Supply Chain Shaman

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Getting Ready for 2017: Reflections on Telling Lies

shutterstock_322648433The streets below me today are icy and wet. It is a dark and dismal day. However, not for long. The gloomy streets will soon be alive with Mummers to ring in the New Year in Philadelphia. The Mummers Parade is a Philadelphia tradition. I love the string bands, and I will be standing at the corner of Broad and City Hall celebrating the New Year.
New Year’s Eve is a time for parties. Icebreakers help to get a party going. One of my favorites is the game, “Three Truths and a Lie.” In this team activity people who do not know each other list four statements and ask the group to guess which statement is false. Picking the right answers is usually fun and revealing.
As an analyst, I have unknowingly spun many variations of truths and lies in the market. The reason? Let me start by saying I would never deliberately lie. I am learning on the job. My mistakes? They were largely driven by my ignorance (at the time) and situational learning.
In Search of Truth
My search for truth led me to research. What is research? This thing called research in the supply chain market has many arms and legs. As a result, each time someone uses the word, you should ask for a definition. In academia, research focuses on the citation of past work. Juried (review by peers), the academic research process is slow and deliberate.
In my work for my doctorate, I have come to realize just how different the use of the term ‘research’ is in the academic and commercial worlds. The lack of a common definition of the use of ‘research’ by industry analysts, bloggers, and consortia muddies the market. I struggle to find a good supply chain academic journal, and often speak to my academic network about the need for one. I also find that the definition of research by each analyst firm and consortia is different. In the process, facts become gray and what’s ‘true’ is uncertain.
My Lies
As I study research methods, and the market, I realize the lies I’ve spun for prior employers (Gartner and AMR Research):

  1. The AMR Research Hierarchy of Supply Chain Metrics. This research, released in 2005, gives a compelling view of a metrics hierarchy. In a nutshell, the research states there is a correlation between cost, inventory, and forecast performance. In my work I encouraged companies to improve their demand forecasts and advocated, that if this happened, overall performance could improve. The original AMR Research analysis focused on a benchmarking sample of over 70 companies. The data collection, and primary research, took place over a couple of years. The issue? I think there was causality, but never correlation. In the research process, we never tested to understand the difference. In practice I see many companies improving their forecasts, but not using the forecast data to improve supply chain processes and drive better outcomes. In parallel, I see companies that are very focused on inventory strategies–form and function of inventory, and push/pull decoupling points with clarity of inventory targets–are better able to improve customer service and inventory levels. This does not mean I think forecasting is an unimportant process. Just the opposite. I believe it is critical for the tactical planning horizon. The period from the slush period–the duration where the forecast is translated into actual orders–to the tactical planning period. (Typically a year.)  I believe where Advanced Planning (APS) logic went astray was in the connection of forecasting to replenishment. My problem is I see many organizations working hard on the forecast, but not improving inventory and replenishment processes; and, I think that the Hierarchy of Metrics concepts did not go far enough to tie practice to results. Each organization has a viable range of the forecast. (Forecastability–the ability to forecast–is real.) As a result, each company operates within a range of possible outcomes. It is impossible to improve forecasting outside of this range unless something radically changes in the business. (What is sold. Data used. Channel strategies.) As a result, companies should push to improve the forecast within the range, but be reasonable in expectations. (At some companies a 60% error will be as good as the forecasting processes can deliver.) To drive improvement, companies need to focus on the tie, and redefinition of forecasting to replenishment. The traditional processes of rules-based consumption logic or a blind focus on safety stock are just not sufficient.
  2. Bimodal Supply Chains Are a Viable Strategy. Over the last two years Gartner Group introduced the concept of bimodal supply chains. The belief is that companies can invest in technology bimodally. I strongly believe in supply chain segmentation and the need for each supply chain to have a well-defined, and often different, outcome. However, I believe to achieve this objective, a holistic supply chain strategy is required to drive investment. To gain competitive economies of scale and drive the segmented response, the back office operations–procurement, manufacturing and transportation–are automated and effective. Automating a part of these processes should never be seen as a viable option in a digital strategy.
  3. ERP II. Tight Integration of Planning to ERP Improves Outcomes. This was the lie spun by Gartner in 2002. I believe this did great damage to the industry. There are three problems. Planning should never be tightly integrated. Instead, the there is a process of refinement by “what-if” capabilities. The final plan is then committed to the system planning of record. The second was the overstatement of the importance of ERP data to planning. As processes become outside-in, channel data becomes more important than enterprise ERP data. The third issue was the lack of flexibility in this strategy. Today’s company has three to five ERP solutions; and through M&A, IT environments became more complex. Effective planning systems are overarching across multiple ERP solutions. The ERP II vision was just too limiting. It was also doomed to failure by the lack of viable solutions from the ERP providers. (Effective planning solutions require industry-specific tailoring and specialization. As a result, it is hard for an ERP provider to gain scale. Consequently, they are not a good fit for the ERP business model.)
  4. The Backbone of the Extended Network Is ERP. SRM and CRM Will Adapt to Connect Value Networks. Sadly, this was false. SRM, CRM, and APS evolved as functional applications to serve the enterprise. To improve outcomes, and improve B2B, we need to redefine architectures for inter-enterprise connectivity. This is the goal of the Network of Networks initiative which we are deeply vested in testing during 2017. We will launch a call for industry action on our webinar on January 11, 2017.

So, if I wrote these four statements today on a whiteboard and asked for you to declare a truth, you should call ‘foul’. Why? They are all false. In the process, I hang my head and make a New Year’s resolution do to better research and continually ask a group of peers to constantly jury my work. This is a goal of fostering an open, and independent research model.
Trying to Right a Wrong
If you wrote these statements on the whiteboard in most manufacturers’ offices and asked for companies to pick out the lie, most would struggle because they believe that they are all true. This is especially true in an Information Technology department. In 2017, my goal is to continue my quest to unveil truth.
In 2016 I wrote 35 blog posts. Started on January 26, 2010 the blog now has over 350 posts written from independent research over the past six years.
Let me conclude by thanking you for being a reader and helping me on my journey. The five best read posts written in 2016 were:

  1. Embracing the Digital Supply Chain
  2. S&OP: Five Steps to Get Started
  3. Executing Customer-Centric Strategies
  4. Carter’s: A Story of Supply Chain Leadership
  5. Three Mistakes Teams need to Avoid in Selecting Supply Chain Planning

Each year we take the best-read blog posts and make a softcopy book. We publish it in time for the Supply Chain Insights Global Summit. For the holidays, we shared the 2016 book as an ebook. Read by over 50,000 people on LinkedIn was satisfying to see. This is part of our mission to share openly and ask for feedback. We love open content and look forward to your feedback.

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