Do No Harm…

by Lora Cecere on June 16, 2014 · 0 comments

 

“…I will apply dietetic measures for the benefit of the sick according to my ability and judgment; I will keep them from harm and injustice….

…If I fulfill this oath and do not violate it, may it be granted to me to enjoy life and art, being honored with fame among all men for all time to come; if I transgress it and swear falsely, may the opposite of all this be my lot.”

—Translation from the Greek by Ludwig Edelstein. From The Hippocratic Oath: Text, Translation, and Interpretation, by Ludwig Edelstein. Baltimore: Johns Hopkins Press, 1943.

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Today, nine out of ten supply chains are stuck.  Despite two decades of advancement in supply chain technologies, companies are struggling to gain balance at the intersection of operating margin, inventory turns and case fulfillment. Market volatility is increasing and supply chains can respond, but they cannot sense. They are slow to adapt.

Over the course of the last year, I have written about this extensively. The research that I have conducted has enabled me to look at this holistically. For me, this has been discovery.

I am an old gal. Like an artifact, I have kicked around in the supply chain space since the 1980s. I believed that the first generation of supply chain systems would improve operations to a greater degree than actually happened. As an analyst, I had predicted great things that did not happen. Recently, I did a mea culpa. I am sorry.

As a result, I am trying to be more careful to not overhype the market. When I left AMR Research I invested over 400K in building a database of supply chain financial ratios to correlate supply chain results. My goal is to understand the impact of technologies and processes. It is easier said than done. After three years of research, I have just refined the methodology to start to pull the trends.

I have learned that supply chain systems are more complex than I originally thought, and that the relationships between supply chain metrics are nonlinear. I have also learned that you need a large data pool to derive the type of analysis that I want to publish. It takes more than one or two respondents from a company.

I need to finish the work, but in the process—like the Hippocratic Oath above—I want to do no harm.

Why It Matters

Today, we have a number of burning platforms. Recently, I spoke to a major European retailer that lost 5% of their grocery revenues to Amazon in the first quarter of 2014. It is clear to them that Amazon is going to be anything that they want to be, and that they need to defend their turf. In a similar vein, a major 3PL that I spoke to last week at Eye for Transport is considering discontinuing the traditional storage of spare parts and initiating a new service to do 3D printing of parts on demand. There are many tipping points happening together, and companies want to know what can drive the greatest value.

What I See in the Data

In my work on the Supply Chain Index, I see that companies I recognize as doing network design well are rising faster on the list of the Supply Chain Index work. The network design technologies have changed a lot in the last decade. (I sometimes wonder if I should create a new class of technologies for the network design tools because they have changed so much.) The older tools from CAPS Logistics, SNO from Oracle, and Manugistics Network Planning are giving way to new technologies like the Logictools product (purchased from IBM), the Solvoyo product for concurrent planning, the Quintiq technology for concurrent optimization, and the Llamasoft technology platform for optimization and simulation.

These technologies are applicable to solve many problems. These tools allow us to look at sell, source, make, and deliver together. They also enable the evaluation of networks for both sales and procurement relationships to optimize the flows upstream and downstream. The technologies enable the evaluation of both volumetric flows and cost.  And optimization, as well as simulation, can now be done together.

I am a big fan of the use of these types of technologies. The work on the Supply Chain Index shows me that the companies that I consider to be the most mature in the use of these technologies—General Mills, Intel, Cisco, and Seagate—are outperforming their peers. Is it coincidence? I don’t think so. I think that it matters.

Next week I will be speaking at the Llamasoft Summercon conference (follow this link to see the slides). On October 15th, I will be speaking on the Qunitiq World Tour in Philadelphia. Along the way, I will be doing more work on network design case studies. In preparation for these speeches, I have recently completed some quantitative research on network design. Here I share a cut of the data.

Figure 1.

Where Would I Start?

In figure 1, from the research, I share the current state of network design usage. As you can see from the data, while companies have increased the frequency of network design work from yearly to quarterly, most of the work is still focused on basic network design. The focus is on physical assets. I feel that the opportunities are in flows. The greatest gap is in the design of supplier and manufacturing networks. I also think that there is a great opportunity for increased focus on flow-path analysis and a shift from optimizing inventory levels to optimizing the form and function of inventory in value networks.

