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lcecere

Why?

Posted by lcecere Jun 20, 2013

Supply chain management, as a practice in commercial operations, is now thirty years old. Early 2012 marked the end of the third decade and 2013 finds us into the fourth.

 

When we look backwards and use the results on corporate financials as a litmus test on supply chain excellence, we find that:

  • We Have Made Improvements in Productivity. Due to improvements in connectivity, 90% of industries have made improvements in productivity (revenue/employee). The chemical and consumer electronics industries have made the most progress.
  • Balance Remains an Issue. Companies are stalled on improving customer service and forecast accuracy.
  • Complexity Has Grown. It comes in many flavors--increase in inventory, changes in sales policies, new product lines-- all add to the complexity.  Supply chains have not morphed to manage the complexity at the same cost, quality and level of customer service.
  • Cycle Management Is Stalled. The only industry that has made progress in inventory management is consumer electronics.

 

Today, I spoke at the Chief Supply Chain Officer conference in Chicago at the Eye for Transport event on the results of the research. When I finished the presentation  (the materials are available on slideshare.) I asked for questions. The person in the audience asked  me "Why did I believe that this happened?  Why do supply chain professionals believe that they have made improvements when they really have not?"  Here I share my answer:

 

1) Accountability. When it comes to supply chain processes, companies have not held themselves accountable to the balance sheet. Most companies are surprised when we share their results on the Supply Chain Effective Frontier. (The ability of a company to balance and improve growth, profitability, cycles and complexity in the value chain over the decade.)

 

2) Definition of Supply Chain as a Function versus a Way of Doing Business. The original intent of the supply chain was to build "end-to-end processes." Over time the term has evolved to describe a "function." Less than 1% of companies have a leader focused on the building of end-to-end processes. Most of the opportunity lies in the crevices between functions within the organization and between companies.

 

3) Leadership. Many executives lack an understanding of the supply chain as a complex system and how to manage trade-offs.  There is a lack of understanding of the basics of agility and responsiveness.

 

 

4) Need for Strong Horizontal Processes. Companies have focused on vertical processes. There is a need for cross-functional alignment through horizontal processes. Companies with strong horizontal processes of revenue management, new product launch, Sales and Operations Planning (S&OP), Supplier Development and Corporate Social Responsibility have higher performance.

 

5) Alignment. By and large, organizations are not aligned to drive cross-functional performance. Based on recent research, we find that companies that have invested in Supply Chain Centers of Excellence, as shown in figure 1, rate themselves higher on cross-functional alignment. The presence of these centers is relatively new. Without them, the gaps are large.

 

6) Project Focus versus Systemic Improvements. I believe that we have made progress on projects, but that we have not translated these projects into holistic improvements.

 

7) Belief that we had Best Practices. I strongly feel that we have evolving practices.  I have seen too many companies adopt practices that were not a good fit because they were recommended as best practices. Examples include one-number forecasting, consensus forecasting without bias and error accountability, CPFR without measuring forecast accuracy of the downstream partner.... The list could go on and on.

 

What do you think? How would you have answered the question? Anything you would add?

 

Next week is the first time that I am home in three months.  WHEW!!! It will be nice to be home and to have time to write on this second book, Metrics that Matter.  If you have a story of supply chain excellence that you want to share for my book, please drop me a line.

It started at my kitchen table. I was writing the book, Bricks Matter and I wanted a better definition of Supply Chain Excellence. As a member of the team at AMR Research that defined the AMR Top 25 Methodology, I was frustrated in the execution of what I thought could have been a good thing. (For the reasons why, please read my recent blog post)

 

I believed that there was a strong tie between supply chain excellence and corporate performance.  I wanted to find out more. It has turned into a twelve-month research project. It has not been easy. We will share our final results at our upcoming Global Summit on September 11th and 12th at the Phoenician in Scottsdale, AZ.

 

The Building of the Index

 

We started with mining the data on supply chain financial ratios within industry groups. This research was the backbone of the Supply Chain Metrics that Matter series of reports.

 

As we did this analysis, I was amazed. Very few companies had made progress on what I came to term the Supply Chain Effective Frontier (orchestrating the trade-offs between growth, profitability, cycles and complexity).  Managing the supply chain as a complex system with finite trade-offs was something that few had mastered. Many companies, to my surprise, were going backwards.

