When I  looked in the yesterday mirror, I clearly saw a gal with the flu.  I hate being sick.  In the morning, I struggled.  Did I  have  enough strength to make it to my speaking appointment in the afternoon?  I was the last speaker on the last day of the Transportation Research Board (TRB) (http://www.trb.org/AnnualMeeting2012/AnnualMeeting2012.aspx) in Washington, DC.   I was on a panel.  So, I questioned if it would matter, but as a matter of principle, I don’t cancel speaking engagements. So I put on my pink suit (to hide my pale skin) and headed to Washington.


Prior to being approached to speak at this conference, I had never heard of  TRB.  Have you?  In short, they are one of six major divisions of the National Research Council which is a private, nonprofit institution providing services to the government, and scientific and engineering organizations.  It was established in 1920 as the National Advisory Board on Highway Research to provide a mechanism for the exchange of information and research on highway technology. It was renamed the Highway Research Board (HRB) in 1925 and finally the  Transportation Research Board in 1974. In short, they provide research to local, state and federal organizations on transportation infrastructure for planning.  When I entered the room, the air was thick with acronyms of bills, research studies and acts that I had never heard of.  I was a fish out of water in a group of 11,000 attendees. 


I was asked to speak on available data in the supply chain and share insights on how this data could be used to improve transportation planning. When I was asked to speak, I questioned if I could add value, but after being in the session for 5 minutes, I understood why I was there.  In 2011, the group had an awakening.  They recognized that they could not properly plan transportation infrastructure without a better understanding of supply chain. I walked in early and got to hear the prior session.


In essence, the group before me was putting together a proposal to ask for 5-7 million dollars of government funding to do a survey to better understand the impact of supply chain on future road, waterway and rail infrastructure. They had spent the last year interviewing the “private sector” to understand how to define supply chains for the questionnaire.  I smiled looking forward to their insights.  What was presented was a very rudimentary understanding of source, make and delivery without a clear understanding of the complexity, nuances and dynamics of the real world of the supply chain. The group was proposing penalties for non-compliance.  I shuttered.


As I took the stage, I asked the group if they had heard of the “private sector organizations” of APICS, CSCMP, FMI, GMA, GS1, NAM, NRF, or SCOR?  They shook their heads “NO.”  I asked if they had heard of the GS1 GTIN and GLN standards and how they tied to commodity types and geolocation data?  Their response was “No.”  I asked if they knew that the average supply chain team had not one by seven supply chains and that 95% of companies reconfigure their supply chains based on Sales and Operations Planning (S&OP)?  They asked me to explain S&OP. I continued.  I asked if they knew that 80% of process manufacturers used planning systems to route trucks and dispatch loads?  They asked me for an overview of transportation planning, and how they could get to the data.  In summary, the gal in the pink suit suffering with the flu had a great discussion with the planners that are planning the North America roadways.


Let’s face it, North American transportation infrastructure needs help.  Not only has demand volatility increased, but satisfying customer delivery expectations is a growing issue.  This is two-fold:  tightening of delivery windows and congested roadways.  As I spoke to the group designing the roadways, I realized that we had an opportunity to improve the effectiveness of the process to expedite plans for the roadways.  Here are my recommendations:


1) Make use of Existing Data: I explained that a substantial amount of historic transportation data on loads tendered could be accessed through Cass Logistics and Chainalytics business models. I also explained that Chainalytics also had some future and forward looking data from RFPs.  I encouraged them to contact the leaders of these two transportation providers to see how they could get access to the data.  I shared that while the data was not free, it  could be purchased at  less cost and with more accuracy than the data that they would get from an annual survey.


2) Use Carrots not Sticks:  I asked that we try to use the existing standards and try to work within the private sector’s existing associations to gain insights on  manufacturing and distribution shifts/region. I explained how imposing new naming conventions would be costly and ineffective.  I suggested that they work with local CSCMP roundtable leaders to try to use the forum to gain insights from leaders to help them plan.  I also pleaded that they never recommend this as compliance mandate.  I shared that I believed that the private sector wants better roadway and infrastructure improvements and that carrots were more effective than sticks.


3) Partner with the Private Sector. I also explained how the private sector organizations worked, their charters and how I thought that they could work with each to get useful data.  The group was just as unaware of these charters as I was of the mission of TRB.

