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A posting in Supply Chain Digest from a while back poses a question as to where Sales and Operations Planning (S&OP) might be going and do we need to move on to a more comprehensive concept called Integrated Business Planning (IBP)? The article references a diagram from Gartner and is shown below.

Source: (page 17)


What I find most interesting in the Next Generation S&OP is implied, but not stated explicitly. That is that Integrated scenario analysis, Supply "what-if" and Base supply plan (in nine-step S&OP) are replaced with Supply "what-If", Financial "what-if", base supply plan and base financial plans. What I believe is implied is that:

  • Integrated scenario analysis, which was looking at just the supply plan, is extended to include a financial plan.
  • The next generation approach will be much more interactive and integrated so that the financial and operational impacts from alternative demand or supply plans can all be considered (easily) in the S&OP process.


The diagram below is an attempt to show the evolution of the development of an integrated consensus plan which addresses and balances the interests of demand, supply, and finance.



In the "new world", managers can see supply, demand and financial projections based on the current or potential supply and demand plans. By seeing the impact of change, they can develop a new "consensus plan" which represents the best balance between competing objectives.


My colleague Trevor Miles wrote a very interesting piece a while back called " IBP or S&OP: What's in a name?" Check it out and provide feedback below.

Originally posted by dklett at

There is a lot written these days about customer loyalty and its importance particularly during difficult economic times. Can anyone afford to lose even one customer? The cost of acquiring a new name customer can be extremely high so doesn't it make sense to try and keep as many customers as possible?




I read a Playbook posted on the BusinessWeek website titled “Playbook: Customer Loyalty Do’s and Don’ts.” I found it a good refresher of tips to remember. I have listed some of the tips below that I found most helpful:



Ben McConnell, co-author of Creating Customer Evangelists: How Loyal Customers Become a Volunteer Sales Force


  • Do find ways to bring customers together regularly, whether it’s through a quarterly or yearly conference, party, or meeting. The ones who’ll show up are probably the evangelists, and they love to meet other evangelists. Meeting one another under your party banner will help reinforce their feelings of emotional attachment. Plus, it gives them something new to tell others.
  • Don’t allow even one employee to be grumpy or haughty toward customers. Evangelists are just as, if not more, loyal to your people than they are to your product, service, or brand. An employee with a bad attitude toward customers is like a virus that spreads bad word of mouth, and the years spent cultivating a good reputation can be lost in months or weeks.


Glen Urban, professor at MIT Sloan School of Management and author of Don’t Just Relate -Advocate! A Blueprint for Profit in the Era of Customer Power


  • Do remember that loyalty is built over time through a collection of positive experiences.
  • Don’t assume that the lack of complaints is equal to a satisfied customer base.


Frederick Reichheld, a fellow at Bain & Co., founder of that firm’s Loyalty consulting practice, which strives to help clients improve customer, employee, and investor loyalty, and author of The Ultimate Question: Driving Good Profits and True Growth


  • Do keep the following in the mind: Customers who become promoters must first believe that a company offers superior value in terms of price, features, quality, functionality, ease of use, and all the other practical factors. Additionally, they must feel good about their relationship with the company- they must believe the company understands and values them, listens to them, and shares their underlying principles. A company able to combine these factors will create promoters, customers who eagerly recommend a company or service to family members, friends, and colleagues.




It has been my experience that the most loyal customers have an evangelist in their organization for our software product. If there isn't at least one person who is evangelizing the use of the product throughout their company, then there is likely lower user adoption and lower customer loyalty. Being in Professional Services at a software company I am always on the lookout at my customers for who is or who can be the evangelist in the customer's organization. If one does not exist it is certainly worth the time and the effort to nurture and cultivate the relationship with the customer to grow one.




I love the reminder of not allowing even one employee to be "grumpy or haughty" towards customers. Fortunately I do not typically have to deal with my co-workers being grumpy or haughty toward my customer. However, I do need to remember that whomever I bring in from my organization to speak with the customer I should educate them on who they are talking to, what their concerns are, and not to give generic advice to the customer, but rather make it as specific and unique to that customer as possible. Everyone from my company who speaks to the customer represents the whole of the company.




Customer loyalty is built on a collection of positive experiences. I personally believe first impressions are very important and this includes building a relationship face to face. In this day of internet and web meetings, etc. it is too easy to be cost conscious and not travel to customers because everything can be done over the phone. But can you share a meal over the phone? Can you look at the person's personal photos on their desk and inquire about their family? A great relationship is built by some face to face interaction and lots of positive experiences.




"Don't assume the lack of complaints is equal to a satisfied customer base." Isn't that the truth! I personally find that if a customer is too quiet over too long a period of time that they may no longer be utilizing our product as broadly as before. Most very active customers are asking for regular interaction. So if you haven't heard from someone in a long time it may be a good time to reach out and check in. Or even worse, maybe your biggest supporter is no longer with the company.




The last tip is really important. A customer may be interested in your product if it is superior and offers superior value, but if your company is difficult to do business with, the company may not choose your product. You must not only listen to your customers, but action on what they tell you. I have heard from customers in the past that they get frustrated when they fill out surveys or provide feedback or questions and no one ever follows up. If you don't action on your customer's input it will certainly breed dissatisfaction.




Do you have any other tips on how to maintain customer loyalty?


Originally posted by mrupert at

If you attended the Gartner Supply Chain Executive Conference you may remember the term "VUCA" from the keynote on the first day ( Trevor Miles also wrote a blog post on VUCA here). It was used to describe today's supply chain and stands for "Volatility, Uncertainty, Complexity and Ambiguity." The keynote speaker stated VUCA is a military term but certainly fits when discussing supply chain challenges. Let's look at where the "T" in VUCAT came from.


The same keynote also described the foundation that today's supply chains are built on. In particular, there were two analogies that stood out and challenged the audience to think about their own supply chains. The first analogy was having your supply chain foundation built on technology that resembles that of a "picket fence." In this case, there are gaps where key information may "slip through the cracks" and it becomes difficult to do any meaningful supply chain analysis. If you use Excel this may sound familiar. Supply chain analysis is difficult because those that need to participate are looking at different data, missing data, and there are gaps in the analytics. If your supply chain analytics are built around Excel spreadsheets then you may be bound by the "picket fence." Excel may be sufficient in an environment where there is little "VUCA," but when managing today's supply chain challenges, Excel is not a scalable solution.


