demand driven

In Search of Supply Chain Excellence

by Lora Cecere on January 6, 2012 · 4 comments

I am heads down writing my book, Bricks Matter. The book is scheduled to publish in August, 2012. It focuses on the evolution of the three bricks of supply chain management:  asset strategies, forging strategies in global countries (BRIC countries) and having the right supply chain processes in place (supply chain bricks).  I am co-authoring the book with Charlie Chase, author of the book Demand-driven Forecasting (see it on Amazon at http://www.amazon.com/Demand-Driven-Forecasting-Structured-Approach-Business/dp/0470415029/ref=sr_1_1?ie=UTF8&qid=1326038261&sr=8-1 )written under contract with SAS Business Series with Wiley.  With the first chapter written, my first reaction is WHEW!  My second thought is that writing a book is hard work.  98,000 words is a bigger task than it sounds.

In preparation for the book, we have talked to fifty supply chain leaders, collected data from balance sheets and rummaged through consortia data. It has been a great time for discovery. I share some snippets here, and I will give you more over the next couple of weeks.  Let me know your thoughts and insights as I finish the rest of the chapters. <I look forward to your feedback.  We want to make this a collaborative effort.>

2012 is the Thirtieth Anniversary of Supply Chain Management.  2012 is a big year.  It is the thirtieth anniversary for supply chain management.  The first published document using the term supply chain management (Oliver, R.K., Webber, M.D., 1982, “Supply-chain management: logistics catches up with strategy”, Outlook, Booz, Allen and Hamilton Inc. Reprinted 1992, in Logistics: The Strategic Issues, ed. M Christopher, Chapman Hall, London, pp. 63-75) published 30 years ago.  The book will publish on the 30th anniversary of the discipline.

Time to Celebrate the Pioneers.  We are currently training the fourth generation of supply chain leaders.  The first generation is passing the baton.  They are leaving the workforce. This generation fought for a place at a table–any table– to talk about supply chain management.  They will leave knowing that there is now a supply chain organization.

The second generation were the boots on the ground building global supply chains.  This will be the first generation that will sit at the table as Chief Supply Chain Officers (CSCO).  The third generation is currently plugging away at entry-level jobs. They are trying to apply what they have learned in school to the real world.  The fourth generation is busy completing their courses at Universities. In the passing of the baton, there is a skill shortage in the second generation and a need to train and build talent in emerging markets.  Current graduates are getting jobs before they graduate with higher salaries than prior years.  It is a time to celebrate the early pioneers and reflect on the changes that have happened in the discipline.

Procter & Gamble is Seen as the Leader.  In the book, we are evaluating supply chain leadership in two ways:  asking supply chain leaders who they think did it best and then evaluating twenty years of balance sheet data.

When asked the question, respondents struggle.  There is no one company that comes to mind.  Instead, companies are seen as doing pieces of the supply chain well.  There are many examples.  Toyota is known for lean.  Dell is known for working capital management.  Wal-Mart is known for Retail Link.  However, 38% of the time, Procter and Gamble is cited as the supply chain leader.  And, in the analysis of year-over-year balance sheet data, it looks like there is a compelling story.

Do you find it ironic that despite years of investment that companies can still not agree on the definition of supply chain excellence?  There is no clear definition from the Council of Supply Chain Management Professionals (CSCMP) or APICs, and I have always struggled with the AMR Research Top 25 methodology for two reasons.  I just don’t think that you can put companies from all industries into a spreadsheet and shake them up and come up with a leader.  I also do not think that you can evaluate supply chain excellence in one year snap shots.

Earn your way to Become Demand Driven.  I have written for the past seven years on demand-driven concepts.  I am a strong believer that the reduction of demand latency and the improvement in sensing capabilities is key to supply chain leadership.  However, I was reminded in the interviews, that we have to earn the right to build these higher level capabilities by building the basics.  As a result, I built this five stage model of supply chain capability.  Let me know what you think.

In the early stages of supply chain team development, companies are focused on transactional efficiency. The focus is on basic blocking and tackling.  The goal is improving the accuracy of the order-to-cash and procure-to-pay processes and getting the basics right in the areas of inventory management, logistics/delivery, and customer service. At this stage, the supply chain does not have the credibility to discuss anything other than improving reliability of operations and reducing costs.

