Last week, Kinaxis participated in a webcast presentation on the topic of " The Promise and Value of an Operational Control Tower".
We were delighted to have Roddy Martin, a renowned supply chain thought leader share his views on the topic, along with long-time Kinaxis thought leader, Trevor Miles.
So, why all the talk about supply chain control towers? The abstract to the webcast explains...
Disparate planning and performance management tools are no longer the answer (were they ever?). Executives need a 360-degree view of their business and real-time predictive analytics to maximize opportunities and to reduce risk. To achieve this organizations need “what-if” analysis capabilities that rapidly turn visibility into action across multiple functions and even across multi-tier supply chains.
This is the value of the control tower proposition.
A few weeks ago I attended the Global Supply Chain Business Summit hosted by John Gattorna who has written two important books and several articles on supply chain management, more specifically on segmentation which then drives supply chain structure, both physical and organizational. There were 10 panels on a range of themes.
1: Design thinking in enterprise supply chains
3: The 'new normal' operating environment
4: Innovation in all its forms
5: Influential women driving global supply chains
7: New business models and organization designs for enterprise supply chains
8: Leaders' Forum — CEO perspectives on enterprise supply chains
9: Decision support in supply chains
10: Healthcare networks in the future
Most panels were focused on the strategic aspects of organizational structures and supply chain design. At a personal level, the highlights for me were the panels on 'Women in Supply Chain' and 'CEO Perspective', which I will discuss later.
But let me start with why we were all there.
This is a concept that John Gattorna has written about for some time, best captured by the diagram below. The heart of John's concept is that you need to segment both your market and your supply structures, and then design the appropriate supply chains to the company goals, customer objectives, and supply capabilities. Jake Barr of Procter and Gamble was on the 'Transformation' panel and described their 'From The Shelf Back' approach to supply chain design (and product design for that matter), which is very similar to John's approach in concept.
A quick high-level description of the diagram illustrates his concept. Perform a market segmentation analysis by product line, which should then drive the logistics strategies, including manufacturing/outsourcing. At the backend, perform the same analysis on your suppliers by commodity groups understanding how the suppliers are structured so you don't put into place a contract based upon agility, with a supplier that has structured their supply chain for least cost. Of course an alternative would be to purchase from a supplier that focuses on flexibility if the increased cost can be absorbed. Obviously there is a lot more depth to this concept than my thumbnail description.
What is most different about John's model is that he advocates different internal organizational structures to address the fact that we need different supply chains to satisfy the different markets most effectively. As we see in the diagram, in the future we will operate several supply chains, coordinated by a COO, that are aligned with both the sales and source market segmentation.
Notice how there needs to be a coordination role, a horizontal structure cutting across functions/Bus/Geographies for each of the internal supply chains. What struck me in the description of the future provided by John is how much more coordination and collaboration will be required given that we will be using traditional organizational structures, based on functional expertise and hierarchical control, supporting multiple horizontal supply chains. So how can we do this?
Women in Supply Chain
I bet more than 80% of the people who read my blog posts are male. At the conference, if we look at just attendees, my rough estimate is that there were 10 women and 110 men, which is not unusual at conferences on supply chain.
More important for me was these were smart, articulate women thathave risen to positions of power without becoming 'one of the boys'. On several occasions they talked about the male culture in supply chain, and how, for some time, they had tried to be 'one of the boys'. Two of these women were in the military, clearly a very male world. But they had come to realize that being 'different', being a woman, was one of their strengths. They could view the problem from a different perspective, a more collaborative and consensual approach, one not typically practiced by men. The relevance to supply chain is that working together, collaborating, is something we have been talking about for long time, with little progress. It's about time we walked the walk instead of talked the talk. And I think having more women in supply chain will help bring in different ways of working.
My question to the panel was how do we get more women into supply chain. The glimmer of hope I see is that at several conferences lately people have been talking about the need for more of the 'soft' skills rather than the 'hard' skills. And aren't these softer skills really what we need for the future? I don't mean instead of, I mean in addition to the hard skills I learned while studying for my engineering degrees. These skills or capabilities will be key to embedding and achieving end-to-end cross-functional supply chain alignment.
The CEOs Agenda
Scott Price, President & CEO of Wal-Mart Asia was a breath of fresh air. In many of the previous sessions, there was an emphasis on risk avoidance through design of the supply chain. In many of the panels, particularly in the ones on Design Thinking and the 'new normal', there was an implicit assumption that risk can be designed out of the supply chain. Of course some of it can be, but not all of it and perhaps not the most important and highest cost risks. The Wal-Mart story was about building in flexibility and agility to processes and systems because 'the forecast is always 50% wrong'. And with the emergence of a huge middle class in Asia, demand volatility and product complexity is only going to increase. My key take-away from Scott's contribution is that we need to develop ways to absorb the volatility and complexity rather than designing them out of our supply chains. Of course there is 'stupid' complexity, which only adds cost to the organization, and this needs to be designed out.
