demand driven

Raise a Toast to Digital Business!

by Lora Cecere on November 20, 2014 · 1 comment

It is the week before Thanksgiving in the United States, and as a good Yank, I am reflective. I am giving thanks. This blog was started in 2010. Today, 270 posts and five years later, I am thankful for the opportunity to sit at my kitchen table and communicate to almost 20,000 supply chain professionals globally (directly through this blog and through connections on Linkedin). I am in awe of what is possible today.

No doubt about it, we live in a digital age in our personal lives. However, this is not the case in our supply chains. In my travels, I find supply chain leaders expressing rising frustration about the gap of what they see as possible in the digital age and what they experience in their day-to-day world in their offices. It is a conundrum.

Two weeks ago, I sat in the audience at Pivotcon, a conference focused on the advancement of digital business. I listened to digital marketers wax eloquently on the future of business. In their world view, the future would be the coalescence of robotics, learning systems, and voice automation. They shared a vision of the world where everyone had more voice—expressions through social media—but everyone is heard less. Their expressed world view of digital printing, a collaborative economy, and automated systems has major ramifications for the supply chain. The portrait was a world of no smokestacks and few workers. As they talked, I winced. Manufacturing is core to the middle class and a healthy economy. Digital business offers so much more opportunity.

At the end of the session, I felt tired.  I asked myself, “Why are we letting digital marketers define the world view of the future of supply chain?”  As I stomped through the rain puddles back to the train station, I mused. The Pivotcon perspectives seem so rarefied, and out of touch with the greater reality that I see…. I asked myself, “How do I help?”  I feel stuck between the world that digital marketers project—where they want to propel processes quickly into new forms of digital business that I don’t think make sense—and the traditional supply chain leader that is struggling to make their processes work today.

At the end of 2014, many leaders that I work with are preparing their 2015 strategies. The word digital is everywhere in their presentations—digital path to purchase, digital agriculture, and digital manufacturing. As I read them, I laugh. I give them credit. They are trying to be more ‘sexy’.

Digital business processes are now the buzz with sex appeal. While supply chain professionals would like to embrace some of the more advanced concepts, and no one likes the systems and technologies that they have today, most feel stuck. It is an awkward feeling. I feel their pain. They don’t know the right questions to ask and how to get started. They want to embrace the new, but they are having problems making their current systems and technologies work today. This is the goal of this blog post.

For many, it is a paradox. How do supply chain leaders modernize their visions? What is a fad and what drives real value?

The technology shifts are many: the Internet of Things, mobility, analytics for social and unstructured data, cognitive learning, cloud-based software, canonical integration in B2B networks, e-commerce, and digital images. We are starting to see the convergence of these technologies into digital processes, but only for early adopters. Here are some insights from our recent research:

Digital Path to Purchase: In a study on trade promotion management in early 2014, we find that 60% of marketing teams within consumer packaged goods companies are working on a digital path to purchase strategy. This includes the automation of the list and driving demand before the store, driving demand in the store, mining the data from checkout, and listening to sentiment post-purchase. We find that most of these efforts are bogged down by the concepts of traditional Customer Relationship Management solutions and the lack of a basic understanding of supply chain. Only 57% of retailers have a perpetual inventory signal, and too few companies (22%) have invested in mining channel data through the use of a Demand Signal Repository (DSR). Too few companies understand the differences between syndicated data sources and the use of channel data. We are very early in our understanding of outside-in processes.

Digital Manufacturing: We have been trying to finish a research study on digital manufacturing for ten months. It is hard to find enough people knowledgeable on the subject of digital manufacturing to finish the research. This gap is telling. We have 100 completes with 41 respondents from process-based industries and 60 completes with discrete-based businesses. Only 5% are attempting to use mobility within manufacturing and only 15% of the discrete manufacturers are actively pursuing 3D printing for production-based processes (digital printing is being used more for prototypes).

Cognitive Learning: I think that we are five years away from supply chain planning systems that can learn as we sleep. Today, 9% of process-based companies in a 120 respondent survey on analytics are experimenting with cognitive learning. These technologies allow the sensing, learning and acting of processes based on rules-based ontologies. As you build your 2015 plans, experimentation is the operative word and promise should be capitalized in the following sentence.