The second analogy of interest used to describe the technology a supply chain foundation may be built on was that of "bricks and mortar." In this case, the analytics required to respond to "VUCA" are just not flexible enough. Old processes that are cast in stone, long analytic run times, and user interfaces that are far from being user friendly are just a few reasons to describe this technology as "bricks and mortar." If you are trying to get your supply chain analytics from your ERP system, which for the most part is the transaction system, this may sound familiar. In keeping with the analogy it would be like getting blood from a stone. This is the reason many people continue to turn to Excel for supply chain analytics but soon run into the "picket fence" problems.


This is where the "T" in VUCAT comes from, Technology that does not support today's "VUCA".


So what is one to do with "VUCAT"? Some analysts were talking about "best of breed." This may mean abandoning your Excel spreadsheets or getting rid of ERP components that are either difficult to deploy or are not doing the job. In these cases "VUCAT" is actually a verb. For example, if somebody asks, "What are we going to do with all these Excel spreadsheets?" You might say, "We just have to VUCAT and replace them." Look for this new word in the next APICS dictionary :)


If you are going to replace the "picket fences" or "bricks and mortar," what characteristics will allow you to manage "VUCA"? Here are three key requirements for today's supply chain analytics;

  • "Know sooner" by being able to continuously monitor plan versus actual and alert participants not only of the event but of the consequences.
  • "Collaborate now" by automatically identifying not only the consequences of change but those individuals impacted by it and thtat can contribute to its resolution.
  • "Respond immediately" by evaluating any number of resolution scenarios in seconds with anyone in any place and compare alternative actions against operational and financial metrics.


This means you can embrace "VUCA" and create a competitive advantage by being a "first mover."


Did you hear the term "VUCA" used at the Gartner conference or anywhere else? What is your take? Is it a new more descriptive term for today's supply chain or more of the same?

Originally posted by bdubois at

Mike Burkett wrote in this Mondays' First Thing Monday, a regular Gartner commentary on supply chain issues that requires registration, that



Although there may be no such thing as a perfect forecast, there are plenty of opportunities for improvement and managing demand in support of a more cost-effective supply response. Better collaboration between trading partners is the necessary next step toward waste elimination in the value chain.


Maximizing value from the supply chain won’t be reached without improved collaboration between trading partners.




In fact, Mike identifies the lack of collaboration between trading partners as the primary cause of demand volatility. (I agree that the lack of demand visibility increases demand volatility, but there are other industry dynamics that are increasing demand variability.) Of course, visibility and collaboration are the key messages behind The Beer Game (or beer distribution game) which was originally invented in the 1960s by Jay Forrester at MIT as a result of his work on system dynamics to illustrate the bull-whip effect. Absolutely critical to a smoother functioning supply chain is demand visibility across the entire supply chain. Of course visibility isn't a very mature form of collaboration, but it is at least a start and a necessary precursor to more mature forms of collaboration. And let's be honest, after 50 years we still haven't really got to effective demand visibility, although there have been improvements. To get some estimate of how well your company is performing in this regard you can take the Gartner Demand-Driven Value Network (DDVN) maturity self -assessment.(Registration or Gartner membership required.)




But it isn't just so-called Easy-West collaboration between customers and suppliers that is required. I would be happy to start with the so-called North-South collaboration between strategic and financial plans, usually the focal area of the executive suite and Finance, and operational plans. Some analysts and commentators have called this integrated business planning, which also dates in concept from the 1960's. I'd even settle for East-West collaboration between demand and supply functions withinone organization, including Gartner's stage 4 Sales & Operations Planning (S&OP) maturity. There is no inter-company process that is a better measure of collaboration than S&OP done well. According to Jane Barrett of Gartner, most companies are stuck in stage 2 maturity. This is largely due to the inertia and resistance to change so prevalent in many companies.




But how is it that 50 years on from Jay Forrester's work we are still struggling with this issue? My opinion is expressed in a blog titled " Do you trust yourself to collaborate? The real barrier to collaboration is not technology, but trust". Let's face it, technology can always be improved, especially the user experience. But the capabilities of the technology available for inter-company and intra-company collaboration exceeds the willingness of organizations to share information at the moment. As Mike Burkett points out, huge gains can be achieved by collaboration, so why don't companies try to capture these benefits? My opinion is that the issue is the same that is preventing them moving from stage 2 to stage 3 S&OP process maturity, namely that they simply want to automate their existing manual processes and don't realize that effective collaboration requires both new ways of working and supporting technology capabilities.




Nothing captures this better than a Henry Ford quote that "If I had asked my customers what they wanted, they would have said faster horses." There is a strong synergy, even symbiosis, between technology and process. In a great slide show titled " What if Peter Drucker taught Enterprise 2.0?", Mark Fidelman states that



Neither technology nor people determines the other, but each shapes the other.




But let us recognize that the financial and operational risks of collaboration are tangible and can be high. There is a good series on collaboration in the Harvard Business Review. The one I like best dates from June 7, 2011 and is titled " Collaboration is risky. Now get on with it." The author, Whitney Johnson, writes that



Why is teamwork so difficult?


Because collaboration is actually a pretty risky business. Perhaps, like me, you are generally of the mindset that two heads are better than one. But because your ideas frequently get co-opted, there’s a risk-reward imbalance that makes you reluctant to engage. Or maybe you’ve reached out to a potential collaborator only to have your lack of expertise exploited. So, rather than ever again experiencing the one-two punch of ignorance and vulnerability, you’d prefer to soldier on alone. In both instances, the fundamental barrier to collaboration is a lack of trust.




While writing about individuals within a group, clearly Whitney's observations and opinions are very applicable to collaboration between functions and organizations. Her prescription is to


  1. Start with simple exchanges where the cost of betrayal is low.
  2. Remember that our collaborators are competent.
  3. Don’t take advantage of our collaborators’ deficiencies.
  4. Give others their due, and expect yours in return.




Sound advice. Yet so difficult to put into practice. The comments section is well worth a read too, including links to some interesting materials.