What caught my attention in the P&G story was how they have achieved a huge increase in the number of change overs between products without a single capex dollar being spent. So yes, flexibility and agility can be designed into manufacturing and the supply chain.
Yet both Wal-Mart and P&G are still looking for step changes in agility and flexibility. My take is that they need look no further than the data flow in their supply chains and speed of analytics to convert the data into actionable insight. Since the early 1990's I have been hearing stories of 2nd and 3rd tier suppliers getting orders before they get a forecast. What's depressing is that I am still hearing these stories. This is because we think collaboration is the extremely slow exchange of data via EDI, with each node in the supply chain running their own MRP. Even within an organization that has their own manufacturing or distribution functions there is the need to plan across systems, and definitely the need to plan across functions. Performing the analysis at each node of the supply chain separately and hoping that you can create a consistent whole from the individual results just doesn't cut it anymore. And building inventory and capacity buffers to absorb all the mismatches is very expensive.
What struck me during the 'Women in Supply Chain' panel is that while there was much discussion during the other panels about the need for end-to-end cross-functional alignment, there was little discussion of alternative organizational structures that would make alignment a practical reality. The implicit assumption was that we would need to continue with the hierarchical structures for control, and functional silos for concentrated expertise. We inherited these military concepts of spans of control, dating back millennia, long before the advent of the Internet and other more modern methods of analysis and communication. The women's panel hinted at the value of organizing horizontally along process lines rather than vertically along functional lines, but never addressed the topic completely, perhaps because they are comfortable with the current command and control structures.
The Industrial Revolution took us from craftsmen to factories for scale, and Henry Ford took us from disconnected crafts factories to horizontally organized assembly lines, even vertically (really horizontally) integrated businesses. While from a financial perspective owning all the assets in a vertically integrated supply chain has proven the Ford model to be incorrect, I have yet to see an academic or business school study that argues that this is the incorrect functional structure. As we have migrated to 'asset light' organizations by shedding assets, we have also fractured and fragmented the horizontal processes. I do see a number of companies that have outsourced or off-shored their manufacturing trying to achieve ' virtual vertical integration', a term coined by Michael Dell. Because of the high degree of outsourcing in high-tech/electronics we even need to move to multi-enterprise orchestration.
Just to make this point more clearly, I isolated part of the John Gattorna diagram above that describes the future organization and the supply chains. In this case 4 separate supply chains with end-to-end cross-functional/BU/Geography alignment. While of course John's diagram is focused within the organization, these concepts can be extended to multi-enterprise supply networks typical in high-tech/electronics, and which are becoming more prevalent in other industries too.
So how do we achieve this cross-functional process? Niklas Hedin, CEO of Centiro Solutions in Sweden presented some really interesting ideas on organizational structure. Niklas' description of the 'truly flat organization' they have implemented at Centiro is
At the bottom, you have strategic leadership, supporting the organization, working on strategic issues 6-18 months out. Slightly above is tactical leadership, who works on the now up to 6 months. Around the rim are the autonomous teams, which are kept together by means of culture and other mechanisms put into place which are the supporting struts. Between two people in the organization is nothing, besides the openness to share ideas and innovation. This is the basis for our learning organization and strong culture.
I'm struck by a number of elements of his description, the most novel being that strategic leadership is at the bottom supporting the organization. This is a far cry from the top-down command and control structures typical in nearly all companies. But it is the autonomous teams that evoke ideas of cellular manufacturing dating from the 1990s and so central to Lean. According to Wikipedia
The major advantage is that material flow is significantly improved, which reduces the distance travelled by materials, inventory and cumulative lead times. Cellular Manufacturing employs setup reduction and gives the workers the tools to be multi-process, operating multiple processes, and multifunctional, owning quality improvements, waste reduction, and simple machine maintenance. This allows workers to easily self-balance within the cell while reducing lead times, resulting in the ability for companies to manufacture high quality products at a low cost, on time, and in a flexible way.
Sounds like a winner to me.
Originally posted by Miles Trevor at http://blog.kinaxis.com/2012/06/dynamic-supply-chain-alignment-a-theory-ready-for-practical-application/
We have a couple of more events on the horizon that our folks are presenting at, and both have the common theme of operations control towers: what are they and what can they do. Join either the webcast later this week from the comfort of your office, or if you are in Seattle next week for the Sales & Operations Planning Innovation Summit, make sure you stop by the Kinaxis presentation.
