During my travels around the world it is common to find failed implementations of supply chain suites which resulted in software, maintenance, and consulting costs much greater than $20 million. Worst yet, it took many years to figure out these projects were doomed to fail. One executive used the term "fraud." In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual. Regardless of the words used to characterize these situations, no company should have to invest this kind of money or time to realize something will not work for their business.
Selling suites of software is great for software vendors, but is bad (at best) for the customer. Take a look around and see how many software modules are focused on fixing "symptoms" of much larger business challenges. It is my belief the vendors should be forced to offer customers affordable on-demand services which address significant underlying business challenges like Revenue at Risk. These services should not require tens of millions of IT dollars or never ending implementation cycles.
What have been your experiences?
Dan Gilmour of Supply Chain Digest in his newsletter for Oct 22, 2009 published a list of "things" that will change in supply chains by 2015. There were a number of things that Dan identified that really boil down to the blurring of operational supply chain planning and execution. We have been seeing this trend for some time, driven by the volatility of demand and outsourcing, which in turn drive the need for greater responsiveness. My full response to Dan's article is below. I would welcome your comments.
Great article, Dan.
I liked your identification of the drivers, and wished that there had been more prediction of what the consequences would be. For example, how will companies reconfigure their supply chain? In this particular case, I think we only have to look at Apple and Cisco to see some direction. Both of them outsource virtually all their production. And of course Apple, as you state in your article, is at the forefront of the "digitization" of the supply chain.
What really fascinates me is the rise of the brand owners in China and India. I saw an article today in McKinsey Quarterly that China's economy grew 8.9% in Q3 this year. Even in the boom period before 2000, growth rates in the US fell short of this number. Of course, this is even more startling when comparing the growth rate in China over a similar period.
I think we are missing the effect this will have on the Western brand owners such as Apple. It might seem counter-intuitive given Apple's record quarter and I have no idea of the product strategy, but I wonder how much they are designing products for the Western world and how much they are assuming the Eastern consumer needs are the same.
As you correctly point out, there will be huge impacts on "product design, pricing, logistics and much more." I am fascinated by the growth of Eastern brand owners such as Acer, Lenovo, and Huawei. We have weathered the storm of the Japanese companies in the 1980's — Sony, Toshiba, Toyota, Matsushita, … but those were different economic times when those companies were designing products for a western market.
I am not yet convinced that Western brand owners are paying sufficient attention to the needs of Eastern markets. These have been very Western focused, but I suspect as the pride in their countries economic performance grows, so will their confidence and demand for products to meet their specific needs.
We have a number of customers who are the forefront of the blurring of operational supply chain planning and execution. Of the 10 things you identify, I think this is a consequence of many of the others. And you are correct, this blurring is reaching up into tactical planning too with more and more companies running S&OP on an as-needed basis.
The factors you identify, specifically reduced inventory levels and pervasive visibility, are driving this blurring. We all know that inventory has been used as a buffer between the demand and supply chains. Reduced inventory levels require a much more agile supply chain that is very responsive to change. And of course the supply chains need to be reconfigured to be more responsive.
Dashboards are of course a necessary precursor to understanding whether or not one is on-track to meet future objectives and any deviations need to be addressed before they become "actuals" and appear in a scorecard.
Once again, thanks you for a great article.
In a recent article in Business Computing World, the author writes about the evolution of S&OP. Some may call it S&OP and others may call it Integrated Business Planning (IBP). The point is...it works. Listen to the IndustryWeek webcast featuring Cisco VP of Customer Value Chain Management, Karl Braitberg, and you will see evidence that Sales and Operations Planning drives financial and operations performanceimprovements.
So why why aren't more companies adopting this? I was first introduced to the S&OP process over 15 years ago at a former employer. It was the heart beat of our company. It was a commitment on the part of Finance, Sales, Operations and Engineering. Metrics included Revenue, Margin, Inventory turns, Customer Delivery. However, we did have challenges. Everything was done in Excel and this is still the case with many companies today. The tools to enable S&OP have not been available.