I walked back to the train in the rain.  I was miserable, but I was glad I went.  It was great grounding for me on how we as leaders need to try to bridge the gulf between the private and public sectors understanding of supply chain.  I only hope that the 5-7 Million that was going to be spent on a data project makes it’s way into improving the Chicago rail yards, Atlanta’s Route 400,  or the many Spaghetti junctions that line the US highways and tollways. 


Your thoughts?  Any ideas for the TRB?

Today, Kodak filed for bankruptcy and Facebook announced a new feature–Action Buttons– in preparation for their upcoming IPO.  For me, this is like Alpha and Omega. Why do I put the two together?  Here are my thoughts:

In 1975, Kodak invented the digital camera based on patents filed as early at 2000. <I know this is painful.> Internally, the organization fought using them. It was a risk to their film business.  The rest is history, even after restructuring and efforts to build new businesses, Kodak has reported only one full-year profit—in 2007—since 2004. It has been such a LONG, painful slide….


Today, Facebook posted a list of companies using their new functionality.  There were sixty of them (reference http://www.theverge.com/2012/1/18/2717453/facebook-open-graph-launches-mark-zuckerberg-new-partners.)  When consumer goods manufacturers and retailers read this list, they will probably recognize less than 1% of the companies.  The partners are not the normal list that most of you will find signing in and out of your company.

Additionally, information on digital technologies is silo’d.  In these organizations, Facebook and digital marketing intiatives are currently managed by the marketing department.  Unfortunately, it is marketing for the sake of marketing.  Very few are thinking about the use of the functionality to become market-driven.  I keep hoping.  I do interview after interview looking for the change, but so far it has not happened.  What is the difference between market-driven and marketing-driven?  Three things:

§ It is not about YOU. It is about THEM.  When you are marketing driven, the message is all about you. Your products. Your company.  The brand managers try to own a closely-held message.  The goal is to YELL the message and get it everywhere.   When you are market-driven, the goal is about consumer relevance and creating a relationships with the shopper, the customer and the greater market.  It is no longer about you the brand company; instead it is about them.  The power has shifted….

§ Open.  Orchestrated Cross-functionally.  Marketing-driven initiatives are tightly controlled within marketing.  The applicability to other organizations within the firm lacks amplification.In market-driven companies, they are part of strong outside-in horizontal processes.  <I know, I am consistent.>

§ Market-driven companies listen. Market-driven companies also test and learn in real-time.  They use data analytics to sense answers the questions that they do not know to ask.  <One of the reasons why Amazon is gaining market share from Wal-Mart and Target).  Marketing-driven companies construct campaigns, analyze data and try it again.  They are usually based on history.  <It is hard to listen when you are so busy filling social media sound waves with your message.>

So why is Alpha and Omega relevant? Why should it be a Button for You?

Kodak was a marketing-driven company that failed.  The lifeblood of a corporation is new products.  The lack of good demand insights is the number one issue in new product launch.  So, I appeal to all of my friends in manufacturing and retail to learn how to unlock the potential of the “action button.”  Why?

In just two years, Facebook’s “Like” button has grown in popularity.  It is deployed in over 2.5 million websites, but now it can be different.  It can be the combination of a noun and a verb. Examples could go on an on…. I want it. I own it.  I bought it. I hate it. I love it. I cook with it. I use it. Anyone that uses Facebook knows just how inadequate the “like” button is when a friend breaks up with a longterm boyfriend, your sweater developed a hole in the sleeve when it was washed, a friend of a friend’s house burns down,or your daughter’s friend loses her mother.  The “action button” allows us to improve relevance quickly.

A good place to check out this feature is at Payvment.  This company is a social commerce “mall” on Facebook.  Go there. The page has 1.1 million users and sells items from more than 150,000 brands and merchants.  It lets customers to click a “Want”, “Hate”. “Love” or “Own” button for a particular item. But now, when Facebook members who have integrated the Payvment application click those buttons, the fact that they “Want” a BMW, ”Hate” a Cadillac and  ”Own” a Cannondale bike will show up to all their friends.  Each visitorgets a unique assortment of vendor store fronts based on the social and interest graphs and their” Action Buttons.”  Check it out.

