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2010

Jim Fulcher's Blog

June 2010 Previous month Next month

June, for many people, can be a wonderful month. The weather has warmed up, kids are out of school and many people begin to take vacations. Even if you aren’t on vacation, chances are that a troublesome employee, peer or even supervisor is out of the office—and that offers a welcome reprieve as well.

 

But June isn’t always well received. For instance, in a recent conversation, a manufacturing executive explained why he has come to dread the month of June.

 

Actually, there are two reasons. The first is that the company’s fiscal year ends June 30th, and the results in recent years haven’t been as good as those of years past. The second reason is that the company is also finishing its six month forecast, which is a troublesome process. Many of you are probably now thinking that the company’s disappointing revenue is effected by its poor forecasting capabilities—and that’s arguably true to a certain extent.

 

But what about you? Are you at work on your company’s forecast, and, if so, how is it going? Is it a smooth and well thought-out process?

 

The reality is that for many organizations, forecasting doesn’t entail much more than looking at historical numbers, and then having those numbers tweaked by someone in sales and marketing. While that approach may have been marginally sufficient for some in the past, it hardly seems like a viable approach now considering the U.S. economy.

 

The problem, of course, is that inaccurate forecasting often leads to shortages, excess inventory, and, in some cases, even a pendulum swing from one to the other. The consequence of not being able to meet demand is unhappy—and potentially, lost--customers. On the other hand, carrying excess buffer results in unnecessary cost. The goal then is to become more responsive and demand-driven so the organization can more accurately meet demand and improve customer service while simultaneously holding less inventory.

 

Improving the forecast obviously is a complex initiative. But one critical first step to improving that capability is to collaborate with customers and suppliers. Unless your customer base is very small, it’s unlikely that you will achieve a high level of collaboration with all your customers. However, that’s not necessarily the goal.

 

Instead, the real value comes from first identifying customers that represent the bulk of your business, exhibit the largest or most frequent changes in demand, and provide you with the most profit. Demand from those customers has the most impact on your business, so those customers are the ones that it’s vital to collaborate with and gain their forecasts as well--assuming they are willing to participate. That assumption may be a topic for another time.

 

Anyway, how accurate is your forecast? Do you base your forecast on input from your customers?

I was speaking with a C-level executive at a mid-sized company the other day, and one of the topics I found most interesting was the company’s inability to get what they actually need from their business intelligence solution. This company isn’t alone in that predicament either.

The problem for everybody is that ERP solutions create a great deal of data, but little information. That’s to be expected because the data structures in transaction systems, such as ERP, are optimized to execute business transactions such as placing and fulfilling orders—and then capturing a record of the transaction.

That’s why there is a critical need for business intelligence (BI) solutions. However, pure BI tools aren’t very effective for improving supply chain management capabilities because these tools are designed to look at history and a static set of data. That is, they allow users to analyze historical data to determine what happened.

Because they can’t identify causality and, consequently, they can’t provide a prediction of future performance and risk, they don’t deliver actionable information. Let’s face it: It’s important to know that something happened or that a problem is about to occur. But the real value, which is increasingly vital given the complexities of today’s demand and supply chains, comes from being able to determine not only the root cause of the problem but also the operational and financial consequences.

Knowing that you will have a problem obviously offers tremendous value. And knowing what will cause the problem is the first step in correcting the problem. Being able to identify future risks in a timely and effective manner, and also identify what causes that risk will be a significant improvement over current capabilities for many companies. But their efforts shouldn’t stop with reaching that goal.

Once you know there will be a problem, the next step is to determine what course of action should be taken. And there’s even more value in being able to identify ways of testing the effect or impact of choosing one course of action over another to mitigate risks.

Here’s the tricky part though. It’s not possible to create multiple scenarios to predict detailed results without deep supply chain analytics—and that’s what the executive I spoke with said her company was challenged by. For example, if a major customer suddenly increases its forecast, it’s difficult to determine if you can still meet that customer’s delivery requirements—and even more difficult to determine what impact that change will have on your ability to fulfill other customers’ orders.

Rather than simply using a statistical model, determining the overall impact instead requires analytics to break finished goods demand into dependent supply requirements through a bill-of-material explosion that also considers factors such as batch sizes, capacity constraints, and supply lead times. In addition, a company must have the ability to roll up costs from the specific plan being investigated. That way users will be able to realistically look at both the financial and operational ramifications of different courses of action.