Virtual Fireside Chat: The Promise and Value of an Operations Control Tower
June 21, 2012, 11:00 a.m. Eastern
Disparate planning and performance management tools are no longer the answer (were they ever?). Executives need a 360-degree view of their business and real-time predictive analytics to maximize opportunities and to reduce risk. To achieve this, organizations need “what-if” analysis capabilities that rapidly turn visibility into action across multiple functions and even across multi-tier supply chains.
Presented by Kinaxis thought leaders, Roddy Martin and Trevor Miles
Sales & Operations Planning Innovation
June 28—29, 2012, Seattle, WA
Concept, Components and Consequences of Control Towers(Day 1 -9:10am)
How companies respond to change is where profit can be made or lost. Success depends not only on how fast manufacturers can act, but the effectiveness of the decisions they make. Hear how companies are extending their S&OP process into an enterprise control tower model to impact how they synchronize their actions across several tiers of the extended value chain to respond quickly and profitably to customer demand.
Presented by Kirk Munroe, vice president of product
I was recently reading an excellent blog post from Josh Greenbaum, where he had agreat take on Larry Ellison undermining Oracle's Cloud strategy (and execution) with his outlandish statements. Although not explicitly the point Josh was making, it did make me think that the marketing of enterprise software may have gone too far to ever come back.
Up front, at times I may have been guilty of over stating the value of software in the past ... although I am confident that those cases were few and far between and certainly not intentional!
Joking aside, I think a lot of the hyperbole in enterprise software marketing is unintentional. To be a little more cynical, maybe it is more accurate to call it "ignorant." Let's face it, the people marketing the software rarely, if ever, use it at all and even more rarely have used it as intended in production. This is also not anyone's fault. The majority of enterprise software is intended to solve problems and enable processes that are not relevant to the company producing the software.
Another interesting phenomenon is that so many prospects expect the software vendor they are evaluating to provide competitive intelligence on the other vendors. Interesting in that the request is aimed at the least unbiased source on the planet, and also interesting because virtually every ethics (and legal) code would state that the software company should not even have been looking at a competitor's product in the first place.
Another of the main drivers of the hyperbole in enterprise software marketing comes through the RFI/RFP/RFQ process and product bake-offs where features are being requested by IT that will never be used by the business users in production. So many companies still issue RFPs and product bake-offs (e.g. POCs, customer demos, etc.) for software. Everyone on both sides of this equation knows that the answers will likely not be a big driver in the decision (and often may not get read — sometimes the questions themselves aren't read before issuing!), but that every vendor is expected to offer at least a "conditional yes" to each and every answer, leading to massive stretching of the truth.
Last of the drivers, at least for the sake of getting through this blog, is that big enterprise software companies keep buying so many smaller software companies that the task of messaging what each piece does on its own and as part of a greater "solution" is more complicated than creating a cold fusion reactor.
This all leads to the question posed in the title, "Has hyperbole in enterprise software marketing gone beyond the point of no return?"
I expect it will surprise no one that I have a strong opinion on this, after all, why would I have bothered with the blog in the first place. The answer is a ... drum roll please ... YES. But like every one-word answer to a complex question, there is a "but" or in this case, an "unless." The "unless" is "unless businesses completely change the way they purchase enterprise business software."
Companies need to remember the reason they are buying enterprise business software in the first place. The only reason they are — or at least should be — buying software in this category is some combination of:
a)enabling a business process that they could not do previously,
b)making an existing process better or
c)tackling new business problems in a manner that was previously impossible.
With this in mind, why would I not be buying a complete solution to the problem? Some recent surveys that I have seen are already showing a big shift in anticipated buying behavior from the still prevalent buying "on-premises" software and skipping the logical next step of buying "on-demand" software and going all the way to outsourcing the process completely.
Let's also be clear that I am not talking about "solution marketing" here. This could get me on a rant that could go on for days. The move from "product marketing" to "solution marketing" has turned out to serve no purpose other than wasting millions of hours in unnecessary meetings to end up with ....non-differentiated messaging.... software being purchased in exactly the same manner as before.... and software delivery that is identical as before this "transformation."
The revolution that has to come in the enterprise software space is that companies have to start buying services with software embedded in them vs. buying, installing and deploying software in the hopes that it will make process better. This change will not only shorten sales cycles and reduce time-to-value, but it will force software companies to innovate to drive better business and not to best answer the next RFP. Innovations aimed at making business more effective vs. making IT departments happy.
What I am pointing out is more than buying software-as-a-service. The trend that Salesforce.com capitalized on was a step in the right direction, but all the cute logos of software with a line through it does not change the fact that their customers are still buying software, albeit without the headaches of installing, deploying and administering an "on-premises" nightmare, with apologies to everyone still running Siebel. The "Salesforce.com" that I am talking about would be selling "outsourced sales force automation" and maybe even "outsourced customer relationship management" where they become responsible for automating the whole process and not just the software that supports the process.
