Supply chain planning

Untangling the Chains

by Lora Cecere on August 8, 2011 · 4 comments

Aaaargh! Expletive.  They are a tangled and knotted mass.  For many of us, they appear to be very complex.  The move to global has made it worse.
Is it one?  Or is it many?  Over the past seven years for 90% of companies that I work with deal with this tangled mess as one; yet, supply chain professionals know intuitively that they do not have just one supply chain.  They also know that if they could unravel them, that they could drive higher levels of supply chain performance.  The question for most is HOW?  If your response to “How many supply chains do you have?”  is “I don’t know.”, this blog  post is written for you.
The best supply chain designs start outside-in (from the channel to supply), recognizes the drivers of the supply chain, and applies the design holistically to the value network from customer’s customer to supplier’s supplier. As companies navigate this journey, I find that they shift.  They mature to look at supply chains through a different lens.  It is a journey of looking at supply chains by:

  • Supply-centric  view:  Products or assets
  • Buy-side characteristics:  Inputs
  • Sell-side characteristics:  Channels
  • Holistic:  Rhythms, cycles and drivers (from channel to supply)

It Matters.

Yes, based on my work with over 250 companies, I feel deeply that it matters.  Clear identification and typing of supply chains enables you to do five important things in your journey for supply chain excellence:

  1. What is the goal?  Most companies inherit their supply chains, and they are unclear on the goal. The traditional goal of right product at the right time at the right place is insufficient.  Companies struggle with questions like what is the role of lean?  Of cycle times?  What is the role of the supply chain to enable growth?  How do companies balance asset strategies and innovation?I find it ironic that the same companies that spend years designing manufacturing plants do not apply the same discipline to the design of the supply chain. By untangling supply chains, it becomes clear that certain supply chains have different goals making alignment easier.   
  2. Alignment of Metrics to bring Strategy to Action.  Each of the supply chains entangled in the amorphous mass has different potential.  Companies driving higher levels of excellence, use the same metrics for each supply chain, but base the target of the metric on the supply chain potential.
  3. Driving Information Technology (IT) Strategies:  The characteristics of the supply chain should drive IT investments.  Most companies find that they need very different technologies by supply chain to drive competitive advantage.  The typing of supply chains accelerates the ROI on technology investment.
  4. Design of Relationships. The nature of the supply chain will drive different types of relationships.  Strategic relationships are needed when the supply chain needs specialized services or needs to recognize the ownership of intellectual property.
  5. Building of Push/Pull Boundaries.   The most mature supply chain designs make conscious choices about when they push and when the supply chain aligns for pull, and how they design push/pull boundaries.  Teams new at design will usually say, “huh?”

How you get Started?


Often the supply chain group knows the answers intuitively.  Look beyond items or assets.  Close your eyes.  Think about two factors:  

  • What are your supply chain drivers?
  • Where do you experience variability?

The goal is to identify 4-5 distinct differences to better align your supply chain efforts.  Let me give you some examples:

Apparel.  The design of apparel supply chains typically boils down to three types:  fashion, basic items and personalized items.  Each of the supply chains has a different rhythm and cycle.  The supply chain for basics can be long and efficient.  The supply chain for fashion items needs to be short and responsive.  The supply chain for personalized items needs to be agile.

Food. The food supply chain is usually defined by an expensive ingredient, or type of storage, or shelf life.  In these supply chains, companies speak of frozen, refrigerated or dry supply chains.  Or shelf-stable and short-shelf life supply chains.   These supply chains are heavily driven by commodity markets and product handling considerations.

Consumer Products.  The most common typing of consumer products supply chains is based on flows:  turn volume, promoted volume and new products.  These supply chains tend to be very global and the regional profiles of these drivers are very different.  Turn volume supply chains are designed to drive an efficient response.  Heavily promoted items require a very responsive supply chain and new products need an agile supply chain.  Products will move within supply chains based on market response.  The key is the design of the supply chain to plan globally to enable a regional response.

Consumer Electronics.  These supply chains are often typed by the combination of variability (demand and supply) and lifecycle.  The teams will type products by demand and supply variability by life cycle.  Products with short life cycles and high demand/supply variability need to be designed for agility.  Products with long life cycles with low variability can be designed for efficiency.

Discrete Manufacturers. These supply chains are often characterized by platforms (sometimes termed programs) and warranty/service.  For make-to-order discrete companies, the supply chains can also be defined by degree of configuration and labor input. WARNING!  In this industry, most companies forget about the design of their service supply chains.

