alone.  Inventory is now the primary supply chain buffer. Why?  In the beginning, when manufacturing was insourced, there were two supply chain buffers: manufacturing and inventory. With the outsourcing of manufacturing, inventory became the buffer for both demand and supply volatility. As a result, inventory decisions became more important, and more intertwined with other supply chain processes. This advanced math needed to be a part of the next generation of supply chain decision support applications. It was not a stand-alone solution.

While it was sold by SAP to overcome the deficiencies of SAP APO, it could not overcome the inherent limitations of APO.  Instead, the first generation of supply chain applications needed to be rewritten to encompass this higher level of planning. Perhaps, this will be the outcome of the acquisition, but the question is “have manufacturers lost so much faith in SAP to give it a chance?” Or will the story be written by new players?

2. Overhyped Markets Eventually Fail. To Be Sustainable There Must Be a Sustaining Value Proposition.  As analysts, we tend to fall in love with the newest thing and write about it. There needs to be more discipline to validate and write about actual results. It was only after the building of the database to understand financial ratios at Supply Chain Insights that I could actually track the progress of companies using the software.  It took me a year to analyze companies with and without the use of advanced inventory optimization software solutions.

However, there is a problem. In the traditional analyst model, I would not be able to write about these results. In these more traditional models, it is easy to publish good news (posts that support the positioning of the technology vendor), and more difficult to publish the “bad news” (writing that does not support the positioning of the technology vendor). As I look at this history, it makes me believe more in the model of open, objective research. It is much easier to write this blog than the prior research studies that I wrote in previous analyst roles.

3. Software Acquisition Only Benefits the Founding Company. While press releases and articles tout that the purchase of software will yield great results, history shows that the only people who win in the acquisition of a software company are the founders of the company being acquired. The users of the software often find that the acquisition slows innovation and product delivery and causes employee turnover of key resources in the company being acquired. The software users of the SmartOps solutions need to be very diligent in protecting their solution investments through the acquisition.

4. Failure of the SAP Partnering Ecosystem. Originally, the gems of the SAP Ecosystem were the players in the inventory optimization market. On the original announcements, there were to be four partners, and SAP was committed to making them equally successful.  At the end of the day, SAP supported SmartOps and the rest of the partners floundered.  If the measurement of a successful partnership is the success of the partner,  it is hard for me to find any successful SAP partnerships in the supply chain management space.

Summary

So, as we gather together for the WAKE for the Inventory Optimization market, we can share lots of stories. The founders of this market were colorful and full of vision. The stories are rich. There are many tales to tell.

Tonight, I propose a toast. May this vision take shape in the next generation of solutions.  I just have my doubts that we should place our bets on SAP to deliver it.

Page 1 of 4
1
2
3
4