Where do we have examples of this working today? An example in the consumer space is Facebook. Yes, Facebook. Although you probably have not thought of them this way, if you are a Facebook user, you have effectively "outsourced" the management of your personal relationships for those relationships that you are unable to have face-to-face. (If you have also outsourced your personal relationships that you can have face-to-face, please stop. For all the couples who communicate wall-to-wall, please trust me when I say no one wants to see that. Your friends just are too nice to tell you.)
I realize that Facebook might be a dangerous metaphor here as the users do not pay for the service nor does Facebook take any responsibility for how well you manage your personal relationships. However, we are starting to see this "outsourced service including software" get a foothold in the business space too. As an example, a number of companies are popping up in the space of marketing automation, capitalizing on selling click-through type services without the need for redirects and capture forms. These companies are not positioning themselves as selling software. They are selling a service that is powered by software. They take all notion of the headaches of software out of the equation.
An example of this, and there are many more, is Rocket Fuel. They certainly still talk about products and capabilities, but they are much better positioned to deliver on real business outcomes through their model. Customers are buying a solution, not buying software with the hope that it will provide the solution. This model just makes so much more sense for all parties. Customers benefit through the software company owning much more of the end-to-end problem. The software company benefits from owning their own destiny on results, and thus customer satisfaction.
Am I saying that the current model of "on-premises" software never works? Of course not. It is just antiquated and ridiculously inefficient. Thinking about it from an outsourcing perspective, in the traditional enterprise software model, the software company is effectively outsourcing its chance of success or failure to the buyer's IT department – the same IT department that is already overwhelmed, understaffed and completely untrained in the actual business process more often than not. The purchasing department is in the unenviable situation of paying up front for software that might not show benefits for 24-36 months or more. If ever. No wonder software companies are guilty of "drive by selling" and no wonder procurement departments beat up software companies for massive discounts. The only way this model works is when the software company continues to have upside in the account after the first sale, and when the company takes the time and makes the investment in IT in terms of adequate funding and, more importantly, training on the actual business problems that will be addressed by the software.
I am suggesting that it’s time that we all go much further — that (almost) all processes that can be automated can be outsourced as a service where the software is transparent to the process. This is not cloud computing. It is more than cloud, but would not be possible without cloud.
I mean big processes, like those that currently fall under ERP, CRM, SCM, HRM and so forth. This does not suggest that it is a "one size fits all" either. The new — or transformed — companies that provide these services should be able to tailor the services to match the specific strategies that their customers want to automate. This is about driving innovation not locking it down.
A great metaphor of this type of transformation is how we fly today. Human nature makes it easy to think about how much worse the experience is with security post-9/11, but think about how much easier it is to fly that when we had to get paper tickets. You would have to go to a travel agent to pick up your ticket, or get to the airport ticket counter early. The alternative was having the foresight to be able to have the lead time to get it mailed. The entire process of moving from paper-only tickets to electronic-only tickets took just over 10 years. In the big picture, these transformations can happen very quickly. There are many more examples. Many of us have now completely outsourced our music listening needs to Apple. "Dad, what is a record store?"
So back to the question. Marketing of enterprise software has gone beyond the point of no return in terms of rhetoric and hyperbole, but it is OK. Enterprise software needs to be thought of and executed in a completely new manner anyway.
‘Tis the season for events, and Kinaxis folks are raking in thefrequent flyermiles as a result! Here’s where we are at in the coming week.
Happening right now, we’re exhibiting at the APICS Best of the Best S&OP Conference in Chicago.
If you are there, be sure to stop by table #12 – we’ll be doing live product demos throughout theday.
We are also proud to be a platinum sponsor of the SCM World Leaders Forum, which will be held June 17-19 at The Grove in London, England.
The SCM World Leaders Forum is an annual closed-door retreat for the world’s supply chain and procurement elite, bringing together the most influential C-level executives from the global business community.
Speaking during the Kinaxis sponsored session is Jim Rowan, former COO of RIM, on the topic of:
Value Chain Architecture as a Competitive Weapon: A Discussion on the Future Design of Value Chains
As the saying goes, "The early bird catches the worm;" however, "the second mouse gets the cheese." Designing a supply chain that is fast and effective, yet protects against unforeseen risks is no longer a differentiator, it has become table stakes.
The value chains of the future will not only provide speed and risk mitigation, they will transform today's cumbersome weekly management meetings into "real time" S&OP discussions centered around exception-driven dashboards delivered via wireless technology directly to the CEO. This is beyond the cloud — this is using value chain architecture as a competitive weapon.