My challenge to all my consumer products manufacturing and retail friends is: What is your strategy for the use of the “Action Button”? I would like to see companies think about it in three ways:


-Use Action Buttons in New Product Launch Planning.  When you launch your next new product, sense market reaction. Combine analytics to look at the intersection of the interest and social graph with the response from the “Action Buttons”. Use this data to daily sense the market response to your new product launch.


Use this data to build forecasting models.  If fans in your loyal demographic “want” your new product, it is probably a powerful causal factor to put into your next demand forecast.  If they “hate” the product, it is probably time to rethink the product build.  This can only be modeled if you are forecasting what you are going to sell (versus what you are going to manufacturer or ship), there is sufficient level of granularity to see the pattern (forecasting in days or weeks) and the software has causal factor modeling.  Only 10% of companies that I follow have this level of sophistication.  This is already in process at Amazon and Wal-Mart.  And, while it is still a new concept for the consumer products supplier, my bet is on the Frito Lay  or General Mills teams to do this first.  <Please be bold.  Prove me wrong.>


-Use Action Buttons as an Input in Demand Sensing. As the product is shipped to the market, follow the social sentiment closely.  The action buttons are a great way to target information. This in combination with sensing technologies helps companies to get a quick read of the market.


Use the information in cross-functional launch meetings to be more effective.  Dell, Newell Rubbermaid, and Whirlpool do this weekly.  Consider the use of Bazaarvoice sentiment analysis on user generated content (cool interface) for ratings and reviews and a pre-build data model (appliance) from IBM, NetBase, SAS Institute, or Teradata to quickly understand the market dynamics. (Conventional processes use syndicated data feeds from IRI or Nielsen to analyze market lift.  This is two tothree weeks longer to read the market than the new sensing capabilities).  I believe that time is of the essence.  It might be something that you can fix–placement, information, message– and quick sensing allows you to get it right before the product fails.


-Follow Others’ Action Buttons for Competitive Intelligence.  Train your merchandisers and sales teams on how to read the “Action Buttons” of competitors and trading partners.  Implement analytics to allow them to quickly process the signal. This should be a daily activity.  Be opportunistic.  Be Bold. If product X is failing at Store Y, read the sentiment and offer a new alternative.  If the placement is wrong, the coupon does not work, or the product is out of stock, fix it.  You can see it with a 24 hour latency.  Roll out training for your merchandisers (if a retailer) and sales teams (if a consumer products company) this month.


In summary, social should not be about social for the sake of social. It is not about “fans.”  It is not about the number of “likes.”  It should not be contained in marketing.  It should not be outsourced to a PR firm.  It should not be based on first generation analytics.  Instead it should be seen as a way to have a relationship with the customer.  This can only happen if there is an understanding of the basics.  It is about story telling, building excitement and delivering relevance.  If you have these elements on your site, move aggressively to leverage this new functionality.


My wish for you is that you never fall into the trap of Kodak.  Avoid it by using technology to innovate, sense market trends, and be the first to market with customers where you have relevance.  This is the essence of being market-driven.  Put “Take Action on your Action Buttons” on your “To-Do” list for next week.  Let it be a button that you push to drive innovation excellence…

What do you think?  Are you ready to take the plunge?

It is cold in New York.  My feet are tired, but I have enjoyed the first day of the National Retail Federation (NRF) Big Show.  (Twitter hashtag #NRF12).


I had the luxury to stay in the same room and hear some great presentations. Here are my insights.


1) Shopper Insights are the Way to Drive True Collaboration.  I got up early.  I moderated a panel for Coca-Cola for a session at 8:30 Am on Sunday morning.  Yep, you got it.  A very early morning….  I thought that an early session on a holiday weekend would be empty; but believe it or not, the session was packed.  In fact, it was standing room only. The session was on shopper insights.


Retailers are hungry to learn about demand insights from iconic consumer product brand manufacturers.  The retailers attending the session were  new at it. Only six hands in the audience were raised when asked, “Do you have a shopper insights group?”  I leave the session firmly believing that the sharing of consumer insights is the way to establish a true win/win value proposition.


