Supply Chain Shaman

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A Story of Throwing the Baby Out With The Bathwater in Supply Chain Planning

” Don’t throw the baby out with the bathwater “ is an idiomatic expression for an avoidable error where something good is eliminated when trying to get rid of something bad, or in other words, rejecting the favorable along with the unfavorable. (Idiomatic expressions are a type of informal language rooted in meaning that is different from the literal definitions of the words used in the expression. )

As an analyst for nearly two decades, I am constantly amazed watching companies throwing the baby out with the bathwater. What do I mean? To illustrate, let me share a story.

A Story of Throwing The Baby Out With The Bath Water

In 2004, I worked with a Midwest North American meatpacker to help define its supply chain strategy. An enlightened leadership team wanted to be sure that the organization knew how to make money through bi-directional orchestration of the bill of materials. The focus was on margin and quality. The team understood the importance of margin management, focusing only on cost as an input to margin. The group needed a clear market signal on consumption patterns and the translation of demand with minimal latency to optimize price, mix, and schedule the factory to manage margin.

The volatile meat market changes daily. Consumers constantly change the mix preferences in purchases. Somedays, the focus is on steaks or ribs and the next on the purchase of ground or cubed meat. (There are 192 ways to cut up a cow.) The goal is to determine the most profitable option. The answer changes day-to-day and requires an optimization engine to measure market potential and align the supply chain to market demand while minimizing scrap. Within the world of supply chain planning, very few optimization technologies have this capability.

In 2004, I worked with the client to help define specifications and shortlist potential solutions. We built training materials to help the team understand the concepts of bi-directional orchestration. The Chief Financial Officer struggled with the process. He owned licenses of software planning from the ERP provider, and he believed that the ERP solution could not meet the specification. Ironically, while the CFO wanted to hold down costs, he was willing to throw money against co-development with the ERP provider. (I knew no company with success with co-development for planning with this ERP provider.) Business leaders, based on the requirements for bonus incentives, moved the CFO past the standardization argument. The team bought a supply chain planning solution from the shortlisted technologies and began the implementation. (In the telling of the story, let’s call this Technology Company A.)

A barrier was the organization’s lack of experience in planning. To rectify the situation, the head of the Supply Chain hired a demand planning leader. The bad news is that the new hire became an autocratic demand planner dictating a solution to Technology Company A requiring customization. The organization grumbled but paid for the customization and implemented a custom solution for demand planning and an out-of-the-box solution for supply essentially.

(A weakness of Technology A is to implement whatever the client asks. Historically, the implementation team at Technology A never questions an implementation. The relationships between Technology A and the meatpacker are at the planning level. No relationships are established at the executive team level. Custom code was implemented without the organization understanding the implications for future software upgrades.)

In 2008, the demand planner leaves the meatpacking Company to train for the Olympics. In the transition, the transfer of knowledge was limited. New demand planners start using the system without clarity on what makes a good plan. The organization is not clear on the role of the forecast. In discussions, the role of the forecast and the budget are intertwined without clarity.

The meatpacking company merges with a competitor in 2014, resulting in an organizational turnover. Understanding how to use the Solution from Technology Company A is lost, and the Company starts planning in spreadsheets. The organization abandons the measurement systems for forecast accuracy, value-add from the process, and bias. The meatpacker continues to pay maintenance to Technology Company A but does not engage directly. Technology Company A does not invest in understanding user satisfaction and assumes that all is well.

In 2018, a new CFO took the reigns at the meatpacking Company and was intrigued with a lightweight planning technology to improve the visibility of supply chain plan output to the financial forecast. Well-intending consultants tell the organization that Technology Solution B can replace Technology Solution A. (Even though it lacks functionality.) Solution B is five times more costly, but the visual interface is sexy, and the CFO likes it. The consultant receives a 15% commission if the meatpacker moves forward with Technology Solution B.  