"The Myth of the One Number Plan"
For some time, there has been a movement to drive the entire organization from a single operating number, usually the budget. In theory, that is a good thing, as long as you have the right number. The budget is what the company wants or wishes to happen; very seldom is it what is going to happen. For that matter, so is the sales forecast. Learn how range planning can reduce risks and breed a more profitable operation by working on the premise that being 'roughly right' is far better than being 'precisely wrong'
If you are at any of these events, please be sure to drop by, or email us to set up an onsite meeting.
So I’ve been doing a bit of traveling and talking to a bunch of supply chain folksalong the way. I attended a conference the other week and it was interesting how many conversations ran a similar course, coming down to the same topic of Response.
So much meaning in a simple word. When talking to someone, the right response can bring a smile, the wrong response can bring a frown. In an emergency, the right response done quickly can literally mean the difference between life and death.In supply chain, response often isn’t a matter of life and death, but responding quickly and correctly can result in millions of dollars of savings or additional earnings. In most cases, we are not talking about single responses having huge financial impacts; instead, it's the cumulative effect of many decisions, many opportunities where a person had to make a call. Each small decision when added up can mean the difference between profit and loss.
So who are the people making these decisions? Who are these arbiters of the supply chain? Obviously they must be highly paid executives, right? Nope! These are the doers of the supply chain. The planners, buyers, master schedulers and analysts. These people need to make the right decisions, quickly every day of the week. They have the right knowledge, but from my conversations, what I see is thattheir challenge has been that the supply chain tools that are given to them are letting them down. Here’s been my response in talking with them…
ThatERP installation that you spent millions on? It’s fine for tracking transactions. It works ok to create THE PLAN (the daily or weekly batch run which creates a plan that's valid until the first change occurs…usually at 7:05 the next morning). It doesn’t help when your planners need to make a fast decision. Why?
So when your people need to make a fast decision, what do they do? They will try to work around the limitations of the system; dump data to Excel or Access and try to model the problem there. Maybe they take a guess, or my favorite approach...load and pray. What is the result? Bad decisions. The kind of bad decisions that when taken cumulatively result in significant losses over time.
So what’s the answer? You have the right people. You have the data. You simply need the tools to allow your people to make the right decisions and to make those decisions in time to make a difference. Where will you find this? Hint: you won’t find it at your ERP vendor.
A rapid decision supportsolution will have the following characteristics;
It all comes back around to making the right decision in time to make a difference .
Byproperly equipping those people in your company that make critical decisions every day, you will ensure that those decisions are made quickly and with confidence. This means, more of these decisions will be the right decision and cumulatively, theywill result in higher customer satisfaction and higher profits.
How do you respond today? Comment back and let us know.
Last week, we had the great pleasure of being awarded a 2011 Total Cost of Ownership (TCOO) Supplier Award from Celestica, which recognizes suppliers that support Celestica's TCOO sourcing strategy to provide its customers with the best possible supply chain solution for their products.
Kinaxis was honored with the " Best IT Technology Partner" award.
It goes without saying that we are incredibly proud to be recognized by Celestica. We often say that while our passion is technology, our purpose is our customers. To be recognized as a top performer in Celestica's global network of over 3,000 suppliers is not only a great honor, but superb validation of our success in serving our customers.
A congratulatory shout out to the other award recipients and a very heartfelt thank you to our valued customer, Celestica.
See the full list here: http://www.celestica.com/News/News.aspx?id=3510
The title came to me after downloading the presentation slides from a Gartner webcast ( Delivering Business Value from S&OP , Applebaum, T., Kohler, J., 29 March 2012). This is a very good presentation that outlines the reasons why most companies have not progressed beyond stage 2 of the four stage S&OP maturity model, and how best practice companies are achieving greater process maturity. The four stages of maturity are described below.
In truth, the maturity model has great applicability to planning in general, not just to supply chain, and S&OP in particular. There are a number of terms used to describe the higher levels of maturity that jump off the page at me: Collaborative, Responsive, Agile. And the great framing of the primary focus of stage 4: "What is likely to happen if ..." This captures so much that I think is important in good supply chain capabilities. Planning in general, not just S&OP, should be driven by this question which is both predictive — likely to happen — and exploratory — “what-if”.
But included in the same webcast( Delivering Business Value from S&OP , Applebaum, T., Kohler, J., 29 March 2012) was the following slide. When I first saw this slide I thought it was a really good way of capturing many of the themes central to S&OP: visibility, alignment with corporate goals, and setting operational goals.
There is one little term with which I disagree strongly that is embedded in the 4th bullet: "... when things go wrong". Inherent in this statement is a paradigm which really needs to change. This is my paradigm lost. I'll explain below.
