Happy Holidays!

by Lora Cecere on December 10, 2013 · 0 comments

The snow is falling outside my window. It is the quiet, steady kind that mounds on the window sill… a strong signal for me to relax and enjoy winter.  I want to light a fire and curl up on the couch with a good book. I am a voracious reader. I think that this is one of the reasons why I love to write.

Three months ago, one of my clients asked me to help him out. His name was Tom. His request was, “Could you please publish collections of your blog posts? You write so much that I cannot keep up. And, the blog format makes it tough to read old posts.”  It is for this reason that I published the second Supply Chain Shaman’s Journal today. It is a collection of my favorite blog posts on supply chain leadership.

The Supply Chain Shaman blog is now four years old. Deep in the bowels of WordPress there are many, MANY posts. Over the course of the next year, we will be bundling these by theme and pushing them out. They will first publish in a pdf format; and over time, they will be available in a digital format for your ereaders.

I also had a request by Joe. He is another of my loyal readers, but he lacks the time to read. Joe asked, “Lora you write so much, and I have SO LITTLE time. Can you produce a series of podcasts so that I can stay up-to-date by listening to the insights through podcasts?” We responded to Joe also. Today, we have 65 podcasts that are available on iTunes. We are publishing 7-9 per month and hope to have over 150 by the end of 2014.  Over 85% of these podcasts are our interviews with supply chain leaders. Our goal is to serve the community. We want to make our research the fabric that helps supply chain leaders reach new levels of corporate performance.

So whether you are Joe or Tom, we have an option for you to learn more about supply chain leadership on this snowy day. I find that business slows down the last two weeks of December, and that it is a great time to reflect. So whether you want to read our now more than 40 reports, or check out our new infographics, or read our two journals, or listen to our 65 podcasts, we want to serve you in the way that you want to learn.

What Have I Learned about Supply Chain Leadership?

As I put together the Shaman’s second journal, it was a great time to reflect. I had not read many of these posts for four years. The journal is 33,000 words and over 80 pages. It will take you some time to digest. So, let me give you the short version:

  1. Most companies are stuck on delivering supply chain performance because they have defined supply chain too narrowly as a function. Less than 1% of companies have defined a leader to focus on end-to-end processes. The opportunities for the company lie in the cracks between the functions.  A good leader develops influence skills to be able to guide the company to seize the end-to-end opportunity.
  2. One in three companies has a supply chain center of excellence, but only  50% are effective. The issue is the lack of alignment and definition on an operating strategy. In the journal, I focus on how to remedy this issue.
  3. Talent is the missing link for most organizations. The issues to develop and retain talent are growing. The average planning job is open now for five months and 19% of companies have an opening in supply chain planning.
  4. Supply chain performance is about strength, balance and resiliency. It takes discipline and a focused program. It can only be measured in inches, not miles. Companies that have outperformed peers have had an unwavering focus against a strategy.
  5. Leaders design their supply chains and take responsibility for it end-to-end. In the words of one interview that I did this week, “In the last decade, many of us outsourced our supply chains. We hired contract manufacturers and third-party logistics providers; however, we cannot outsource the responsibility. I have to own the fact that I lengthened payables and passed bad forecasts to suppliers increasing costs and waste in the supply chain. I need to be a better partner. My team needs to do the tough work.”

Have a great holiday! Curl up and enjoy our content. Both the journals and the podcasts are available on our Supply Chain Insights website. And, if you have a great idea for us like Tom or Joe did, please send it our way!

Things Have Changed: What Do We Do NOW?

by Lora Cecere on November 10, 2013 · 0 comments

This week I interviewed Robert Byrne, Founder of Terra Technology, on the results of their fourth benchmarking study on forecasting excellence.  For those that do not follow this work, let me give a preamble. The work done by Terra Technology, in my opinion, is one of two accurate sources of benchmark data on forecasting in the industry. The other is Chainalytics demand benchmarking.

There are many forecast benchmark studies in the industry, but most have a tragic flaw. The issue with most forecasting benchmarking is that the data is self-reported.  Demand planning processes lack standardization and self-reported data is suspect.

Background on the Study

Eleven multinational consumer products companies participated in the study. They are large and significant, representing a total of $230 billion in annual sales.

Complexity Escalates. Companies want to grow. Success in new product launch and trade promotions is critical to accomplish this goal. However, the increase in new products and trade promotions makes the task of forecasting tougher than it was four years ago. In the study, new products represent 17% of total cases shipped. New product shipments increased 10% over the last three years.  This was coupled by an increase in seasonality and promoted items. Traditional forecasting processes support the forecasting of turn volume, or baseline products, well, but are not well-suited for new, seasonal and promoted products. New products and promoted items had 4-5X the bias of turn volume. Products in the long tail of the supply chain have an average error of 70% MAPE and a 15% bias.

Figure 1.

  • Tougher in Europe. Both bias and error are higher in European supply chains. The average MAPE for North America was 36% while the European average MAPE was 45%. The average bias of European forecasts versus North America had 2% more bias.
  • Process Excellence Helps. Forecast Value Add (FVA) analysis has increased in popularity. The use of this continuous improvement process had a significant major impact on the bias and error of leaders.  The average MAPE for top performers in the study is 46% and the use of FVA and other techniques reduced bias from 7% to 2%.
  • Technologies Need to Change. In addition, the use of statistics to replace rules-based consumption (often termed “demand sensing”) reduced demand error of the forecast at the warehouse level by 33% as shown in figure 1.

My Take:

If growth is important to your business, you cannot manage demand planning processes like you did ten years ago.  My recommendation is to:

  • Use FVA: Aggressively implement Forecast Value Add (FVA) processes.
  • Focus Outside-in. Get serious about demand modeling. Many of the forecasting systems in the market just do not have the depth to do the type of modeling that is required in the face of this complexity. Reimplement traditional forecasting systems to model “what is to be sold” using attribute-based modeling. Aggressively integrate multiple demand streams (downstream data, warehouse withdrawal data, and market intelligence).
  • Flexibly Manage Attributes to Help Modeling. Manage history based on market attributes and aggressively move from ”SKU-based modeling” to an “attribute-based model” based on attribute-based views of history. Synchronize and harmonize downstream data using an attribute-based model.
  • Build Global Excellence. Carefully define the role of the region and the role of the global team in the reduction of bias and error. Actively use FVA to improve and align global modeling.
  • Implement Demand Sensing. Companies that have successfully implemented demand sensing to improve the forecast at the warehouse DC have reduced inventory on the balance sheet by 10% within two years. I do not see the same results from the multitier inventory projects.

I look forward to getting your thoughts.