It was a beautiful Phoenix afternoon. The temperature was a welcome relief from the east coast rain.

As I was basking in the sun, the conference coordinator at The Institute of Business Forecasting (IBF) Conference, approached me to moderate their round robin discussion on S&OP.  The topic was How do I have a Reliable and Resilent Sales and Operations (S&OP) Process?   As I rushed in to facilitate the workshops, I found a full table ready to tackle the topic.

There were three rounds of rapid fire discussion. Here are the insights.

Insights

Most companies say that they want to be agile,  <Or reliable.  Or resilient. Or flexible. Or fill in your own adjective…> However, when you ask what this word means, supply chain leaders do not know. Of the 67 supply chain practitioners that joined my table discussion, one person was confident in his definition of the the word resilient.  My Point of View.  These words get bandied about, but there is no working industry standard defintion for these terms.  Without a definition, it is hard to make it a goal.  I feel that for most people that it is a bit like US Justice Potter Stewart’s attempt to explain “hard-core” pornography, or what is obscene, by saying, “I shall not today attempt further to define the kinds of material I understand to be embraced . . . [b]ut I know it when I see it . . ..”  However, I don’t think that supply chain professionals will know it when they see it, instead I think that it needs a definition.

So, to facilitate the discusion, I threw out my definitions:

  • Resilient:  The ability to have the same cost, quality and customer service in the face of market volatility (a given level of supply and demand variability).
  • Reliable:  The ability of a supply chain to deliver the right product, at the right place at the right time and at the right cost day after day.
  • Responsive:  Short cycles for a quicker response

The group accepted these as working definitions and we then moved on to discuss how to achieve this as a goal.  <Note that the supply chain to achieve these three very different supply chain responses would look quite different.>

We then moved to discuss, what would it take to be resilient?  Only one attendee had a definitive answer.  The Chief Financial Officer from Jawbone stated that:

One of the ways that he checks to see if the supply chain is resilient is to watch the rate of change of inventory in each stage of the supply chain.  When they are out of sync–one stage moving faster than the other–then you will have resiliency issues. ”

One of the goals for him is to align each stage of the supply chain–contract manufacturing inventories, raw materials, inventory in transit, inventory in the enterprise, inventory in the channel–as part of his S&OP process.

The rest of the group, was not as certain; but through discussion, the more mature members of the roundtable agreed that:

  • Reporting Matters.  The reporting structure for S&OP should be to someone that had responsibility for both profit and loss. It needs to report to a line of business leader.  Preferably the profit center manager.   The S&OP process should not report to finance, sales, manufacturing, procurement or supply chain planning.  The reporting structure is paramount to hitting the goal of being reslient or reliable.
  • The Best Look Forward.  The mature members of the group also agreed that 80% of the effort should be focused forward.  A great discussion ensued about why most groups look backwards, and why they cannot look forward.
  • Align on Assumptions don’t Waste your Time on Aligning on Numbers.  I think that this is an important insight for most companies that I work with.  A mistake companies make is getting very precise on inprecise numbers.  There is an opportunity cost to the process to try to get to the gnat’s eyebrow of precision.  Instead, be sure that the group aligns on assumptions.
  • Metrics must be Balanced.  The group agreed that there need to be 5-7 metrics that are cross-functional and support balance.  My favorites are forecast accuracy, customer service, inventory, profit and revenue.  And, while we can argue on how to best measure forecast accuracy or inventory, the key is that these metrics show the balance and the trade-offs of the supply chain as a complex system.

Yes, no suntan for this east coast gal on that afternoon, but it was interesting to facilitate the group and see just how large a gap there is between stating a supply chain goal and knowing what to do to achieve it.

What do you think?  Are you clear on how to be resilient in your supply chain efforts?

Next week, I will be attending a SAP Supply Chain Event in Newtown Square.  Will I see you there?

Thoughts on a Rainy Afternoon

by Lora Cecere on February 27, 2012 · 0 comments

Rain is slowly pelting on my window. It is late on Friday afternoon.  Too late….

I have writer’s block.  I have been working on the same paragraph of the fifth chapter of Bricks Matter for an hour.  It is a muddle in my mind and it is due to the publisher on March 1st.  The tail lights of commuters stuck in traffic are an endless chain of lights.  No TGIF for them.  No TGIF for me.

Like the rain pelting on my window, the news on supply chain has been a constant stream this week.  The news is diverse, but the headlines pool together–like the puddle on my porch right now–to say supply chain excellence matters.  These are the headlines that caught my attention:

An Apple on a Bad Day? 

Reporters are having a field day with the Apple/FoxConn stories.  My point of view is that Apple should take a page from Kathy Lee Gifford’s book.  In 1996, the National Labor Committee, a human rights group, reported that sweatshop labor was used to make clothing for the Kathie Lee line, sold at Wal-Mart.  At the time, Kathie Lee Gifford was a well-known television celebrity.  Her first reaction was to challenge the Labor Committee. In a tearful and angry reaction on her  show Live with Regis and Kathie Lee, she claimed that the accusations were false.

After one of Kathy Lee’s factory workers was paraded around the United States Capitol to testify about her experience working in the factory, Kathie Lee and her then husband Frank Gifford retraced their steps and tried to make amends. As sales of their products
plunged, they brought paychecks to the Hill in an attempt to pay the workers a fair wage and pledged to eliminate child labor through activism in Washington

Twenty-six years later, we have a similar story.  It is about Apple and contract manufacturing at FoxConn in China.  The story aired on Nightline’s special edition on Tuesday, February 21st.  The story has downplayed the 4 deaths and 77 injuries from metal explosions.  It also spoke too little about the 9 suicides with nineteen attempts to jump from the FoxConn building(s), but the pictures of the SUICIDE NETS will be an ever-lasting symbol.