What about you? Are you gaining value from business intelligence?

There’s been a lot of news lately about the growth of manufacturing in China, and, perhaps some growing pains as well, so I’m curious what you think of it all.

 

For starters, a report released by economic research firm IHS Global Insight says China’s manufacturing sector nearly caught U.S. output in 2009. The value of goods produced by China’s factories reached about $1.6 trillion last year, compared to $1.7 trillion reached by U.S. manufacturers.

 

China’s manufacturing sector was already growing at a much faster pace that that of U.S. manufacturing. Indeed, China’s industrial output rose nearly 17 percent in May compared to a year ago--according to figures from the Chinese government--while the Federal Reserve estimates U.S. factory output was up only 8 percent.

 

Researchers at IHS Global Insight now say they expect Chinese manufacturing to exceed that of the U.S. by 2013 or 2014. In fact, Mark Killion, a managing director at IHS, thinks China will most likely pass the U.S. in manufacturing in 2011, but that it could be a “close call” this year.

 

In other news, over the weekend, the Chinese government announced it will loosen its strict policy on the yuan and allow the currency to rise against the U.S. dollar. A stronger yuan is sure to boost China’s manufacturing numbers even if there is no real change in manufacturing output—but that of course remains to be seen.

 

I’ve also been thinking about the cost of labor. In my conversations with manufacturers, one of the first topics that usually come up when discussing China and other countries is the lower cost of labor when compared to U.S. labor wages. However, that seems to be changing.

 

Indeed, workers in some industries now demand higher wages. For example, workers at Honda’s Foshan transmission plant went on strike for more than a week earlier this year. That labor action caused Honda to shut down its four Chinese assembly plants and led to a 24 percent increase in wages for its workers.

 

Following that lead, some workers at a Chinese Toyota plant recently walked off the job citing unfairly low wages. While the action caused the plant to close, the workers agreed to go back to work the next day after the company promised it would review current wages versus market rates.

 

A Toyota executive in China was quoted as saying that, “There is a distinct feel that, not just us, but factories around China are going to face more demands for pay hikes.” Harley Seyedin, president of the American Chamber of Commerce of South China, went even further, saying that, “the days of cheap labor are gone."

 

Meanwhile, the Wall Street Journal reports that rising labor costs are already driving many apparel manufacturers to look to lower wage countries for production.

 

With all that in mind, I’d like to ask what all that means to you—if anything? Are you concerned about the growth of China’s manufacturing or its rising wage demands? Do either have any impact on you or your company? Or, alternatively, do you have other concerns that are more pressing?

I recently read a Kinaxis white paper titled “Achieving Supply Chain Visibility: There is More than Meets the Eye,” and found some good food for thought.

Industry research consistently cites supply chain visibility as one of the most important challenges facing supply chain professionals. To be sure, whoever can deliver what customers want, when, where and how they want it, will succeed—but that requires an excessively responsive supply chain based on multi-enterprise visibility and coordination.

That’s the real challenge then, isn’t it? Leaders who are successful have realized that while achieving visibility is a critical goal, the real key is being able to leverage that visibility to take quick and effective action.

Consider, for instance, the growing trend of establishing plants overseas or outsourcing to specialists capable of delivering unique value and reducing costs. The problem, however, is that business model increases the complexity of the enterprise and moves management of critical operations beyond the traditional four walls of the enterprise. What happens is the single supply chain gets replaced by a complex supply network with a multitude of partners. That in turn, forces brand owners, CMs, and suppliers to manage a “virtual enterprise” of interconnected players working in a coordinated operation. What’s more, achieving visibility is no easy feat when it means dealing with various geographically-dispersed sites and/or partners using disparate data systems.

In that scenario, visibility without the tools to drive action only provides minor advantages. In demand management and manufacturing operations, where there tend to be hundreds of daily decisions throughout the day, information alone is not enough. The problems are complex and require people to interact with data in a collaborative way, performing real-time ERP calculations, data modeling, and similar activities. That means they need to be able to alter and analyze the information rather than simply just see it.

Consequently, companies must use solutions that provide tools and technology to not only achieve supply chain visibility, but also leverage that visibility. By empowering a broad base of front-line staff—customer service reps, planners, buyers, CMs and suppliers—to take fast and effective action when faced with constant changes in demand, supply, capacity and product, a company will ultimately drive breakthroughs in customer service and operations performance.