Implicit in the "Orchestration" stage is "demand translation", which, in a Gartnerreport ( Demand Management Elevates Value Network Performance , Lord, P., Steutermann, S., Salley, S. 30 March 2012) is defined as
Demand translation converts independent channel demand to dependent-demand plans and supply requirements. It is a critical capability that connects demand management to supply execution. Within the framework of DDVN, demand translation is an orchestrating response assessment capability, rather than demand management. Demand translation includes tactical decisions that select which supply network nodes should be loaded with customer demand and the operational explosion of customer demand into sourcing, production and delivery schedules, based on materials resource planning (MRP), distribution resource planning (DRP) and ATP algorithms.
But it is the market conditions, best described in a Gartner report ( Agility Is More Than a Supply Chain Design Strategy , Lord, P., Barger R., Carter, K, 11 November 2011) that drive the business need for demand translation which are at the heart of my paradigm lost.
But yet again the last bullet describes my paradigm lost in the use of the term "demand changes".
Why is this important?
So what is my paradigm lost? It is the inherent assumption that we can forecast customer demand correctly. Demand didn't change. What happened is that we came to realize that we had predicted demand incorrectly. Let me repeat: Demand didn't change. This is the same assumption of paradigm that is captured in the statement "... when things go wrong". Of course things do go wrong. Tsunamis happen, suppliers go bust, deliveries fail inspection. We make our living by helping companies deal with this type of disruption. And yes, customers change their mind after placing an order.
But in my experience, born out by several studies on forecast accuracy, the greatest contributor to "demand changes" is that we didn't predict demand correctly in the first place. What changed was not demand, but our understanding of true demand. As I have written before, the assumption that we can predict demand accurately is fatefully flawed. Well, maybe I shouldn't be so categorical, but in the low volume/high mix industries in which I mostly work, demand volatility is such that forecast error, as measured by MAPE, is seldom below 35% for mature products and seldom below 65% for new products. Let me repeat: Demand didn't change! We just predicted it incorrectly. Did you get my message yet? The point of my earlier blog is that even if we could forecast 100% accurately, demand variability would still exist, and it is this demand variability that drives cost into the supply chain through inventory or capacity buffers.
Which is where demand translation comes into play. If the demand forecast is not that accurate, then by definition the supply plan developed to satisfy the demand cannot be more accurate, unless through a ridiculously fortuitous circumstance. I am all for placing inventory buffers at strategic locations to buffer against demand variability, but the amount of inventory required to buffer against 35%-65% forecast accuracy is enormous. Which is where postponement strategies come to play, but postponement strategies require capacity buffers. Postponement also requires a key capability identified in demand translation, namely "the operational explosion of customer demand into sourcing, production and delivery schedules, based on materials resource planning (MRP), distribution resource planning (DRP) and ATP algorithms."
But to evaluate trade-offs requires what-if analysis and the incorporation of financial metrics so that the profitability of the response can be determined. And to reach compromise and consensus based upon trade-offs requires a collaborative solution in which multiple people can make changes to the same “what-if” scenario. And if you can't perform the “what-if” analysis quickly you might as well not do it at all.
Know sooner. Act faster.
What things do supply chain professionals worry about today that they didn't worry about 30 years ago? And what things did we worry about 30 years ago that we don't worry about today?
Now, this is your TOP 10 list suggesting what you DO worry about today…
Your worry list is rather daunting, but nothing is better than a good challenge. With the right people, processes and tools, organizations are extremely successful in meeting the challenges of the 21st Century Supply Chain.
At the Gartner Executive Supply Chain Conference last month, one of the key note speakers was Gary Hamel, long-time business guru and currently Author and Director, Management Lab. I saw Hamel present seven or eight years ago and since then, I have been measuring all management speakers against him as the standard. Some have come close — no one has raised the bar yet. That is until this latest presentation where Hamel raised the bar for himself.
The topic was "Management 2.0" — a topic Hamel has been discussing for a few years now, but it was the first time I had the pleasure to hear it in a live setting. As with any good presentation, the more I reflected on it, it made me think about our ongoing conversation around "If you could re-name SCM today, would you? If so, what would it be?" to commemorate the 30th anniversary of the term SCM.
When I commented on that blog, I didn't want to do the predictable and:
So, I wanted to focus on the word "management." The word is so loaded to me. It conjures up words like hierarchy, control, rigidity. So I suggested an "E" for excellence or effectiveness.
Hamel made me come to the realization that I also took an easy way out. I challenged the word management instead of challenging what management really means (In this context, I mean the act of managing, not of the organizational hierarchy, though of course they are linked.) Basically, if I had it to do over again, I would suggest Supply Chain "Management 2.0" — still not "Supply Chain Management 2.0." What do I mean? The critical piece that we have to address is that the breakthroughs have to come from the discipline of management itself. Saying to give up, or go beyond, management was the easy way out. Let's challenge what it means to manage instead — how best to run and maintain a function, process and even an entire organization.