Mike Burkett concludes his First Things Monday contribution with the observation that



By closing gaps between partner nodes in the supply chain, there’s an opportunity to address the unnecessary waste across the value chain.




These are the hard benefits of supply chain collaboration. They are real and they are achievable. Yes, the risks are real, but the rewards are equally real.



Originally posted by tmiles at

A common supply chain model with North American-based brands will include the outsourced manufacturing of components or even finished goods to Asia. This outsourcing to Asia can obviously result in significantly reduced costs of manufacturing, but also presents some significant challenges with shipping or transportation -both in cost and also the transit time.


The trade off is cost versus speed as to how to get the goods from Asia to North America: via air or sea. In an ideal world, and especially for bulky items, freight by sea is the most cost effective option and is used as the default shipment option. Shipments by sea can take around a month or even longer to reach the destination. Therefore, there are times when shipments need to be expedited to meet demand and air freightmust be used. This is a classic supply chain problem: how to balance transportation costs against demand and supply.


Once the decision to put the materials on a boat is committed to, these materials are basically unavailable for a month or more. This can be a real problem to have this in-transit inventory tied up when these materials are needed to fulfill shortages or customer demand.


Many ERP systems have modules available to help manage transportation, and there are also third party logistics applications or Transportation Management Systems (TMS) on the market that can be "bolted on" as well to assist with transportation management.


However, some companies struggle with the issue of transportation, primarily because there are multiple considerations:

  1. Which orders should be expedited to use air shipment?
  2. Is the cost of the expedited shipment worth it?
  3. How do you effectively communicate to suppliers which orders to expedite?


Related to item 1, we need access to planning information to determine orders that potentially are late to demand. Adding in item 2, we need to be able to evaluate the cost of expediting against the additional revenue that can be realized in the current period with the expedited order. This implies that some sort of simulation capability needs to be present to model the change in the supply plan and how that will impact the fulfillment of demand. Item 3 has to do with the actual execution, purchase orders may need to be updated or at a minimum the change in shipping method needs to be clearly communicated to the supplier. The considerations or dimensions of the problem can be summarized as

  • plan/simulate,
  • calculate cost, and
  • execute.


Many of the third party or extended modules available on the market today can only handle one or two of the three considerations. Therefore, the above considerations require a "one to many" solution. The ideal solution is to have an application that enables all three of the dimensions: determining what needs to be expedited and the resulting impact on revenue and customer service; calculating the cost and benefit; and effective communication to suppliers and execution.


I am curious if you have any insights as to how you have (or suggested approaches) solved this multi-dimensional problem of transportation management?

Originally posted by mjeffrey at

This is the 3rd blog post (here’s the 1st and 2nd) I have written on the Gartner Supply Chain Executive Conference and, judging by other commentators, perhaps I should have started with the topic of the Top 25 supply chains. But I needed some soak time.


There is always a flurry of activity after the announcement commenting both on the list and short-comings of the process. But what gave me pause was Kevin O'Marah's statement about his motivation for creating the Top 25 list while at AMR Research. Kevin said that it was to raise awareness of the practice of supply chain management and to reward those who are doing well. I am sure that there were some less pure motivational elements too, but before we cast the first stone, let us remember that we all have to earn a living. I do not know Kevin well, but I know him well enough to accept that his primary motivation was true. Supposedly Henry Ford once said "Look after the customers and everything else will take care of itself." And all the comments about the list itself and the short-comings of the process of developing the list is testament to the fact that Kevin's primary goal was achieved. As I commented in my first blog on the Gartner conference, perhaps the most interesting presentation in this context was the one about Howard Schultz, CEO of Starbucks, writing a companywide email congratulating everyone for being recognized for their supply chain transformation which got them onto the list, albeit at position 22.


And yet I do have some issues with the list. Several of them commented on by others. Bob Ferrari on his Supply Chain Matters blog comments that:


The overall list itself has many familiar names and global brands. It would be nice for one year to have a small or mid-market company make the listing. Outsourcing the major portions of your supply chain provides a high ROA, and that can get your company a good shot for making it on the list. Speaking of effects outsourcing, once again, there is no presence from major process manufacturers ( BASF, Dupont, Dow Chemical) and that remains a disappointment. A lack of recognition of any major global contract manufacturer, those that own the majority of production and in some cases process design assets ( Foxconn, Fextronics, Jabil) also remains disappointing. While the overall list has some non-U.S. names such as Samsung and Inditex, it should include other capable names as well.


In reply to a fairly negative comment on my 1st blog about this year's Gartner Supply Chain Executive Conference that implied deliberate bias toward their clients by Gartner I wrote (with some editing here) that:


There is no doubt that the center of gravity has shifted [away from the US] since AMR (now Gartner) first started the rankings 7 years ago. At that time, AMR had hardly any presence outside of the US. Although Gartner has a wider reach, it is still very Western economy focused and also [Gartner's] supply chain practice was much smaller than [AMR's]. The senior people at Gartner are aware of these short comings.


Kevin O'Marah, who started the ranking, will be the first to admit that there is a lot of subjectivity to the rankings. Also companies have to apply to be included and there is a lot of work, on the part of the company that goes into the being evaluated. So if a company does not apply (and yes, it is far more likely that a Garner customer will apply than a non-Gartner customer) it won't even be considered. In other words, if Apple didn't apply [to be included in the ranking] it wouldn't be #1. I have a bit of a problem with this approach.


As importantly, 50% of the overall score is based on financial metrics, 25% on "peer" opinion, and 25% on Gartner analyst opinion. When many of the companies in China and India are private and reporting is less rigorous this poses a bit of a problem. In addition, when few people in the West have heard of Haier and Huawei it is unlikely that they will get many peer votes. And as you state, do the Gartner analysts really know the companies in Asia? Especially if they are not customers.


But I ask myself if I would rather have had the Top 25, with all the flaws we have all identified, over the past 7 years or not, and my immediate response is that we — practitioners, analysts, bloggers, and vendors – are all better off for having had the Top 25. But I would like to encourage Gartner to make 2 changes:

  1. Include more financial and operational metrics
  2. Be proactive in including companies that are not within the client base by comparing a wider set of metrics. (Of course this still poses a problem in China and India where many of the companies are still private and therefore do not report financials on a regular basis, if at all.)


