How Did We Get it All Wrong?

by Lora Cecere on November 16, 2012 · 3 comments

Last week, my mother died. It was not unexpected. She was 88; and she had been in and out of consciousness for the last year. In between tears, picking out a casket and talking about the funeral service with the preacher, I got a random call. At first, I was not going to pick it up; but I thought, “I need a diversion.”

It was Steve. I do not know him, but he reads my blog. He was exuberant. His voice was almost desperate. The discussion opened with, I do not know you, and you probably get a million of these calls, but I need to talk. I have read your report on S&OP technologies, and I have some questions.”

It was clear that Steve wanted advice. The wonderful thing about the work I do at Supply Chain Insights is that I can now connect to people I do not know through my blog, and they are able to reach out to me directly to have a discussion. In my prior jobs as an analyst, the research reports were locked behind a paywall; and even though I would have liked to have been able to talk directly to Steve, the commercial model of the prior positions prohibited it. I like being able to do my own thing and to give “frank advice” to people that need it. And, Steve needed it.

The call continued. His company made parts for the mining industry, and he was leading an S&OP process. He felt hamstrung. He wanted to build depth in the S&OP process; but, he had not been able to convince his management team to purchase an S&OP technology. While it had been listed as a budget item for the past four years, each year the IT department had overrun their budget and was forced to cut the line item from the budget. Each year, the project got “delayed” to the next year.

Steve’s IT department tightly controlled technology spending. It was an Oracle shop. The IT department was certain that they needed a tightly integrated business solution for S&OP and that they needed a licensed application and full-blown implementation team to get it right. They were convinced that it needed to be Oracle wall-to-wall. Meanwhile, Steve was stuck managing his process for a complicated distribution-centric business on spreadsheets. We talked for an hour.

I explained how I was becoming more and more convinced that companies needed technologies to drive S&OP.  Spreadsheets are insufficient. Based on the work I was doing on financial metrics, and studying the Supply Chain Effective Frontier, I was convinced that companies cannot effectively model the required trade-offs of good supply chain decision-making in S&OP using spreadsheets. Instead, it requires a data model that enables “what-if” analysis to manage the trade-offs. I explained that without a financial data model, companies made unconscious decisions on these trade-offs inserting risk into their decision processes. He agreed. It was clear to him that he needed a system.

We then discussed his dilemma. His had many questions:

Should he wait for the implementation of Oracle using the traditional approaches? My quick answer was “No.”  I explained that with the evolution of Software as a Service (SaaS) solutions, he could now fund the technologies from his operating budget and bypass IT. I encouraged him to do so.

What was the best solution for his business?  I quickly commented that it was not Oracle. We discussed how the Demantra application purchased by Oracle in 2006, and embedded into the solution, was a great technology, but that it required a very skilled user.  I liken the Demantra solution to a Ferrari. Great engine, but it requires an extremely skilled driver.

Steve quickly confirmed that they did not have that level of expertise.  We also discussed that the Oracle SCP model did not have a data model for DRP.  The technology was built for a make-to-order or configure-to-order supply chain. My question for Steve was how could he model his S&OP process without a DRP data model? He quickly stated that this was not possible.  So, my question was, “Why was he considering Oracle?” His response was, “Because that was the only option that IT would allow, and that the marketing of S&OP solutions was just too confusing to understand the pluses and minuses of what was possible.” He thanked me for the report, Putting Together the Pieces, and we then discussed the merits of the SaaS solutions from Kinaxis and Steelwedge.

How could he engage with a vendor to be sure?  After talking through the pluses and minuses of the solutions, we agreed on a shortlist. We then discussed how to engage the candidates in a bake-off.  I explained that no one should select a solution based on a PowerPoint presentation or a conference room demonstration. He agreed, but had no idea how to run the test.

We discussed two approaches:

  • Supply Side Testing.  We discussed building a pilot test script based on the “What-if” analysis the team would liked to have done over the course of the last year. I encouraged Steve to take the last year and look at all of the analysis that he would have liked to have done and to package it into a test script that he would give to the short list of vendors with a sample data base.
  • Demand Side Testing.  I recommended that Steve take the last four years of shipment data, and give the technology vendors 2009-2011 and ask them to forecast 2012. He would then compare the output of the pilot to the actual shipments of 2012 to see who has the greatest accuracy.

I  wished Steve good luck and closed the call.  His final comment was that he wondered why vendors made it so hard to understand what they did. I smiled, and commented, “Steve, that is what keeps me in business.  If the vendors were clear in their messaging, then you would not have placed a call to me.”  He laughed.  We both needed a laugh.

I hung up the phone and shook my head wondering how we had taken the supply chain planning space down such a troubled road.  The move to tightly integrated supply chain planning with Enterprise Resource Planning (ERP) and limiting the choices for the supply chain user to these offered by the ERP vendor is problematic.  Most manufacturers have bought an ERP application that does not have an APS or S&OP tool that meets their business requirements. Unfortunately, most do not know enough to know the difference. I have probably had five calls like Steve’s in the last month.

As the day progressed, I thought of my mother. She was a longtime educator and committed to helping people. She would have been glad that I took Steve’s call on the day of her death. I give thanks this Thanksgiving for having her in my life for 88 years.  I would not be able to do what I do today without her support and guidance.

Peace to all this holiday season.  May this find you and your families safe and well. All the best!

 

 

 

{ 2 comments… read them below or add one }

Susan Walter November 16, 2012 at 6:10 am

Lora – my sympathies on the passing of your Mother.
Yes – she would be proud of you. You serve a great need to the Supply Chain Community. Keep blogging! – Susan Walter

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Hugh Sutherland November 16, 2012 at 10:09 am

Dear Lora, condolences on the passing of your mother. Sadly, if we out live our love ones, this situation is inevitable. I have the greatest empathy with you as the passing of my mom was undoubtedly the lowest point in my life.
You ask the question, “How did we get it all wrong”? Did we get it wrong or was it just a matter of over complicating a rather common sense industry to the point of confusing Boards? Although you have not clearly indicated Steve’s position in the company, he apparently has very little say over the situation you described. However it appears he believes that his performance is being affected by the lack of technology to drive his S&OP challenges. And, while I fully support the advice given to him, I take this opportunity to reach out to people who are charged with responsibility to manage a critical function like S&OP, to create a value proposition supporting their Capex budget in terms of ROI. I don’t believe this would have been difficult as the investment would probably be in the order of 0.01% of the company’s revenues. Steve said, “it had been listed as a budget item for the past four years and each year the IT department had overrun their budget and was forced to cut the “line item” from the budget. “Cut the line item from the budget”? Is this what it has come down to, S&OP technology being perceived by management and IT departments as a “line item”?
This is where we are getting it all wrong. Is it the profession’s inability to leverage Boards’ appreciation and understanding of SCM’s contribution to the success of businesses? Furthermore, convince them [Boards] SCM is not an overhead as such but a critical contribution to keeping companies competitive in overcrowded markets, not to mention EBIT.

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