From everyone at Kinaxis, we wish you a happy holiday season and all the best in 2011!
It wouldn’t be like us to wish you a happy holiday without including some supply chain humor, so from the Late Late Supply Chain Show, here are the…
Top Ten Reasons Your Holiday Gift Will Arrive Late:
10. Santa made a tactical error in choosing a "fly by night" 3PL instead of his usual crew of reindeer.
9. Santa refused to go through the body scanner and the TSA is still patting him down (he's a big guy you know...)
8. Santa outsourced to China and lead-times have ballooned — it'll be a 'Christmas in July' scenario for many!
7. Global warming has advanced to the point that the North Pole melted.
6. Pixie dust is on allocation.
5. The fireplace in Santa's North Pole residence was mistakenly filled with Kindles instead of kindling.
4. Santa's visibility only extends to the bottom of his eggnog glass.
3. Santa bought SAP...and is still implementing.
2. The "naughty" and "nice" data fell into an Excel abyss. Guess which list you ended up on?
1. Santa told key members of his manufacturing team, "Go elf yourself.”
Originally posted by lsmith at http://blog.kinaxis.com/2010/12/top-ten-reasons-your-holiday-gift-will-arrive-late/
The eruption of Iceland's Eyjafjallajokull volcano last spring was fascinating for a number of reasons. For example, photos of lightning inside the plume of volcanic ash, such as these seen at National Geographic's website, are mesmerizing.
More importantly, the ash cloud itself presented significant business ramifications for companies around the world. I believe we will study the volcano's eruption -and, consequently, the disruptions to supply chains around the world - for years to come because the impact was both so widespread and pronounced.
A recent BusinessWeek article described how automotive manufacturer Nissan Motorwas forced to shut down three auto assembly lines in Japan because the factories ran out of tire-pressure sensors when a plane carrying a shipment from a supplier in Ireland was grounded.
I'll wager that you expect disruptions from hurricanes and possibly tropical storms, and maybe even a blizzard across the Great Plains. Since those events are likely, it's smart to create contingency plans that account for alternate transportation routes or even modes. Furthermore, you may even have contracts in place with suppliers for alternate parts, and perhaps even contracts with alternate suppliers for necessary parts or components. But sometimes an unexpected event - like a volcano eruption - disrupts the supply chain. The question then becomes: How will your company respond to this unanticipated event?
Obviously, the first challenge is to realize that an event of some type has occurred or is about to occur. But even more significant, is the response. How quickly your company responds and just what that response is, may have substantial impact on the company's performance and, possibly, its bottom line.
That's why it's critical to have tools and processes in place to respond quickly to unanticipated events that aren't covered by a mitigation strategy.
- These tools must deliver visibility across the supply chain and provide alerts when an event is imminent, they must also include analytics so users can understand the importance of the event and the impact it will have.
- Secondly, the tools must allow users to collaboratively simulate possible solutions, such as splitting orders, expediting orders and finding alternate sources.
- The next capability may well be the most important. Once simulations are created, they must be compared and contrasted to determine which one best meets corporate goals and objectives. Using a multi-scenario scorecard allows users to compare the possible solutions and measure the impact of each potential resolution on key corporate metrics.
Consider these two possible solutions to a critical parts shortage....
The first solution is to use existing inventory and split apart orders. Customers will not receive their full order, but they will at least receive part of it. A second possible solution is to expedite shipment of parts from an alternate supplier to your facilities, fill the orders, and then expedite shipment to your customers.
The first possible solution results in a decrease in on-time delivery and, potentially, a decrease in revenue for the quarter. The second, however, will result in an increase in cost of goods sold and a corresponding decrease in margin. How do you know which route to take? These results, compared against a given target and appropriately weighted, provide an overall score for each solution. Thus, an analyst can then use those scores to determine which scenario best suits corporate objectives. How you make those quick decisions and how well they align with corporate objectives can make or break a company's bottom line.
Let me know what you think; either about responding to unanticipated supply chain events or photos of lightning in clouds of volcanic ash.
Originally posted by cmcintosh at http://blog.kinaxis.com/2010/12/the-supply-chain-disruptions-youll-never-plan-for/
Attribute based forecast generation can be defined as using the common attributes of a particular group of products to more accurately forecast future demand at the individual SKU level. Forecasting is part science and part art, so the more we can move the analysis to the science side, the better we are able to develop a process driven forecasting model not based on an individual's 'gut' feel. This is an important requirement when managing a large number of SKUs in a complex, competitive marketplace.
The benefits of increased forecast accuracy include:
- Increased customer satisfaction due to reduced stock outs
- Reduced write-off and obsolescence costs due to unsold inventory
- Lower inventory carrying costs, as less buffer stock is required to cover missed forecasts
Significant benefits can be realized in a company's top and bottom line results if a more accurate forecast generation process can be realized. One of the cardinal rules of forecasting is that a forecast becomes more inaccurate as it goes further out in time. Another is that a forecast becomes more inaccurate as the granularity is increased (ie. It is easier to get an accurate forecast at the business unit revenue level than it is to forecast the number of units of each SKU that make up the sales for that business unit).
