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2010

As parents of small children, we often sing various rhymes to our children, and perhaps readers may recall the rhyme from the song “Three Blind Mice”:

 

Three blind mice,
Three blind mice
See how they run,
See how they run!

 

They all ran after
The farmer's wife.
She cut off their tails
With a carving knife.
Did you ever see
Such a sight in your life
As three blind mice?

 

I was recently speaking with Bruce Spurgeon, supply chain manager at OSspray, Ltd., and sometimes guest blogger and industry observer for Supply Chain Matters. Bruce raised a rather interesting observation concerning the state of supply chain risk management in many industry supply chain environments today. He cited the familiar rhyme above in the context of a question: Who actually owns overall responsibility for supply chain risk management?

 

If a product has dire quality problems, if a manufacturing process is not adhering to consistent quality standards, or if one or more suppliers is teetering on the edge of financial or operational failure, who delivers the news and who is designated with the cross-organizational responsibility to resolve overall supply chain risk?

 

As we discussed this further, we both noted that perhaps supply chain professionals are not really equipped with the motivation or management skills to "own" overall supply chain risk, primarily because the stakes are so high. Too often, risk takes the context of "beyond my pay grade"; let those in the "C" suite deal with that. This has perhaps been made worse by the continuing cutbacks of personnel and resources, not just supply chain but across the organization.

 

Because this tenet of management continues, organizations discover far too late that supply chain risk has cost the company millions of dollars in lost sales, remediation, or even damage to the brand itself. The incidents are all around us and are permeating the business headlines every week. Global supply chains are at risk, yet few managers seek to bring visibility for fear of actually having to be held responsible or accountable for a problem with which they are not equipped to deal.

 

Bruce also asked another interesting question: Where do managers really learn about managing supply chain risk? 

 

On the one hand, the Supply Chain Operations Model (SCOR) from the Supply Chain Council or other risk identification methodologies can provide means to measure aspects of supply chain risk, but where exactly is the curriculum that addresses the overall management of supply chain risk identification, communication and mitigation? Colleges today address supply chain management curriculum from a functional or vertical lens, when perhaps a horizontal lens can provide a more meaningful roadmap for managing overall risk in the supply chain.

 

What I suggest our community needs is the supply chain equivalent of risk governance, which is a discipline coming from CFO related circles. When I conduct workshops on this topic or speak with procurement or supply chain operations executives, I advocate for a team-based approach toward managing risk. After all, who wants to be the sole bearer and owner of bad news? A team approach not only provides different perspectives of the potential risk, but also a quicker means towards mitigation. Companies such as Cisco or Procter & Gamble, who do this successfully, do so from a risk management team perspective. Having the most up-to-date information and business intelligence also helps.

 

I do not pretend that there are standard answers or practices to address this situation, but we, as a community, had better find a way to raise awareness to a growing problem. Risk surrounds the global supply chain, and who has a better lens to understanding and mitigating, as much as possible, the conditions of that risk than a cross-functional team led by supply chain management.

 

How about you--do you feel that your organization or your team owns identification and mitigation of supply chain risk? What do you need to make this work?

 

Bob Ferrari

 

At a recent conference, I had the opportunity to view an interesting presentation delivered by Kevin Keegan, Director at PRTM Management Consultants. The presentation really caught my interest because it included a recent PRTM survey of what’s on the mind of the Chief Operating Officer (COO) in positioning global supply chain process capabilities for the next two years.

 

The survey itself, titled Global Supply Chain Trends, Are Our Supply Chains Able to Support the Recovery?, was rather timely and involved the views of 300 COO’s across multiple industry settings.  It took place in late spring and early summer of 2010, which would have placed the context of the COO agenda more toward moving beyond the effects of the global economic recession of 2008-2009. The full report can be downloaded at this link.