The next stage of maturity focuses on improving the reliability of operations.  In this stage, teams work on delivering the right product at the right place at the right time at the right cost.  This is the beginning of cross-functional discussions that become foundational in driving how value chain trade-offs can be made.

At the next stage of the supply chain (resiliency), processes start to become horizontal and outside in (market sensing).  The focus is on risk mitigation, demand sensing and the translation of market signals. At this stage, the organization slowly earns the right to improve the value in customer relationships. In our interviews of supply chain leaders, 80% of companies are working in stages 1 and 2 of the supply chain maturity model and 15% are operating at stage 3.

As the supply chain matures, supply chain leaders partner with the commercial teams to design outside-in processes that can better sense and shape demand and use these insights to drive a more profitable response.  In our interviews for this report, 5% of companies were at this stage of maturity.

In the most mature phase, the company aligns the supply chain market to market to become market driven.  In this stage the supply chain senses buy and sell-side market shifts and orchestrates trade-offs horizontally in a bi-directional coordinated response. This represents less than 1% of companies interviewed.

Each stage requires progressive levels of outside-in thinking and design of horizontal processes. However, each level of maturity opens up new opportunities to add value – including driving innovation, new business models, and executing channel strategies– with the greater organization.

Today’s supply chain responds.  Its response based on internal data with very little sensing. The response is based on little insight of market data. If markets are stable, this is not a problem. But if conditions are volatile – increases in competition, changing commodity prices or significant changes in consumer confidence/economic cycles– this is problematic.  In 2011, 85% of companies experienced a major supply chain disruption. To drive resiliency and improve supply chain reliability, companies must improve demand and supply sensing to drive dynamic decision making.

In steps 1-2 of the capability model outlined above, the processes were designed outside-in:  from the enterprise to the network.  In this traditional design, the supply chain is insular. The supply chain is blind to what is happening in the market.  The only data is internal. Trading partner relationships are transactional.  The parties share order-to-cash and procure-to- pay information, but little else. The focus is on transactional efficiency and cost mitigation. Processes are governed by inflexible rules.  The organization responds, but it does not sense.

In stages 3-5 of the model, the processes become progressively outside-in (from the market into the enterprise).  The focus shifts to focus on the use of external data.  To maximize value, companies focus on capturing market data with minimal latency, the lowest level of granularity and the highest level of frequency. The volume of data, the disparate data types and the difference in data formats have given rise to data repositories for supply and demand market data.  These repositories cleanse, harmonize and synchronize data for enterprise usage.  This shift to outside-in processes, the redesign of enterprise processes to sense before responding, is a major change management issue. It can also be painful. Why?  In the evolution, companies find that many of the processes and technologies built over the last thirty years are obsolete.

We would love your thoughts.  You will find me heads down writing this weekend.  We have 72,000 more words to complete.

 

Ring in the New Year….

by Lora Cecere on January 22, 2011 · 1 comment

Each year, as I prepare to ring in the New Year, I survey as many companies as I can on supply chain.  This year was no different.   It was great to talk to 53 companies that took my call.  Of the 53 suveyed, 49 mentioned that supply chain is growing in importance.  When asked “Why?”, the answer was all about “reducing costs.”  As I hung up the phone from the last call, I was struck by a couple of thoughts:

  1. A lot has Changed, but NOT a lot has REALLY Changed.  While companies almost unanimously state the supply chains are growing in importance, and cite growing complexity, rising customer demands, and the need to grow, the focus is on cost. The definition of the supply chain is traditional with a focus on deliver and a strong dependency on manufacturing reporting (over 50% of companies still report through manufacturing). (Manufacturing reporting relationships for supply chain are the most prevalent in asset-intensive industries that have strong needs for compliance: chemical, pharmaceutical, and pulp/paper.) Less than 5% extend into the definition of sales relationships and less than 15% extend into the definition of procurement relationships.  Most of the ideas that are touted on agility, responsiveness and the advantages from becoming more demand-driven are not today’s reality.  The focus is primarily on the response:  effective supply.  There is little focus on the improvement of the processes adjacent to supply chain in sales, finance and marketing.  As a result, the areas of revenue management, improvements of receivables and financial flows, customer compliance, and the effective shaping of demand are ripe with opportunity.
  2. More Important. Less Excitement. Supply chains are more complex — more outsourcing, ever-changing global requirements, and greater demand volatility — but, the leaders are skeptics on technology.  Few executives see anything that excites them to buy net new technology in the market, and most see little reason to invest in new technologies.
  3. We make Poor Preachers.  While companies espouse goals of delivering supply chain excellence from the customer’s customer to the supplier’s supplier, in reality, the supply chain leader only has the span of control for 1-2 areas of the supply chain within the enterprise.  As a result, the vision may be the end-to-end supply chain, but the reality is a focus on improving costs at the core of the enterprise.  As a result, most speak with forked tongues….  The leaders cannot practice what they preach due to span of control issues.