This second rule can be better addressed by focusing not an individual SKUs sales history or possible future trends, but by looking at the 'group' this SKU(s) fall into and analyzing its history and trends. The attributes shared by these SKUs constitute their forecast group. The advantage of grouping forecast SKUs are many:
- A lot of market research is available at a higher level in the marketplace (at the channel product category level versus an SKU level). Market share analysis must be done at this level
- Aggregating SKUs reduces the month to month demand fluctuations seen at the SKU level, allowing for better data analysis for trend forecasting (reduces the noise)
- Revenue forecasting generally occurs at the product group level or higher. Since revenue projections are the most common driver of forecast models, a better alignment between forecasts at the SKU level and revenue forecasts can be achieved if there is a clearly understood link between the two
- A better alignment of revenue and SKU forecasts allows the business to more clearly drive production (also known as the sales versus production forecast). A poor alignment between the two can lead to missed sales numbers, increased inventory carrying costs, or stock outs.
The breakdown of the revenue forecast into a realistic SKU level forecast can be complex, and can vary greatly among different business units and markets. While these different processes can lead to a more accurate forecast based on local market conditions, it makes it very difficult to get a true picture of the alignment between the global revenue forecast and the individual unit forecasts, as the methods to get from one to the other can vary greatly.
This leads us to the recognition for the need of a formal, structured process for generating SKU unit forecasts from revenue forecasts that can generate a better forecast for the business as a whole. In order to allow the process to accommodate the differences between markets and regions, it must be have the functionality to allow for market specific processes, while maintaining a common underlying process that can tie back to the revenue forecast. The best way to achieve this goal is to use region and market independent product attributes, as they can 'filter out' the variations that can occur due to different business cultures. This also describes the best product attributes to select, as they should reinforce the underlying commonality of the SKUs being forecast. Market specific processes can then be applied to fine tune the forecast for a specific market or region.
In order to more accurately predict future demand at the SKU level, a tool is required can process large amounts of historical data and knowledge based assumptions quickly. This allows the analysts to perform what if simulations and determine the effects of various assumptions, as well as incorporate any trends that are evident in the marketplace. This leads to another “must have” feature: the ability for the analyst to easily and quickly incorporate trend simulations into the numbers. By using aggregated attributes on multiple levels and presenting the numbers in a percentage of total view, the analyst can quickly modify the splits at each attribute level to reflect known assumptions or model future trends, while keeping the totals within the revenue guidelines (the sum of the percentages must always equal 100). As well, by modifying percentages versus actual numbers at the lower attribute level, the overall revenue forecast can be kept consistent throughout the forecast process. The revised percentage splits can then be applied to the revenue numbers to break them down into a SKU level forecast that ties back to the revenue in an understandable way.
In summary, itis desirable to have a close correlation between the revenue forecast and the SKU level forecast. The best way to get there is to use product attributes, historical patterns, and the analyst's expert knowledge to break the revenue forecast down to an accurate SKU level forecast. A tool that can support an underlying, formalized process with enough flexibility to allow for regional and market differences will deliver the optimum solution. This tool must be intuitive to use and allow the analyst to quickly generate a valid forecast that supports the consensus revenue projections.
Originally posted by mbuckley at http://blog.kinaxis.com/2010/12/the-benefits-of-attribute-based-forecast-generation/
When I need inspiration I normally go to TED. I can normally find a topic that is peripheral but pertinent. Such was my quest with "collaboration". I believe very strongly in the value that collaboration can bring to massively outsourced supply chains such as we see in electronics and apparel. But what is collaboration and what value does it bring? All too often what we see as progress in collaboration is an exchange of data, perhaps on a more frequent basis, using EDI, when really collaboration is about working together to achieve a shared objective, but perhaps not a common goal. By that I mean each party is playing a part (their individual goal) in reaching the shared objective. Watching two fascinating talks on TED titled " Deborah Gordon digs ants" and " Howard Rheingold on collaboration" helped me to frame this discussion. Ants do indeed exchange "data" with each other, but somehow they are able to determine which task to perform that is in the best interest of the colony, changing their roles on an as-needed basis. People went from hunting rabbits through individual action to hunting mastodons through collective action. In other words, collaboration is a lot more than exchanging data using EDI. Or is it? A search of the internet brings up the following definition for "collaborate":
intr.v. col-lab-o-rat-ed, col- labo-o-rat-ing, col-lab-o-rates
1. To work together, especially in a joint intellectual effort.
2. To cooperate treasonably, as with an enemy occupation force in one’s country.
I think this definition brings together the ying and yang of collaboration very neatly. On the one hand we see collaboration as something positive that will bring mutual value. On the other hand we view collaboration as working with the enemy to the detriment of our own group. What I find fascinating is that the same action can be perceived to fall in either category depending on the perceived objective and the level of trust one has of the party with which one is collaborating. The conclusion I came to is that the real barrier to collaboration is not technology, but trust.
