The title says it all. The book is done. Yes, I am busy writing reports. This morning, we published our second report from Supply Chain Insights . Check it out at SlideShare. Two more reports are planned for this week and one is in the queue for next. It is great to be able to write reports in front of the firewall based on quantitative data.
I love it! Real data from real supply chain leaders that I know and respect. It is fun to be unplugged from a large research firm, uncensored by technology vendors and unabashed in my approach. I am now free to write openly for the supply chain leader based on the trends that I see. Did I tell you that I am having fun yet?
The Report Findings
In short, in the report, we share that while supply problems abound (dirty data, product proliferation and rising commodity prices), 2012 is the year of demand. Supply chain leaders have spoken. Companies are trying to redefine demand management and are actively investing in demand sensing. In this journey, they will tangle with the emerging definitions of big data, new forms of demand data and the continued evolution of Demand Signal Repositories (DSR). The good news is that many software vendors are ready with new solutions that can help. They are in early launch phases, and are currently under NDA. So, more on that later, when the Shaman can speak publicly.
Quite frankly, I was surprised to see that there was not more emphasis on supply by supply chain leaders in the data. When I asked why in follow-up interviews, I heard a lot of frustration. Companies do not want to do more of the same. Their success in improving supply has been a slog. Companies have a multiplicity of systems, there is a low satisfaction level of supply chain systems among supply chain leaders in all areas except logistics and warehousing.
In my opinion, one of the greatest issues was the lack of clarity on “What is Supply Chain Excellence” during the implementation cycle. I feel that we are curently digesting a myriad of systems that were implemented during Y2K and then thrown to the wind as part of mergers and acquisitions. And, let’s face it, most of these implementations were not stellar to begin with.
Most supply chain leaders are frustrated, some are angry and many are resolute to do better next time. I think that we go forward by going forward. Three decades of supply chain management are behind us, we are at the dawn of a new era. Growth has flattened, costs are rising, and supply chain talent is becoming scarce. The big IT budget to implement big projects is not today’s reality. <Remember those days? WHOAH! The stories from those days may be my next book.>
Learning from the Past
I think that we have to learn from the past, and not repeat past mistakes. As the large consulting projects for Enterprise Resource Planning (ERP) wind down, more and more consultants are hanging out a shingle to help companies define supply chain leadership. I am worried. I see too many people and too few of them with a good understanding of the basics. Here are three recommendations that I have for my friends in supply chain management after writing the report:
Process is the Wrong Place to Start. Start with Supply Chain Strategy. When people speak to me about starting with process and best practices, I smile. I think that we have few BEST practices. Instead, I feel that we have EMERGING practices. Please avoid those consultants that start with slick powerpoints advocating BEST PRACTICES.
The processes that are the most mature today are in the areas of transactional processing: order-to-cash and procure-to-pay. Yes, we know how to pay an invoice and write to a code of accounts. And, hopefully, you have made progress on building a reliable supply chain. One that can take and process orders reliably. If so, it is ok to give yourself a pat on the back in this area. It was hard work. Hopefully, you are done with your ERP implementation now and can move on and use the data. If not, stay focused on the basics.
As you move forward, you will find that the least mature areas are those that are growing in importance. This includes demand and supply sensing, risk management, revenue management, Sales and Operations Planning (S&OP), demand orchestration, and supplier development. These are horizontal processes. Companies have focused on the definition of strong vertical processes (make, source and deliver) without a clear road map of how to make trade-offs horizontally. What supply chain leaders have failed to define is an actionable supply chain strategy that helps companies make decisions cross-functionally. While the functions have become stronger, most organizations lack clarity on how to make trade-offs. Functional excellence can be a deterrent to supply chain excellence.
So, what is supply chain excellence? In short, you need to define it. It is the delivery of the business strategy at maximum supply chain potential. So, if I were in your shoes, the first place that I would start is in the definition of Supply Chain Strategy as defined by figure 1 above. I would not phone a big consulting company. Instead, I would start outside-in: from the markets back. I would work to actively define meaningful customer and supplier relationships:
-What is happening in key relationships on both the demand and supply-side of your business that needs alignment?
-How do you use the redefinition of these relationships to sense market changes?