Anyway, in my effort to do no harm, this week, in a series of blog posts, I outline what I would do if I was a supply chain leader managing a company that was stalled at the intersection of inventory turns and operating margin. My first investment would be in network design to holistically design the network. I would not stop with the physical design. Instead, I would look at network flows, the form and function of inventory, cost-to-serve analysis, and the determination of the supplier network. I would infuse it into S&OP, risk management, and supplier development. I would build an expertise system in the Supply Chain Center of Excellence. I believe that it matters. While there are many factors that affect corporate performance, I can see that the leaders in the implementation of network design technologies are rising up the ranks on the Index and outpacing their peers.

If you are interested in some of our other studies on supply chain planning excellence, consider participating in our study on Supply Chain Planning: Is Faster Better. And, in our Digital Manufacturing Study. Both of these studies are slated to close in a week to be available for our July newsletter. Companies participating in the planning study will be able to benchmark the number of planners needed by supply chain complexity and better evaluate the rate of implementation. In contrast, the digital manufacturing study evaluates the rate of adoption of new technologies like The Internet of Things and 3D printing to change manufacturing strategies. As always, when you give to us, we give to you. We never release the names or the individual responses of the respondents, but we always share the results in aggregate and offer a one-hour call for those that want to better understand the data.

All of these studies that we are doing this summer will be showcased in a series of infographics at our upcoming Supply Chain Insights Global Summit on September 10th-11th in Scottsdale, Arizona. We hope to see you there!

Throwing Down the Gauntlet

by Lora Cecere on June 14, 2014 · 0 comments

“We live in a world where supply chains, not companies, compete for market dominance. But companies often have diverging incentives and interests from their supply chain partners, so when they independently strive to optimize their individual objectives, the expected result can be compromised. ”

Hau L Lee, Triple-A Supply Chains, Harvard Business Review, October 2004

“The idea of the value chain is based on the process view of organizations, the idea of seeing a manufacturing (or service) organisation as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources – money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits.”

Institute for Manufacturing, 2013

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Tipping points are fascinating to watch. They are even more fun to create.

I want to be part of the evolution that helps leaders to redefine strategies based on the changing physics, electronics and capabilities in value networks.

Tonight, I am stranded in a hotel in Chicago. Facing a string of canceled flights yesterday at O’Hare airport, instead of fighting the mayhem, I opted to pull my bags to the hotel across the street.  It is 3:00 AM. The Chicago airport is closed for the night. It is quiet and a good time to think. So, on this Friday night, I find myself typing away on my keyboard on what is another sleepless night.  So, bear with me as I throw down the gauntlet for the high-tech value chains to seize new levels of effectiveness.

What Is Value?

When I wrote the book Bricks Matter, I cavalierly penned a chapter on the evolution of supply chain thinking from cost to value. It sounds simple, but it is not. I found this out the hard way when Keith Harrison, contributor to the Forward of the book, asked me to define what I meant by ”value.” Keith is the former Global Product Supply Officer for P&G, and a person that I greatly respect. So, I swallowed hard and began the discussion.

It is one thing to write it, but it is a horse of another color to defend it. I think about this discussion with Keith often as I work on the Supply Chain Index and edit the chapters of Metrics That Matter.

I believe that value is what you create. You know when you have created value when it drives improved brand perception, increased sales or improved market capitalization. Easier said than done. You might say…. Yes, I agree.

How do you know when you have created it? And more importantly for supply chain leaders today, how can we create new levels of value from new business models that are happening based on the tipping points within the extended supply chain?

Let’s Take a Hard Look at Value Chains

To understand value creation, we have to understand how companies have made trade-offs. In Figure 1, I share a composite orbit chart of progress of Cisco Systems, Intel, Samsung and Flextronics on the Effective Frontier at the intersection of inventory turns and operating margin for 2006-2012. What can we learn? I think three things:

1) A Hard-Fought and Tough Journey. This is a group of leaders. I have great respect for each of them. However, no company in this chart is on a linear path towards improving both margin and inventory turns. Instead, it is a gnarly road with each company struggling to make trade-offs.