This came out loud and clear in a recent discussion titled "What's happened to CPFR" in the Institute of Business Forecasting (IBF) group on LinkedIn (membership required) that was started by a guest blog by Lora Cecere of the same title on IBF. For those who may be unfamiliar with the term CPFR it is an abbreviation for Collaborative Planning, Forecasting, and Replenishment which starting in 1995 as a Wal-Mart initiative to improve the efficiency of planning and replenishment between retailers and suppliers. Clearly collaboration is at the very heart of this initiative. The VICS organization has been promoting CPFR for a number of years, which is where I found the diagram below. Notice the x-axis of "Time degree of trust and complexity".
As one commenter in the LinkedIn group states:
I tried CPFR with one of my biggest customers. It was failed before it started to work. The customer’s only interest was to put all the risk/cost on my side. They even didn’t want to be [bound] by their own plan.
Where's the trust in that statement! Another commenter on the LinkedIn group, whom I presume works for a retailer, states (with minor edits from me):
I don't think CPFR can work… Retailers also don't receive any info from the consumers of what and when they will be purchasing. I think [the] process [should] start [with] the "Voice of the Customer". ... ( I want to find the product I am looking for on the shelve and buy and take it home if possible).
To bring it all together a 3rd commenter stated that:
... forecasting and planning process is used to set sales targets, rather than predicting demand...
Lora Cecere's opening statements are also very direct.
Go to any supply chain conference, and you will hear it. Yes, the term collaboration is bandied about. It is over-used and often over-hyped in discussions largely without meaning. So, what does it mean? And, what happened to the supply chain collaboration initiatives of the 1990s? Let's start with the definition. The greatest success in supply chain relationships is when true collaboration happens. What does it look like? It is a when a sustainable win/win value proposition. Six elements are required: resources, skills, joint vision, leadership, a plan, and aligned incentives. The problem is that the so-called "collaborative programs" of the 1990s focused solely on process missing the mark on these six elements. The tenants of VMI and CPFR were well-intended, but they fell short in building true collaborative relationships.
And yet the potential value is enormous in terms of both reduced inventory and in terms of supply chain agility, not to mention the cost of 'policing' the supply chain relationships. The concept of the Bullwhip Effect has been around for 50 years now, having been defined by Jay Forrester in 1961 in his seminal book 'Industrial Dynamics'. What amazes me is that the central lesson learned from the exercise is that end-to-end visibility, in other words a rudimentary form of collaboration, has an enormous positive effect on the efficiency of the supply chain. So is it really just power and control, or lack of trust, which is preventing the adoption of this core learning? And yet the evidence is difficult to refute. In an article titled " Supply Chain Management Application Trends, 2010" which was published by Gartner on Nov-30, 2010 (subscription required), the authors Dwight Klappich and Chad Eschinger included the following diagram, clearly indicating a much lower level of interest in "Inability to coordinate and synchronize end-to-end supply chain processes" (in other words cross-company collaboration) than other areas, although "Lack of internal, cross-functional collaboration and visibility" is clearly an opportunity for collaboration within the 4 walls of an organization. What really jumps out at me in the diagram is that the biggest issue is "Forecast accuracy, demand variability", exactly the point raised by one of the LinkedIn commenters. But didn't the Bullwhip Effect show 50 years ago that visibility and collaboration across organizational and functional boundaries, particularly with respect to the demand signal, leads to a far more effective and efficient supply chain?
In a recent conversation with Lora Cecere we agreed that our guestimate, based upon discussions with customers, is that the inquiry-to-quote-to-order process, in other words the decision process, often takes longer than the order-to-delivery process, in other words the physical process. How sad is that? This is where a great deal of the agility can be extracted from the supply chain processes, especially when we hear of customer expectation of shorter order lead times. George Stalk was writing about time-based competition 20 years ago in which he captures the basic tenets of time-based supply chain inefficiencies in the following 4 rules:
I wonder how much of the lack of adoption is due to people being used to the 'open' world provided by the internet? I think that the First Things Monday blog (registration required) of Dec-12, 2010 titled "Reader Response to ERP in the Cloud" by Dennis Gaughan goes quite a long way to suggest that social media concepts combined with cloud computing are beginning to increase the level of interest expressed by enquiries:
They would like to see applications that blended business processes from ERP with social networking technologies and the cloud to truly deliver a new way of collaborating with their trading partners. To quote one reader, “The power of a supply chain which identifies and allows various sourcing options based on product availability, right now, is compelling.”
And yet there is an argument raging between Dennis Howlett ( http://www.zdnet.com/blog/howlett/enterprise-20-is-beyond-a-crock-its-dead/2607) and Andrew McAfee ( http://andrewmcafee.org/2009/09/e20-is-a-crock-discuss/). I commented on Andrew's blog with reference to process/decision vs physical lead times. Dennis is arguing, I believe, that trust is a major barrier to adoption of Enterprise 2.0, or Social Business, concepts within an organization, let along across organizations. Andrew McAfee on the other hand points to real examples where value and trust have been delivered by Enterprise 2.0 technology, although, unfortunately, none of his examples are within the supply chain space.