For those of you who have not seen or heard Hamel on the topic, his assertion is that management is the great technological advancement of the last 100 years, but has basically not changed much in the past 20 years, give or take. One of the hottest topics that comes up in the business world — in blogs, presentations, business courses — is that the world continues to change more rapidly than it ever has before. Change is not only growing in velocity, it is growing at an accelerated rate. Change or die. Embrace change. We have not only heard all these things, we have used then. And rightly so — they are all true.
What Hamel questions is that everyone seems to acknowledge the need to embrace change, the need to be able to respond to change quickly with both the customer and shareholder in mind, the need to be more innovative in general; however, a very small number of companies have embraced a management structure that allows this to happen. We still have rigid hierarchies (which typically lead to organizations growing by tenfold in short bursts — I know I picture Facebook as 30 people in one room and not the 3000 or so reported at IPO time — two bursts of growth, I guess). We don't have innovation training programs. We have employees who do not feel empowered and are generally — to the tune of 80% or so — unhappy in their jobs. This lead to the most memorable quote of the presentation, "it is not work that sucks, but management that blows." Sadly, well put for too many organizations.
For more on Hamel and Management 2.0, his blog is a great place to start.
Now that I am invoking my mulligan for my answer to the question of what I would call SCM, let's look at the management practices that are (at least should be) different from SCM of 30 years ago, SCM 2.0 and Supply Chain with "Management 2.0" — taking into consideration that I am obviously taking liberties with Dr. Hamel's work and that I am categorizing each of the three as "SCM 1.0 = Old School Management", "SCM 2.0 = evolving management but not going all the way to 2.0" and "SC'M2.0' is incorporating new management practices into the value network".
In the table below, I am taking a quick view of what the transition from SCM 1.0 through SC"M 2.0" looks like. Whether or not you want to categorize yourself is up to you, but questions, comments and "are you out of your mind?!" are always welcome.
Rami Karjian of Flextronics casually threw out the comment that "data is the new oil" during a session at the recent Gartner Supply Chain Conference in Palm Desert. The session titled " New Business Rules — The Flextronics Next-Generation Supply Chain Strategy" was hosted by GT Nexus. Given Flextronics’ role as a contract manufacturer in the high-tech/electronics supply chain space, with aspirations of providing supply chain managed services, it is immediately obvious how they can make very effective use of data, especially extended or “true” end customer demand data and “true” component availability data. Of course, this is true for any number of participants in the supply chain and there has been a lot written about the use of social platforms to capture 'big data' on consumer behavior. But anyone who has worked with the likes of Flextronics will recognize that the 'speed' of their business (driven by low margins, high volumes, and rapidly changing products) is like no other. Knowing sooner and acting faster are core capabilities and competencies they must have in order to survive. It is easy to see where data fits into this equation.
But I hope Rami will not be upset with me when I state that the term seemed too catchy to have come from a supply chain guy (I am writing as a supply chain guy, so I mean no disrespect!) The catchiness of the phrase just reeks of Analyst or Strategy Consultant. So I went Googling for the term. I was correct. The term seems to have been used originally by Andreas Weigend of Stanford in an interview with Forbes dating from September 2011. (One caution: The interview is sponsored by SAP.) In the interview Weigend says, with my emphasis, that
"Most people try to play the social media game faster, but it is not your game to play anymore. To be successful, you have to understand what the game is made of . . . it is data and identity. This forces the change from a transactional economy to a relationship economy. The companies who get this, will win."
There is no doubt that Weigend is referring to the customer or demand side of the supply chain, really to 'big data' epitomized by social media platforms such as Facebook and Twitter. But here is the problem for social media: Customers aren't compelled to engage in any manner with the OEM; Suppliers are. So while undoubtedly social data can be mined for information, social data cannot be relied on as the sole source of information to drive the business. Instead, social data can be used to augment, to enhance, the structured data that is being used to drive the business.
"The market has moved beyond just marketing, service, and support use cases," says Wang. "We see 43 use cases that span across key enterprise business processes that impact eight key functional areas, from external facing to internal facing including PR/marketing, sales, service and support, projects, product life cycles, supply chain, human capital management, and finance."
Companies will get real value within the internal and supply sides from platforms that are social in nature, whereby social concepts will finally make collaboration a reality by adding context and nuance to 'dumb' EDI exchanges of data between computers. The activities of cross-functional and cross-organizational exploration and discovery through what-if analysis followed by negotiation, which are so important to decision making processes. These capabilities, which arerequired for decision making are not supported by EDI and ERP platforms, which instead focus on executional or transactional processes. This point was made very strongly at the Gartner Supply Chain Conference by Jim Cafone of Pfizer who said that
"ERPs are great if you want to talk to yourself, but who can afford to do that in today's value chains?"