 

While billboards tout that companies can improve performance by implementing software XZA and consultants claim that best practices result in improved performance of QRP, I found out that most companies were stuck. The pretty world described by technology and consulting companies is not today's reality.  The unfortunate truth is that many companies are unable to power forward and make the trade-offs between profitability, complexity and supply chain cycles.  The missing link is often leadership.

 

As we published more and more industry data, I wanted to better define industry leaders. I yearned to know who had done it the best.  It was then, that I started the research effort to correlate financial ratios to six years of market capitalization data by Morningstar sector. We currently have two full-time researchers working on this project augmented by a summer intern. The question is simple but the answer is not.

 

I find that when I share the results with supply chain teams, that most companies have not held themselves accountable to balance sheet results. Instead, they have measured functional metrics or focused on projects. And, while the projects have achieved returns, or while a function had driven improvements, these business results have not translated into improvements on the balance sheet.

 

In the future, it is our goal to start to tie insights from this research to our quantitative maturity models. We will begin this work following the launch of the Supply Chain Index and the sharing of the industry results at our Global Summit.   Here I share my insights.

 

What can we Learn from the Index?

 

The work has been harder and more difficult than I originally thought. We are sharing insights on the work through monthly webinars.  Check them out!

Here are the questions that I normally get:

 

Where is Customer Service in the Analysis?

 

I believe that customer service is a critical metric and a key element of managing a complex supply chain system. The unfortunate thing is that there is not good data in the market for customer service.  As a result, I could not use it in the development of the Index.

 

What do I mean?  When I was an analyst at AMR Research, I worked with Debra Hoffman to benchmark over ninety companies. The first thing that we learned is NEVER depend on self-reported customer service forecast accuracy data.  Why? There is no consistent methodology for reporting and companies invariably introduce a positive bias. Companies overreport (embellish) the results. I found that it is a lot like a woman reporting her weight on her driver's license.

 

As a result, I never use the APQC data in my research, and I discount the popular consulting reports (Accenture, AT Kearney, PWC and SAP reports) that use self-reported data.

 

So, while I would like to have customer service in the index, there was no good source of data.  As a result, I built the Index based solely on balance sheet and income statement data.

 

Why Morningstar sectors versus SIC codes?

 

The market capitalization data is grouped by Morningstar sectors and we wanted to build something that would enable supply chain discussions to finance groups in a more meaningful way. Unfortunately, many companies do not easily associate that the other companies in their Morningstar peer groups are their natural competitors. The association requires some education.

 

However, when we share the methodology, all agree that it is better than throwing all industries into one spreadsheet and shaking them up.

 

 

Why look at so many industries? Don't the patterns in the industries mirror each other? The differences between industries surprises even an old supply chain gal like me. For example, in figure 1, contrast the difference in rankings between R^2 (the degree of correlation) and the Y-intercept of the models. The smaller the Y-intercept the greater the impact of supply chain on market capitalization and the larger the R^2 value the better the fit of the model.  The largest impact on market capitalization through supply chain excellence is Household Products. The more that companies are driven by product innovation, the lower correlation with supply chain financial ratios and the greater the need to integrate supply chain processes with the stage gate evolution in product development.

 

There are many drivers of market capitalization other than supply chain. Why are you using it as an objective function? We know that there are many factors that drive market capitalization. We are surprised to find that the impact is as great as it is. If there was a better objective value, we would have used it.

 

I also understand that the goal of a supply chain team may not be to maximize market capitalization. My goal is to help them to better make a conscious choice. I want supply chain teams everywhere to understand the metrics that matter to market capitalization. I also want to share the understanding of the impact of performance from individual metrics and the need to manage the metrics as a balanced portfolio.

 

Who has done it best? To get this answer, you will need to come to our conference. We hope to see you there! Check out my recent post on the Supply Chain Insights blog to understand the seven reasons that you should attend.

Yesterday, I finished a post on supply chain planning maturity.  A client had asked me, "How do I know if we have a mature supply chain planning organization?"  As we talked, and I drew the table, the first question was followed by, "How do I help my executive team understand the importance of planning and their role in the process?"  Planning leadership is a problem for most organizations. My focus here is to answer this second question.

