supply chain management

The websites are swept clean. The messages are honed. The Wikipedia pages are aligned. The E2open marketing machines are spinning. The blogs, social media networks, and pundits are whirring with predictions and accolades. I watch with a bit of amusement, and want to offer a bit of caution.

Let me start with a disclaimer. The Shaman is a curmudgeon. She cannot count the number of SCM software  acquisition announcements that promised 1+1=10. In short, this never becomes the reality.  Very few software acquisitions reach their potential. The ones that do can be counted on one hand. However, I like this acquisition. It will make E2open more relevant and could accelerate the evolution of a new form of marketplace offering. The supply chain management market is troubled and needs some excitement.

icon-scm was founded in 1992. The product, a licensed offering, was designed to enable a “rapid response” of what-if analysis in material-centric discrete supply chains. The company partnered with SAP to launch a product offering, SAP Supply Chain Response by icon-scm, in 2010. SAP company passed on a thirty-day period of first refusal to acquire the asset allowing the purchase by E2open on July 31st, 2013. This licensed software offering was purchased at slightly under 3X revenues. In 2012, icon-scm had revenues of approximately $10 million. The product was used to improve supply chain decisions in discrete manufacturing companies like Avnet, Hewlett-Packard, Pratt & Whitney, and Western Digital.

Based in Germany, icon-scm and the company leadership team was driven by a very product-based mentality. The company was never good at marketing. The company name is hard to say and for client’s to remember. < I liken it to the Johnny Cash song, A Boy Named Sue. The company was born into the world with a tough name and faced a tough uphill battle. The founders bet the future of the company on the SAP partnership. The results were disappointing for both parties.>

Over the last decade, the German-based company was never able to successfully compete with the more aggressively marketed Kinaxis solution. There was a strong preference in the market for a Software as a Service (SaaS) offering, and Kinaxis was quick to claim that position. SAP’s marketing of icon-scm was one of the most confusing marketing positions in the history of supply chain software. The tension between the SAP sales team to position SAP APO and SAP Supply Chain response by icon-scm was always tough.

With all of this as a preamble, and background, let me share five reasons why I think that you, as a supply chain leader, should care:

  1. Execution is key. E2open users need to get involved. When the hype settles, it will be all about execution for E2open. With all software acquisitions, there are trade-offs. The E2open client base is a very loyal long-term user base. Now is that time the E2open client base needs to get very involved with E2open management to ensure that product roadmap trade-offs are in their best interest. Act now to avoid a surprise. I expect E2open to continue to acquire additional assets and built a stronger presence in the supply chain market.
  2. Marketplace offerings are gaining steam. The race is on. A new form of marketplace offering is emerging.  The battle lines to build inter-enterprise supply chain solutions are drawn. SAP is betting on the Ariba platform. Elemica, E2open and GT Nexus are improving their solutions, working on aggressive product solution platforms to provide new value.  Each has a different, and improved, position to improve value chain network visibility and analytics. My bet is on the evolving best-of-breed provider landscape. <I find it hard to see the value in using the Ariba network that was designed for indirect procurement to seize this market opportunity.>
  3. Validation of Rapid Response as a market is good news for Kinaxis. The Canadian planning vendor, Kinaxis, pioneered the concepts of Rapid Response early in the decade. They were one of the first SCM vendors to move to a SaaS model. It was a gutsy, but right, move. The company has waged a tough market battle for recognition. The acquisition of icon-scm by E2open now makes them official competitors and validates the space. The building of icon-scm functionality into the E2open platform should be a wake-up call for Kinaxis to move quickly to evolve their strong cloud-based architecture to a one-to-many and many-to-many data model to serve the emerging marketplace opportunity. It is my hope that they get more serious about their relationship with GT Nexus.
  4. SAP partnerships have less meaning. icon-scm and SAP partnered in 2010. It was a “preferred partner” with formally announced intentions to incorporate the Rapid Response functionality into its supply chain management capabilities as an SAP Solution Extension Partner. The partnership was on the official SAP product roadmap. It drove the buying decisions of many a CIO.  While the press will say that SAP will continue to support this application, over time, clients will have to rethink their platforms to migrate to E2open or to embrace Kinaxis. SAP is betting on their new solutions based on the Ariba Network.
  5. SAP loses momentum to drive value for supply chain leaders. The right acquisition would have been SAP’s acquisition of E2Open and public disclosure that SAP APO and SAP SNC have not lived up to their promise. In my opinion, the SAP teams need to rewrite their applications to meet clients’ needs. They are losing market relevance.

Sage Advice? Only for Turkeys.

by Lora Cecere on January 31, 2013 · 3 comments

This week, I am grounded due to weather. So, I am spending my time writing. Music is blaring, my toe is tapping, and I am hard at work on what I love. I enjoy writing research.

I am currently writing an article on supply chain excellence.  The time off the road is allowing me to think more critically about the path that got us here, and about what drives supply chain excellence (or more importantly, what does not drive improvement).

For years, I have listened to consultants espouse buzzword bingo.  You know the drill.  Getting “all the way to bright” by “harvesting the low-hanging fruit.” Or twisting the arm of the COO to use an Enterprise Resource Planning system to build the “right house of best practice” to drive supply chain excellence. I am tired of buzzword bingo. I shake my head at most of the presentation materials that I see strategic consultants present on supply chain best practices. I even had one consulting company tell me the other day that the book Bricks Matter has helped him to better understand supply chain excellence. (I laughed. I am trying to move things forward.)