Companies tend to identify the 'process' as their biggest challenge. Tools are given a last consideration. Do you know how many companies that do have an S&OP processes are still doing everything in Excel?? Think about that...their most mission critical business process driving all decisions in their business using a personal productivity tool. There are always reasons for this. The IT department will blame the users, saying that they should be using ERP. The users resort to Excel because it is their only option for creating versions and sharing copies. However the data becomes very inaccurate, it is very difficult to merge, and when they make a change to demand how does Excel know how to change the supply plan?
If you have adopted an S&OP process or are embarking on one, give consideration to the tools required. Ensure that your user community has the ability to easily create versions of your data, easily recalculate demand and supply considering all of your constraints, easily calculate the impact on metrics and consider the tradeoff metrics. (revenue versus cost for example). Every needs one version of the truth from where ever they sit in any part of the world.
Something else to consider is the dynamic nature of a Sales and Operations Plan. This is the biggest change I have seen over the past 15 years. My first introduction was a monthly process. This would NOT work today. In today's world, your S&OP plan will be outdated the next day. The creation of the plan may be on a scheduled cadence, but course correction needs to happen every day. How many of you have waited in anticipation for the month end reports, only to ask yourself...'what happened??' Painful root cause analysis can be avoided with daily course correction.
Has your company adopted Sales and Operations Planning or is taking this on as a new initiative? What do you see as your challenges?
I just read the whitepaper: Five Ways Your Procurement Could Be Leaving Money On The Table. The procurement items left on the table are well defined. In fact, with the definitions provided no one could argue. Though most of us after reading the article would feel within themselves, ‘I knew that’; how many could list these before reading?
Within the spirit of the article, and in the example, is the theme that knowledge is power. This has been true throughout history. At Waterloo, Duke Wellington had a better knowledge of the lay of the land than Napoleon. Duke Wellington's intel on condition, location, and plan of the Prussians was better, and Duke Wellington prevailed.
Today, as we take on the supply chain battles, the need for accurate up to date info on the correct type of data is more important than ever. Now living in the information age, the information intellect is the difference. Within the white paper an example was given in which there was a clear winner based on who had the best information. The loser was the supplier that had close to a monopoly on the market they supplied. This supplier wanted to raise prices 50%. The winner was the consuming company. The consuming company had strong strategic information intelligence. They were armed with the accurate holistic information and strategies outlined in the white paper. As result, they made concession on items that did not matter in exchange for better terms on critical items.
In the spirit of political correctness, the win win concept is promoted. This was not a win win, but it is real world. A real world, where those who have adapted, those who have prepared, those who look beyond the immediate, prevail.
The paper goes beyond just emphasizing the use of strategic procurement intellect for bargaining. It speaks of Mastery as opposed to bargaining. Bargaining is conflict focused. Procurement information intellect, when understood and applied, will keep a company a step ahead with a flexible, quick reacting supply chain that is structurally sound without the need for adversarial conflicts, but true progress instead.
Originally posted by eteas at http://blog.kinaxis.com/2009/10/strategic-procurement-knowledge-is-power/
In a recent Wall Street Journal article, “ September Sales May Foreshadow Holidays,” it is stated that stores are slashing inventories to avoid price cutting. Inventories are at an all time low. How will retailers and suppliers respond when demand changes?
Per the article “Retailers and analysts will be closely watching September sales reports due Thursday from key store chains for any sign they may need to adjust their already-gloomy holiday forecasts. ”
There is always a fine balance between meeting profitability targets and revenue. In the retail business, competition is fierce and retailers need to have the product ready to ship. With the current economic uncertainty, retailers are choosing to stock less with an expectation that they will be able to respond to the market demand when it improves. However they are faced with global supply chains, long lead times and there will be a capacity constraint on suppliers when the demand increases.
There are a number of approaches that retailers need to consider:
History will not predict the future in consumer spending. Crystal balls won't work either. Retailers will need to watch consumer demand patterns very closely and be ready to engage their supply chain at a moment's notice. Collaboration will be required between the trading partners. In today's economic climate, speed wins.