 

The survey’s principal focus was to ascertain what supply chain capabilities will be capitalized upon in the coming months.  The summary conclusions were not at all surprising and fairly consistent to what I’ve been feeling and sensing:

 

  • Volatility and uncertainty have permanently increased in many industry settings, and the COO seeks a more market dynamic, demand sensing, cost-optimized supply chain configuration
  • Top-line revenue growth requires a global customer and supplier presence
  • The existing supply chain organization is not truly integrated or empowered
  • Managing supply chain risk involves the complete end-to-end supply chain

 

 

 

The most important conclusions drawn from the survey results point to three key enabling strategies that COO’s want by 2012:

 

                                                                                               Today               2012

 

Joint planning with key customers                                   35%                 53%

 

Improved sensing of demand                                            22%                 47%

 

VMI services provided by suppliers                                   25%                 44%

 

VMI services provided to customers                                  13%                 29%

 

 

 

Yet, in the category of exhibiting real-time planning and execution capabilities, the responses were flat at 44%, and data capture at point-of-sale showed some slight improvement, 25% today vs. 33% by 2012. The PRTM conclusion was that the emphasis in the slash and burn cost strategy seems to have subsided, and that is certainly the good news. Another key PRTM conclusion is that the supply chain process perspective now shifts toward improving customer access, increasing upstream and downstream flexibility and improving the overall accuracy of supply chain planning.

 

My reaction to this latest PRTM study is that we, as a community, are not educating the COO as to the most important capabilities needed to enable this agenda, namely more business intelligence and what-if analysis capabilities.  It just does not seem to show-up in this and other survey data I’ve been seeing.

 

There are also some other messages here about the continued importance of management education, and positioning an integrated sales and operations planning (S&OP) process as a key mechanism for facilitating improved access to both customer and supplier needs.  Managing senior management education includes an agenda of why previous investments in transaction centered supply chain planning automation fall short in added capabilities for supplier and customer engagement, synchronization and business intelligence.  It is not a question of why didn’t we get this from our ERP vendor, but rather how we get the process enabled with different, forward-looking analysis capabilities.  I’ll cite one powerful analogy I often heard from Jake Barr of Procter and Gamble.  If you are driving down the road, and storm clouds are threatening, do you drive by looking in the rear-view window to ascertain what landmarks just passed, or look through the windshield to ascertain what direction you are headed.  Today we can add yet another addition to that analogy.  With the advent of GPS in our cars, we let the system suggest the best routes for reaching our destination, given certain weather and traffic conditions.

 

The question however remains- are you educating your COO on what is really required to insure improved customer and supplier access as well as improved supply chain accuracy. Educating on the differences between transactional oriented vs. business intelligence, S&OP enabling and what-if analysis capabilities is the proper context to enable the 2012 agenda.

 

 

Bob Ferrari

 

There is somewhat notable supply chain related news when the largest contract manufacturer on the planet hires a public relations firm to enhance its image, and that is the current evolving saga of Foxconn Technology Group, or its known parent, Hon Hai Precision Industry Co.. Beyond the stories however, lie the tenets of a disruptive strategy that will change the landscape of high tech and consumer electronics competitive strategy.

 

This contract manufacturing giant which is quickly approaching more than one million workers, hired PR firm Burson-Marsteller to improve its image, and the investment is generating lots of visibility.  For those who may not be aware, Burson handles many well known information technology and industry related clients, including SAP. The recent incidents of worker suicides that occurred at Foxconn’s Longhua facility in China were a PR nightmare and cause for much concern.  Foxconn Group chairmen Terry Gou, who founded Foxconn in 1974 and has been spending the last twelve weeks in crisis management in a small office located in Foxconn’s Longhua facility, is now lowering the company’s former 30 percent annual growth targets to 15 percent growth to ease some pressures on existing operational management. Foxconn posted a net loss of $142.6 million for the six months ended June 30, and warned that it expected net loss to widen because of wage increases granted to employees as a response to ongoing worker unrest.

 

 

 

Bloomberg Busineessweek magazine featured its article, Inside Foxconn as the prime cover story for its September 13-19 2010 edition, and I would place this article on your ‘must read’ listing.