In today’s business environment, which is characterized by increasingly outsourced manufacturing operations, growing global competition, constant demand volatility, short product lifecycles, and stringent regulation requirements, a strong competency for integrated demand-supply planning, monitoring and collaborative response becomes a key competitive differentiator.

In the end, having quick and easy access to actionable supply chain information can set the stage for more meaningful and effective interactions between partners--based on informed decisions in which the impact of changes is understood and action plans are clearly defined.

Have you found that to be true as well? Are you able to leverage visibility to take rapid action?

As I watched the Chicago Blackhawks win the Stanley Cup last week, I was reminded of the supply chain. Well, actually, I didn’t think about the supply chain during the series of games against Philadelphia because the games were too exciting. But thinking about the Blackhawk’s performance and listening to post-game interviews with players and coaches is what made me think of the supply chain.

For those who don’t follow hockey or the Blackhawks, here’s what happened. The Chicago Blackhawks and the Philadelphia Flyers played in the NHL finals, competing for the Stanley Cup—hockey’s top honor. The Chicago club won the best of seven series with an exciting 4-3 Game 6 victory in Philadelphia. That means that the Blackhawks won the Stanley Cup, which hasn’t happened since 1961.

What does all that have to do with supply chain performance? During one of the post-game interviews, a reporter asked Blackhawks Coach Joel Quenneville about the reason for the club’s success. Quenneville’s answer was that it really isn’t one player’s success but that instead, the successful season stems from initially getting everybody in the organization to sign-on to the mission and commit to the Cup. That level of commitment started with the team owner and continues all the way throughout the organization.

That’s what made me think of optimizing supply chain management. Whenever you hear somebody from an industry leading company speak about improving their supply chain, they essentially say the same thing. That is: Whether the goal is to achieve a lean supply chain, become more agile or improve S&OP, it’s vital to have a top-down commitment throughout the organization. The companies that are the most successful inevitably feature that type of support across the organization. That way, not only is there a common goal, but everybody—from top executives down—all support and are working to achieve the same goal.

That organization-wide support also helps ensure not only that everyone stays on-task but also that two other things take place. The first is that appropriate funding is in place to acquire necessary resources. The second factor is that while there is a sense of urgency, there also is an understanding throughout the enterprise that it may take awhile to achieve expected benefits. That’s vital whether the plan is to reduce excess and obsolete inventory or to win face-offs and score more goals during a power play.

Let me know if you have similar experience.  I’d like to hear how top-down support has effected your supply chain initiative. Or, conversely, has a lack of support hampered your organization’s efforts?

Finally, congratulations Blackhawks on an outstanding season.

I really like webcasts. After all, it’s an opportunity to learn how other companies tackle various obstacles, or at least hear what an industry expert thinks about a particular issue. What’s more, you get the opportunity without needing to leave your own office, so it’s like attending a conference without the travel.

 

Listening to webcasts on-demand after the event takes place is good too, but by joining the event live, there’s also the chance to ask questions.

 

Anyway, there’s a webcast scheduled for next week that sounds interesting. Angel Mendez, senior vice president, customer value chain management at Cisco Systems, and John Sicard, executive vice president, marketing, development and service operations at Kinaxis will co-present a track titled “Creating the Next Generation Value Chain to Deliver Customer Value,” on June 15th at 9:00 am EST. The presentation takes place during CSCO Summit, a free virtual event that takes place June 15th and 16th.

 

Click here to register for the event, http://cscosummit.raptureworld.co.uk/register

 

CSCO Summit (chief supply chain officer's summit) is an on-line virtual event intended to offer chief supply chain officers, chief procurement officers, chief operating officers, chief information officers and vice presidents and department heads an opportunity to learn about critical factors that drive strategic supply chain and operational agendas. The event will feature 11 presentations over the two days, presented by senior execs at Fortune 500 companies who will share their experience on how to create an agile, flexible and sustainable supply network that supports strategic business growth and enhances shareholder and customer value.

 

I used to have a colleague who often said “As Cisco goes, so goes the high-tech industry.” Now, whether or not you agree with that particular assertion, the fact remains that Cisco is well known as a global supply chain leader and the company has worked significantly to transform its supply chain from a cost-center to a competitive advantage.