Over-the-Counter Drugs.  These supply chains are driven by usage.  These companies will often have a very efficient supply chain:  products that have low variability and stable demand.  They also have products with high demand variability based on either weather or disease, and new products.  The products that have high demand variability and high volumes need a responsive supply chain with very short cycles.  Why?  We just cannot predict when the sun will shine for the sale of suntan crème or when there will be a flu epidemic.

Specialty Chemicals.  These supply chains are often typed by active ingredients or molecules.  Demand is usually predictable, and the focus is on the management of the supply chain by supply.

Agrosciences.  These supply chains are driven by the dynamics of planting—the undeniable moments of truth of planting, harvest and packaging—and  weather.  These supply chains need to be designed for agility.
These are designed to get you started in your thinking.  Please do not use them as prescriptive.

What it is Not….

 
While typing supply chains can drive significant improvements, try to avoid these pitfalls:
An excuse:  It should be used to guide a discussion on supply chain potential, but should never be an excuse for poor performance.
Too many to manage:  If you come up with more than five, you probably have too many to manage.  Try to keep it simple.
A panacea:  It is not the answer for everything, but it is an important differentiator.  It is a way to improve supply chain planning and execution, but should not be thought of as a driver of a major reorganization.  Don’t take it to an extreme.
A one-time activity:  The use of supply chain categorization will take time to master, but should not be seen as a panacea.  It is a starting point for supply chain design, but will need to be updated frequently (quarterly or semi-annually) to be useful.

For those of you out there struggling with this question, I hope this helps.  What do you think?  Have you used any techniques in this area that have helped?

I am in Vegas this week writing on Big Data Supply Chains.  I look forward to hearing from you.

Spice it up?

by Lora Cecere on July 22, 2011 · 0 comments

 

Wanted:  Orange shirts for green guys.   

Needed:  Community members with strong commitment, passion and vision. 

Yes, Spiceworks is calling all to a new form of community.  It is a new way of buying and deciding how to buy IT solutions.  It is one that is “spicing” up the sale of software and IT solutions.  The company’s name will be a new concept for most of my readers, but I feel that there are some significant trends to track. 

Background:

About a year ago, one of the founding partners of Altimeter asked me to share my perspective on VRM.   Sigh , I HATE acronyms.  I tried to control a visceral response.  Here was a new three-letter acronym in the market.  So, I obligingly asked, “What is VRM?”  The response was Vendor Relationship Management.  The look was: “What are you, Stupid?”  When I asked how VRM is different than Supplier Relationship Management (SRM), I got a dispassionate look.  Yes, the social guys are labeling what is known in enterprise applications as SRM as VRM.  SRM and VRM are procurement systems that are coming from different starting points, but are attempting to put the “R” (relationship) into the world of procurement.

In March, this little known community – Spiceworks — crossed this chasm.  Spiceworks is a community service designed to help small and medium businesses with improving networking decisions.  The community targets directors of IT that are buying materials, supplies and services to improve their IT networks.  Spiceworks recently added capabilities to enhance buying.  The company added features like Request for Proposal (RFP), purchase list management, organizing what they need to buy and evaluating purchases through ratings/reviews. 

Social is converging with supply chain management.  It is on the edges, and in the words of one of my fellow partners at Altimeter, Jeremiah Owyang, “There are two degrees of separation now.  Soon it will be one….”  It is for this reason, that I have been investing my time in understanding the definition of social applications and sharing insights on the pending convergence.

Why I think that it Matters:

For me, Spiceworks is a poster child of what is to come for enterprise applications.  It is a friendlier, more effective buying experience for four reasons:

Upside Down.  Changing the Paradigm.  It brings social to the business-to-business (B2B) experience.  To do this, the community launched 270 vendor pages and encouraged vendors to develop vendor ambassador personas –green guys– in the community.  A green guy’s role is to SERVE the community.  It is only after they SERVE the community can they earn the right to service the business.  Today, there are fifty green guys—vendors– active in the community.  A green guy, like Lauren Mccadney affiliated with CDW page is live at: http://community.spiceworks.com/profile/show/Lauren%20(CDW)?filter=contributions.

My point of view:  As you enjoy your cup of coffee this morning, consider JUST HOW DIFFERENT THIS IS.  Let me repeat:  a process where vendors serve the community first before they can ask for the sale.  This is a polar opposite from the traditional license sales model of enterprise applications.