Originally posted by cmcintosh at http://blog.kinaxis.com/2009/10/when-will-consumers-start-buying-more/
After reading the article "Recovering from the Recession Can Cause Risk to Manufacturers", at first I had a feeling of happiness upon seeing that at least some people are giving thought to what needs to be done when the economy gets better. The feeling of happiness was soon overcome by a comical laugh as a large slew of cliches came to mind. Cliches such as: "it is easier to tear down a barn than build a barn;" or "you reap what you sow;" or perhaps the reverse of the last, "you won't reap what has not been sowed." Instead of cutting back, reducing and downsizing, will companies be in a position to rebuild, expand and upsize?
Over the last several decades, there seems to have been a few bright moments spotting a gloomy trend. I make no claim that this is a scientifically sound statement, just a personal observation of the last 33 year of working, whereby the biggest concern for very many of those years was being laid off. I don't remember anyone saying "these are the good ole days!" A lot of effort was put into limiting supply chain risk and downsizing. No one wanted to be caught holding the excess inventory hot potato! We have all developed means of cutting back when sales soften. Last year; however, the bad times very quickly became the worst times. Products and services were not needed. Supply lines were shut down or cut off. Man power was cut back. To stop the bleeding many actions had to be taken.
Now the question that has to be asked is what is to be done when the economy gets better? Can businesses upsize? Losing a growth opportunity is just as bad as not recognizing a down turn.
Though this article starts with the words of "…the recovery cycle is the biggest risk in 2010", the survey showed that many are still concerned that the recovery will not happen soon. That is a real concern, but it has to be balanced with what needs to be done when the recovery does happens. You do not want to be left behind! The listed risks are traditional and very real items such as quality, prices, supply disruption, etc. In addition to risk mitigation there is risk in not recognizing opportunity. Most companies have reduced their manpower. When the orders start to come in will your company have the capacity? Will your suppliers? Can you keep a lid on the prices now, before demand driven price increases hit.
Beyond these obvious concerns, the human equation might be the trickiest. Successful companies have never been made of many individuals working independently under one roof. Individuals who form a team and work together is what accelerates the goals and success of the company. Simply bringing in a bunch of people to fill newly required positions will not hit full stride until the teams are formed.
Recognition of a problem is the 1st step of a solution. Glad we are at least at the 1st step. These are not easy times. It is a fine line walking between being in position to take advantage of a recovery and making sure not to sink if the recovery is delayed.
Originally posted by eteas at http://blog.kinaxis.com/2009/10/is-it-easier-to-tear-down-a-barn-than-build-it/
I just finished reading a paper on Supplier Collaboration, where the key message is that collaboration with suppliers needs to be far beyond tactical exchange of data. It defends a more mature and trusting relationship with key suppliers, where there is sharing of business strategies, joint work on investigation of risks, threats, and opportunities and where partners develop and link plans and targets.
As economies in low cost regions improve, labor costs will increase and work may have to shift elsewhere. Whether the latest trend will lead companies to continue outsourcing their operations to foreign countries or bring them back home, these decisions seem to be cyclical (almost like in fashion, these trends come and go). The truth of the matter is that independent of where your suppliers (and customers) are, no company is self-sufficient, but rather they depend on a complex chain of value added operations that need to be well synchronized to optimize the flow of products and services.
With the recent discussions involving global warming and the need for 'green' operations, we've been forced to learn and think more about total systemic cost. With that, there is more interest about what happens in the operation before or after ours in the chain. I think that the new way of doing business to satisfy green requirements will help approximate companies and enhance relationships.
This is because in order to improve efficiencies and supply chain coordination, companies will have to start seeing themselves as part of a complex chain of value added activities, and spend time studying the appropriate management of complicated networks of companies and markets. The fact is that leading companies don't act as standalone firms.
Flexibility and agility don't come solely from well designed and implemented supply chains - as the paper mentions, they are highly influenced by the quality of the collaboration process. The technology to collaborate and manage information and transactions is available. What needs improvement is the 'soft' side of the relationship: built based on trust and integrity so that companies can follow those leading enterprises which strive to 'define mutually beneficial strategy and cross-enterprise processes'.
