Supply chain planning

The Supply Chain Insights Global Summit is a week away. We are currently tabulating the results to publish the report, “Top 15 Supply Chains to Admire.” In this report, we track the progress on balance sheet performance of companies by peer group and chart the relative improvement for the period of 2006-2013. This work has taken us two years to finish.

As I look at the results—and reflect back on my ten years of experience as an analyst with these companies—I find the differences between a leader and laggard boil down to five things: supply chain leadership, talent management, active design of the supply chain, strong horizontal processes, and being good at supply chain planning. While consultants and technology providers may preach that you need the latest and greatest technologies, I often see companies implementing the wrong technology, doing it badly, and sending them backwards. Supply chain leaders that make the biggest difference build supply chain potential and make small, incremental progress over time.

A Closer Look at Supply Chain Talent

For most, supply chain talent management is challenging. In the recent report that we completed, Supply Chain Talent – A Broken Link in the Supply Chain, we shared data from a recent study that only one in three companies today thinks that they are managing supply chain talent effectively. When I look at the performance data, I think that it matters.

Figure 1.

Ease or difficulty of filling supply chain positions

Talent management is not trivial, and supply planning is at the nexus of the talent problem.  Today there is a shortage of mid-management supply chain talent; and as shown in Figure 1, some of the toughest positions to fill are in the area of supply chain planning. Supply chain planning requires a good understanding of the business, strong influence skills and deep analytic capabilities. These are hard to build, and the loss of a great planner can hurt.

Job satisfaction for supply chain planners is low. As a result, companies are churning planners—they are moving from one company to another. Due to the unique skill mix, it is difficult to recruit supply chain planners. Which makes me wonder, if we gave our supply chain planners more good old-fashioned love, would we have fewer open positions? And, if the position was more desirable, would the job have higher satisfaction causing others within the company to want to do the job more readily? I think so. Here I share my point of view.

What I See in the Data

From time to time at Supply Chain Insights, we do quantitative assessments of individual companies to understand the dynamics within the supply chain organization. These are private studies that we do for clients, and we keep the results of these studies confidential. However, time after time, we see a consistent theme in the data. Supply chain planners do not feel appreciated. The job is tough and the obstacles are many. Here are the seven issues that we see most frequently:

  1. Changing Priorities. It is hard for a planner to keep up with ever-changing priorities. Planning takes time and the use of optimization requires a clear objective function. With conflicting and ever-changing priorities, it is hard to do.
  2. Rewarding the Urgent. No Time for the Important. Most organizations reward the fire fighters. Planning requires a focus on the important and allowing planners time to plan. Culturally, this is a tough shift. 
  3. Giving Planners Time to Plan.  Good planning takes time. When an employee is always fighting fires, they do not have the time to plan.
  4. Making Their Positions Meaningful. At the end of the day, when we turn turn out the lights in our offices, we all want to think that we make a difference. Supply chain planners want their work to be used. They want to make a difference. Too few companies actually use their plans to make better decisions. The degree of this gap has grown greater in my time as an analyst. The good have gotten very good, and the average companies have gotten worse.
  5. Giving Planners Technologies That Are Easy to Use. The right supply chain planning tools have the right data model that is set up to adequately model the environment, and the planners are supported by easy-to-use business intelligence tools. As you can see in our reports on technology satisfaction, Voice of the Supply Chain, and Maximizing the ROI in Supply Chain Planning,  both are an issue right now.
  6. Creating the Right Work Environment. Politics, and the lack of understanding of the basics of supply chain, are issues for supply chain planners. The planners see the gaps in the organization first, and they need leadership help drive alignment.
  7. Clarity of Career Paths. In the early days of creating a supply chain planning group, the positions were entry-level and there was high turnover. In the companies that do it well, there are established career paths that reward planning.

What I Hear in Discussions.

When groups are doing well, you don’t hear stories like these:

  • “Yesterday, I presented the demand plan to my boss. He asked me to go back to my desk and create a better plan. When I asked him to define a “better plan,” he said that it would be one that showed the company growing with less demand error. When I asked him how to do this, he said just work on the plan and make it better. I shook my head. I cannot change the basics of the business.”
  • “Good news travels fast in our company, and bad news is seldom communicated. So, when we run a demand plan on market data and see that products are not selling, our jobs become very uncomfortable.”
  • “My boss criticized our work today on the demand plan stating that the demand error was too high. He mentioned to one of my colleagues that he wanted to recruit a new demand planning team to reduce the error. He just does not understand that the demand error is characterized by market conditions and what you are selling in the market. He thinks that he can just get a new team and that the demand error will magically go away.”
  • “My general manager believes in having a high bias. He thinks that if you forecast high that you are going to sell more, then you will sell more. When I tried to explain the issues with over-forecasting on waste and inventory obsolescence, he was dismissive. We have to keep two sets of ‘internal books’. One set has the marketing and sales bias and the second has what we think that we are really going to sell.”
  • “We are always on the hot seat. Whatever goes wrong, it is attributed to issues with the demand plan. I often feel that we are the scapegoat.”