Trends that I will be Following in 2011:

Due to these trends, the technology market stagnated in 2010.  However, in 2011, I believe that we will see some new trends. These are the trends that i will be watching in 2011.

ERP Hangover.  As the year progresses, I think that the ERP Hangover will hang over companies like a heavy cloud of dysfunction.  In my survey, 23% of the companies surveyed had multiple-year ERP programs extending past 2015.  While the ERP programs are the necessary to support global expansion, the organizations are tired.  Many expressed frustration at the cost/value relationship of the project and the lack of supply chain innovation by ERP technology providers.  In 2011, as inflation rises, budget pressures escalate, and IT costs get squeezed, I expect to see an ERP hangover.  Organizations are going to wake up and say, Companies on multi-million multi-year evolutionary paths of ERP, are going to say, “Why?” And companies that have already spent millions of dollars are going to say, “I did what?”  As a result, large consulting houses that have had a strong dependency on ERP implementations –Accenture, Cap Gemini, IBM and Infosys– will increase their focus on bringing software solutions to market and providing differentiated Business Process Outsourcing Services (BPO).  Many companies in the survey were already backing away from the extended ERP vision giving room for new start-ups with innovative approaches to solving supply chain problems to get a foothold.  In 2011, I think that we will see a rise of a new niche set of supply chain technology vendors.

End-to-End Supply Chain.  Not as easy as an Erector Set.  I remember over my many years as an analyst sitting across the desk from many CIOs that would waft-on and on about using ERP to assemble the inter-enterprise supply chain platform.  The logic was if all companies had ERP system XYZ then it would be easy to connect ERP to ERP to ERP along the supply chain.  It is now clear–even to this set of die-hard CIOs– that this erector-set approach is not going to work.  It is just too simplistic.  There are three quick stumbling blocks:

  • Data model and system of record.  The ERP data model is a back-office data model designed primarily for order-to-cash, revenue recognition and procure-to-pay. Companies are quickly realizing that ERP is not an enterprise data model, and that there is no system of record for changes in compliance, tracking sustainability goals (energy, water and carbon), or multi-party bifurcated trade to support demand shaping activities.
  • Data translation.  To be useful, the data layer between companies needs to be harmonized, synchronized and cleansed to ensure data translation.  Key areas of emphasis are the product hierarchies, customer master data, calendar definitions, and item attribute information. Without translation, there cannot be the connection of usable data.
  • Connectors.  As companies do this work, they quickly find that Supplier relationship management (SRM) and Customer Relationship Management (CRM) are inadequate connectors for the end-to-end supply chain.  The inter-enterprise supply chain needs a new set of connectors to support supply chain relationships.  Look for social networking and community technologies to start to fill this gap.

 Listening Posts.  How do we listen and then respond? While all agree they should listen to the customer, none have systems–despite the evolutions in technology–to truly listen to customer. Sadly, in companies today, there is no REAL customer service organization.  We have an order management group that is often named customer service or we have a service/warranty organization that does service, but less than 1% of organizations surveyed have listening posts to actively  listen to their customers and use the voice of their buyers in supply chain decisions.  This outside-in approach is most often found in short-life cycle, high margin high tech and electronics goods where companies are using Business Intelligence (BI) tools to synthesize consumer sentiment from reviews, social media networks and blog posts.  I find this shift exciting and plan to follow it closely over the course of 2011.  It is ironic that supply chains want to serve the customer, but have no real way to listen and then drive the response.  For example, I recently worked with an automotive manufacturer that was focused on building listening posts for marketing to understand the impact of promotional activities with dealers.  This automotive manufacturer has been VERY active in US House of Representative hearings in 2011 on automotive recalls and failures.  When I asked, “if they would also like to focus on implementing listening posts to sense early product failure issues and use them to close the loop with design teams”, the answer was “it would be a good idea, but we are not ready.”  Sadly, most are not ready…. However, in 2011, I will be actively covering this technology area because they are going to need to get READY!