Here are some suggestions for metrics. (These can be viewed in our free benchmarking service on the Kinaxis Supply Chain Expert Community. (Registration is required, but there is no fee.)

  1. RONA rather than ROA, so that industries that have long lead times are not penalized, but this still leaves industries with heavy asset needs, such as semiconductor fabs, being penalized.
  2. Free cash flow as a percent of revenue which, after all, is a better measure of the overall effectiveness of the management than cash-to-cash.
  3. Modify cash-to-cash to penalize those companies that use DPO as a financial instrument and take more than 30 days to pay suppliers and those companies that use DSO to hide dealer stock by transfering ownership to dealers and then giving them long payments terms. My suggestion is to use (DSO-30) + DOI — (DPO-30) as a modified cash-to-cash calculation, although I admit this would have an unintended consequence for retailers who typically collect payment a lot faster than B2B companies. (Of course algebraically the C2C values will be the same so I may need to rethink this approach.)


Let's see how this year's Top 10 fair. One note is that not all industries are included in the benchmarking service so McDonalds will not appear in the analyses below.



This graph attempts to show how companies balance different metrics. This graph also illustrates why RONA is better than ROA because inventory efficiency is already captured in the inventory turns KPI. The other element captured in this graph is cash-to-cash in the form of DPO/DSO which determines the bubble size. The DPO/DSO ratio is used instead of cash-to-cash because inventory is already accounted for in the inventory turns KPI. In a B2B environment I would consider a DPO/DSO ratio of 1 good. From this graph we can see why P&G, Apple and Dell are ranked so high in the Top 25 list, but we can also see that P&G has focused on net assets whereas Apple and Dell have focused more on inventory turns. My interpretation is that P&G stands out again because of the DPO/DSO ration of close to 1.2, which can be seen in the legend. Amazon and Wal-Mart have large DPO/DSO ratios because of being retailers, but also because of long DPO.


We can also look at how free cash flow as a ratio of revenue has trended over the years.



Note that Samsung is missing from this graph because it does not provide the necessary financial information. However it also indicates why Cisco, despite its recent issues, has had a high rank over a number of years both because of their consistency and their cash generation. On the other hand, Apple's performance over the last few years is clear as are RIM's challenges. P&G has been both consistent and near the tops for a number of years.


Another graph I like to look at is revenue/employee, more so to see the trend rather than the absolute value, thought he absolute value is pretty interesting too, but has an industry bias. For example retailers will always have a higher ratio of employees.



But my favorite is to get an overview based upon a number of metrics such as below.



Note that the Best-in-Classand Worst-in-Class are the maximum and/or minimum of the entire data set rather than for the values displayed in the table. For example for inventory turns 58 is the best value achieved over the past 3 years whereas the Dell achieves the best average performance over the past 3 years of 46 days.


Note that there is a preponderance of green toward the top of the list perhaps indicating that the Gartner rankings, amongst the companies included in the analysis, are correct after all.


Please try out the benchmarking service. It is free. When registering you can select your company. If you are a private company you can enter your own ratios. (No-one else will be able to see the information you entered.) Of course this is also useful for divisions of larger companies that may want to compare themselves against both the corporate entity and other companies closer to them in terms of industry. There are also standard lists such as the top 10 from the Gartner Top 25 over the past few years and industry specific Top 10 lists based upon revenue. Separate groups can be created for customers and suppliers.


In summary, I'd just like to say congratulations to all the companies in the Gartner Top 25, it is a great achievement. I would also like to thank and congratulate Gartner on their excellent efforts in compiling the list, warts and all.


Please try out our benchmarking service and let me know what you think.

Originally posted by tmiles at

There’s been a lot of talking lately about off-shoring and on-shoring. My colleagues Monique Rupert and Trevor Miles have both weighed on this subject. You can view their posts here.


There was an interesting article in Industry Week last month suggesting that the US was becoming a low-cost country for manufacturing. Well, I guess it all comes down to how you spin it. Let's look at what's happening;

  • According to the article, Chinese wages are rising by 17 percent per year.
  • The value of the Yuan is increasing.
  • Many states are offering incentives to bring manufacturing into the state.
  • Unions and workers are more willing to provide concessions in order to get back to work.
  • The estimate from the article is that net labor costs in China and in the US will converge by 2015.


The article goes on to point out that several companies including Caterpillar, NCR, and Wham-O are bringing production back into the US from Mexico and China.


Given these factors alone, you might make the argument that the US is becoming a low-cost country for manufacturing. I don't think that is a fair assessment because the next logical step in the argument would be that if the US were becoming a low-cost manufacturing center, other countries will start manufacturing their goods in the US. I don't think that is likely to happen. I think what really is happening is that China is pricing themselves out of the low-cost advantage they've had for years. As we start coming close to cost parity, other factors are making local manufacturing more attractive.


The on-shoring or near-shoring movement is gaining speed. This is the idea of bringing manufacturing back to where the demand is. A blog post in Plastics Today points out that according to management consulting firm Accenture, " Companies are beginning to realize that having offshored much of their manufacturing and supply operations away from their demand locations, they hurt their ability to meet their customers’ expectations across a wide spectrum of areas, such as being able to rapidly meeting increasing customer desires for unique products, continuing to maintain rapid delivery/response times, as well as maintaining low inventories and competitive total costs," and that " managing supply operations that are separated far from where demand occurs has weakened their overall operational planning, forecasting and general flexibility, while in some cases driving up costs with the need for complex network management. In some cases, this situation has limited the companies’ competitive advantage."


Let's look at some advantages of putting manufacturing where the demand is;

  • Time to market can be significantly improved
  • Less risk to intellectual property
  • Lead times are reduced and are more consistent
  • Given reduced and more consistent lead times means inventory levels can also be reduced.
  • With fuel prices going through the roof, reducing the overall distance traveled for our manufactured goods can only help the bottom line.
  • Reduced product travel also impacts the overall carbon footprint for the product, a factor that is starting to become more and more important in the eyes of the consumer and governments.