2) MicroSegmentation is Now Feasible. Craig Riner, RiteAid delivered my favorite presentation of the morning.  His focus was on Real-time Merchandising.  <My friends in consumer products (CPG) would call it improving the Digital Path to Purchase (#DP2P).> Craig presented a case example of how RiteAid used their loyalty card–Wellness + — to build a new brand.  As he explained, “26 million adults in the United States today have adult diabetes.  When they are diagnosed, they are in shock.  They don’t want to be defined by the term “diabetic”, but they need help with meal planning, fitness and lifestyle. We redesigned our loyalty card to be a brand card to meet these needs.” They used their loyalty program to provide relevant content, offers and programs to this target consumer.  They teamed with WebMD to build content.  It now has 20 million videos, directly connects consumers to a nutritional counselor and allows shoppers to load the Wellness + card online.  This wallet feature enables targeted coupons to be downloaded based on relevance.  There is no need for paper or scissors for coupons.  It is easy.  When the loyalty card is swiped in the store, the coupons are applied to the purchase automatically.


GlaxoSmithKline also spoke on how they, a supplier to Rite-Aid, had partnered with RiteAid to also use the Wellness+ features.  Using the data base from the RiteAid program, Glaxo was able to reach consumers directly with targeted programs.  Using the program, they were able to drive double digit growth.  Their advice:  “this powerful program increases the need for planning.”


3) Social Enables New Business Models. Supply Chain is back in Vogue.    Kerry Cooper, Chief Operating Officer of ModCloth also delivered a compelling presentation on the redesign of the apparel value chain using demand insights from crowdsourcing.  The average apparel supply chain is 9-12 months long.  Modcloth brings 50-70 new products to market each day with a suppy chain of 6-8 weeks with 20% less inventory.  Yep, you got it.  ModCloth, a small apparel company in Pittsburgh is able to deliver more variety with fewer mark-downs and less staff.  The secret is a new business model based on crowd sourcing.  (According to Wikipedia the official definition of crowd sourcing is: the act of sourcing tasks traditionally performed by specific individuals to a group of people or community (crowd) through an open call.)  Using social/eCommerce convergence in a crowdsourcing model, they focus on delivering vintage clothing to a customer that wants to be unique.


The number of companies successfully using mobile/social/ecommerce convergence to drive new business models is growing.  Gilt Groupe was featured on stage at one of the Super Sessions, and Threadless was onstage with Modcloth.  Each of these companies have used social to define new business models.  We have moved from experimentation to mainstream.  What I found interesting was that for the first time in three years, each of them described their business models in “supply chain terms.”  Yep, you got it.  Supply chain is getting  cool again. As the cycles are getting shorter, the need for good information increases, and supply chain fundmentals of perpetual inventory and supply chain visibility are growing in importance.  Signs on how to improve your supply chain were everywhere.  I smiled because the supply chain was not everywhere at the show for the past two years.  <I love being a cool kid. >


4) Mobile is Shortening Data Cycles and Reducing Latency. Big Data is Fueling the Need to Rethink Supply Chains:  Retailers are aggressively working on mobile/social and eCommerce convergence.  The tone has changed.  It is no longer a science project.  The NRF program drips with it. The tone over the last two years has accelerated.  <It should be a WAKE -UP CONSUMER MANUFACTURERS>  This program is so MUCH more advanced in the understanding of disruptive technologies than the Consumer Goods Technology (CGT) program in October or the Grocery Manufacturers Association (GMA) conference that I am attending in two weeks. The gap is widening.  I leave my first day session thinking that the supply chain for retail is like the cell phone in China. You might say what? Has the Shaman lost her mind? Let me explain.


Today, you will not find a traditional handset phone in a Chinese home.  They skipped a generation of technology and went straight to mobile handsets.  I find this situation on the use of disruptive technologies in retail analogous.   Retailers have been late adopters of supply chain technologies.  <I smile everytime a retailer wants to talk to be about implementing a Perpetual Inventory (PI) signal or implementing a new ”advanced technology for allocation logic that sits on DRP (linear optimization).” > Today, as I drag my tired feet out of NRF, I firmly believe that retailers skipped a step in supply chain maturation and consequently are able to move faster on the adoption of these new technologies.   While consumer products companies are on a forced march to implement the licensed technologies of ERP/APS and CRM, retail is leapfrogging.  They are investing in Big Data analytics, mobile applications, social/mobile and ecommerce convergence.  They are not hamstrung by the maintenance upgrades of client/server applications of the last ten years.