 

Indeed, those who tune in to the session on the 15th will learn that in response to rapidly shifting business demands, Cisco focused on integrating previously siloed back-to-front end operations. What the company did, was create a single global operations group that covers the extended value network--from downstream suppliers through to upstream customers. Mendez leads the Cisco organization that is responsible for enabling a high-velocity, agile and responsive enterprise to meet rapidly shifting customer demands while delivering bottom-line performance, so I’m sure he’ll have some great insight to share.

 

The point of attending this type of webcast isn’t necessarily to learn about Cisco and then try to emulate its processes. Instead, it’s to listen to the critical lessons others have learned as well as to gain perspective on key focus areas to consider. And you never know what kind of “What-if?” thoughts might be sparked about your own situation while listening to somebody else’s experience.

 

I’ll be traveling, so I won’t be able to watch Mendez and Sicard’s presentation, but I am interested in it. Let me know if you attend--I’d like to hear how it went as well as what lessons you learned.

Anybody who regularly uses public transportation, subscribes to a daily newspaper, or goes grocery shopping is used to seeing product samples. For that matter, vendor reps from liquor distributors can often be found in liquor stores hosting wine or spirit tastings.

 

 

The basic premise here is to offer a sample, whether it’s shampoo, breakfast bars or whiskey, so prospective consumers will try the sample and discover they like it. This type of campaign is successful because once people discover they like a product, they are likely to buy it and become loyal customers.

 

 

The reason I mention all this isn’t because I tried a new energy drink this morning, but, instead, because I’ve been thinking about Kinaxis’ announcement last week at the AMR Supply Chain Executive Conference held in Scottsdale, AZ. The company announced that it launched a No Risk Deployment offering, which gives prospects the option to ‘try before they buy’ RapidResponse™, Kinaxis’ on-demand service for supply chain management and S&OP.

 

 

Targeting those who may have first-hand experience with failed supply chain and S&OP IT projects, the initiative will enable prospective customers to make an informed decision after gaining first-hand experience with the service.

 

 

Doug Colbeth, president, chief executive officer and chairman of the board at Kinaxis says that supply chain IT projects have created a legacy of failure, frustration and inequity between vendors and customers. Kinaxis’ objective is to alleviate potential customers concerns about achieving less than desirable implementation results or of spending unnecessarily on ‘shelf-ware’.

 

 

Here’s how it will work: The No Risk Deployment requires that a contingent agreement be in place. This agreement commits the user to work with Kinaxis consultants to deploy a standard implementation of RapidResponse. Once the service is live, the user then has 30 days to confirm that the service will provide value or decide to exercise the contingency clause and terminate the agreement. If—after 30 days--the customer has not exercised their walk-away right, they can choose to extend their service to include data from multiple sources, meet specific configuration needs, and/or employ additional professional service packages to solve specific supply chain and S&OP challenges with added functionality.

 

 

“This model is a testament to the confidence we have in our RapidResponse service for quickly delivering tangible value and measurable ROI results,” Colbeth says. “We challenge other enterprise solution vendors to make this same offer.”

 

 

While it’s really more of a test drive of sorts than a giveaway, I think the initiative does speak volumes about Kinaxis’ confidence in RapidResponse. I suspect it also will allay fears that some companies' execs may have about undertaking another supply chain and S&OP IT project.

 

 

What do you think? If you haven’t deployed RapidResponse, how does a no-risk deployment sound to you?

 

What about other solution suppliers? Will some follow suit and offer similar options?  I'm interested in seeing how this all plays out.

I recently watched a webcast titled “Prescriptions for the Modern-Day Pharmaceutical Supply Chain,” and I found it extremely interesting to hear about the specific challenges biotechnological manufacturers face.

 

For example, international expansion is the main challenge faced by Amgen, Inc. However, biotechnology companies also face some unique challenges. They include use of complex biology, comprehensive regulations, dynamic processes and highly customized facilities, and expensive and time-consuming product development cycles, says Elisabeth Kaszas, director, supply chain at Amgen, a leading human therapeutics company in the biotechnology industry.

 

Founded in 1980, Amgen was one of the first biotechnology companies to successfully discover, develop, and make protein-based medicines using advances in recombinant DNA and molecular biology. The company continues to develop therapies in multiple modalities, drive cutting-edge research and development, and advance the science of biotechnological manufacturing.

 

I expected Kaszas to say complying with comprehensive regulations is difficult because regulations vary from agency to agency, and that it also is challenging to maintain comprehensive track/trace capabilities that are necessary to track product expiry and shelf life.