Kinaxis has just published its latest white paper, Five Ways Your Procurement Could Be Leaving Money On The Table
Enterprises that provide their strategic procurement teams with proper tools can expect them to deliver year-over-year cost savings, close to 10 times their expenses.
This white paper
The latest edition of IndustryWeek's Manufacturing Business Challenge has been published.
This month's challenge discusses a growing kitchen appliance company with an increasing number of outsourcing partners. While the company has seen good growth and profitability to-date, there are warning signs of potential problems with lost visibility, increasing costs and lack of operational control.
I took part in providing one of the solutions, as did Christian Verstraete, CTO for HP’sManufacturing and Distributions Industries Worldwide.
Tell us what you think of our responses to the challenge as described below:
Over the past dozen years I have increased the outsourcing of Glaask Appliance kitchen products, an extensive line of powered utensils for restaurant, commercial, and consumer kitchens. Many of the firms providing my products are now located overseas, either by intent at the time of the agreement or because of partnering relationships that have gradually crept abroad. Glaask still makes about 45% of our finished goods in the U.S. -and I want to always maintain a domestic base - but much of that now is assembly only, with components and materials also coming from overseas.
Glaask has grown fourfold during this outsourcing period and remained profitable, but I’d be foolish not to recognize warning signs coming from our customers and from our assembly operations: Our warranty costs have risen steadily over the last five years, and we’ve lost a few institutional accounts because of faulty products. We frequently get notice of quality problems coming out of our supply chain, but only after a large batch of products has shipped. We’ve gradually lost visibility into the facilities of some processes, especially those now occurring overseas. And even where visibility exists because we’ve got EDI and other electronic data-exchange mechanisms with partners, the decision-making process remains fragmented, so we’re slow to get warnings and react to quality, volume, or priority issues.
In some corners of manufacturing, outsourcing is not as popular as it once was. But I’m not calling for eliminating our outsourcing relationships. I think these firms can still be productive arms of Glaask - provided we can share information with these suppliers, monitor and react to their performance today rather than weeks from now, and manage their activities and processes as if they were located under our roof. Am I being naive? Can this be done?
See our advice here. What advice would you give?
I recently read an interesting InformationWeek article titled " Global CIO: Will Oracle or SAP Blink First on 22% Maintenance Fees?". Having spent 16 of the last 18 years implementing on-premise, perpetual licensed ERP solutions, I found the topic compelling. It was compelling because the author is trying to determine whether Oracle or SAP will be more Wall Street focused or customer focused as it relates to their maintenance and support structure. The IT marketplace is more competitive now and customers are more savvy in looking for ways to cut costs. The author suggests that there are three possible scenarios on how this may play out.
But the real question is whether the on-premise, perpetual software license model even makes sense anymore in this cost conscious environment. The maintenance fees are primarily for bug fixes, enhancements and upgrades. However, most customers do not take advantage of the enhancements (let alone the majority of the functionality delivered at time of sale) because they do not stay on current release of product and the cost of upgrading is way too high. So, I think there is a fourth scenario to consider which is the SaaS model many software companies are adopting.
The SaaS model delivers a lower cost of entry, as well as lower costs for IT staff and hardware infrastructure (assuming on-demand hosting). Every SaaS company is different, but on average the subscription term is 3 years, thereby forcing the software company to provide a compelling value proposition for the customer in order to have the customer renew their subscription. This should drive product innovation, high levels of customer support, and engagement from the software vendor to help the customer assure end user adoption. All of which are good for the customer. In addition, the software vendor has a significant incentive to provide easy upgrades at low or no cost particularly if the customer is hosted. If the customer is hosted, then typically the vendor keeps the customer current on the new version of software for no additional charge, which allows the customer to take advantage of new product features and functions thereby deepening the use of the product at the customer site and hopefully ensuring a subscription renewal. The SaaS model should drive customer satisfaction by its focus on ensuring subscription renewals.