I don't believe these positions need to be mutually exclusive or diametrically opposed, or argued quite as 'loudly' as they are by Dennis and Andrew. I think people largely come from different experiences and some are very distrustful of all things electronic let alone on the internet. As an example I will use my wife's resistance to TiVo. She is a classic example of someone who should not be given a universal remote. In 2003, when we first got TiVo, she had only just mastered setting timed recordings on the VCR. I knew that presenting her with the TiVo remote with about 25 buttons would be the wrong approach. Instead I showed her what she could do with TiVo by recording films with actors that she liked, without having to page through the 120 page TV guide. Once she saw this value she was willing to tackle the complexity of the TiVo remote and expanded her use to much more complex use of TiVo. Too many of us technologist (yes, I am one too) start with the cool technology stuff, forgetting to start by articulating and getting buy-in to the business benefit. Put differently, in building trust that the collaboration is of both individual and mutual benefit, and that technology is not a barrier but an enabler.
So I am optimistic that a combination of unique circumstances of both business drivers and available technology will lead to increased adoption of collaboration within the supply chain space, both within an organization across functional boundaries, and across organizational boundaries. I believe the diagram above from the Gartner article supports the business imperative in spades. After all, the challenge of "Lack of internal, cross-functional collaboration and visibility" is tied directly to S&OP because an absolutely key aspect of S&OP is internal, cross-functional collaboration. And we hear from all analysts that S&OP is the top enquiry by far. I also think that we need to restate CFPR as S&OP across organizational boundaries.
The business case is there. What we need to do is to provide tools that make the collaboration feel natural. I think that the very rapid adoption of social media concepts inside the workplace, such as Salesforce Chatter, indicates that the users are ready. To repeat, the conclusion I came to is that the real barrier to collaboration is not technology, but trust. How can we build the trust to make collaboration a reality?
Taking note of best practices across industries
As mentioned in Part 1 of this post, despite the unique aspects of the Pharma industry, the bulk of the supply chain management issues are largely common to many other industries. And without the same degree of supply chain focus that is present in the high tech space for example, the net result generates a degree of waste almost unfathomable by those outside the industry. The chief question is, "can you achieve an acceptable level of supply availability without the waste?" It's understood that the definition of "acceptable" ranges from 100% availability for some life sustaining medications to more conservative fill rates for OTC generics. There are enough examples of supply chain mastery in the high tech and automotive industries to suggest the answer is an absolute yes.
The high tech and automotive industries have for years been focused on adopting the precepts of Lean that deal with the elimination of waste and the rapid reaction to change. That is not to say that Pharma industries haven't leveraged lean principles, but the key difference has been the high tech focus on the entire value chain rather than individual sub-processes. An operational sub process focus can yield what appears to be cost improvements, but without addressing the broader connection to customer demand patterns and other supply chain steps, they often fail to significantly affect the overall cost. It is the consideration of the cost trade-offs of the entire supply chain’s ability to meet demand that seems to be missing.
It is in the area of demand planning where the difference is most evident. In high tech, with the economic pressures to minimize the inventory investment, the ability to rapidly and economically adjust to demand shifts is a major factor in business performance. Saddled to that is a focus on improving forecasts accuracy through investments in collecting and analyzing more meaningful data , while also more broadly collaborating on a consensus plan. As part of this effort, many leading high tech companies have embarked on collaborative forecasting and planning with distributors and sub-contractors.
In Pharma, the inventory buffers make similar investments seem less important. A February 2010 article by Wayne McDonnell of Gartner Research, "Just how long do we have to wait for True S&OP in Life Sciences," proffered that the two most important areas where life sciences companies need to invest is on improving forecast accuracy and end to end supply chain management.
Pharma companies have also followed many of the outsourcing trends as high tech with essentially the same consequences. Limited visibility and collaboration challenges in synchronizing the supply chain when volatility strikes. As the pressure to control costs and optimize inventory increase, these challenges take on increased importance. Global supply chain visibility and synchronization has been on the strategic initiative list for high tech companies for several years, while it has gained importance in the Pharma space much more recently.
In recent years, Pharma companies have begun to recognize the potential of adopting a high tech approach to both demand planning and supply chain management. Given the pre-existing emphasis on fulfillment, the improvements being sought are more in the areas of end to end cost and working capital turnover. The key to achieving those are through better demand management and an end to end supply chain management focus.
Experiencing escalating costs and working capital strain, companies are rethinking their supply chain model, changing their approach and increasing their capabilities in order to drive better alignment and performance. Evidence of the change is seen in recent hiring trends with executives and middle managers from the high tech and other industries being lured into the Pharma space. As one example, a January 2010 article in the Wall Street Journal discussed how Mr. Jimenez, the new CEO at Novartis, one of the largest drug companies, had spent most of his career at consumer packaged goods companies, and thus, one would believe that a primary benefit of the appointment would be that Mr. Jimenez could bring a cost and efficiency focus to the role.