Unfortunately, we hear these stories more than we’d like. So, on this sleepless morning, as I sit in Stockholm trying to recover from jet lag, I want to ask you a question. Have you given your supply chain planner some love today? If not, why not stop by their office this morning and make the first step. I think that it matters.

We will be discussing the issues and opportunities with supply chain talent in greater detail at our upcoming Supply Chain Insights Global Summit. We hope to see you there. If not, try to join us by ustream. Supply chain talent and the role of supply chain planning are topics that I think need to be elevated.

 

This week, I will speak at Llamasoft’s conference on improving supply chain network design. I am also busy this Saturday writing reports for our Tuesday newsletter. One of the reports that I am writing is on the state of Supply Chain Planning (SCP). While other analysts may put the vendors into a four-square evaluation model and declare it magic, I think that this approach does a disservice to the industry. Why do I feel this way?  The SCP market is a fruit basket of vendors with very different capabilities. It cannot be adequately equated in a four-box model. The capabilities are just too different. (Bear with me on this rant. This old gal has built hundreds of four-box models in her decade of being an analyst.)

By and large, no one is happy with SCP as it exists today. In the recent study of the Voice of the Supply Chain Leader, we find that the gaps are large, and growing. As shown in Figure 1, the gaps with the major categories of supply chain planning are great. I recently presented this slide to a group of consultants, and a person that I love in the audience raised his hand and said, “Lora, let’s just face it. No one likes what we have today. This slide supports that what we have today just sucks. What can we do about it?”

Figure 1.

My advice to him, and to all my readers, is to focus on what drives value. The gaps in our technologies are a barrier, but should not stop us from redesigning to improve performance.

While innovation has slowed in Enterprise Resource Plannning (ERP) and Supply Chain Planning, I am bullish about some of the innovation coming from the supply chain network design technology providers like JDA, Llamasoft and Solvoyo. These tools are now enabling new capabilities to make trade-offs between volume and cost while helping companies to redesign flows and decoupling points. I also think that Quintiq’s leadership in concurrent planning to solve new problems is promising, especially in the design of transportation and inventory flows.

Interview of a Supply Chain Leader: Redesigning for Value

While technology is both an enabler and a current barrier, for me, the journey is less about technology and more about leadership. One of my favorite interviews on this topic, that I recently completed for my upcoming book Metrics That Matter, was with Amway’s Chief Supply Chain Officer George Calvert. He is the head of operations for the direct-selling leader of health, beauty and home care products. They had just implemented a number of changes, and were proud of their progress.

Here are some excerpts from the interview:

Tell me about yourself.

My path into managing operations is different than most because of my background in chemistry. The path I took came through R&D where I had many different roles including R&D management and quality assurance. When my boss retired, I took over the combined functions of R&D and supply chain operations. You don’t often see R&D and operations together, but for me it is a perfect fit.

My skill set is really more focused on pattern recognition, and operations is a numbers-based business, making that easy to do in Supply Chain. I look at patterns to construct business models to deliver both on efficiency and effectiveness.

What have you learned?

Before we took on the supply chain redesign, we had a whole series of ideas that we thought we should be doing. When we started, we developed this big list of ideas on things that we could do. Turns out many of the ideas were wrong because they were not based in fact, just perceptions.

It wasn’t that easy. In researching the ideas, like moving a business to the point of sale, we discovered that the base numbers of the business revealed new strategies. For example, we discovered that transportation and duties are 5x the expense of labor and overhead. This is a very different mix of inputs than the garment industry where labor would be a major driver. The opportunity was in reducing the transportation and duty cost, not in moving to low-cost labor markets.

In prestige beauty and nutritional supplements, the cost to ship the product is minuscule. The product is light, compact, and high value.  However, this is a different story in home care where an item is mostly water. As a result, we had to analyze what the drivers were of the supply chain cost. And what the opportunities were by business line that were unique to our model.

We found that in addition to each country’s nuances, each business line had specific requirements. For example, people want prestige beauty from the US, Europe or Japan. Customers are not looking for prestige beauty from the emerging economies. Take another example – few people know where their TV was made, but the buyer cares greatly about the reliability of that product. Product reliability, in the case of durable goods, is the driving factor for product satisfaction. So, when you are designing your supply chain, it is just as important to analyze distribution costs, material variability, and the costs of labor, along with the perception that the consumer has with the country of origin. Through this analysis, you are able to develop an effective and efficient supply chain.

How did you redesign to improve value?