I've always been in favor of manufacturing near where the majority of the demand is (See my blog post from last year here). I think when companies look at the overall costs associated with offshore manufacturing, more will realize that manufacturing where their market is just makes sense (and dollars too).


Are you currently manufacturing offshore? Are you considering moving your manufacturing back to North America? Have you moved already? Comment back and let us know!

Originally posted by jwesterveld at

It is easy to be a 'free trader' while your economy is dominant. It is a lot more difficult to hold the line when your economic dominance is being eroded.




I am referring of course to the blog titled " Low cost of labor — How long will it last?" published by Monique Rupert, who is a good friend and colleague, in which she refers to an article by Dan Gilmour of Supply Chain Digest titled " Rethinking China." It is tough to disagree with a friend and colleague, but I feel I must, but perhaps more so with the original article by Dan Gilmour. In his introduction Dan apologizes for being political in his column. I must too, though I would hope that both of us are more in search of solutions than being political. It is less the factual evidence Dan provides to which I disagree than the sentiment. For decades the US has railed against closed economies and through its dominance of the World Bank has enforced (I use the term loosely) its version of market economics on countries without the social and political structures to absorb the huge economic shocks and resultant social consequences on countries that had to come begging to the World Bank.






No, I am not a socialist. In fact I am a lot closer to a believer in market economics. But there are times when a less purist interpretation of market economics can lead to less human suffering. I know, I know: Market economists will argue that slow change is only postponed pain. Perhaps. But isn't it market economics that Monique and Dan are arguing against? The relentless rise and rise and rise of China as an economic power driven by the need to find ever cheaper sources of supply for the western economies?




I am a British citizen, so I am well acquainted with the slow and steady decline of power and influence. While my 15 year old daughter would be surprised to hear that I did not live during the Victorian era, which was the height of British power and influence, I have experienced the dramatic shift in the manufacturing power of the UK over the past 50 years. It is not an easy thing to live through and accept. As late as the 1950's the UK was the second largest car manufacturer in the world and the largest exporter of cars. One has only to look at the figures for the last 10 years to see the continued decline to the point that there isn't a single UK based mass production brand left and the number of vehicles produced dropped 22 percent between 2000 and 2010. You can just imagine what the combination of declining volumes and increased efficiencies have done to the employment figures.
































And yet there can be no question that the general standard of living in the UK has increased tremendously over the past 50 years, largely driven by the financial sectors and entertainment, but also by the general growth of the world wide economy. There is no doubt that many individuals have suffered tremendously over the past 50 years as the manufacturing base dwindled to almost nothing. According to the World Bank the UK economy as a whole grew, very well in fact. In comparing the economies I used the value of "GDP per capita (current USD)" which the World Bank defines as:


GDP per capita is gross domestic product divided by midyear population. GDP is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Data are in current U.S. dollars.




When we compare the US, the UK, and China over the past decades we can see that the UK experienced greater GDP per capita growth than the US, but China has lagged quite far behind until as little as 10 years ago. The GDP per capita growth is measured from the base of 1960, not the year-on-year growth because I wanted to illustrate the overall increase of the quality of life (using GDP per capita as a proxy) in the UK while the manufacturing sector has shrunk considerably during this period. The second graph illustrates that the GDP per capita in China is still only about 10 percent of the GDP per capita in the US, despite the huge gains over the last 10 years. 6/GDP-growth.jpg




In other words, the emergence of China as a world economic power does not represent a zero-sum conundrum for the US and other western economies. The average Joe in the street may still see an increase in standard of living while the relative economic and political power of the US is diminished. One only has to read " Guns, Germs, and Steel" by Jared Diamond to understand the inevitable ebb and flow of power over the millennia to understand that absolute pre-eminence is difficult to maintain. It simply costs too much to maintain a country's preeminence. According to Wikipedia it won a Pulitzer Prize and the Aventis Prize for Best Science Book in 1998, so there are plenty of people in the US who thought very highly of the book. There is also an excellent short discussion of the book on the PBS web site.




There is a great article in the December 2, 2010 edition of The Economist titled " The dangers of a rising China" which probably requires a subscription to read on the internet. After discussing some of the threats posed by China, the authors go on to state that:




Pessimists believe China and America are condemned to be rivals. The countries' visions of the good society are very different. And, as China's power grows, so will its determination to get its way and to do things in the world. America, by contrast, will inevitably balk at surrendering its pre-eminence. They are probably right about Chinese ambitions. Yet China need not be an enemy. Unlike the Soviet Union, it is no longer in the business of exporting its ideology. Unlike the 19th-century European powers, it is not looking to amass new colonies. And China and America have a lot in common. Both benefit from globalisation and from open markets where they buy raw materials and sell their exports. Both want a broadly stable world in which nuclear weapons do not spread and rogue states, like Iran and North Korea, have little scope to cause mayhem. Both would lose incalculably from war.






Let us hope that "cooler heads" prevail on both sides of the US-China divide. Quite honestly I believe it is a matter of giving a little to get a lot, not only for the US and China, but for all western economies as well as the other BRIC countries.






But let us get back to more prosaic discussions of supply chain management. Yes, as Monique and Dan point out, it is at the heart of the manufacturing and economic power shift we are seeing. This is because an efficient supply chain makes it economically viable to use labor half way around the world and still bring the product to market more cheaply than before. Of course cheap labor costs make a huge difference, but if efficient supply chains did not exist this would not matter. Either the cost would be too high, eroding the advantage of a lower cost of labor, or the product would arrive in the market too late to capture changing trends in consumer buying patterns. But let us not forget that the rise of the British Empire was as much to do with the development of rail and the power of the British merchant marine fleet as it did with the Industrial Revolution. There is no doubt that the Industrial Revolution had an enormous impact on the efficiency with which raw materials were converted into finished products, but this would not have amounted to much if raw materials couldn't be brought to the factories from around the world quickly and efficiently and finished products couldn't be shipped to markets around the world quickly and efficiently. Of course by today's standards the supply chains of the mid-1800's were incredibly slow and inefficient, but at the time they provided huge leaps in productivity.