B2B Networks: We have completed three studies on the use of B2B networks and the evolution on canonical integration structures. No doubt about it, these many-to-many data models and more advanced forms of integration offer significant advantages to the traditional EDI integration, but the primary technology for B2B networks today is the Excel spreadsheet. Only 9% of commerce flows through B2B networks. For all, this is an opportunity.

Big Data and Analytics: We are also completing a study on big data and advanced analytics. We now have 106 completes, but only 21% of companies have a team focused on experimenting with big data concepts. Data lakes, streams and pools offer opportunities that manufacturers will not be able to use unless they open their wallets.

e-commerce: What a difference a decade makes in the definition of e-commerce. While e-commerce at the beginning of the decade was relegated to retailers, today, it should be a strategy for almost every manufacturer. Selling directly to the consumer is a powerful engine of growth, but requires the redesign of logistics systems to embrace the ‘each’. Many companies that I work with are quickly moving into 2-6% direct sales, but learning the hard way that it requires rethinking warehouse management and order management.

What should you do? In short, get started. No one likes what we have today, and I think that we are in a world of hurt if we allow the digital marketing folks to define the future of supply chain.  My recommendations:

1) Brainstorm the Future Cross-Functionally. Schedule some time with your digital marketing teams and brainstorm how their efforts and yours could coalesce. Focus on how the supply chain can be the engine of growth through the use of concepts from the collaborative economy, test-and-learn strategies, or e-commerce. Think through what the future of the channel means to your supply chain. Before you have the meeting, you might want to listen to Jeremiah Owyang’s podcast on the Collaborative Economy.

2) Fund New Forms of Analytics. One of the issues in today’s supply chain is that we cannot get to data. In our investments over the last decade, we have successfully put data into systems, but companies are unable to get data out and use it successfully in analytics. (One of my clients uses the analogy of “Hotel California.” Data checks in, but cannot check-out.) Manufacturers are behind other sectors like insurance and banking. There are many reasons—lack of clear analytics strategy, belief that it is an add-on from an ERP vendor, and lack of funding (manufacturers are cheap when it comes to spending on analytics). In a recent webinar on the Race for Supply Chain 2020, Marty Kisliuk, Global Operations Director at FMC commented when he heard Chris Clowes’, Supply Chain Manager at Costa Enterprises, presentation on the Internet of Things and the automation of coffee machines using the Internet of Things at Costa Coffee, that “Maybe, we should give funds to our 30-year old teams to experiment.” Many in the audience laughed, but I think that there is wisdom in Marty’s statement. New forms of analytics—QlikView, Tableau, and Spotfire—are easier to expense and faster to deploy than the more conventional analytics from traditional analytics vendors. Why not let the younger members on the team experiment with new forms of analytics?  In 2015, why not put aside some money for testing? I love the insights from Fran O’Sullivan, General Manager of IBM.

3) Imagine What the Supply Chain Can Be. Free yourself from today’s paradigms. To help you, we are working on a series of webinars and research projects. Check out our recent webinar on the Race for Supply Chain 2020 and join us for a panel discussion with Roddy Martin from Accenture, and Mickey North Rizza from Bravo Solutions (both Roddy and Mickey were past AMR Research analysts) for a Review of 2014 Infographics. To help, we just published a collection of our best research articles from 2014 and in the first quarter of next year, we will be publishing a number of articles on Big Data, Digital Manufacturing, Mobility, Digital Path to Purchase and the Internet of Things. This is a countdown to our Supply Chain Insights Global Summit on September 9-10, 2015 at the Phoenician, in Scottsdale, AZ. At this conference, we will challenge supply chain leaders to rethink business models and break traditional paradigms. I hope to see you there!

4) Build  Organizational Muscle. Our recent research studies show that we are losing the battle on talent development. More and more companies are rating themselves lower on their ability to hire and train supply chain talent. Check out the research on talent, and start to focus on how to build that mid-management muscle and enable it through digital business.

I want to help. It is my vision to provide content for the next evolution of supply chain. During the year, we will be launching a number of team simulation games on outside-in processes and digital business to consider, and I am continuing my work with the operations research team at Arizona State University for the Supply Chains to Admire in 2015. No doubt about it: Supply chains are complex systems that need to be adaptive. They are based on flows. I am convinced that our traditional systems based on inside-out processes use the wrong rules. We are not clear how to do this yet, but I think that in this world of digital business explosion, there is an opportunity to reinvent supply chain processes and technologies. I believe that companies do not have to be stuck, unable to make progress at the intersection of operating margin and inventory turns.