While every model has it's pros and cons, I think that at this point in time the focus on the customer that the SaaS model forces is something that should be considered by companies when evaluating their software choices. I suppose that is why even the big guys, Oracle and SAP, are offering some of their products in a SaaS model. It will be interesting to sit back and watch how it all plays out.
I was asked about integration and implementations.
Listen in and tell me your opinion on the following questions:
I was asked the following questions the other day about companies positioning themselves for the recovery, I thought I would share my thoughts with all of you too.
1. Bill, what are you hearing on your prospect and customer calls?
We are seeing companies that are taking advantage of current conditions to improve processes and put themselves in a position to capitalize on demand opportunities when they happen.
Consider AMR Research's Supply Chain Top 25 for 2009 for example. AMR observed that, "Despite the fragile world economy, many of the companies on this year's list remain convinced that winners will be those able to position for a return to growth. Privately, these companies will say that they expect to gain market share from their weaker competitors. Most saw the signs of trouble early and secured their cash positions well enough to maintain momentum on vital initiatives. 2010-11 will show where such foresight pays dividends, with greater supply chain agility enabling survivors to knock off competitors for good and deliver huge earnings in the climb out."
2. Are there any specific areas companies are looking to improve?
Inmy position as a business consultant,I have the opportunity to hear directly from companies where their focus is. Quite often we hear from companies that are looking to improve their S&OP process. Demand planning and collaborative forecasting are among the top inquiries too. Inventory rationalization and reduction, plus improving supply chain performance are also up there.
3. What are you hearing when people inquire about improving S&OP?
People are realizing they have to let go of the anchors that are weighing them down and will keep them from being positioned for recovery. When we ask manufacturers how long it takes to complete an S&OP cycle, most reply at least a month. People can't wait that long anymore to respond to a change that could negatively affect their strategy or to an opportunity that may present itself.
Getting access to the data that supports S&OP, running analysis, collaborating and conducting what-ifs (like price decreases or early new product introductions) and communicating that strategy to the rest of the organization, has to be as easy as searching for New York City on Google maps. Cycle time reduction of the S&OP process will be keyto positioning for recovery.
4. Anything else people are asking for?
Sometimes it is surprising but people are still asking for visibility.
I like to call this "What-is" information. This continues to be a challenge in the global organizations, especially if different sites have different ERP systems or other sources of data. This consolidated view is much different than BI or a data warehouses. The visibility people are asking for will allow them to answer questions like, are there stranded inventories that could satisfy shortage conditions at other locations. Are there open PO's with no demand? Are there integrity issues with my data I could easily fix? Are there period ending shipment misses I could avoid?
This isn't about comparing history but simply understanding the current state and where there are opportunities to reduce inventories, increase deliveries, and improve the integrity of SC data, all of which ultimately increases profits and customer satisfaction. Turning data into information is always something people need to do but struggle to do with current tools.
Does the word "chain" accurately reflect the required communication flow of supply and demand throughout the supply network?
In actuality, the "Supply Chain" reflects a series or sequential set of steps that are required to build and deliver products to customers. Brand owners or manufacturers need to order and receive products or materials from suppliers, who in turn need to receive materials from suppliers and so on through the multiple tiers of a given supply chain. In addition, at each tier in the supply chain, manufacturing operations and/or assembly/test operations need to be accomplished, which in many cases are represented as levels in the respective bills of materials at each tier in the supply chain. This is what has to occur for products to be manufactured and delivered to customers.
In a lot of cases, the communication of supply or demand changes tend to follow this same linear, sequential series of steps up and down the supply chain. Communication of a demand or supply change is initiated by the brand owner or manufacturer and this has to be communicated sequentially through the multiple tiers of suppliers. In addition, the assembly or manufacturing at each tier are represented in multiple bill of material (BOM)levels at each tier. At these BOM levels, there can be production orders, firmed orders or master production schedules that hold the current schedule until a planner changes them and allow these changes to continue flowing through the chain.