The first reaction by Apple was to push back.  At a recent investor meeting, Tim Cook, the CEO, said:

“As a company and as individuals, we are defined by our values. Unfortunately some people are questioning Apple’s values today, and I’d like to address this with you directly. We care about every worker in our worldwide supply chain. Any accident is deeply troubling, and any issue with working conditions is cause for concern. Any suggestion that we don’t care is patently false and offensive to us. As you know better than anyone, accusations like these are contrary to our values. It’s not who we are. For the many hundreds of you who are based at our suppliers’ manufacturing sites around the world, or spend long stretches working there away from your families, I know you are as outraged by this as I am. For the people who aren’t as close to the supply chain, you have a right to know the facts.

The lesson that Kathi Lee learned in the 80s is the same lesson that Nike learned in the 1990s and it is the lesson that Apple should be learning NOW!  What is the lesson?  Apple needs to take responsibility for their supply chain. You can outsource the supply chain, but you cannot outsource the responsibility.

Social Commerce is more than a F-Word

Last week JC Penney closed their Facebook site.  They are the third retailer to publicly dismiss the importance of a commercial presence on Facebook.  The issue is that most plopped a shopping cart on a a Facebook newsfeed without understanding the basics of social commerce.  While eCommerce is about clicks, views and shopping carts, social commerce is about the intersection of the open and interest graphs, the ability to tell compelling stories and the offering of new forms of value.  Unfortunately, the extreme hype makes it difficult for companies to wade through the offerings to get to value.  However, I am excited about Payvent‘s announcement of a Klout-like score for social shopping today, I continue to be excited by 8thBridge‘s work on social platforms and I am excited to see the work that Digital Folio is doing on the “list” take shape in customer pilots. For consumer products companies this is all taking shape in Digital Path to Purchase projects. In these projects, consumer manufacturers are using digital technologies to influence the moments of truth of the shopping experience:  the decision to put the product on the list, the decision to put the product in the basket, the decision to use the product and the decision to repurchase.  This will redefine retail/customer collaboration.  So, as the news flashes about retailer X, Y and Z abandoning their social presence on Facebook, I YAWN.    Just another example of soft rain washing the window…. I am watching the big news happening in the background.

Disc Drives are a Case Study of Supply Chain Resilience in the Making. 

I am SO getting into the financial returns of the Disc Drive manufacturers following the floods in Thailand.  This is a wonderful story of why supply chain matters.  Sony, a supply chain laggard, did not have the supply chain muscle and resilience to meet the challenge. Sony’s products and services unit sales fell 24% year over year.   Sony reported: “The floods in Thailand were one of the major factors behind the significant decrease in sales and deterioration in operating results for the quarter. Several overall manufacturing facilities incurred direct damage, resulting in halts in production and the delayed launch of certain products. Moreover, the supply chain across the entire industry was impacted and the demand decreased as companies we do business with were affected. The decrease in sales and significant deterioration in equity in net income of the affiliated companies caused us the record operating loss for the quarter. ”

Western Digital did much better. The market expectation was that Western Digital would take a huge hit from the Thailand flooding.   CEO, John Coyne of Western Digital reported,   “We’ve made substantial progress in our mission to restore our manufacturing capacity in the aftermath of the historic flooding in Thailand. This is reflected in our Q2 financial performance announced earlier today, the continued ramp of our Thailand High Density Disc production capacity, and in the fact that we now have deployed alternate capacity that had  been suspended since October 10 made a difference. While much work remains to be done over the next several quarters to reach our pre-flood manufacturing capabilities, the progress is far ahead of our original expectations and is a tribute to the dedicated and effective actions of our employees, contractors and Thai government agencies, the efforts of our supply partners, and the support of our customers. “

Seagate the supply chain leader of the group with diversified operations performed despite the Thailand flooding.  Steve Luczo, CEO stated;   “The disaster in Thailand affected a vast number of individuals and thousands of businesses. Although the industry is continuing to increase output, it’s important to note that while many observers tend to believe that mid to late October was the low point of industry production, we believe the low point was closer to mid-December. Seagate’s geographically diversified factory footprint and broad supply chain provided inherent advantages that mitigated the impact of the floods to Seagate’s operations.

Although many of our external component suppliers are still working to recover their businesses and return to full capacity, we have been very impressed with the response and efforts of our suppliers who have worked tirelessly to rebound from the effects of the flooding. There are still clear challenges that lie ahead in our component supply chain. And to help address the gaps in various product lines, Seagate has worked with its customers and suppliers on aggressive qualifications of new parts and factories, allowing us to match precious supply to end demand.”

As a result, Seagate can predict its fiscal 2012 results while Sony cannot in this sector. Given the company’s improved visibility due to long-term supply agreements with all of its top customers (60% of capacity is under Long Term Contracts for the year), the company provided guidance not only for March and June but for Calendar Year 2012. In the March quarter, Seagate expects revenue of $4.3 billion (+62% year over year and a 36% improvement quarter over quarter) on expected unit shipments of 60 million (including Samsung).

Across the Pools

This week, I am speaking on supply chain excellence at the IBF conference in Phoenix and then flying to Santa Clara to speak on the topic of Supply Chain Big Data.  Will I see you there?

And, yes, I did get the 5th Chapter of the book done.  I am still on track for the August publication.  This picture of my grandson expresses my excitement!  Soon, you will be able to pre-buy it on Amazon.