2) Efficient Supply Chains, Not Effective Networks.  Each company operates within its own plane, improving its own potential. We are still very early in the true adoption of value chain concepts. Our current processes and dependencies on Excel spreadsheets cannot get us to our goal.

3) Risky Business? Contract manufacturers operate at low margins and lack resiliency. The value chain depends on the contract manufacturers to drive value, but the lack of stability of the business model is a risk for the system.

Figure 1. High-Tech and Electronic Supply Networks

The investment in technologies has made companies more efficient, but not more effective. This is an important distinction. Why? All of the companies in the chart have improved revenue/employee.

Across the industries, this is the case. Our historic supply chain practices have made companies more efficient, but we have not made them more effective. Sadly, we also need to admit that we have not progressed very far on the creation of value networks. We have talked the concepts, but not enabled the processes. So, my question this morning as the sun comes up is, “Could we?

But, Could We?

My thought is yes. I think that this industry is poised for a tipping point. As we think about this value network, and the potential redefinition through new business models, I think that we are ready to change the equation. Three things are happening, that I think are significant:

  • Flextronics has invested in the development of Elementum. This is a new start-up in the B2B network technology space.
  • E2open last week announced the purchase of Serus. This purchase increases E2open’s capabilities for visibility into the processes of the outsourced semiconductor network of foundries.
  • Kinaxis successfully orchestrated an IPO. New money into Kinaxis, a wider portfolio for E2open and the evolution of a new player with Elementum could change the equation.

As we move forward, I think that it is important to take a hard look at Figure 1 and ask ourselves the question, “How can we drive greater value into this value network through more effective data sharing, market sensing and translation and the enablement of the digital supply chain?” I am stepping forward to throw down the gauntlet.

My Advice:

The pace of change in this value network is increasing rapidly. As a result, we need to enable the moments of truth in this value chain. This includes the decision to build, the digital definition of the product, the decision of when and where to ship, and the decisions of which materials to put into which products. It is about more than visibility. It is not about the automation of yesterday’s processes into the cloud. Let’s work backwards on the announcements:

  1.  Kinaxis needs to briefly congratulate themselves—it was a tough fight—and then move on. It is time to move to a many-to-many data model. The Kinaxis model is an enterprise solution. It lacks the community infrastructure and the canonical integration layer of E2open. The current work on data sharing and control tower for Kinaxis is inside-out, not outside-in. It is an enterprise solution, not a network solution. As a result, it works well for a singular company connecting with its trading network; but, not with the interaction needs of the greater community.
  2. E2open needs to better define the value proposition, and the go-to-market messaging, and continue to add value at the application level. They have fought a hard fight to evolve through a turbulent decade. It is now time to build-out the model.
  3. Elementum is the new kid on the block. It is important for Elementum to build a community. It needs to be more than Flextronics.

So, as we think about the drivers for the tipping points—and the coalescence of new forms of analytics with big data systems, 3D printing, and the Internet of Things—there is a need in this value network to quickly to automate the supply chain moments of truth. This is the clear articulation of when and how to make, source, and deliver for the community. It needs to be multi-tier and many-to-many.

Without this, the players are stuck. Their current performance is stalled, and their interdependencies are too great to not improve through automation. It is about the network, not the enterprise. It is about the new definition of the digital supply chain. It is about new models.  This is the challenge.

So, here, I throw down the gauntlet. The race is on. Let’s see who delivers. I look forward to your thoughts.

How to Learn More:

 At Supply Chain Insights we are having fun exploring and understanding these trends.

We are currently doing research on the evolution of new forms of analytics in the hype cycle that many people refer to as Big Data, and we are completing our survey on digital manufacturing. We would love to hear from you. As with all our research, when you share with us, we share with you. If you respond to one of our surveys, we keep all of the responses confidential and only report the findings in aggregate.

In the Big Data research study, we are analyzing the adoption rate of Big Data Analytics of concurrent optimization, streaming data, cloud adoption, and cognitive learning. For more on this tipping point, please see my last blog post Dreaming of Clouds, Lakes and Streams. When it comes to digital manufacturing, it is a new world combining the Internet of Things with 3D Printing. We will be showcasing case studies of both new forms of analytics and the use of 3D printing at our upcoming Supply Chain Insights Global Summit on September  10-11, in Scottsdale, AZ. We hope to see you there!