As Pharma companies make the transition to better forecasting methods and end to end supply chain management, a new era of cost competitiveness will ensue. With lower inventories, cash will be freed up to address growth and investment opportunities, but it will also introduce the need for competencies in Lean and Response Management to ensure that fulfillment objectives are not compromised. Analysts have for years heralded what the transformation can deliver â€”$43 billon in working capital alone according to the A. T. Kearney analysis. With the recent influx of supply chain expertise from outside the industry it could be that the transformation will finally take a leap forward.
Can you achieve an acceptable level of supply availability without the current waste?
There is no question that the Pharma industry must deal with a unique combination of supply chain and regulatory issues to meet its obligations to consumers, supply chain partners and shareholders. For some biotech companies, availability of their products are literally a life saving necessity and disruptions in the supply chain can result in a form of supply triage that is uncomfortable to even consider.
Unlike other industries, the Pharma industry has traditionally treated supply availability as a prime factor, even to the extent that several months of safety stock was not considered excessive. While in the other industries, best in class performance inventory turnover performance is double digit, the Pharma companies seem satisfied with low single digits despite the impact on cash and working capital.
In an April 2010 article in Pharma Pro, entitled, " How to Unlock $43 Billion in Value by Improving Working Capital Management," A.T. Kearney reported that an analysis of Pharmaceutical companies revealed an average inventory level of 170 days.
Supply availability though is just one key difference to other industries. In a number of the Bio-tech companies, they've had to invent equipment and manufacturing processes to produce the new wonder drugs. Early manufacturing is just targeted on producing enough to satisfy trials and is less focused on cost and efficiency. Unlike engineering changes in the high tech industry that change the content of a product, changes in the Pharma space usually target the cost and yield of the manufacturing process. To add to the complexity, these changes must satisfy the quality control requirements of regulatory agencies. The approval process can take months and uncertainty in the timing creates a variety of risk management issues. In addition to the regulatory control over manufacturing, there are different regulatory issues to face in each of the market regions that govern a wide variety of factors including packaging, labelling and shelf life requirements. Combine these factors with the extremely high margins on non generic drugs, and it's no wonder that the Pharma industry has historically put little emphasis on minimizing the non-production aspects of the supply chain costs.
BUT despite the unique aspects of the Pharma industry, the bulk of the supply chain management issues are largely common to many other industries. Planning for raw materials, dealing with manufacturing constraints, establishing and monitoring distribution inventory levels, and dealing with significant market demand volatility, are just a few. It is important to note that the dynamics that have introduced unparalleled volatility in the high tech industry (short life cycles, internet purchasing behaviors, and intense price competition), have had less of an impact on Pharma, but other factors have achieved much the same result.
Increased global competition, economic conditions, and changes in both regulatory factors and insurance coverage have collectively produced higher levels of demand volatility. Without the same degree of supply chain focus that is present in the high tech space, the net result generates a degree of waste almost unfathomable by those outside the industry. The chief question is, "can you achieve an acceptable level of supply availability without the waste?" It's understood that the definition of "acceptable" ranges from 100% availability for some life sustaining medications to more conservative fill rates for OTC generics. There are enough examples of supply chain mastery in the high tech and automotive industries to suggest the answer is an absolute yes. The next question is "How?"
Stay tuned for Part 2 of this discussion tomorrow.
I recently ran across some research that really has me thinking. The IBM Institute for Business Value surveyed 664 supply chain management executives in 29 countries around the world, and the results are pretty much what you would expect. That is, those executives cited global economic turmoil and uncertainty as the driving factors behind their three most significant supply chain challenges.
Those top three challenges are:
Volatility - driven by global complexities and fluctuation in customer demand
Visibility - specifically the need for accurate, time-sensitive information
Value - continued corporate pressure for supply chain management and operations to create enterprise value
Those are indeed, significant obstacles. Fortunately, considerable progress can be made addressing them through the use of a supply chain management solution, and, more specifically, S&OP tools.
There's been quite a bit of discussion about demand volatility here on this blog and in the Supply Chain Expert Community. For instance, Lora Cecere from the Altimeter Group addressed the subject in a webinar titled, " What S&OP capabilities matter most?" Trevor Miles has had some good posts on volatility too.
What Lora, Trevor and others have noted, is that in recent years, demand has not only fluctuated more significantly than in the past, but the frequency of change has also increased. The result is that forecasting by looking only at historic demand patterns is no longer sufficient. What's needed instead, is the application of a robust what-if? capability to dorange forecasting. That way, rather than a single number forecast, users can also test upside and downside scenarios to evaluate potential risks and mitigate against them.
It isn't surprising that visibility, or, more accurately, lack of visibility, was cited as the second most prominent supply chain challenge by respondents in IBM's survey. As today's supply chains become more complex, visibility becomes more important. This is particularly true in industries such as high-tech electronics and consumer goods, where brand owners and contract manufacturers face high demand volatility and rapid product evolution. They also have increasingly complex operations where many critical activities take place outside the traditional four walls of the enterprise, and there are many geographically-dispersed sites and/or partners using disparate data systems.