It took six to nine months to look at the numbers. To do this, great modeling is critical. The strength of your decisions is directly dependent on having accurate data going in. For example, we produce in Vietnam and China. We produce there because the regulations say that you need to manufacture there to sell there. Vietnam is a low-cost market to produce products. Our factory is efficient; yet, it costs us more to manufacture the product in Vietnam because of a lack of local raw materials – compared to manufacturing it in the US, shipping it, and paying duties on a landed basis. You have to have a model that helps you to see the interrelationships. Free Trade agreements also matter. In our business, there is not one lever, there are 20 levers.

Our operations serve the globe. We are in 100 countries and territories around the world. Our activities are broad. We are engaged in everything from raising crops to making home deliveries.

Service level is our most important metric. If someone is building an Amway business, they may choose to primarily focus on selling water treatment systems.  If we do not have them in stock and available, that Amway Business Owner is out of business. We must be responsive to demand, and be diligent to reduce demand interruptions. We must also have a consistent supply of quality product. As a result, our focus is to make it right the first time. Reliability in both of these metrics is critical.

Most companies inherit supply chains. To a great extent, we inherited the supply chain that we had. When we got into it, some things did not make sense. If you are not going to add value, why do it yourself? The question we always asked was,  “Why?” For example, we made our own corrugated packaging. The equipment was 20 years old. It did not make sense, so we outsourced it and focused our efforts on what we are good at – nutrition, beauty and home/personal care products.

We invested, where it made sense. We grow and process many of our own crops. Our investment focus shifted to getting the right seed, controlling the planting, and ensuring quality conversion all the way through finished products. We have three large-scale farms heavily invested in the production of botanicals and an ongoing $332 million manufacturing expansion supporting the many new nutrition plants needed to support our growth.

What suggestions do you have for others?

Communication to the work teams is critical. Go slow and be clear. Don’t expect that something that took you nine months to figure out is going to be effectively communicated in one meeting. It has to be communicated in the right way. Our restructuring of operations meant a lot of communication. We believe in transparency, and we told people why we were making the decision, and shared the drivers. We were going to invest where it made sense.

My second suggestion to other supply chain leaders is to seek to understand your model and the fundamental drivers of your supply chain. Find out what it is. Is it labor? Is it duties, or is it transportation? Actively define both efficiency and effectiveness.

We started with consultants, but we kicked them out after a few days. I trusted my team to know the business. Collecting the data is not easy. I suspect that many companies have great capabilities to get data, but we did not. We spent the time to overcome our data challenges. We made better decisions doing it ourselves because we know the business. We were not impatient. We asked ourselves hard questions. I think that our results are better because of it.

Summary

I love George’s wisdom in this interview. I especially value his quote, “Communication to the work teams is critical. Go slow and be clear. Don’t expect that something that took you nine months to figure out is going to be effectively communicated in one meeting.” When he said that in the interview, I softly whispered, “Amen” under my breath.

In closing, I want to thank all of my readers for their help during my 2 1/2  year journey as the founder of Supply Chain Insights. On this Saturday, I will write our 45th report, and ready all of our blogs for our monthly newsletter. It is a monthly cadence of working on what we hope you believe is insightful research. It is never pay-for-play, and it is always available for you, and your teams, in front of the firewall. We believe that research should be actionable, independent, and accessible.

It is a process where you give to us and we give back to you. In the process, we keep all of our responses and contacts confidential. Interviews like this one with George Calvert are based on a detailed process of interviews, edits and approvals. We do not take this process lightly. We value the input and support of supply chain leaders. We want to give supply chain leaders a voice through our webcasts, blogs and podcasts. (We now have 95 podcasts available through iTunes and Stitcher.)

We are on countdown for our Global Summit of 230 supply chain leaders that is limited to 15% attendance of technology and consulting providers. It is designed for supply chain leaders to network with supply chain leaders. It is deliberately located at the Phoenician to enable the networking in a beautiful place where you can hike, golf and even complete a 5K with other supply chain leaders.

During the countdown for the Summit, we are completing research studies on Big Data Analytics, Supply Chain Talent, Supply Chain Planning, and Digital Manufacturing. If you complete one of our surveys, we will share the results with you and your team in a one hour call.

We are also releasing the work that we are doing on the Supply Chain Index in a series of reports and webinars. It is a methodology that is applicable to all public companies to judge supply chain improvement against peers. We think that the definition of a measuring stick is important. In the countdown for the summer, we will be getting your input to understand which supply chains have made the most progress for the period of 2009-2012. In the spirit of open research, as we learn, we share it with you. We would love to hear from you on the methodology.

This week, I will be in Chicago on Monday and Ann Arbor at the end of the week. Next week, it will be time in New York. I would love to catch up and hear your thoughts on what we are doing. Until next time….