Tomorrow, I am booked from 9-5 pm on the show floor. I will be in search of cool technologies. Look for my blog post and insights. One thing is for SURE,  I will be wearing comfortable shoes. It will be a long day. You would never know that it was a holiday weekend at #NRF12.  The show is packed. There are lines everywhere.

“Why am I focused on the supply chain? The answer is simple. It is a barometer of my business. All the problems show up first in the supply chain….”

Michael Dell, CEO of Dell

This week as I did briefings, gathered data for the book, and talked to experts, my mind was cranking.  So, when you play supply chain trivia this weekend with your friends <OK, so you might say, “Yeah, right! Not me, Lora.” >, here are five factoids.

§ Materials are Growing Scarce. In 2011, the British Geological Society listed 52 minerals as critical.  27 of these can only be sourced from China.

§ Product Complexity is Increasing.  In grocery retail, the average store in the United States has three times the number of items that it did in 1990.  The number of items is growing ten times faster than store profit.

§ We are not Safe & Secure.The efficacy of biologic products is a growing concern. (A biologic is a medicinal product that is created through a biologic process versus chemical synthesis. To be effective, these require tightly controlled cold chain environments.) The top 32 most commonly counterfeited drugs have cold chain requirements. These are some of the most important and most susceptible drugs to both loss of efficacy and counterfeiting. .

§ We have not solved the Issues around Waste. One out of three fruits and vegetables spoil on their way to market. Two out every five chickens are thrown in the garbage.

§ Progress on New Product Launches is Stalled.  Only 25% of new product introductions achieve 7.5 Million in annual sales. While the number of products introduced over the past five years has numbered 1600-1800 items, the success rate percentage has not improved.

While these may seem divergent points, for me they all sound like an opportunity.  Yes, I believe that an opportunity knocks for supply chains to drive value, but I am convinced that we cannot seize value unless we look at supply chain processes as a system.  To do this, we must be T–shaped managers (think horizontally across silos’s and outside-in) with a focus on system thinking.

What is the Difference between a Complex Process and a Complex System?

In the face of rising business complexity, supply chain is a complex system composed of complex processes.  Most people that I interview for the book will discuss their business complexity.  Or they will share insights on their process complexity, but do not fully grasp the impact of the concept that the supply chain is a complex system.

Systems thinking is the process of understanding how things influence one another within the whole.  The practice of systems thinking is rooted in the fact that you cannot look at one process without looking at the entire system. The focus is on cyclical versus linear cause and effect.  For example, you cannot change inventory levels without affecting cost and customer service.  Or that the interactions of how one value network impacts the other.  For example, did my cancer treatment not work because the biologic drug was counterfeit or because the rare metal for the stint was not available from China?

Why does Systems thinking Matter?

In finishing fifty interviews for the book, Bricks Matter, I find the points of view in stark contrast. 

I know that it is dangerous to generalize, so please bear with me.  In my interviews, people with business backgrounds tend to talk about business complexity and the evolution of processes to simplify and streamline processes and cycles to improve reliability.  I also find that people with Informational Technology (IT) backgrounds tend to focus on simplifying complex processes.  This is in contrast to the supply chain leader discussions that I have been privileged to listen to that have focused on how to maximize opportunity with a focus on the whole or focusing on the entire system.  

I leave these interviews believing that the number one thing that Universities need to teach the fourth generation of supply chain leaders is how to be system thinkers. <So, if you are a student in a supply chain curriculum, please enroll yourself in a systems thinking course. When you do, plan to study.  As an engineering student, I took my systems thinking class twice.  The first time was not pleasant. I got a C.  My mom was not happy.  The second time, I got an A.  She was happier.  It is a tough class. >

So, coming out of these interviews, I believe that whether it is business complexity, process complexity, or system complexity, the key for these new leaders will be in streamlining and simplifying complexity.  Let me give you an example. I am struck by the brilliance of A.G. Lafley’s transformation of the Procter & Gamble organization in 2002.  He focused the entire company on the two moments of truth.  He asked the organization to judge themselves by how well they served the consumer.  He asked them to answer two questions:

§ Was the product on the shelf when the customer wanted it?

§ And, when the customer used the product, were they delighted?


If the answer to both of these was “yes“, then they had been successful.  If the answer was “no”, the organization had failed.

He then organized metrics and organizational thinking outside-in to focus on these moments of truth.  It was simple, but powerful.  It forced the team at Procter and Gamble to think across silos outside in.  It made the complex simple.

