As I flew to Dallas, I worked on this post. Before boarding the plane, I watched a traveler pull a diet Coke from the bin and thought about the struggle to source sweetener with the rise of COV-19. As I poured the dog food into the bowl for my pups, I wondered if I was going to have to switch kibble due to the looming issues of sourcing taurine—a health additive in many pet foods. Over the weekend, as I shopped at Lowes, it was hard for me to not think about the pending shortage of Titanium dioxide—an important ingredient in white paint and consider if I should stockpile it for the house I need to paint. Earlier that day, Lenovo delayed shipment of my new laptop. The delivery date is unknown. As I shopped at Best Buy for office supplies, I struggled to not think about the massive disruption of electronics supply chain. The Sam’s Club and Costco shortages of water, toilet paper and laundry products signals one thing for me: the spread of the virus will disrupt every supply chain. The only constant will be surprise.
As markets shift, supply chains struggle to adjust. The order is a poor proxy for demand and few supply chains have access to consumption data. While good news travels quickly in an organization, bad news travels slowly. With the downturn in the financial markets, the looming recession, and the fundamental shifts in demand—less travel and stay at home work policies—demand is changing.
Supply chains operate blindly on order data. In the downturn of the market in 2017, it took the average supply chain six months to adjust, I expect alignment with this shift to be worse. Why? The gaps in organizational functional alignment are greater and the historic investments in the supply chain are inside-out not outside-in. As a result, the supply chain processes are not aligned to sense and use data based on shifts in consumption. Instead, the changes in consumption will have to translate into a change in order patterns—shifts in replenishment across multiple tiers—before organizations will start to align. Demand latency is the translation of market consumption to an order signal.
Figure 1. Time to Sense Market Shifts in the 2007 Recession
The public markets struggled today with the plunge in oil prices. Today was the worst day in the S&P since August 2011. A decline in consumer sentiment, increasing market turmoil, and pending supplier shortages means one thing for the supply chain: disruption. The result will be more work for planners. The answer is to increase modeling, evaluate sourcing strategies, and build the right push/pull decoupling points. The problem? The role of the supply chain planner is not designed for success.
The Struggle for Supply Chain Planners
In-flight, I struggled to find the right words for the title of this week’s post. Was it, The Death of the Supply Chain Planner? I blinked at the starkness of the words. This title seems too harsh and perhaps a better fit for a mystery novel. This title also could easily be confused with the hype circulating on the elimination of the supply chain planner with the evolution of the autonomous supply chain. This is not my belief and it’s not consistent with my goal.
Could it be, “How to help supply chain planners be more effective?” Nope. Wrong focus I thought. My struggle is how to help organizations create an environment to enable planning effectiveness. By definition, in the current state, supply chain planners work in a lose/lose environment. I find that most organizations fail to step back and define a work setting to enable planning effectiveness. Due to the lack of design of work processes, the output from the technology is sub-optimal. This will become worse as the health and financial issues increase.
I settled on a title on helping the supply chain planner to be more successful in completing work during this cycle of risk management, but the advice is designed to make organizations more successful with planning over the long-run.
It’s ironic, isn’t it? Companies spend millions of dollars to implement supply chain planning technologies to drive insights for better decisions; however, there is a failure to design a work environment to enable success. Here I share three strategies to consider to eradicate some of the barriers.
As I visit companies and interview supply chain leaders on the effectiveness of supply chain planning, I am struck by the failed promise for supply chain planning technologies to create a better supply chain. As a supply chain pioneer in the 1990s, I was vested in the concept of using optimization to make better decisions. However, in my travels, I find that most organizations fail to use the tools effectively. The reason? I find three: organizational design, executive understanding of supply chain, and the lack of a clear definition of an optimization function for supply chain excellence. Here, I will share my insights and hope that you will share yours as you read my blog.
Step #1. Organizational Design. In over 90% of organizations, planners are struggling in an entry-level job. They average two-three years’ tenure in the position. Many are fresh from college bristling with strong data skills, but a low understanding of a supply chain. As they nestle into their new jobs, they are uncomfortable. (I find that like a German soldier in War World II on the Russian front, they are continually searching to find a new home.) The average tenure of a supply chain planner is two years.
Few are given training on the technology deployed. The work is hard and labor-intensive. In our annual survey, supply chain planners rate low on job satisfaction. Their largest frustration is that their plans are seldom used. Organizations tend to be political—not data-driven—and continually question the validity of the answers coming from the technologies. In many cases, the organization is right to question the answer. (Ironic since the company spent millions of dollars on the technology.) While many companies deployed the technology, the optimizers are not tested to ensure that the engines are yielding better answers. As a result, the questions become circular.