 

However, I was surprised to learn just how complex Amgen’s manufacturing can be. There are up to 60 manufacturing steps at Amgen, and because living cells are used, there is the potential for a high degree of supply variability. The complex biology that’s involved also contributes to long lead times and product development.

 

And because some vaccinations are life-saving, stock-outs are not an option, Kaszas says. With that in mind, it makes sense that in the past, Amgen maintained high levels of safety stock—but that in recent years the company had begun to look at ways to manage the supply chain with a goal of better balancing supply and demand.

 

Other factors also drove a search for additional supply chain tools, Kaszas says. For instance, expanding into new markets increases supply chain complexities because it involves managing multiple expiry requirements, increasing collaboration among supply chain teams, and moving to a demand-driven pull system. Other requirements for Amgen included the ability to simulate multiple corporate and site production plans as well as improve decision making by creating summarized management reports with drill- down capabilities.

 

Additionally, the company needs to understand how changes in demand will impact business—all the way down to the lowest level of manufacturing and production, Kaszas says.

 

To address those requirements, Amgen implemented a new Kinaxis supply chain management solution. One of the main benefits so far is that the company is now able to simulate scenarios and confirm short-term production scheduling at various sites to better meet current demand—and it’s easy for me to see how that would deliver significant benefit.

 

Moving forward, Kaszas says one of the company’s main goals is to further optimize planning processes to allow decreasing inventory levels and abnormal scrap. I’d love to hear about that as Amgen moves forward.

 

To view the webcast, click here:

http://www.kinaxis.com/campaign/apics-webcast-prescriptions-for-pharma/

Everyone in the life sciences industry—but particularly in the pharmaceuticals market--understands the inherent business challenges their industry faces. Those challenges, of course, range from demand for product innovation to complying with federal regulations.

Another whole set of challenges, however, stems from the use of outdated supply chain management solutions.

For instance, over the last several decades, companies in the life sciences industry have inherited supply chain solutions—and have had very little opportunity to redesign them from a holistic or transformational perspective to suit evolving supply chain strategies and approaches, says Wayne McDonnell, research director, life sciences, at AMR Research, speaking in a webcast sponsored by Kinaxis titled “Prescriptions for the Modern-Day Pharmaceutical Supply Chain.”

“So these companies are left with demand management, product supply management, and product development management capabilities that are all disconnected and have their own business processes—and in a lot of cases—have their own sets of technology and architectures,” McDonnell says. “These companies have to try to stitch together a response to a forecast that, more often than not, is really just a representation of historical inventory consumption or demand that gets magically transformed somewhere in sales and marketing into a forward-looking forecast. The result of having to operate in this manner is that companies typically have a very disconnected supply chain.”

Additionally, these companies don’t have good visibility across the supply chain despite the fact that they have worked for years on operational excellence and Lean, Six Sigma-like programs, and have done a pretty good job of leaning out a lot of functions within those silos, McDonnell says. That lack of end-to-end visibility in the supply chain has left life sciences companies with two major challenges. The first is that they lack good visibility to downstream demand. The second issue is that due to the lack of end-to-end supply chain visibility, these companies don’t have a very good ability to manage trade-off at the highest level. They don’t have the ability to balance—at the very least—service and cost at the enterprise level.

“When somebody looks at financial results, it’s no surprise that an industry like life sciences that focuses so much on innovation and marketing capabilities does very well on return on assets or even revenue growth,” McDonnell says. “However, using inventory turns as a proxy for supply chain effectiveness, despite companies’ success in innovation and marketing, with inventory turns that reach—at best—2.5 across the industry per year, people are hard pressed to argue that the life sciences industry has an integrated and well functioning set of supply chain capabilities.”

What’s more, as companies in the life sciences industry strive to maximize their ability to deliver new innovation to patients and customers, they further realize the need for improved supply chain capabilities. For example, they increasingly understand that use of supply chain capabilities delivers a competitive advantage in a global marketplace.

“To support those business strategies from a supply chain perspective, companies need to develop a demand-driven integrated supply chain,” McDonnell says. “That supply chain puts demand management functions, supply management functions, and product development management functions together in an integrated set of capabilities that are connected by key business processes.”

To view the webcast, click here:

http://www.kinaxis.com/campaign/apics-webcast-prescriptions-for-pharma/