I'll argue, however, that the real challenge isn't to simply gain visibility. It is a pre-requisite to the end-goal, not the goal itself. Sure, visibility is vital but the larger business goal is to improve agility.
Many will promote "visibility" solutions and will tie that to statements like “sense and respond.” The problem is few, if any, are actually providing tools to enable the response process. They provide a limited level of visibility and leave users to determine how to benefit from it. Visibility without the tools to drive action gives only minor advantages to the organization. One needs to be able to alter and analyze information, not just see it.
I'll also add that collaboration plays a critical role. Having access to "actionable" supply chain information can set the stage for more meaningful and effective interactions between stakeholders based on informed decisions whereby the impact of decisions are understood and action plans are clearly defined. To truly improve supply chain performance - and ultimately address that unrelenting pressure to add enterprise value - a company must first gain supply chain visibility, but then they must be able to collectively leverage that data to make rapid decisions and act accordingly.
That is true value.
Originally posted by bdubois at http://blog.kinaxis.com/2010/12/supply-chain-visibility-is-vital-but-the-larger-business-goal-is-agility/
I just read an article titled: " Throwing Enterprise Software Vendors Under the Bus" by Thomas Wailgumof Enterprise Software Unplugged on CIO.com. Obviously, I work for a SaaS based software company and we compete against some modules from the big ERP vendors. We work with very large companies who primarily deal with Oracle or SAP. Whenever there is an IT need most of the companies, by default, will evaluate the products from their ERP vendor… even if they don't want to. These are some of the most common reasons I hear from these customers on their evaluation criteria (this is not an inclusive list):
In order for a software company to be successful against the big ERP vendors they will need to address these concerns. Certainly the above concerns can be overcome, but the software vendors should know the bias they are up against.
What reasons have you seen on why companies don't want to leave their ERP provider to choose a better solution?
There is an interesting debate taking place amongst the commentators of IT trends and enterprise applications, particularly ERP and supply chain management applications, about the suitability and adoption of cloud or software-as-a-service (SaaS) solution to this space. This is exemplified by the article from Todd Morrison at SearchSap.com that appeared on Dec 01, '10 in which contrasts opinions by Liz Herbert of Forrester and Ray Wang, principal analyst and CEO of Constellation Research Group. This debate is nothing new in that it has been raging since the advent of SaaS some years ago.
On the one side Forrester repeats the usual arguments against broad adoption of SaaS for enterprise applications, which, according the article with my emphasis, state that:
Organizations can also benefit from the Software as a Service (Saas) products that complement the core SAP applications they're running, according to Forrester.
... In addition, some organizations are also reluctant to put mission-critical operations, such as supply chain management workloads, into the cloud.
Ray Wang, on the other hand is quoted as stating that…
what's holding back the adoption of SAP's on-demand/SaaS offerings is a "lack of ease of use" and cutting-edge functionality such as offered by Kinaxis and Plex.
Liz Herbert's opinion is these applications...
don't offer the breadth of capabilities that SAP does and that companies are reluctant to deploy software from Plex and Kinaxis because they don't have the established reputation that SAP does, and certain functions like SCM don't lend themselves to on-demand applications.
There is no doubt that SAP has a much greater market share than Kinaxis, but I challenge anyone to call on our customers to evaluate our 'established reputation'. And these customers include the likes of RIM, Flextronics, Lockheed Martin, and Amgen, all of whom use an SAP ERP backbone.
And, by the way, they are all very large multi-billion dollar companies with operations around the world. I state this because the other usual pushback against the adoption of enterprise on-demand solution is that they are fine for the 'little guys' but don't play in the 'big boys'.
Let me also state that while many of our larger customers initially chose an on-premise deployment, many have either converted or are in discussion with us about converting to on-demand. More significantly, the majority of new customers are choosing to go on-demand. This trend is also being observed by SAP as announced at their SAP Influencer Summit yesterday. While I have to agree that Business ByDesign is aimed at small to medium enterprises (so the 'little guys', not the big boys') SAP stated that on-demand inquiries have gone from 1 in 10 last year to 1 in 2 this year.
Let me also concede that for many ERP functions the only incentive for putting things in the 'cloud' is one of cost effectiveness because many of the core ERP functions do not stretch outside the organizational boundaries. And yet two of the functional areas that are seeing huge increases in adoption of on-demand solutions are customer relation management (CRM), or sales force automation (SFA), and human capital management (HCM) or human resources management (HRM). I don't know what could be more confidential than a company's sales order pipeline or their employee records, including employee evaluations. OK, maybe I will concede that the core financials are more confidential.