However, the UK wasn't just a consumer market, it also controlled the means of production and the innovation that arose from that. As Dan and Monique point out, this isn't the case for most western economies today, perhaps with the exception of Germany. Only time will tell if this will lead to absolute decline rather than relative decline. I know I am hoping and praying for relative decline.



Originally posted by tmiles at

I have opined on this topic before, but I frequently come back to it in my current role as VP Professional Services and that is what constitutes a strategic vendor/customer relationship. This topic is on my mind today based on feedback from one of my customers whom we asked how they defined a strategic relationship. They stated that a strategic relationship is one where the vendor understands all of the customer's business issues and proactively develops action plans around those issues either using the vendor product or not. To do this requires a deeply skilled resource who understands the customer's industry and supply chain as well as someone well versed in our product and best practices. The customer's point is that to maintain an ongoing strategic relationship our company should provide this feedback regularly and for no additional charge. In theory I do not disagree with them. I think about the companies or businesses that I work with on a daily basis and I would certainly prefer to work with a company that provides this guidance vs. one that does not. However, making this cost effective is difficult.


Some companies invest in the Account Management model to perform this function. But in order to do it right the Account Manager would only be able to handle a minimal number of accounts as they would be very deep into each account. The Account Manager would also have to be very skilled in many areas. One software company I worked at tried this model and the customer's loved it for a while. It worked fairly effectively until the model could no longer scale. Many customers became very reliant on their Account Manager and most times that customer was not generating any additional revenue for the software company. So, as the number of customers increased the number of non-billable heads had to increase until such time when it did not make financial sense to keep increasing the non-billable headcount. Then the Account Manager role went away and the relationship with customer went back to being more tactical. Customers had to pay for services if they wanted this kind of help. This led to some customer dissatisfaction but not loss of too many customers


At my current organization the best resources to provide this type of guidance to customers are typically billable consultants or pre-sales consultants. Both roles are expected to be revenue generating. In my role , I view my organization as performing a customer service role. I think it would be ideal to have resources on my team with deep expertise who can manage a handful of accounts (4-6) and could build the type of relationship where they understand the customer needs very well and can provide proactive guidance on how to solve those problems. The challenge is of course scalability and I would say that my team has this relationship with some customers but not all. However, if billable or revenue generating work should arise that would take first priority over non-revenue generating work. It therefore becomes very difficult to maintain on-going strategic relationships with customers who don't generate any incremental revenue. That is the dilemma. I am constantly trying to figure out a way to maintain strong, strategic relationships with my customers even if they are not generating incremental revenue.


If you are a customer, what do you expect of a software vendor in terms of what it means to have a strategic relationship?


If you are a from a software vendor, have you cracked the code on how to provide cost effective advice and guidance as suggested above?


I am always open to new opinions and best practices. Please pass on your feedback and perhaps I can find a way to be able to strategically support all customers.

Originally posted by mrupert at

This is part two of a series of blogs I will write about the Gartner Supply Conference in Scottsdale on Jun 1-3, 2011. Check out my first thoughts on event here. I'm still mulling over the implications of the Top 25 list, so that will have to wait for the next blog.


The theme of the conference was Back to Basics: The New Fundamentals for Growth, Agility and Competitive Advantage, but agility seemed to highest in the agenda of both the Gartner analysts and the attendees. Very early on in the first keynote Jane Barrett introduced the acronym VUCA, which is used by the military and means Volatility, Uncertainty, Complexity, and Ambiguity. There is nothing better than agility to address VUCA.


Jane, as can be seen from the slide above, used VUCA to describe the current business environment and its impact to the supply/value chain. Jane said that companies are thinking about how they cope with this volatility and uncertainty in the supply chain so that they can respond profitably. Doing so means not only product innovation, but supply chain innovation too; focusing on how new products are brought to market.


I could not have scripted the message better to match with my perspective. I almost feel that we should be shouting "Vuka" which in Xhosa (one of the South Africa languages) means "wake up." Wake up to the new reality that VUCA is a new norm.


But let us parse the term, because in my opinion volatility is the active ingredient and uncertainty, complexity, and ambiguity are largely effects, though complexity can add to the volatility, uncertainty, and ambiguity. Globalization is the driving force of demand volatility... which is in turn driving product complexity... which, coupled with outsourcing, is driving supply chain complexity. By product complexity, I mean the concepts embodied in the terms " mass customization" and " the long tail" in which companies need to develop product variants specific to markets which, assuming a near zero-sum situation, means that there is less demand for each variant. This all leads to a great deal of demand uncertainty. On the supply side, multi-sourcing and outsourcing has led to longer and more variable lead times, and associated costs. Ambiguity arises from not having the appropriate processes and systems in place to respond profitably to actual demand.


Another key concept that Jane mentioned is that of allowing frontline people to make decisions. This is because the time it takes to escalate an issue and have someone at HQ analyze it and propose a solution exceeds the time allowed for a response. What Jane didn't state explicitly is that of course the front line people need tools that allow the front line people to perform rapid “what-if” analysis so that they can understand the consequence of their actions on corporate metrics, both financial and operational. Without these tools you may be providing a short term response that is far from profitable and may only lead to complexity and uncertainty.


I say embrace VUCA.Accept that it is the new norm.Resistance is futile.


Far too many analysts and advisors are telling you that you need to reduce VUCA. While not having anything against this approach in principle, and definitely not advocating that you increase VUCA through poor processes and management, I believe that you have to learn to operate in a VUCA environment and that this requires different skills and tools than those required in a more stable environment. There is a recent Harvard Business Review article titled " Leading Effectively in a VUCA Environment: A is for Ambiguity" in which the author, Col. Eric G. Kail, states that:

Whereas the frustration we experience from volatility, uncertainty, and complexity might leave us feeling overwhelmed and exhausted, ambiguity leads primarily to inefficiency and missed opportunities. Toleration of either will leave us surviving at best, and we want to lead our organizations to thrive.


This is an approach common amongst experts that run counter to what I believe. It is also counter to an example that Jane gave of an electronics distributor finding that in the recession they had to devolve decisions on inventory to people in the field. Jane said that:

They had to make a drastic change to their strategy around inventory policy. They were very bureaucratic traditionally about who could change inventory policies and make decision on inventory. But it was taking too long and as they went into the recession and started coming out of the recession they recognized that they had to empower people far lower down to make decision about inventory. These were fairly major decisions. This was totally against their DNA.


