lora cecere's Blog

January 2010 Previous month Next month

It was late November 2008. Factories were idle, demand was uncertain, and supply chain leaders were navigating new waters in uncertain times.  I met with economists, strategists and operating officers to discuss which letter of the alphabet -L, U, V, W-- best described the recession.  However, the question that they REALLY wanted answered was "how do I best manage my supply chain through the upturn of the recession?"  Their focus was intense because companies make the most $$$ in the upturn.

 

I did 2-3 of these meetings a week for three months. It was draining.  Supply chain had quickly gotten escalated to the boardroom.  There was no doubt that it mattered, but the layoffs, closed factories and looks on the executives faces were horrible.

 

Then, it was clear that company's supply chains were off track. It took most companies from October 1998 to April 1999 to put their supply chain back on course.  There was a scramble to sense and re-establish demand patterns, to change product portfolios, and redesign supply networks.  Today, most comapnies are beginning to manage the upturn.  To help readers, I will publish a monthly post on this blog to share insights on the speed bumps--don't you just love those yellow bumps that rock your bones, but make you SLOW down-- that I am seeing.  This week, from conversations with leaders, I note five trends:

 

  • Commodity volatility:  Since September, oil prices are up 20% and corn is up 24%.  Sound like deja vu?  Remember what happened when oil hit $148/barrel representing 6% of household spending?  Are you ready if the bulls are right and oil hits 200$ a barrel? And, what if the bears are right and it stabilizes?  The reality is that we JUST do not know what that road forward looks like. One thing is clear, it will be bumpy.  All the more need to create horizontal, cross-functional processes to drive demand orchestration (the processes of connecting go-to-market strategies with commodity buying plans) to ensure maximum profitability through times of uncertain demand.  Hold onto the rudder in this storm and keep your head above water through what-if network analysis and Monte Carlo simulation of alternatives.  Understand the impacts before they happen and keep an eye on the trigger points in the key markets that influence your supply chain to quickly make changes.   
  • High and Dry:  Ocean freight is tough sledding right now with fewer ships on the water, and space at a premium.  Prices will escalate making good planning EVEN more important. Without it, we will have the wrong stuff on the water. Ocean freight--especially outbound from China-- will continue to be tight.  Plan now for the holiday and back-to-school seasons.
  • Big Sticks: In 2010, retailers are reaching for the big sticks.  Forget the carrots, retail compliance is escalating. While Sears is notorious for placing suppliers in the penalty box until they pay-up, Wal-Mart is upping the ante by introducing a new program that charges 3% of the value of the delivery if the load is not delivered on time and in full.  Wal-Mart is introducing new compliance programs and asking for supply chain redesign. 
  • Good planners are hard to find.  My inbound calls to locate good planners are escalating.  Seems that in this time of record unemployment in the United states, that supply chain planners--especially good ones--are experiencing full employment. A good planner is critical now in this time of demand volatility and low inventories. The good news is that companies are recognizing it.  It is a good time to be planner.
  • Technology market consolidation will continue.  Today, JDA announced the completion of the i2 Technologies acquisition.  Expect more of the same.  As this happens, it is a good time to double your efforts to engage with your software vendor.  Push for a definitive roadmap on future releases and push hard to understand the governance model between your maintenance spending and the future software roadmap. 

 

What speed bumps are you seeing as the economy rebounds? 

 

Look for me in your travels.  Until then...

We have a black hole in the center of supply chain applications.  A black hole you say?  Yes, a black hole has developed between transactional systems focused on order-to-cash and procure-to-pay processes and supply chain optimization technologies.  It is not there by design. It has evolved because the design of supply chain technologies were insufficient to meet today's requirements.

270px-BH_LMC.png

 

What is a black hole?  In quantum mechanics terms, it is the region of space from which nothing can escape.  It is the result of the  deformation of space time caused by a very compact mass.  Around the black hole, there is an undetectable surface which marks the point of no return, termed the event horizon by scientists.  It is called "black" because it absorbs all light that hits it, reflecting nothing, just like a perfect black body in thermodynamics.  Despite the invisible interior, a black hole can be observed through its interaction with other matter.

 

Companies may not realize it, but they have a black hole.  It is the no-man's land between ERP and Supply Chain Optimization (APS)/Supply Chain Execution (SCE) systems.  We now know that fixed data integration, one-dimensional rules mapping, and traditional master data techniques from ERP to Supply Chain Optimization are insufficient.  As a result, plans are created and consumed in isolation, and transactional systems hum along with little-- to no -- guided intelligence.  Available-to-Promise (ATP) was our first foray into the black hole, but we did not go far enough.

 

Technologies are evolving to eleminate the supply chain black hole. In this first generation of supply chain applications, we have built a fixed response with very little sensing.  How can we effectively respond when we cannot sense?

 

It is my belief, from seven years studying the market, that the technology applications to fill the black hole will come in many forms and from many different sources.  From military technologies, we will see the applications of rules-based ontologies to intelligently sense and connect optimization plans to more intelligently drive transactional systems.  Likewise, from the banking and insurance industries, we will see the application of pattern recognition of early market conditions to shape the supply chain response; and from search-engine  optimization technologies (SEO), we will see the redefinition of master data management. These technology discontinuities will come from emerging technologies: guys that we don't even know the names of today.

 

We will be limited in how fast we move by our own traditional supply chain paradigms.  To solve the black hole, we need to shake several paradigms and recognize that:

 

  • The first generation of supply chain applications got us started down the path, but they must be cast-off to move forward.  ERP is not the backbone of supply chain management for the future.  The new technologies will not come from the ERP consolidators.
  • We are at a discontinuity between inside-out and outside-in technologies.  The new technologies will be outside-in. They will help us sense before responding.  They will help drive an intelligent response. They will fill the black hole.
  • Companies will be challenged to evolve old technology while maximizing the opportunities from evolving technologies at the same time.  Early adopters have line-of-business scouts seeking to extract new answers to solve the black hole dilemma.

 

We have come along way from the go-go days of 2Q 1998 when i2 Technologies stock peaked at more than $110 a share and average APS deal sizes were $1.9 million dollars.  At this time, the APS fueled by exuberance and excitement.  Today, it has lost it's luster.  In its redefinition through the solving of the black hole problem, we will see a more mature market evolve with less hype and more grounding.  For me, this will be exciting.

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