Jim was referring to the fact that much of today's value/supply chain exists outside of the four walls of the organization because so much of the supply chain has been outsourced leading to the conclusion (using the context of 'data is the new oil', that ERP is like crude oil) -it needs to go through refinement and to be augmented by additives to be useful. It needs to be refined and augmented because, in order to operate a value/supply chain effectively today, it is necessary to reach across functional and organizational boundaries even for so-called structured data, making even structured data 'big data'. As Jim Cafone stated, without reaching across the organizational boundaries, you are only 'talking to yourself'. We cannot operate today's supply chains effectively with this lack of visibility. (And let's face it, many ERP deployments resemble an oil spill — the mess you're in isn't what you expected, and it's going to cost an awful lot to fix.)
To be of any value, the data provided by visibility needs to be 'refined' by being broken down into 'specific useful parts', turning visibility into actionable insight. I don't mean todiminish the value of visibility because without it there can be no actionable insight. The true value comes from the supply chain orchestration made possible by actionable insight.
So let us decompose 'actionable insight' quickly.
Turning Data into Visibility
Existing social network platforms, such as Facebook, are principally about sharing or "pushing" information, but most business processes require an interaction between at least two people, each of which is responsible for an aspect of the decision and who need to reach a consensus and compromise in order to take action. Often these interactions require input from as many as 5-10 people. Identifying who needs to know can often be an insurmountable barrier to reaching a timely decision. I want to draw the distinction here between the people who need to know, which implies responsibility to take action, and the people who want to know, which implies an interest but not a responsibility. Existing social technologies address the 'want to know', but not the 'need to know' aspect. On the other hand, existing machine-to-machine exchanges of structured data between organizations are desperately in need of the context and nuance provided by social platforms. Having both turns data into visibility.
Turning Visibility into Insight
Knowing the state of something — inventory, capacity, etc. — in the supply chain, which is what visibility provides, is useful, but not valuable. Value is derived from knowing what that state means to your financial and operational metrics, and, perhaps even more importantly, to your projected operational and financial metrics. To achieve this insight you must be able to compare the current state to a desired state and to evaluate if the difference is important, which you can only determine by having a complete representation of your supply chain — BOMs, routings, lead times, etc. — so that you can link cause to effect. You cannot do this by 'talking to yourself'. Only if you have and end-to-end representation of your supply chain can you link a tsunami in Japan to your revenue projections for the next 2 quarters. Of course many people can do this given enough time. Doing this quickly — knowing sooner and acting faster — is what brings value. While events as large as the Japanese tsunami make the linkages between the supply chain nodes obvious, the daily operation of a supply chain is subjected to thousands of little 'tsunamis', the compounded effect of which, in terms of reduced revenue and increased costs, can often be the difference between making or missing a quarter.
Turning Insight into Actionable Insight
Knowing that something is not quite right — visibility — and knowing the financial and operational impact or consequence of this mismatch — insight – is only valuable if you can act on this insight quickly — actionable insight. To do this you must be able to link the impact to the person responsible for the impact, not only the cause. People take action. Of course under certain circumstances decisions can be automated, but only mundane decisions, decisions that make little difference, can be automated. 'Big' decisions should always be left to human judgment. And to do that we need to link the cause and effect to the people who need to take action. Hence actionable insight.
Turning Actionable Insight into Orchestration
Supply chain is a 'team sport'. Each function may have their own span of control and metrics, but any decision made by one function will almost always have an impact on at least one other function and more likely have multiple impacts on multiple functions. But currently, each node in the supply chain, in fact each function in the supply chain, usually operates in isolation with Engineering making design changes with little thought as to how these impact Manufacturing or Procurement, with Marketing planning promotions with little consideration of available capacity or material availability, with Sales accepting order quantities and delivery dates with little consideration of the cost required to achieve both. Orchestration is the coordination and synchronization of these separate functions into a unified response to real demand. To achieve orchestration requires a platform on which a team of people across functional and even organizational boundaries can explore and understand the financial and operational consequences of possible actions quickly and collectively.
Turning Orchestration into Competitive Advantage
Too often when I write about these topics I forget to include the word 'projected'. Without a doubt a great deal of value can be derived from risk recovery, but risk avoidance and risk mitigation are even more valuable. Being able to determine that revenue or margin targets will (future) not be achieved by the end of the quarter if we continue to create in the current manner is a lot more valuable than being able to determine why we have (passed) missed the quarter. Knowing sooner that something will happen if we do not change course allows us time to investigate ways to avoid the risk or to take the opportunity. But knowledge without action brings little benefit. I have written in the past about George Stalk's concept of Competing Against Time and the related OODA concept — Observe, Orient, Decide, Act — idea from the US military strategist Colonel John Boyd, both of which explain very crisply the competitive advantage of knowing sooner and acting faster.