No, I am not speaking of last week’s changes, or last month’s market shifts. Instead, I am speaking about the use of daily data used daily with near real-time latency powered by new forms of analytics that allow you to sense and learn.
The ends of the supply chain are fragile. The center definition of the supply chain is stronger. To define the supply chain outside-in, the supply chain leader will need to win the support of the Chief Operating Officer to build and execute this strategy. Why? It requires the definition of the extended supply chain from the customer’s customer to the supplier’s supplier, and the redefinition of customer and supplier relationships. Sales and procurement will be very resistant because the traditional roles of sales and procurement have been very transactional. Be patient in this journey.
Then focus on the product platforms and the acceleration of new product launch processes. How well are you bringing new products to market? And, rationalizing product life cycles? And, using supplier innovation networks to fuel design? Build strong relationships with R&D to help infuse supply chain thinking into the stage-gate processes for new product launch, and work to bring more value into the value chain through actively defining these processes.
After answering these key questions, define the network design for each of your supply chains clearly defining the supply chain response. I love what is happening with the new generation of network design tools. Invest in them to understand the effective frontier for each supply chain and how to make the right trade-offs between cost, service, forecast accuracy and working capital. Actively define the supply chain response and communicate it to your teams. This will require work; and remember, that the most efficient supply chain is seldom the most effective.
Then focus on the building of talent. Augment the good work in supply lean initiatives by investing in Forecast-Value Add (FVA) initiatives and “what-if” modeling. Build a cross-functional understanding in your team through horizontal career paths and focus on horizontal process excellence in Sales and Operations Planning (S&OP), Supplier Development, Corporate Social Responsibility (CSR), and Revenue Management. Supply chain talent is becoming a constraint. In the words of one manager from South Africa, “I looked at the situation. Yes, the gaps in my team were large. One option was to just terminate them all. There was sufficient cause, but I had a problem. The issue was that the available candidates in the market were no better than what I had on my team. As a result, I sucked it up and took responsibility to train the supply chain team.”
After doing this, then move to process. Define the process definition for your company. You are then ready to define your three-year road map for process improvement.
A Project-based, Piecemeal Approach is too Limiting. Many companies have deployed a functional strategy of many projects working on continuous improvement in isolation. This just will not work anymore. In the words of one supply chain leader, “We have made a lot of supply chain investments, and all the project teams report outstanding progress, but the overall progress in supply chain excellence for my organization is stalled. I am to blame. We have outsourced the responsibility for crafting our supply chain vision to ill-prepared consultants and wrongly believed that we would deliver supply chain excellence through an extended ERP project. Yes, we can now better see and record transactions, but we have not improved our ability to sense and adapt to market changes. The ends of our supply chain are fragile. The fault lies with me and my lack of vision for the organization. We will not make progress through this traditional piecemeal approach.” In short, there is no substitute for leadership. While supply chains can be outsourced, and talent can be obtained through new ways of deployment, supply chain leadership and vision are the largest barriers to progress. A piecemeal approach will not get you there.
Forge a three-year road map based on a well-defined supply chain strategy, and please do not hire the busloads of consultants to lead this effort. In my opinion, there are just too few in the market that really understand supply chain excellence. If you are interested in my short list, please send me an email at email@example.com.
It is a Multi-Year Journey. In the research for my book, Bricks Matter, I interviewed 75 supply chain pioneers on the evolution of supply chain practices. I loved listening to their stories. One of the most memorable quotes was:
No real impact can be made in a supply
chain in less than three years. It takes time.
Marty Kisliuk, Director of Global
Operations and Business Development,
FMC Corporation Agricultural Products Group
Marty, I could not agree more. However, the supply chain leader has to build the guiding coalition to earn the organizations’ support over this journey. I firmly believe that it is about the delivery of value.
In short, this week, and the next three, I will be traveling. I am in Germany this week catching up with leaders at SAP; and next, I will be at the Consumer Goods Sales and Marketing event. The following week, I will be checking in with IBM at DemandBetter in San Francisco and speaking at the APICS/IBF Best of the Best S&OP conference. We are currently working to close the surveys on Big Data Supply Chains and Mobility in Retail. Lots is happening in the market, and I am excited to share the insights. I hope to see you in my travels.