I believe that the problems and the solutions to industry supply chain issues are inter-connected and need to be viewed as part of the whole.  I think that true supply chain leadership can happen only when we can design outside-in using simple, but effective goals to align the organization in systems thinking.

What did People Read on the Journey?

The other question that I asked in the research was, “What books had the greatest impact on you, and your journey as a supply chain professional.”  The answers surprised me.  Supply chain books were seldom mentioned, in general, business books had the greatest impact.


Here is what the first generation of supply chain leaders read in the journey:

-36% of the respondents were impacted by The Toyota Way, by Jeffrey Liker.  This was a milestone book about lean and lean thinking.

-18% of the people interviewed were driven to think harder about supply chain by reading Good to Great, Jim Collins.  Companies remember the images of the hedgehog and the flywheel.

-9% mentioned The Goal, by Eli Goldratt.  This book was a pivotal book in my career.  This book kicked-off the Theory of Constraints (TOC) thinking.

-5% listed Clockspeed by Charles Fine.  The impetus of this book is to look at cycles and time.  This for me is the essence of systems thinking.

-5% cited the book Who Moved my Cheese, by Spencer Johnson.  The road to supply chain excellence is also full of organizational pitfalls and potholes.  One of the companies that I interviewed said it well, “People game each other.  Most of my time is spent in negotiation and sandbagging. I have learned to do this well.” (So, you may also want to take a class in political science.)

-5% listed In Search of Excellence, by Tom Peters and Robert H. Waterman.  This is also one of my favorites.

So tonight, I arranged my book shelf carefully placing these books with a hole in the middle.  In the middle,  I have a place for the book that I am writing that is titled Bricks Matter for publication on August 1st. Every now and then as I write my 98,000 words, I will look up and imagine the book surrounded by the others that helped drive new levels of supply chain thinking.  When it publishes, I hope that it will also be on your bookshelf with all of these others.  It will be a book on systems thinking and how thinking holistically about supply chain management drives value.  Meanwhile, thanks for reading and have a great weekend. If nothing else, I hope that I helped you with your weekend game of trivial pursuit.

I am heads down writing my book, Bricks Matter. It is scheduled to publish in August, 2012. With my first chapter written,  my first reaction is WHEW!  My second is that writing a book is hard work.  98,000 words is a bigger task than it sounds.

In preparation for the book, I have talked to 50 supply chain leaders, collected data from balance sheets and rummaged through consortia data. It has been a great time for discovery. I share some snippets here, and I will give you more over the next couple of weeks.  Let me know your thoughts and insights as I finish the rest of the chapters. I look forward to your feedback.  I would like to make this a collaborative effort with my readers.



2012 is the Thirtieth Anniversary of Supply Chain Management.
2012 is a big year. It is the 30th anniversary for supply chain management.  The first published document using the term supply chain management (Oliver, R.K., Webber, M.D., 1982, “Supply-chain management: logistics catches up with strategy,” Outlook, Booz, Allen and Hamilton Inc. Reprinted 1992, in Logistics: The Strategic Issues, ed. M Christopher, Chapman Hall, London, pp. 63-75) published 30 years ago.  The book will publish on the 30th anniversary of the discipline.

Time to Celebrate the Pioneers.  We are currently training the fourth generation of supply chain leaders.  The first generation is passing the baton.  They are leaving the workforce. This generation fought for a place at a table–any table– to talk about supply chain management.  They will leave knowing that there is now a supply chain organization.  

The second generation were the boots on the ground building global supply chains. This will be the first generation that will sit at the table as Chief Supply Chain Officers (CSCO). The third generation is currently plugging away at entry-level jobs. They are trying to apply what they have learned in school to the real world. The fourth generation is busy completing their courses at Universities. In the passing of the baton, there is a skill shortage in the second generation and a need to train and build talent in emerging markets. Current graduates are getting jobs before they graduate with higher salaries than prior years. It is a time to celebrate the early pioneers and reflect on the changes that have happened in the discipline.



Procter & Gamble is Seen as the Leader.
In the book, we are evaluating supply chain leadership in two ways: asking supply chain leaders who they think did it best and then evaluating twenty years of balance sheet data.