 

Bus_Week_Foxconn_Cover.jpg

 

The Businessweek article comes on the heels of a Wall Street Journal article where reporters were also granted a three hour interview.

 

Businessweek reporters Frederick Balfour and Tim Culpan note in their article that they were “granted unprecedented access to Foxconn’s factory floors, worker dorms, suicide-help-line operators, and to (Chairmen and CEO Terry) Gou himself.”  They astutely note how Foxconn has become one of the largest exporters out of China, with large military scale campuses and vast influence on the overall contract manufacturing strategies for consumer electronics and the high tech industry itself.  The article also notes how Foxconn’s business model has evolved to one of full-scale vertical integration of the design and manufacturing value-chain.  The article notes: “Foxconn’s business has evolved where it’s not just relying on cheap unskilled labor.  It now employs 50,000 toolmakers, including a team of 2,000 plus workers who focus on the design and fabrication of molds and dies  This enables  the company to boost production faster than anyone else, especially important in the (mobile) handset market where new models are constantly introduced.”

 

 

The Bloomberg Businessweek and other media articles focusing on Foxconn are all about how this contract manufacturer will now de-emphasize large manufacturing campuses as production is shifted to more interior regions of mainland China over the coming months.  They are not only placing a more personal face to Terry Gou as an industry strategist and fierce competitor, but also how powerful and influential this manufacturer will remain in influencing industry strategy. Mr. Gou has noted that within two years, 50% of the existing workforce will located in inland regions, where existing wage rates are typically two-thirds lower, compared with 20% today. Foxconn also seeks to pass the burden of social responsibility on to Chinese and other governmental agencies. Foxconn will invest billions over the next five years to build component manufacturing and assembly plants within inland China in cities such as Chengdu, in Sichhuan province, Zhengzhou, the capital of Henan province, and Wuhan, the capital of Hubei province.  The strategy is twofold. First, move manufacturing to the very sources of China’s migrant workforce, where there already exists family and social support groups, and where wages are lower than the existing coastal manufacturing region. Second, Foxconn understands the huge market potential for China’s emerging middle class, and more and more, is making strides on leveraging its vast electronics value-chain capabilities to be an eventual OEM brand owner as well.  The Businessweek article mentions that many of Foxconn’s young factory workers have desire to eventually become white-collar business people in the course of a few years. Foxconn is investing in a longer-term channels business strategy which targets 10,000 retail outlets managed by past Foxconn factory workers as the fuel of growth.

 

In mid July, our Supply Chain Matters and Kinaxis Community posting, Should Contract Manufacturers be Included in Anyone’s Top 25 Supply Chains?, made the observation that if and when a CM makes any Top 25 listing, it will likely be at the displacement of an existing brand owner, and when that happens, it may be a a huge wake-up call to the existing industry. After reading Businessweek ‘s featured story on Foxconn, that occurrence is closer than perhaps we all imagined.

 

If you accept the notion that high tech and consumer electronics supply chains can be a bellwether of what is to come, vertical integration of the value-chain has significant implications to long-term industry survivors.

 

Bob Ferrari

 

I have been attending the Sales and Operations Planning (S&OP) Summit meeting being sponsored by IE Group. It was good to be able to once again meet and chat with fellow Supply Chain Expert Community blogger, Trevor Miles, and also say hello to Lora Cecere.

 

After the first day of sessions, I personally came away with some specific thoughts and observations.

 

The day was filled with many presentations from various manufacturing, retail and service firms. Their overviews represented various stages of maturity in implementing S&OP, from just getting started to fully deployed.

 

What struck me however are the contrasting messages that surround the role of IT applications in enabling an S&OP process. Some consultants and practioneers seem to pitch a message that S&OP can be implemented without any IT automation, that the process is really the most important focus. In my view, process is certainly the most important objective, and as a singular goal, getting the process adopted is indeed important. But at the same time, it is rather important for implementation teams to step back and reflect on what the S&OP process is intended to address, namely an integrated and aligned decision-making process. I would quickly hasten to also add that in today’s reality of both around the clock global markets and source anywhere supply chains, not having a context for IT automation can be a critical missing component in this decision-making context. Let me briefly explain.