(Technology Company A’s Solution moves through five upgrades in the period of use, but the meatpacker does not migrate the software. The Company also does not invest in sending the user group to Company A’s events or training. The manufacturer pays maintenance for the planning software but stops contact with Company A. The management team does not know that the original implementation requires addressing the custom code.)

In 2019, the CFO mandated an RFP to compare planning solutions. The meatpacker issues a badly-written RFP to Technology Solution A and nine other companies. As an outcome, the team shortlists three new solutions. Of the three solutions shortlisted, all lack the functionality for bi-directional orchestration.

During 2020, due to the COVID-19 pandemic, the meatpacking Company places a hold on the project. No one from the meatpacker contacts Company A to understand how to best use the software during the pandemic.

In 2021, the output of the RFP is re-ignited. The CFO strongly wants software from Technology Company B. The Supply chain leader wants Technology from Company C, and the demand planner intends to purchase a solution from Technology Solution D. Technology Company A—a very sales-driven software company and lacking a strong customer-delivery team—has no contacts at the meatpacker. The CFO decides to fund the purchase of Company B by suing Company A for non-performance. We are unsure of the outcome, but the opportunity cost for the organization is high.

What Can We Learn From the Story?

The sad part of the story is that it is true.

While the story is almost laughable, I see it happening over and over again: millions of dollars spent on the wrong software with technologists competing against a poorly written RFP with a lack of client clarity on what drives excellence. Here are my recommendations:

  1. Buy Software Like You Manage A Relationship. To gain value from the purchase of software invest in business leadership training, and ongoing support/upgrades. Schedule regular meetings with the software provider to assess your use of the technology. Just as you take your car for a tune-up, invest time and money on software engine (optimization) tuning. Maximize the value of your purchase.
  2. Avoid Badly Written RFP Bake-offs. Most consultants are anything but independent, and sadly few know supply chain planning. Be careful. The predominant consulting model is to receive a commission from software sales recommendations.
  3. Manage the Project Through Turnover. Opinions on software efficacy abound, but make decisions on testing and results through evolution. When business leaders change, schedule training and turnover with the new team. New software is seldom the best answer and never chose software based on PowerPoint promises and demos.
  4. Avoid Custom Code. Customization evolution is fraught with issues not only for the technology provider but also the deploying organization.
  5. Planning Is Not Planning. With each implementation clearly document the use case and measure performance. In organizations, there is a lot of hand waving about an integrated plan, end-to-end supply chain planning, and the role of planning to drive supply chain excellence. Handwaving and banter do not drive results. Nail down the definitions and clarify/document process flows.
  6. Avoid High-Pressure Technology Sales Teams. Technology sales teams circle companies like wolves tracking their kill. The goal of the technology sales team is to convince a business leader to change and then drive organizational tension to have an executive leader force a new solution. The process is not pretty and the opportunity cost is high.
  7. Take the High Road. Make sure that the organization understands the role of the forecast and the role of the budget. Use this type of dynamic as an educational moment. This will be an ongoing discussion with the CFO. Have it often and document the difference in business outcomes between tightly integrating the budget to operations and using it as an input to planning. While business leaders are quick to pull the trigger on technology selection, the power of software happens through process innovation.

I hope this helps. I look forward to your insights. Please share in the comments.

Preparing for the Supply Chain Insights Global Summit

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The Supply Chain Insights Global Summit is happening on September 7th-9th in Franklin, TN.

We are taking the risk that everyone can get COVID shots to enable an in-person event in September. We will also have a virtual feed hosted by Supply Chain Now for those unable to travel. The goal of the conference is to Imagine the Supply Chain of 2030. We expect 100 attendees to attend in-person and 1000 to join us virtually around the world. We design each experience for extreme networking.

In preparation, I am handpicking the speakers, testing the results of outside-in processes in Project Zebra, and finishing up the Supply Chains to Admire analysis for 2021.

If you have a story you would like to share at the conference; please drop me an email at Mark your calendars to join us to think differently and Imagine the Supply Chain of the Future.

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