 

 

There is no substitute for leadership. Take the General Mills and Kellogg example in figure 1. In the cereal industry, General Mills and Kellogg are fierce competitors. With the shift of power ot the retailer, both have had to add headcount to manage the increased demands for sales to staff account-specific teams to better manage against retailer expectations. As a result, both organizations saw a decline in revenue/employee.

 

General Mills is much better at planning than Kellogg.  It is one of the primary reasons, as shown in figure 1, that General Mills has been able to have a margin advantage over Kellogg for the past four years. Through this period, under the leadership of John Church, they have focused on cross-functional decision making and the maturity of planning processes.

 

Excellence in supply chain planning is a cultural shift. Most organizations are better at reacting than planning. Reacting is rewarded and planning is not. Fire fighting and hero behavior is easier to recognize than good planning.

 

To be good at planning, the organization needs to know where they are going.  Alignment is essential. As shown in figure 2, organizations struggle. Functions, when they operate in isolation against functional targets, will not be aligned and supply chain planning can make this worse if there is not clear leadership.

 

In research study after study, we see that the greatest challenge to achieving supply chain excellence is the understanding of the supply chain by the leadership team. Most companies operate well within functions, but struggle to build strong horizontal processes. They lack cohesion. For most, as shown in figure 2, the gaps between organizational functions are large. Closing the gaps happens when there are aligned metrics, clarity of vision and aligned planning processes. There has to be an enlightened leader that understands that the supply chain is a complex system with increasing complexity. It must be managed as a system.

 

Understanding Planning.

The journey starts with a clear understanding of the fundamentals of planning.  This does not come easily, and requires training. The executive team needs to be clear on the differences between strategic, tactical, operational, and executional planning and the connections between planning systems and the transactional systems of record. Many are not.

 

 

For clarity, the definitions are:

-Strategic Planning: The frequency is either monthly or quarterly and the focus is on long-term planning. It combines decisions across sell, deliver, make and source processes to drive value based outcomes. This includes optimization and discrete event simulation. The length of the duration will vary by industry, but is usually at least one year and often three to five.  It allows companies to evaluate the design of the network.  More advanced supply chain leaders model the role of complexity (product and customer), the impact of risk, and opportunity of innovation as well as product shipping and manufacturing locations, and inventory policies.

Leaders know that they have more than one supply chain and that they need to align the organization around the vision for each.  They also are clear that the supply chain is defined outside-in based on the channel requirements and the underlying rhythms and cycles of fulfillment, manufacturing and procurement. The average supply chain leader has five distinct supply chains.

 

 

-Tactical Planning: This process is usually monthly. Strategic and tactical planning processes are cross-functional and the foundational elements for end-to-end process thinking.

 

It is important for the executive team to be aligned in the strategic and tactical planning processes to enable seamless planning by  functions. Technology applications in this space include demand planning, tactical supply planning, procurement planning, multi-tier inventory optimization and Sales and Operations Planning (S&OP).

 

The executive focus should be on the output of strategic planning into the tactical process of S&OP.  When this happens, based on recent research, the company achieves 50% greater agility and 30% better organizational alignment (reference the improved organizational alignment in figure 3 versus figure 2).

 

-Operational Planning: Planning done in this short-term duration (often in what is termed the “slush period”) happens where planning assumptions are being “consumed” by open orders, shipments and planning commitments. Applications that operate in this horizon are manufacturing or production planning, demand sensing, Vendor Managed Inventory (VMI), Supplier Managed Inventory (SMI), and Transportation Management Systems (TMS).

-Executional Planning:  This planning occurs within the order duration and is characterized by Available-to-Promise (ATP) functionality, warehouse management labor planning, and the routing/scheduling of trucks and shipments.

 

Executive intervention into the operational and executional planning processes should be focused at improving reliability. When executives intervene in these functional processes there is the danger that these well-intended efforts will throw the organization out of balance.

 

Other Considerations

 

Career Progression.  Leaders let planners get good at their jobs. One of the major hurdles that organizations face is organizational turnover in the planning function. Many organizations make the mistake of having the job as an entry-level position with lots of turnover.  In many organizations there is no career planning track that encourages the building of planning skills. Leaders build strong planning organizations with defined career progression and mentoring.