 

Today’s global supply chains introduce four critical challenges that need to be overcome in an S&OP process:

 

1. Time sensitivity and information complexity- the speed of doing business globally implies round-the-clock activities and the ability to overcome time and geographic barriers. The complexity of today’s global-based business models also adds far more variability into the planning process. S&OP specific applications can collect and analyze data continuously, as well as alert to important exceptions to plans. While some S&OP needs can be accommodated by spreadsheets, the need for constant updating and data refreshes can exceed the required S&OP process cycle time, which dilutes that creditability of the process. For example, a monthly S&OP cycle may be too late to respond to demand or supply exceptions that are a week old.

 

2. Realities of the clock-speed of business- in certain industries such as high tech and consumer electronics, the clockspeed of business runs at an incredibly rapid pace. The recent severe global recession has driven home how quickly and how suddenly market demand can change. Products also can have short life cycles, with needs for constant phase-in and phase-out. Periods of maximum profitability are short, and supply chain participants change constantly. Some traditional consumer products companies have also reached this faster clockspeed stage, with more innovative products or regional-specific products being constantly introduced in markets. S&OP specific applications integrate and track the various linkages among products and can also provide an ongoing audit-trail of the various decisions made within the S&OP process. These applications also provide a faster means for converting higher-level product related plans into individual unit or stockkeeping unit plans.

 

2. Virtual organization- incorporating many of the functional participants involved in today’s S&OP not only involves internal functional, but also external customer and supplier teams as well. The constant two-way transfer of planning information across cross-business barriers is best accomplished through tailored IT applications supporting the S&OP process.

 

3. The broader end-goal- I submit that the roadmap for S&OP eventually leads to a broader closed-loop Integrated Planning Process that extends across the internal and external supply chain. Many of today’s presentations have reinforced the needs for the process to be able to quickly analyze the various implications or options related toward meeting the plan, especially within the Executive Level review phase of the process. When a senior executive inquiries as to what are our options toward meeting a particular demand plan, the last thing that executive wants to hear is that we need a few weeks to analyze various scenarios. Two business-to-consumer firms outlined their success in the ability to analyze the differences among ‘sell-in’ vs. ‘sell-through’ information, which contrasts sales dollar volume to actual shipments from point-of-sale. The importance of quick and timely analysis is almost a given in today’s volatile world of business. Kevin Chynoweth, the vice president of supply chain at Fairchild Semiconductor expressed this notion best. If gaps in revenue, manufacturing or cash objective plans get discovered at the end of the (S&OP) process, it’s too late. He further noted that speed of the process equates to the fact that the process executes faster than how business circumstances change.

 

One audience member asked a very profound, yet timely question. After our business has spent millions on ERP systems implementation, how can we ever justify spending more on automating an S&OP process? The answer I submit lies in the four critical challenges noted above, and that most of the ERP vendors themselves have been late to recognize the overall importance of providing an S&OP specific application at a reasonable cost. However, best of breed vendors focused specifically on needs in supply chain business process are providing innovative alternatives in enabling S&OP bty overcoming key challenges.

 

What’s your view? Does justifying an automation solution to S&OP concern these factors?

 

Bob Ferrari

As a global supply chain blogger, I’ve been commenting on numerous product recalls that have led to supply chain disruption or major hits to a product brand. There have been numerous public incidents involving basic foods, medicines, furniture, you name it. It just continues, which is cause for serious concern. These past days, however, it really hit home. Now, my namesake is involved. One of the most sought after and highly expensive supercars, which was described as the "ultimate toy for motoring millionaires," has been voluntarily recalled.