But I do find it interesting that Herbert considers the core ERP capabilities to be most applicable inside the four walls of a company. What surprises me is that she considers supply chain management to be restricted to inside the four walls of a company. Our observation is that that for most of our customers outsourcing has meant that increasingly little of the supply chain is owned by the companies, especially the brand owners. If these companies had the myopic view of the supply chain being only that part of the process in which they own the materials or product they wouldn't need any of the SAP supply chain management suite because they outsource most of their manufacturing, in many cases never touching the product.
It is our observation that leading brand owners in high-tech electronics, consumer electronics, aerospace and defense, and life sciences need greater visibility and control of the end-to-end supply chain in order to provide reliable promise dates and to be able to deliver according to the promises made. As inventories have been squeezed out of the retail and supply chains locations, the need for greater responsiveness and agility has increased enormously. Ask any electronics manufacturer about the availability of key components over the past 12-18 months and you will hear stories about commodity items that could be purchased with a 2 week lead time as little as 2 years ago that now has 13 week lead times if you can find a supplier. Given the buy-sell relationship many electronics OEM's have with component suppliers (in which they buy items from the component suppliers and sell these items to the contract manufacturers) it is clear that they need a lot more visibility into and control over the supply chain than is provided in ERP systems, which is the core reason for their increased interest in on-demand SCM solutions.
What about your company? What sort of 'cloud' strategy are they adopting? What sort of applications will they be most interested in deploying on-demand?
Originally posted by tmiles at http://blog.kinaxis.com/2010/12/head-in-the-cloud-or-feet-on-the-ground/
There's no dispute about the benefits obtainable through use of supply chain management. There's also no question that during the economic downturn, companies relied on supply chain management to weather the storm. I must admit, however, that I am somewhat surprised by the results of a recent survey, in which respondents reported a drop in the amount of overall cost savings as well as lower increases to revenues as a result of supply chain management initiatives.
The survey, 2010 Global Survey of Supply Chain Progress, was jointly conducted by CSC, Supply Chain Management Review (SCMR), and Michigan State University, with assistance by the Council of Supply Chain Management Professionals (CSCMP) and Supply Chain Europe magazine. Twenty industries were represented in this year's survey, and respondents included representatives from both large and mid-sized companies, with sales ranging from $250 million to over $1 billion.
One of the surprisingâ€”at least to me, anywayâ€”findings was that when asked about the overall impact of supply chain initiatives on cost reduction over the past three years, the number of respondents answering "none" or "don't know/not sure" grew from 13 percent in 2009 to 20 percent this year. And as a follow-up, when asked about the overall impact of supply chain initiatives on increasing revenue over the past three years, the percentage of respondents indicating "none" or "don't know/not sure" rose from 30 percent in 2009 to 47 percent in 2010. How should that be interpreted? Is it actually a lack of impact, or a lack of direct measurement to understand the impact?
I am encouraged by other results (which, to a degree, are counter-intuitive to the stats above). For instance, supply chain management is largely held to be of considerable importance. In fact, 82 percent of the respondents replied that supply chain management is considered to be a core importance for their organization, and when asked how much influence supply chain management has on running the business, 52 percent replied "to a great degree"–while another 35 percent indicated a "moderate degree."
Supply chain management also is a logical operation for companies to use to battle the effects of the economy. Indeed, 78 percent of the participants indicated that their firms increased emphasis on supply chain management this year. Additionally, given the growing emphasis on supply chain management, it only stands to reason that S&OP is increasingly valued as well. For instance, 66 percent of the respondents reported a moderate to high degree of impact using S&OP to improve the company's agility so it can better respond to changes in customer demand.
I believe this will be a trend that will continue for a long time to come. SCM and S&OP are sure to grow in importance given that increasing levels of outsourcing, globalization of demand, requirements for product innovation and demand volatility combine to have a profound impact on companies' business performance. Supply chain is becoming known as the sweet spot for impacting competitive advantage and operational and financial success.
This blog post is thethird in a series of implementation best practices.
The way projects are run have changed significantly since I started consulting 19 years ago. In those days, it was unheard of not to be onsite at the client Monday through Friday working on a project. Even though during that time you may only spend a few hours directly with the client. Of course with the advances in technology (laptops issued to everyone, VPN, mobile/smart phones, VOIP, etc.) the consulting world has evolved. While we once had to be onsite 100%, that then changed to 75-80% (7-10 years ago). Clients sometimes let the consultants work from home one day a week. The clients still had the mindset that they wanted to see the people who were doing work for them to ensure that the work was being done and they got what they paid for.
Fast forward a few more years to implementing Software as a Service (Saas). The world changed again. Most Saas vendors have an implementation approach that has much less onsite activities than a traditional software implementation. Consultants typically will be onsite for specific activities or milestones while the remainder of the work will be performed remotely. With access to servers in the cloud, web conferencing products, and more standard implementations due to less customizations, the need to be onsite is less critical.
I certainly do believe there is less need for onsite work for a Saas project; however, there are critical activities which I do believe should be performed onsite:
These may not be the only times when the teams should be together, but I believe these are the most critical. If the client is struggling with understanding the solution and taking ownership of the solution, then more onsite work may be required. Consultants need to watch for this and be flexible to change the schedule to best meet customer needs.