In addition, my new book Supply Chain Metrics that Matter is designed to help build cross-functional teams. The book is the culmination of three years of research. As I watched the pre-orders of the book climb last week on Amazon, placing the book at #25 in business book sales, I poured a glass of wine and toasted digital business… digital business gives me the opportunity to drive a new business concept. I give thanks for you the reader, and I hope that in a small way, the work that we are doing helps you to be more successful.

And I hope that you can also  find time to raise a toast to digital business this holiday season. I think that it matters. It is more than a fad. I welcome your thoughts.


Three Questions People Are Afraid to Ask….

by Lora Cecere on October 29, 2014 · 8 comments

Groupthink is a psychological phenomenon that occurs within a group of people in which there is a desire for harmony within the group, but the result is an irrational or dysfunctional outcome.  Wikipedia

You know the drill. The meeting is on everyone’s calendar. It has been set up by the CEO or a board member’s assistant months in advance. The room is big, the PowerPoint deck is large, and the coffee cups are arranged in neat rows on the counter of the side of the room. There is an abundance of pastries flowing from the basket, and the stage is set for an impactful meeting. Even though things seem to be going well (all of the meeting details are well-executed and the speaker is giving an energized presentation), the room is eerily quiet. The speaker is speaking, the beautiful slides move quickly at the front of the room, but the audience is not engaged.

In my travels, I attend these meetings frequently. They are precipitated by a strategic relationship between a consulting company and the executive team. The consulting team pitches a theme—vision of supply chain best practices, big data analytics, or demand-driven value networks—to the executive team, and a new project is initiated. The first step in the journey is a kick-off meeting. The second step is usually a large implementation of a technology project—Enterprise Resource Planning, Customer Relationship Planning or Analytics. I feel that the industry is engaged in ‘Group Think’. No one in this meeting is going to ask tough questions. The board has not set up the team for success. Here are the three questions that I would like people to ask:

Table 1. Comparison of Results for Best of Breed Solution Providers to ERP Expansionists in Supply Chain Planning

Question 1: What drives a successful implementation of supply chain planning?  Supply chain planning is now in its fourth decade. The first evolution of technologies were built by best-of-breed solution vendors. These solutions were usually implemented by the technology provider by consultants with specialized skill sets. The promise was the delivery of a decision support system that would allow the organization to optimize the relationships between cash, cost, and customer service against the strategy.

The second-generation of solutions were built and marketed by Enterprise Resource Planning technology companies like SAP and Oracle. The promise of these solutions was that an ‘integrated planning solution with ERP would deliver greater value’. (This solution is termed the ERP Expansionist in Table 1.) This new solution was favored by the Information Technology (IT) organization. By purchasing planning and transactional systems for a common vendor, they had one throat to choke and they were familiar with the architectural elements. It was also the preference of the consulting partners because the projects were longer, more costly and better aligned with the consulting model. But, did it add more value? The answer is no. As shown in Table 1, the movement to adopt “integrated ERP and Supply Chain Planning software from an ERP vendor” moved the industry backward. Ironically, the solutions implemented by the consultants, as contrasted to those implemented by the technology vendors, also produced less desirable results.

How do I know this?  The results in Table 1 come from a nine-month research project of 120 respondents representing 183 instances of demand and supply planning. (The average company has more than one instance of both.) In the study, the respondents were asked to rate time to Return on Investment, and satisfaction. We also correlated the results to balance sheet performance. What do we find? Best-of-breed solutions have a higher Return on Investment and are quicker to implement. They also have higher satisfaction rates. The highest satisfaction comes when the technology vendor implements the solution. It is significantly different at a 90% level of confidence. In the data, we can also see that the implementations from the ERP Expansionists have significant gaps—requiring more planners, longer times to plan, and greater difficulties getting to data.

Why does this happen? Leadership teams struggle with the trade-offs between cash, cost and customer service. As a result, supply chain planning is often a targeted project when the strategic consulting partners talk to their clients at a board level. The strategic consulting partners are respected in these relationships and seldom questioned, and the stage is set. In parallel, there is a low-level of trust for the best-of-breed technology vendors. Many are very sales-driven and difficult to work with. The market was overhyped at an early stage and trust eroded. Would the board deliberately select a system that takes longer to implement, with a lower Return on Investment, requiring more ongoing labor and producing lower results? Of course not. But, the industry is in a groupthink. No one is having a fact-based discussion. This is how we see our role.