Relationships matter.  The world of social is moving downstream to shape the face of enterprise applications and the enterprise application market is moving upstream embedding social capabilities.  I question how this will evolve?  In my quest for the answer, I asked Spiceworks for their perspective.  I asked, “Why did you build this functionality versus embedding existing Supplier Relationship Management (SRM) software?”  Their answer was interesting.  They felt that it was easier to build the functionality for three reasons:

  • Right fit for the market.  The Small and Medium Size Business Market (SMB) needs an easy to use solution.  Their term is “lightweight.”  The belief is that the existing SRM functionality is too complex for this market.
  • You can put enterprise into social, but it is tough to put social into enterprise applications.  Spiceworks perspective is product marketing teams within enterprise applications are not as focused on the social principles that build community.  Social is at the core of this new offering.  The belief is that it is easier to build transactional systems around the needs of social communities than to put social into enterprise applications.  (This is an interesting conundrum.  And, it is a point of view that Salesforce with Chatter or SAP with Streamworks does not endorse. But, my users of Salesforce Chatter or SAP Streamworks discuss openly how the social workflows are not well-integrated into the business application.  So, I am watching to see how this evolves.) (Is this analogous to you take the girl out of the country, but you cannot take the country out of the girl?)
  • Integrated Workflows.  The workflows in a community buying experience are different.  Spiceworks felt that it was easier to deliver integrated workflows by building the solution too.  In their words, “social is part of their DNA.”   It took them three months to build.

    • 

My Point of View:  We are on a collision course between social reformers and ERP expansionists.  I believe that the drive to design enterprise applications from the outside-in to be market driven and the need to build around relationships will tilt in the favor of the social reformers and not in the favor of the ERP expansionists.  The discontinuity of this technology trend will drive more and more buyers to cloud services.

A new chance to design reward systems.  Last week, when I was at SAP Base Camp, there was a discussion of how they get feedback from customers.  SAP has 24 industry groups designed to get customer feedback.  I give SAP kudos for designing one of the best customer advisory systems in the industry.  However, the governance model for the customer advisory boards for enterprise applications even in a more advanced form like at SAP is missing a critical ingredient.  It is one that was not possible in the 1990s when enterprise applications evolved.

My Point of View:   It is not sufficient to accept input equally from customers, instead, I think that the governance model should reward customers based on knowledge and rate input into development based on knowledge and contribution to the community.  This is counter-intuitive to the traditional enterprise application customer advisory boards that reward two types of behavior:  those that yell the loudest or the company that pays the most maintenance.  In social communities, the reward systems are critical to driving engagement.  For example, Spiceworks rewards community members based on a “heat rating” based on the spice level of peppers.  Community members compete to see who has added the most “Spice” to the community via a “heat index” based on pepper nomenclature (see figure 1).  Believe it or not, members of this community want to be a Capsician.   As a result, all users of the community instantly know the “credibility” of the user giving input.  Bottomline:  Users of software are not equal in either insights or knowledge.  Communities give us new ways to drive reward systems and to categorize feedback based on a span of knowledge.

Figure 1:  Spiceworks Pepper Index

Not just about Transactions.  It is a way for vendors to get feedback about options, new products, services and market requirements.  It can fuel innovation networks.  AMD and Intel are using it to gain early insight on features and market drivers.  Communities can play a new and exciting role in bi-directional feedback for innovation networks.

My Point of View:  The “ends” of the supply chain are frayed.  CRM and SRM are not sufficient APIs or adaptors to connect value chains. There is no “R” or relationship in these enterprise applications.  These adaptors and aligned, enriched relationships are an important steps in defining outside-in processes for demand sensing, insights for open design networks and ensuring social responsibility.  This is a trend that has broader implications.

Conclusion

Talking to Spiceworks both excites and depresses me.  I love what they are doing, but I wish that it had broader applicability.  I would like for there to be a Spiceworks type of community for supply chain management technologies.  I firmly believe that the traditional method of selling enterprise applications for supply chain– licensed sales with long sales cycles – is broken.  It only rewards the sales person that gets a large paycheck.  I would love to see supply chain applications sold on a community built for the community that can accelerate value and technology evolution.  I feel that this is a much better model than customer advisory councils.

I have read three surveys this week that estimate that supply chain managers trying to understand social concepts is less than 3% of the population.  While the flames are burning up the processes of marketing, and challenging the processes of human resources, the supply chain management community is largely unaware. This is my source of depression.

What do you think? Should VRM and SRM be allowed to co-exist?  How do you think that the worlds of social communities and enterprise applications will collide?  Are you ready for a friendlier, more social buying experience? 

I am in seat 1C on flight 1771 on my way to San Diego.  I am traveling between two client engagements.  One on the revisiting of Sales and Operations Planning to be outside-in on Software as a Service platforms and the second to better understand how to use structured and unstructured demand signals.   This is my world.  I am bridging between the old and new worlds of Supply Chain Management.  It is keeping me hopping.  Watch for more posts next week.