In order to make this model work, it is critical to set the appropriate expectations in the sales cycle. Most clients will agree with the approach once they understand how it will work. Clients are also increasingly budget challenged and the cost savings of not having all consultants onsite every week will be attractive. Although, cost concerns should not outweigh whatever is required to make the project successful.
What are your thoughts and experience with performing remote work?
There are a couple of items of interest on the Supply Chain Expert Community that I thought I would share.
We have a poll currently running asking the question of: Which is the most influential analyst firm in the supply chain space?
It’s early days in the poll, so nothing close to statistically valid yet, but come vote (need to take 10 seconds to register as a community member if you are not already one) We’d love to get a collective view on this. Hit this page and scroll down to see poll.
And for FUN (because that’s our style), we also have a contest running entitled “ What’s Your Six Word Job Description ?”
There have been some pretty creative submissions; some personal favorites include:
Come join in on the fun….and win a Toshiba Mini Netbook by doing so! Again, you need to be a community member to contribute – take 10 seconds to register if youhaven’t already. Contest ends on Friday, December 17th.
I received a note a while ago from a former colleague. He had met with an executive at a large high tech manufacturer in the North East. The discussion turned to the high cost of ERP support and maintenance. He noted that this company and several others chose not to upgrade their Oracle installation;
"Oracle's annual maintenance fee combined with the cost of upgrading to Release 12 has become so expensive that we and others opted not to renew support this past year."
Another indication that ERP support and maintenance costs are a significant issue. A quick search on Google brings a wealth of articles talking about the cost of ERP ownership;
Is this Highway Robbery or Indentured Servitude?
Oracle Is “The Teflon Don” of ERP Software Maintenance
ERP Software Maintenance: An Offer You Can’t Refuse?
Oracle: Don’t Hate the Player, Hate the Game
ERP Support Drama: How Far Will Oracle Go to Protect Its Golden Egg?
There are more, but these give you a good idea as to the state of affairs with ERP support and maintenance.
An article by Thomas Wailgum at CIO.com brought this issue into focus. In this article Wailgum discusses a concept from a Gartner report called 'Global IT Debt'. As Gartner defines it, global IT Debt is "the cost of clearing the backlog of maintenance that would be required to bring the corporate applications portfolio to a fully supported current release state" According to Gartner, the Global IT Debt will total 500 billion in 2010 and has the potential to jump to 1 Trillion by 2015. The Gartner announcement points out that the most worrisome issue is that many IT organizations don't have an application inventory or a structured application review process which means that IT management isn't aware of the extent of the problem.
On the one hand, working for a software company, I understand the importance of support and maintenance payments. This money goes to staffing support call centers, tracking down and fixing bugs and to funding research and development into new capabilities that will ultimately provide additional value to customers. In our case, however, we provide an on-demand service that includes support and maintenance in the monthly payment. Of course as a subscription service you incur little upfront costs so the monthly payment seems far more reasonable.
The old ERP model of perpetual, on-premises licensing adds insult to injury by demanding a staggering up-front price and 'extortion like' annual support and maintenance costs. At some point (and it's starting to happen...) companies are going to say enough is enough and start to look for alternatives.
So what alternative is there? The software as a service (SaaS, or on-demand) model is certainly gathering momentum. When we first introduced our on-demand offering in early 2006, customers would often express great concern over data security and system availability. Today, after years of proven performance and security both with our software and with other SaaS companies like Taleo and Salesforce, most prospects don't even ask about on-premise models.
Will Big ERP go on-demand? They say they are, but a quick look at what they are offering, it appears to be more of an outsourced model than on-demand. Some companies like NetSuite are delivering ERP for small / medium businesses via SaaS. My thinking is that companies like this will expand upwards and will start taking some of the large accounts away from SAP and Oracle. Time will tell.
What are your thoughts on the ERP maintenance agreements? Are you considering going off support? When is the last time you upgraded? Comment back and let us know.
A couple of weeks ago, Flextronics CIO, Dave Smoley, joined Dr. Hau Lee, Thoma Professor of Operations Information and Technology at Stanford Graduate School of Business, along with our very own John Sicard, EVP Marketing, Development and Service Operations for a webcast presentation.
That webcast is now available on-demand.
Here is a little more about the session…
Translating business drivers into technology requirements: How to support today's S&OP and SCM landscape
As a leading EMS provider, Flextronics is no stranger to supply chain pressures. Short product life cycles, demand volatility, supply shortages — all of which must be managed within a supply chain that crosses organizations, geography and time zones. As a result, there is a tremendous need for supply chain agility. One of the most fruitful ways to improve agility is to reduce decision latency throughout the multiple layers of the supply chain and throughout the various stages of the S&OP process.
Dave Smoley discusses the technology capabilities that are required to be a partner in their customers' planning processes and pro-active in responding to their changing needs, thus avoiding the organizational chaos and business risks of being on the tail-end of a bullwhip.