Sensing.  How do we sense and then respond?  99% of the supply chain effort in today’s supply chain is about response.  It is sad, but true that  supply chains have little sensory capabilities.  Historically, the focus is on response; and in most organizations, it is a blind, inflexible response.  While companies talk about sense and respond, the focus is on respond not on sense.  In 2011, I will continue to look at the evolutions in demand sensing.  I am excited by Market 6′s new work, the evolution of the Terra Technology platform for demand sensing, the deepening of optimization and pattern recognition in SAS Demand-driven Forecasting and the continued evolution of pattern recognition usage in downstream data repositories like RSI, Relational Solutions, and Vision Chain.

Demand Orchestration. Buckle your belt.  It is going to be a tough ride.  For many companies surveyed, commodity prices are undermining their abilities to hit Wall Street.  Oil will be $100 a barrel.  Cotton is at a record price.  Food companies are facing rising prices of food ingredients.  Shortages abound in rare minerals.  As leaders face this problem, demand orchestration–the mapping of sourcing and demand shaping alternatives horizontally and bi-directionally within the corporation to maximize profitability with the goal to balance customer facing-market decisions with commodity market conditions –will grow in importance.  To accomplish this, the use of what if analysis and simulation of demand variability will increase as companies try to rise above inflationary pressures.  Interesting technologies include Jonova, S&V Management Consultants, Signal Demand To meet this need, companies will need to invest in manufacturing flexibility –alternate formulations/bill of materials, agile supply chains that can flex sourcing based on changes in supply, and parallel sourcing–to rise above getting caught by fluctuating commodity markets.  Today, we see demand orchestration capabilities the most frequently in high tech and electronics and food manufacturing companies like Del Monte, Intel and Samsung.  As the year progresses, we expect demand orchestration to grow in acceptance.  

New Forms of Supply Chain Intelligence.  One of my favorite trends that I am following is the changing world of supply chain intelligence.  New capabilities are evolving that can deepen our abilities to design, sense and respond value networks.  Historically, supply chain intelligence has been limited to simple work rules, optimization and simulation.   The use of Software as a Service (SaaS) changes the game for optimization.  The use of SaaS enables parallel processing, expert tuning, data cleansing, and benchmarking opening up new horizons.  I am also following the use of artificial intelligence to map “multiple ifs” to “multiple then” conditions, advanced pattern recognition to drive listening and sensing platforms and the use of optimization in combination with simulation to model the feasibility of solutions to drive the best answer.  Technologies to watch include Enterra Solutions, Predictix, Revionics, SAS, Sockeye Solutions, Solvoyo, and Terra Technology.  This is a great trend to watch in 2011.  

Organizational Design.  Twenty-five years ago, there was no supply chain organization.  Today, the supply chain organization has matured, but is squarely focused on supply.  Over the next ten years, supply chain organizations will bridge to end-to-end processes expanding to cover the design of buy and sell-side relationships.  When it comes to organizations, one size definitely does not fit all.  There are five trends that I am watching over the year:

  • Design of supply chain centers of excellence.
  • Cross-functional promotional ladders that cross IT and Line of Business.
  • Extension of supply chain thinking into relationship definition of both buy and sell-side relationships.
  • Reporting relationships and how they are changing.
  • How companies are organizing to build buy and sell-side relationships.

Integration of the Financial Supply Chain. In the past year, I have completed two surveys to understand the advancements in the management of bifurcated trade: multi-party trade agreements for trade promotions, rebates, and new product launch.  I am surprised that in both consumer products and health care that the management of these flows is in the financial organization with little influence by the supply chain. The profit leakage to streamline bifurcated trade is a large opportunity.  As revenue management grows in importance in demand orchestration, it is my hope that we will start to systemically tackle this important area at the interface of finance, sales and supply chain.  Interesting technologies to watch in this are include Accenture (CAS), Adesso, Demandtec, IRI, MEI, M-Factor, ModelN, Oracle, SAP andSynectics. 

 OK gotta run.  The plane is landing.  I love WIFI in the sky.

What do you think are trends that I should be following? Did I miss any?