When asked the question, respondents struggle. There is no one company that comes to mind. Instead, companies are seen as doing pieces of the supply chain well.  There are many examples.  Toyota is known for lean. Dell is known for working capital management. Wal-Mart is known for Retail Link.  However, 38% of the time, Procter and Gamble is cited as the supply chain leader.  And, in the analysis of year-over-year balance sheet data, it looks like there is a compelling story.

Do you find it ironic that despite years of investment that companies can still not agree on the definition of supply chain excellence?  There is no clear definition from the Council of Supply Chain Management Professionals (CSCMP) or APICs, and I have always struggled with the AMR Research Top 25 methodology for two reasons.  I just don’t think that you can put companies from all industries into a spreadsheet and shake them up and come up with a leader.  I also do not think that you can evaluate supply chain excellence in one year snap shots.

Earn your way to Become Demand Driven.  I have written for the past seven years on demand-driven concepts.  I am a strong believer that the reduction of demand latency and the improvement in sensing capabilities is key to supply chain leadership.  However, I was reminded in the interviews, that we have to earn the right to build these higher level capabilities by building the basics.  As a result, I built this five stage model of supply chain capability. Let me know what you think.

 

In the early stages of supply chain team development, companies are focused on transactional efficiency. The focus is on basic blocking and tackling.  The goal is improving the accuracy of the order-to-cash and procure-to-pay processes and getting the basics right in the areas of inventory management, logistics/delivery, and customer service. At this stage, the supply chain does not have the credibility to discuss anything other than improving reliability of operations and reducing costs.

The next stage of maturity focuses on improving the reliability of operations.  In this stage, teams work on delivering the right product at the right place at the right time at the right cost.  This is the beginning of cross-functional discussions that become foundational in driving how value chain trade-offs can be made. 

At the next stage of the supply chain (resiliency), processes start to become horizontal and outside in (market sensing).  The focus is on risk mitigation, demand sensing and the translation of market signals. At this stage, the organization slowly earns the right to improve the value in customer relationships. In our interviews of supply chain leaders, 80% of companies are working in stages 1 and 2 of the supply chain maturity model and 15% are operating at stage 3.

As the supply chain matures, supply chain leaders partner with the commercial teams to design outside-in processes that can better sense and shape demand and use these insights to drive a more profitable response.  In our interviews for this report, 5% of companies were at this stage of maturity.

In the most mature phase, the company aligns the supply chain market to market to become market driven.  In this stage the supply chain senses buy and sell-side market shifts and orchestrates trade-offs horizontally in a bi-directional coordinated response. This represents less than 1% of companies interviewed.

Each stage requires progressive levels of outside-in thinking and design of horizontal processes. However, each level of maturity opens up new opportunities to add value – including driving innovation, new business models, and executing channel strategies– with the greater organization.

Today’s supply chain responds.  Its response based on internal data with very little sensing. The response is based on little insight of market data. If markets are stable, this is not a problem. But if conditions are volatile – increases in competition, changing commodity prices or significant changes in consumer confidence/economic cycles– this is problematic.  In 2011, 85% of companies experienced a major supply chain disruption. To drive resiliency and improve supply chain reliability, companies must improve demand and supply sensing to drive dynamic decision making.

In steps 1-2 of the capability model outlined above, the processes were designed outside-in:  from the enterprise to the network.  In this traditional design, the supply chain is insular. The supply chain is blind to what is happening in the market.  The only data is internal. Trading partner relationships are transactional.  The parties share order-to-cash and procure-to- pay information, but little else. The focus is on transactional efficiency and cost mitigation. Processes are governed by inflexible rules.  The organization responds, but it does not sense.

In stages 3-5 of the model, the processes become progressively outside-in (from the market into the enterprise).  The focus shifts to focus on the use of external data.  To maximize value, companies focus on capturing market data with minimal latency, the lowest level of granularity and the highest level of frequency. The volume of data, the disparate data types and the difference in data formats have given rise to data repositories for supply and demand market data.  These repositories cleanse, harmonize and synchronize data for enterprise usage.  This shift to outside-in processes, the redesign of enterprise processes to sense before responding, is a major change management issue. It can also be painful. Why?  In the evolution, companies find that many of the processes and technologies built over the last thirty years are obsolete.

I would love your thoughts.  You will find me heads down writing this weekend. I have 72,000 more words to complete before I sleep.

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