Table 2. Characteristics of those Satisfied with Supply Chain Planning

Q2: Who does supply chain planning well? What can we learn? As shown in table 2, the companies that are the most satisfied with planning are smaller organizations with 15 or less planners and without high item complexity.

To drive maximizing the value of planning, organizations need to be aligned against an operating strategy. Companies adopt planning to optimize the organization’s response from the customer’s customer to the supplier’s supplier. The supply chain planning cannot be effective if implemented by a supply chain function that is focused only on customer service, logistics and distribution. It requires the support of the organization to optimize the response for the end-to-end value chain that crosses functions.

What can we learn from this table, and the research? A successful supply chain planning implementation is about more than technology. The implementation of decision support tools needs to be a way of life. Planners need time to plan, and the organization needs to be aligned against a shared vision or operating plan. It cannot be about the optimization of vertical silos within the organization. This leads to a sub-optimal response.

The second thing that I learned from the research is that we do not have good solutions for large organizations in the market today. If you have a large number of planners and high item complexity, you are at risk. This I think leads us to the Third act of Planning.  In the third act, I believe that the technologies are very different from those in the first three decades of evolution. In the Third Act, I believe that the processes and technologies are redesigned outside-in from the channel back to the enterprise. I think that it is a new world of cognitive learning, rules-based ontologies, concurrent optimization, and B2B Networks based on canonical infrastructures with many-to-many data models. These new technologies are evolving. (I will write more on this in my next blog post.)

Q3: How do I become demand-driven? Data surrounds the company. The data in the channel is changing faster than the company can adopt processes and technologies to use it. It is piling up on the doorsteps of most major companies. Some may be used by the digital marketing teams for marketing purposes, but the average company does not know how to use it. They struggle to listen to and interpret market signals. It is ironic that there has never been a time in history where customer data is more available, and the demand higher for companies to operate a customer-centric value network to sense and respond to true demand, but the solutions to use the data are evolving. Today, they do not exist.

Most consultants and technologists are guilty of bait and switch. The discussion is on becoming demand-driven, but the recommended solution is a traditional approach. When the pretty slides are over, the consultant submits a project plan to implement the traditional forecasting, order management and supply planning that does not sense market demand and translate it into usable outcomes. The audience listening to these presentations does not have the courage to raise their hands and ask the question, “How do you define demand-driven value networks?” and then follow with the question of, “Can the traditional technologies really help us to become demand driven?” The consultants are incented to recommend the solutions that they are familiar with in implementing. Most know very little about the true definition of demand driven.

Tomorrow, I get to deliver this message to a large manufacturing client. I am speaking at their global kick-off. I am going to encourage them to not be guilt of industry groupthink. In this blog, I hope that I push you too. I want you to raise your hand and question the status quo. And, if you do not have the courage to do it directly, share the research and ask your leadership team to give me a call. I answer all emails and phone calls. I want to change the dialogue. It is tough for me to see that nine out of ten companies are stuck, and not making progress, at the intersection of operating margin and inventory turns. I grow weary of all of the consultant presentations of how supply chains can reduce inventory without looking at the form and function of inventory and the real needs for inventory to be a buffer of demand and supply volatility.

Join us next week for our webinar on Supply Chain 2020. In this session, we will share research on the future of supply chain technologies, and I will be joined by a panel of two leaders that will share their insights on what the future means for them. In addition, I am now done with the page proofs for my new book, Metrics that Matter. The book is a story. It is a fable about a guy by the name of Joe that does not want to be an average Joe. Instead, he wants to drive supply chain excellence and build the metrics that matter. To do this, he has to build a guiding coalition and  define outside-in processes. Like you, he works with a group of characters within his organization, and is struggling with how to define the opportunity for the company. To do this, he has to use political capital, against great opposition, within the organization to redefine supply chain excellence. The book publishes in December 2014. In parallel, we are busy building a simulation game for organizations to play to understand the concepts of managing the metrics as a system and the importance of outside-in processes. Attendees at our 2015 Global Summit will get to participate in the launch of this new simulated exercise. We hope to see you there!