Embrace VUCA not by thinking you can reduce it, but by building the skills and deploying tools to help you manage it.

Originally posted by tmiles at

I always feel like a kid in a candy store at the Gartner Supply Chain Executive Conference.


First of all as a vendor it is great to get so much practitioner talent in one location. There really is a lot of good thought leadership coming out of the leading companies and it is great to see some of these showcased at the conference as keynotes. This year there was a big emphasis on talent management, with Raytheon leading the way in terms of a structured education and work experience program. I just happened to go to a session discussing Starbucks' transformation. What I found interesting in this case study was how Howard Schultz, CEO of Starbucks, recognized the need to get operational effectiveness (customer service) and efficiency (supply chain cost) under control when he came back to rescue Starbucks. He recognized that a different approach to operations was required now that Starbucks was no longer a startup. According to the presenter, Kevin Sterneckert, Schultz sent out a company-wide email announcing that Starbucks had gotten into the Gartner Top 25. I wonder how many other CEO's did this or were even aware of their position? I have heard that one of the principle reasons Tim Cook was hired by Steve Jobs was that Jobs recognized the need for operational excellence to secure the value of Apple's design supremacy. To get back to Starbucks, they are working with local business schools to develop both external and internal training programs for their operations people, and because the business schools students are aware of the transformation because of case study materials they are managing to attract some of the top graduating talent.


On the Gartner analyst side there appears to be a changing of the guard taking place with a lot of fresh new talent coming in. This could be one of the greatest benefits to the industry of the Gartner takeover of AMR Research. The quality of the AMR analysts was always high, but fresh perspective is always welcomed and a broader reach was necessary, though nearly all of the recruits are still in the US. Hopefully this will change over time. Many of the new analysts were given very prominent roles in the conference, which was great, these include Ray Barger, Mike Uskert, Matt Davis, and Kevin Sterneckert.


Three sessions I found particularly interesting were:

  • Matt Davis — Segmenting Your Supply Chain to Enable Innovation and Profitability
    I wrote a blog recently about Matt's recent article on supply chain segmentation so I was keen to attend his session. He did not disappoint and I was pleased to see that the room was full. Segmentation is a very important step in the overall development of a company's operational capabilities. It is the realization that to get to higher levels of supply chain effectiveness and efficiency not all demand and supply can be treated in the same manner. What I am hoping Matt is going to explore over the next few months is what this means from an asset perspective. It is easy to say that the supply chain has to be segmented, but how? Is inventory of the same stored in physically different locations in the warehouses? Or is the segmentation managed through systems, that is a virtual segmentation rather than a physical segmentation?
  • Mike Burkett — Maximize Product Life Cycle Value by Aligning Demand and Supply With Product Design
    It always surprises me when analysts and industry experts exclude explicit mention of product life cycle management, especially new product introduction, from S&OP. There is some much demand uncertainty and the need for supply chain agility so high that it must be considered as part of the S&OP process. Especially in light of some of the data published by Mike as part of his presentation showing the abysmal record of successful product launches. Mike also presented a hierarchy of metrics for product life cycle management, especially product launch, separating out timeliness of launch from time to value.
  • Prof Clayton Christensen – Manage Supply Chains to Create Disruptive Innovation
    Prof Christensen gave a truly inspirational presentation on disruptive innovation that largely debunked the notion of measuring supply chain and operations effectiveness by increase in RONA. I have often made the comment that I considered outsourcing to be a purely financial instrument that no operations person would chose to adopt. Prof Christensen showed how outsourcing essentially saps the company of operational competitiveness over the long term. Equally important was his illustration of how unnecessary cost can be designed into both processes and products, often through the over design of products with capabilities that exceed user requirements. In this context, I find the transformation being forced on western companies by selling into the BRIC countries a very healthy shock to the system. Some of the medical diagnostics companies need a special mention in this regard, and Prof Christensen called them out too, as did Jane Barratt, with product redesign for BRIC countries leading to simplification and huge reductions in size and weight. This ties into Prof Christensen's description of technology evolution being first centralization and then dispersion where many of the medical diagnostics machines designed for BRIC countries being used in smaller clinics in the West.


There were many other session I wish I could have attended, hence my reference to being a kid in a candy store. Special mention must go to Tim Payne's session on technology evolution and the relevance of pace layering in this context. In another session, of which I captured the last 10 minutes, Tim emphasized the growing need for response management and rapid planning. I am going to spend time over the next few days going through the recording of the sessions I missed, particularly those of Tim Payne, and providing additional commentary. Stay tuned.

Originally posted by tmiles at

The Gartner Supply Chain Executive Conference continues today and we took the opportunity to announce the general availability of our RapidResponse Spring 2011 Release from the event.


As our COO, John Sicard stated:

"With the increasing speed of business, no one can afford to wait to make a decision. Fast and confident action are the table stakes. That means you need to easily uncover areas of concern; do deep analysis; and turn decisions into action quickly. From a technology perspective, these needs translate directly to the areas of focus for this product release."


In-Memory Computing Performance

  • RapidResponse now supports an order of magnitude more memory, supporting terabytes of data and faster performance of analytics.
  • The result is a very powerful analytic and reporting engine that can process millions of records of data and perform demanding calculations (such as constrained capacity planning, available to promise, clear to build, and many others) in seconds.


Watch this video from Luc Vezina, vice president of product marketing and product management at Kinaxis on In-Memory Computing Performance:


Advanced Data Visualization

  • Users are able to view and interact with data in RapidResponse like never before, with several significant enhancements to the product's data visualization capabilities.
  • The jewel of the data visualization package is a powerful treemap chart that allows users to interpret especially large sets of data in one compact view to quickly locate outliers and areas of concern. This is particularly influential when analyzing gaps in sales and operations plan.


Closed-Loop Integration and Automation

  • Even tighter integration of RapidResponse with a company's legacy enterprise environment is now possible through two-way, high-frequency updates of net changes between ERP and RapidResponse.
  • The improved integration to transactional systems ensures companies operating in multi-application environments can work in near real time.