Recommendation. Create a career path for supply chain planners. Don’t make the job an entry-level position. As a part of the organizational redesign attempt to widen the planner’s circle of influence (more experience and reporting at a higher organizational level) to align the power of what is possible from the job that they control with the influence that they can have in the organization. Today, their level of responsibility (circle of control) does not align with the earned or given (title and reporting-based) level of influence. A low-level employee with one-to-two years of experience will never be successful at the helm of driving a large corporation’s planning strategy. It is just too easy to discount the plan. Planning is about the prevention of “surprise” and aligning the organization to improve outcomes. The problem? The organization is not naturally aligned. As a result, without the right organizational design, the planner is buffeted about like a piece of paper in a wind storm.
Figure 2. Aligning Work to Ensure the Right Balance of Work and Influence
Supply Chain Leaders’ Understanding of Supply Chain. Supply chain management, as a cross-functional process, to align source, make and deliver processes, evolved in 1982. The first supply chain management academic programs began in the 1990s. Less than 10% of supply chain business leaders completed formal supply chain training, yet, all believe that they know the definition of supply chain excellence.
The problem? Most companies use words like efficient, responsive, or agile without a clear definition to make the process actionable in software implementation. (An optimization engine needs a clear objective function.)
The second issue? Times have changed. Over the course of the last three decades, supply chains grew more complex. Simplistic thinking of trading-off customer service, inventory and cost became much, more complicated with the shifts in asset strategies. As companies outsourced—greater dependency on third parties for manufacturing and transportation—and asset utilization grew from 10% to 35% ROIC the management of the supply chain became more complex. As demand variability increases simple volume analyses like A,B, ad C based on units sold become obsolete. Instead the supply chain needs to be designed based on both variability and volume. Additionally, order cycle times decreased 50-75%. With greater pressure on shorter cycles and less asset availability, getting good at inventory processes increased.
In the supply chain, there are potential buffers—excess capacity in manufacturing work centers and inventory. The problem is that many teams have eliminated the asset buffer without redefining inventory strategies. As a result, they are unknowingly trying to pursue an infeasible plan. To resolve the issue, they need to test the plan through simulation to ensure that the right buffers are in place.
Figure 3. Barriers to Planning
Recommendation: Use the modeling of supply chain risk management as an opportunity to drive cross-functional organizational learning. Put your best models front and center of board room discussions. Now is the time to help board members understand the world of a complex non-linear supply chain using design analysis, simulation and what-if modeling.
Clarity of Supply Chain Excellence. Optimization engines are the backbone of supply chain planning. The engines require testing, the availability of clean data (planning master data is an ongoing issue) and goal clarity. For success, an optimization engine must have a clear objective function. To accomplish this, the first step is for companies need to align functional metrics to balance sheet goals based on strategy. The second is to identify/type supply chains based on variability and volume. Each supply chain type could have a different objective function.
The problem? Most companies are not clear on their goal and they lack the understanding of what is possible. Most want it all, and foolishly believe that they can push an optimization engine against an objective function of efficiency, responsiveness, and agility simultaneously. They do not realize that the goal of the lowest cost supply chain is distinctly different than the goal of maximizing customer service while minimizing costs. Spending time to tune engines is essential to drive success; yet, most companies have not tested their engines to ensure success.
Recommendations: Type your supply chain based on volume and variability and clarify the objective function for supply chain optimizers. Then test the optimizers in supply chain planning to see if they are improving outcomes. Many are not. Don’t assume that they are.
In addition, as the world issues on the virus reach a crescendo, model the supply chain and test feasibility of solutions using “what-if” analysis and simulation. Test but verify.
We are living in the middle of a risk management supply chain case study. To help make work easier for supply chain planners to work through enormous issues consider aligning their job levels to balance control and influence and design/simulate supply chain response to improve outcomes. Use the simulation output to educate the executive team on what is possible.
Good luck in these trying times. I welcome your thoughts.
If you enjoy reading the Supply Chain Shaman consider subscribing to the podcast series Straight Talk with Supply Chain Insights. We try to post weekly and also share interviews with supply chain leaders.
Additionally plan to join the conversation at this year’s Supply Chain Insights Global Summit. This year it will be held in Franklin, TN (south of Nashville, TN). There are three tours—General Dollar (use of advanced analytics to understand consumer behavior in test stores), MARS (rethinking demand management to include demand sensing and translation) and Schneider Electric (digital manufacturing). The unique conference format is designed for extreme networking. Presentations are hand-picked. We recently added Tom Morton, Vice President of Supply Chain at Eastman to discuss the design and implementation of a customer-centric supply chain, Rahquel Purcell, Chief Supply Chain Officer to share insights on the redesign of the North American L’Oréal supply chain to fuel growth, and Jane Kaiser, Head of Bayer Crop Science supply chain to present a case study of Bayer’s deployment of a manufacturing digital twin. We are busy updating the website.