 

I’m specifically addressing the Ferrari 458 Italia, which has a top speed in the area of 200 miles per hour and will set you back a mere $253,000, direct from factory. This magnificent vehicle is apparently suffering from a series of spontaneous fires. Consequently, the 458 is nurturing a new Google search term, "Flaming Ferrari."

 

Ferrari, now a division of Fiat Group, is recalling 1,248 of these vehicles after six burst into flames. The recall is being described as one of the largest in Ferrari history, and thus far, involves specific fire incidents occurring in China, Europe and the U.S. According to Ferrari, it seems that during manufacture, some of these cars were fitted wrongly with glue that could leak on to the exhaust. The glue will be replaced by metal fasteners, which should be little consolation to a prestigious customer who paid tons of money for a new 458.

 

Talk about an interesting photo, how about the following "Flaming Ferraris" from across the world:

Burning Ferrari Paris_1.jpg

Burning Ferrari 458 in Paris

 

Burning Ferrari Costa Mesa CA.jpg

Burning Ferrari in Costa Mesa, California

 

Burning Ferrari Switzerland.jpg

Burning Ferrari 458 in Switzerland

 

 

We can sometimes describe a bad day, but perhaps the privilege of watching your $250K plus sports car incinerating itself may qualify in the real bummer category.

 

Ferrari, of course, had an official statement which was noted in financial media. It happens sometimes that cars catch fire.” Read it again folks, I’m not making this up.

 

It seems when driving your Ferrari, you should expect an occasional problem, especially if you drive loose and fast. The Financial Times humorously noted at the end of its print edition article that “fire extinguishers are an optional extra.”

 

 

An entry penned by Marin Evans of the UK based Telegraph quotes a sports car expert as quick to note that is not unusual for new owners to exhibit a few initial crashes as they develop a feel for the new vehicle. I suppose therefore the unanswered question is whether these fires are over and above the usual ‘I need to test this monster’ period, perhaps within the normal learning curve.

 

This Ferrari (the author) would certainly conclude that today, supply chain risk has no boundaries, not even involving a namesake. 

 

For the time being, please take note that Supply Chain Matters and this author, have no direct relationship with Ferrari cars, including its communication releases to customers regarding recalls. As is sometimes said, these things happen.

 

I guess!

 

Bob Ferrari

A few weeks back, I shared a Supply Chain Matters commentary, Parts Shortages in the Mainstream Press-Are you actively educating senior management? Our commentary noted how financial and other media were featuring more and more articles noting that critical parts shortages among a variety of industries were affecting major manufacturing supply chain activities, and in some cases, making an impact in financial results. In that commentary, I noted that now is the time to keep senior management constantly informed on current demand and supply imbalances, which again reinforces the overall importance that a viable sales and operations planning (S&OP) process can demonstrate.

 

A tip of the hat goes to Lauren Bossers of Kinaxis for calling my attention to a couple of additional articles that also bring these points to reality. An article featured in the Dallas Morning News notes that critical parts shortages are effecting many popular smart phone producers. While the article points out that Texas Instruments, a supplier of several component chips for the DroidX, EVO and  iPhone4, is struggling to keep pace with customer demand, it is far from being the only company with supply chain challenges. The mobile manufacturers themselves are responding by switching to other components that may have more availability.

 

To drive home the importance of S&OP in this current environment, an article published in CFO looks at how the CFO of Oakley discovered the benefits of improved alignment of cross-functional teams, as well as the reduction in debates as to who has the most up-to-date data. The article reinforces what I have often found as well, that sales teams will ask for ultimate flexibility to make the sales plan. However, an occasional "nudge" from the CFO can be a rather grounding. The article also mentions another interesting, but sometimes hidden benefit to S&OP, a more timely process for grounding a company’s financial plan with feedback loops on supply and demand imbalances.

 

Firms sometimes abandon challenging and highly visible processes when the stakes on potential bad news increases, but, it is precisely in these current challenging environments when these types of processes have the potential to deliver their most effective benefits.

 

What about your organization?

 

Are you experiencing S&OP benefits?

 

Bob Ferrari