For more information on the RapidResponse Spring 2011 Release, check out our feature highlights page.

Originally posted by lsmith at

For a while way back in the late 1980's and early 1990's, before Supply Chain Management (SCM) was a discipline, I worked for one for the management consulting companies doing business process reengineering (BPR). These were the days when most companies still manufactured in the West and outsourcing was in its infancy, and I was flush with theoretical knowledge gained from PhD research in Industrial Engineering and Management Science. As I have written in the past, I had an epiphany about the effect variability (called stochastic in the theoretical literature) has on operations in general, while much of the material being taught was based upon deterministic (non-variable) approaches because — my interpretation — they are much easier to analyze mathematically and to write computer programs to optimize.


I have many stories of both the brilliant and absurd manner in which decisions were made that had major operational impact on companies based upon the collective theoretical knowledge of me and my colleagues. One of the most interesting was when we were brought in a year after the acquisition of one French company by another to analyze why the projected savings from the merging of the operations of the two companies were not being realized while customer complaints had sky rocketed. It turned out that one of the companies had used finished goods (FG) inventories to buffer against demand variability while running very efficient factories with few change-overs and long production runs. The basis for this design was that their customers expected fast delivery of a fairly standardized product range with few opportunities for configuration. The net effect was bloated FG inventory levels and fairly high excess and obsolete (E&O) charges. This was the company that was taken over. The other company used manufacturing capacity to buffer against demand variability, running very efficient downstream operations with lean FG and delivery logistics. Clearly the asset utilization of their factories was lower, but they had a more configurable product and customers were prepared to wait a little longer to get their order in the configuration they wanted. Interestingly when we analyzed historical return on assets (ROA) for the two companies they were fairly similar, but when we analyzed return on net assets (RONA), which excludes inventory, we deduced that the first company, the one struggling with profitability, was more efficient. We still had a lot to learn.


Before the merger the bloated FG inventory and high E&O were identified as the primary sources of operational improvement. In addition, because the acquiring company had a strong focus on efficient downstream logistics, it was decided to manufacture products in factories near the major demand regions for those products. Of course hindsight is great and I have to admit that it took us something like 6 weeks to identify the real issue, so I mean no disrespect to the people who had done the initial analysis, but the sourcing and distribution decision was absurd. All of a sudden products that had a fairly high degree of configuration were being manufactured in factories designed for long production runs with management that focused on asset utilization which lead to even higher E&O and poor customer service because inevitably the configurations built were not always in high demand. Other fairly standard products were now being manufactured in factories designed for short production runs and the long production runs necessary for margin capture of the standard products was creating havoc in the order to delivery times of the more configurable products that required shorter production runs. It is little wonder, in hindsight, why the savings were not being realized and why customer service was suffering.


We managed to get the company to focus on product segmentation, rather than geographical segmentation, resulting in fairly standard products being manufactured and distributed by the operations (supply chain) of the company that was acquired, while the more configurable products were manufactured and distributed by the supply chain of the acquiring company, since this is the way the supply chains were designed and operated. This meant a reshuffling of over 50% of the products, which had a major impact on operational results.


I bring this up because I came across a really good article by Matt Davis in the Supply Chain practice at Gartner titled " Frameworks to Design and Enable Supply Chain Segmentation" published on May 19, 2011. This builds upon an earlier article by Matt and Wayne McDonnell titled " The Seven Steps of the Supply Chain Segmentation Journey" published on February 2, 2011. Since subscription is required for both, I thought that, with Gartner's permission, I would share some of the observations from both articles. While comprehensive, I must admit to finding the degree of segmentation perhaps a little overly complex for all but a few companies with very sophisticated supply chain functions. It is always good to have lofty aspirations, but my suggestion would be to go through several iterations starting with 2, maybe 3, configurations.


Let's start with the competing operational levers typical in any supply chain design of cost, speed, and service, all the elements of which can be seen in the anecdote I gave above, which are defined in slide 3 of the "Frameworks to Design and Enable Supply Chain Segmentation."


As interesting to me are some of the tools Gartner suggests for analyzing and segmenting the supply chain. I am a strong proponent of Coefficient of Variation (CoV), so I was pleased to see this come up as one of the techniques suggested by Gartner, though in a different guise of demand predictability rather than demand variability. I have used this technique myself to get the bottom left quadrant of a 2×2 matrix to be "bad" and the top right to be "good", although I used the inverse of the CoV or a measure of demand stability. I am not sure how Gartner suggests to measure demand predictability, but it may be through mean absolute percent error (MAPE). I am not sure I would agree with this approach as it would confound the underlying demand variability and the sophistication of, or lack of, the organization's demand forecasting function. But what I did find very important is the manner in which Gartner suggests in slide 6 of the "Frameworks to Design and Enable Supply Chain Segmentation" of performing the analysis along several dimensions: demand predictability, process, life cycle, and SCOR.


The life cycle analysis in the lower left hand corner of slide 6 of the "Frameworks to Design and Enable Supply Chain Segmentation" I found particularly insightful (because I had not thought of using the 3 dimensions of volume, profit, and variability on a single graph) in illustrating that in fact the policies used to operate the supply chain need to vary over the life cycle of a product. Which seems obvious, but is seldom practiced.


This brings me back to some of the more recent blogs I have written in which I have emphasized the importance of agile response or response management as a technique for dealing with demand uncertainty/variability. With increasing short product life cycles, especially in the Consumer Electronics segment (and therefore throughout the High-Tech/Electronics segment), the time spent in the "Maturity" stage in the graph above is becoming increasingly shorter meaning that most of the time the supply chain needs to be operated in "Agile Response" mode, rather than "Efficient Response". Agility is about "first mover advantage" which is achieved by

  • Knowing sooner that things have changed
  • Analyzing the profitability of alternative scenarios quicker than anyone else
  • Acting or responding faster than your competition to demand shifts


I must commend Gartner, particularly Matt Davis, on this toolkit. I'd really like to hear from you about the techniques you use to segment your products and customers, how frequently you perform this segmentation analysis, and how many supply chains you operate. Perhaps most importantly of all, what is the value you are deriving from the analysis, and how important is agility and responsiveness to your long term profitability?

Originally posted by tmiles at

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