Therefore, if this same linear, sequential series of multiple tiers of suppliers as well as multiple BOM levels need to be followed to communicate and collaborate changes required of supply and demand, then weeks and even months can go by before the changes reach the end of the supply chain. Obviously, by this time, another series of changes can be rippling through the links in the chain and the supply chain cannot respond to these changes in a timely manner.
This problem is only magnified when you consider the risk factors associated with increased outsourcing that can result in more supply disruptions/issues. And strikes, political issues, recessions and even natural disasters can all cause minor to significant supply disruptions that will throw off the normal chain of activities. The end result can be excess inventory or lost sales due to not having products available for delivery to the customer.
So while obviously the concept of the supply chain is certainly not obsolete, the information flow and collaboration throughout the supply chain needs to flow seamlessly and not as a linear, sequential series of steps.
So don't shackle yourself to the notion of a chain.
Originally posted by mjeffrey at http://blog.kinaxis.com/2009/10/is-the-term-supply-chain-obsolete/
The two major ERP vendors (which I call SAPORACLE) are facing a more rapid decline in licensing revenues due to IT cutbacks. In fact, they are essentially facing a "Reset" - more so than a recession. CIO's are very tired with ERP vendors raising maintenance and throwing acquired software products at them left and right. Once a software vendor decides on pursuing a "financial engineering" acquisition strategy — it is never good for the end customer. It improves earnings for the vendor. Any large company has challenges when it comes to innovation — even if R&D monies are allocated to development teams. Politics alone can kill innovation inside a large vendor.
CIO's are even more disgusted with what I call the "Suites are Sour" paradigm promoted by the ERP vendors. They want to solve business problems, not spend millions on integrating suites of modules. Once maintenance fees hit a high enough level and innovation is absent — it creates a positive environment for a "disruptive" offering. We have seen this happen time and time again in the hi-tech market.
Take a look and chime in with your opinions. How would you have answered these questions...
Originally posted by kzuber at http://blog.kinaxis.com/2009/10/customer-co-planning-a-growing-priority-for-companies/
The other day, I was discussing with some colleagues what elements were needed for a successful S&OP implementation. There have been arguments made that successful S&OP is all about process and that tools don't matter. Looking back at those S&OP implementations that were successful and those implementations that failed, I have discovered that a successful S&OP implementation is supported by three pillars; Process, executive commitment and effective S&OP tools.
Process: Trying to run sales and operations planning without a clearly defined process is like driving in a city where no one obeys the rules of the road….you probably won't get where you are going. If there were no process driving S&OP, then there is a very good chance that key information would not be presented, key people would not be in attendance and that critical decisions would not be made. It is important that the structure, timing and agenda of S&OP is documented, published and adhered to. If the process needs to change due to changing business requirements, those changes need to be documented and published.
Executive Commitment: It is very difficult (bordering on impossible) to implement an effective S&OP process without executive commitment. Why? First let's ask what is the purpose of S&OP? The purpose of S&OP is to align supply and demand and the various departments contributing to that alignment. Departmental alignment can only occur if the top level department executives are involved in the key decisions…because those top executives have the decision making authority. Sales and Ops is a failure if the representative at the meeting needs to go back to their executive to get a decision.
Effective S&OP Tools: This includes the tools to analyze the data, present information and make decisions. Effective S&OP tools also include the ability to integrate the data that drives S&OP. Without effective S&OP tools, the implementation process can be very slow and frustrating because so much time and effort is spent getting to the data and building the tool. This frustration leads to failure. This is where I want to focus the rest of my post.
S&OP tools are often ignored in S&OP discussions. Most companies start down the path of using Excel for S&OP. Excel is often chosen because it's flexible and companies aren't quite sure what their S&OP process will be. However, with that flexibility comes a cost. In a previous life, I used Excel to build and present our S&OP plans. This is what I've learned;
So I've made a case for why Excel isn't a great tool for S&OP. What characteristics then, would be present in an effective S&OP tool?
What tool do you use for S&OP? If you use Excel, have you run into any of the problems I've described? Can you identify other essential characteristics of an S&OP tool?
Originally posted by jwesterveld at http://blog.kinaxis.com/2009/10/is-excel-the-right-tool-for-sop/