To better understand this journey that we have been on together,  I have been analyzing a decade’s worth of supply chain financial ratio data for nine industry subsegments. (You would be very proud of the spreadsheet that I am analyzing.) I am poring over the results.

I am trying to find good news; but over and over again, I see the same trend. Progress is stalled. Consider the above table on healthcare.  While companies have increased Revenue per Employee across the healthcare value chain, the Days of Inventory have increased for suppliers, and there is a shift in power to the healthcare provider. Operating Margin is shifting, but total costs are going up.

When I look at a value chain (a cluster of industries chained together to deliver products and services), I see that we are pushing costs backwards in the supply chain, but not decreasing the total costs of the system. I also see that we are not decreasing the total inventory levels in the network or accelerating time to value.

When I evaluate companies at an enterprise level, I see that growth has flattened, inventories are growing and we are losing operating margin. As a result, I believe that companies are at a Supply Chain Plateau. Performance is stalled.

Consider the case of food manufacturing. Companies in this industry have increased SG&A Margin/Revenue by 1%, lost 1% in operating margin and have increased average inventories by 22% over the last decade.  The only metric that we have improved through ten years of IT investments is the revenue/employee number.  I believe that the only way to get past this plateau of results is through holistic systems thinking, enlightened leadership and holding ourselves accountable to balance sheet results. The company that has done this the best in this food peer group is General Mills.

Sage Advice? Rethinking Conventional Wisdom.

As I share the work that we are doing at Supply Chain Insights LLC on financial ratios and peer group performance with company leadership teams, I am shocked that their supply chain teams are not aware of their year-over-year performance against their peer group.

We have mapped over fifty of these evaluations in our Supply Chain Insights Community and each time, teams are surprised. (I encourage teams to ask us for a custom analysis. We will run this analysis for each company free of charge.)  So, as I sit here and finalize my reports for next week on supply chain excellence, I am thinking hard about all of the sage advice that companies have gotten from consultants.  I am questioning how we got it all so wrong. Here I want to question some of it, because as a cook, I believe that sage is a best fit for turkeys, and I don’t believe I am surrounded by turkeys. I want my friends in supply chain management to accelerate performance. I want them to  push themselves off of this supply chain plateau. Here are my thoughts:

  •  Don’t Harvest the Low-hanging Fruit. Shake the Whole Tree.  I cannot count the number of times that a consultant has told me that we need to “harvest the low-hanging fruit.”  I think that we have spent the last decade putting the fruit in the basket, but not delivering results. As we have taken the fruit from the tree, we have not rethought the orchard.  The practices that got us here in supply chain management need to be rethought. We need to think more about supply chain management as a system. The focus needs to be on the end-to-end value chain, and the processes need to be mapped outside-in. Today, less than 1%  of companies have a person responsible for the end-to-end value chain, and focus on the enterprise outside-in.  The outside-in transformation shakes the tree. Don’t stop with the low-hanging fruit. Rethink the entire system.
  • Saving Pennies Can Cost You Dollars. Over the course of the last decade, I have worked with many companies that moved manufacturing to countries with lower labor costs. This elongated their supply chain and increased the replenishment cycle. It also increased working capital and obsolescence.  As I now look at these companies’ results, they were penny-wise and pound-foolish. As I look at the corporate performance of these companies, I can see the increase in operating margins, but an even greater increase in cash-to-cash cycles.  This happened because they got greedy and sought to take advantage of lower costs of labor without understanding the impact on the supply chain as a system.  Companies that redesigned the supply chain, understanding the impact on rhythms and cycles, did far better.
  • Don’t Save Money in the Back Office to Finance the Front Office.  Use the Back Office to Drive Growth.  The folks in the back office are good at process and continuous improvement.  As I look at the increase in SG&A without the increase in growth, I think that we need more process discipline in the front office. I also think that the best supply chain teams are using supply chain initiatives as a pathway forward to drive growth through new channels, new business models and better response.  Don’t cut your supply chain to the bone to fuel sales and marketing initiatives without a seat at the table to discuss how to make it more effective.
  • The Supply Chain IS Business, Not a Department Within a Business.  For me, this is sad. For the last twenty years, supply chain professionals have fought to get a seat at the table. Suddenly, the term supply chain is being used to describe a department within the enterprise–often composed of distribution and logistics–and the concepts of supply chain management as a better way to run businesses are largely forgotten. I strongly believe that the principles of great supply chain management are key to business. Progress can never be made when the term supply chain is narrowed to only the auspices of a limited set of responsibilities within a supply chain department.
  • Project-based Initiatives Do Not Get Us There.  I know that many readers have worked on continuous improvement programs and multi-year IT programs. We have cut our teeth on these. However, I do not see that these project-based initiatives have had the desired impact on the bottom line. I believe that functionally-based projects, in isolation of a multi-year road map, have done us more harm than good. Instead, the most effective results have happened when supply chain enablement was a company initiative, not a functional initiative, and the projects were tied together in a multi-year road map.  For most companies, this is the exception, not the rule.

Gotta run. Two reports to finish before Tuesday’s newsletter.  Next week is the first anniversary of Supply Chain Insights. We are planning a big celebration. You will not want to miss it!

For those of you that have helped us in our first year journey, many thanks! We have had over 300 companies fill out our surveys, and more than 60 companies have welcomed us into their organizations to help them solve real-world supply chain problems.  We are proud to have finished 15 research surveys, launched the Supply Chain Index, built the Supply Chain Insights Community, published a book and completed 24 reports. As you will see next week, we are just getting started. Much, much more in store for the upcoming year…  But, more on that later.