 

Metrics Alignment. By definition, supply chain planning is based on the use of optimization engines to improve value, but organizations are often not clear on the objective function. When multiple supply chain planning systems are aligned functionally, but the outcomes are not aligned, they can fight themselves.

 

These leaders are clear that the supply chain is a complex system with increasingly complex systems. As a result, they never look at metrics in isolation of each other, and try to build the overall potential of the system focusing on alignment and balance. These leaders clearly understand that this focus needs to be on value-based outcomes, not inputs, and that measurement needs to based on a portfolio analysis.  In assessing the health of the supply chain they look at the elements of growth, profitability, supply chain cycles (working capital, cash-to-cash and inventory turns), customer service, and complexity together as a system.

 

Technology Evolution. Leaders invest in new planning systems as part of an effort to drive business process innovation. They have a clear understanding of the differences between the terms integration, synchronization, harmonization and translation of data. The focus of this new investment is outside-in not inside-out. They understand that the last decade of Advanced Planning Systems (APS) tightly coupled to Enterprise Resource Planning (ERP) is now a legacy concept.  The supply chains created were too inflexible and brittle. As a result, they are championing the collection and use of channel data, and the building of outside-in processes based on customer consumption. They are championing the building of sensing/learning supply chains based on new forms of analytics. They will frequently champion cross-functional teams on Big Data, new forms of analytics, Mobility, and Social/e-commerce convergence.  The focus is outside-in, cross-functional thinking.

 

I hope that this helps.  Gotta run.  Cab is waiting and my flight from Johannesburg to the states leaves soon. It is my hope that you have enjoyed this series of posts and that you can join in the discussion. Let me know if I missed anything....

 

I would also encourage you to sign up for our newsletter, and for our webinar on Sales & Operations planning that is happening on Thursday, June 13th at 1:00 p.m. We will be sharing insights from a recent study of 95 supply chain leaders.  We will be joined in the discussion by leaders from Enterasys and Avaya to vet the results. Hoping to see you there!

It was a sultry day in Philadelphia. Last week, it felt like August not May. I found myself counting the street signs to be sure that I was on track for my 8:00 a.m. client meeting.  Not being a morning person, my feet mechanically moved my body forward. I was not sure what the discussion was going to be, but I was hoping to be wide-awake by the time that I got to the corner of 18th Street to meet my client.

 

I have worked with this client since 2004. At that time, they planned on spreadsheets. Their goals were lofty, but their understanding of supply chain planning was hazy. In the last six years, their business has grown three-fold and become very global. In 2006, they made a decision to implement a supply chain planning solution. It was badly implemented by a system integrator. The cost was 60% more than average; but even more unfortunate, they never got a good understanding of how to use the planning system.

 

The client’s question was a simple one. She asked, “What makes a mature planning organization?”  I pulled out a blank sheet of paper and drew the maturity grid outlined in table 1. I would love your insights.  Is this how you would have answered the question? Did I miss anything?

 

Table 1: Characteristics of a Mature Planning Organization

Low Level of MaturityHigh Level of MaturityCharacteristics:
DemandFocus on “the number.” Bias and error are selectively measured and the organization is unclear on how to improve demand processes.Clear understanding that the focus needs to be on the probability of the forecast, and that the focus needs to be outside-in based on channel data.Use of Forecast-value Add techniques to improve the accuracy of the forecast. Mapping of demand streams by demand characteristics and frequent adjustment of the demand engines to improve optimization.
Tactical SupplyManufacturing is designed and planned in isolation. Focus is on a feasible plan.Recognition of constraints and the management of floating bottlenecks. Management and planning of the entire network against a value network strategy. Integration of corporate social responsibility metrics in planning.Comprehensive view of source, make and deliver. Recognition of asset strategies in go-to-market plans.
Supply Chain DesignAd hoc design planning often focused on a function of the supply chain. Most often the focus is on transportation or logistics, but does not take into consideration the trade-offs between make, source and deliver.Frequent and systemic supply chain design. Focus is on make, source and deliver together. Design is orchestrated as part of new product launch. Clear understanding of the number of supply chains and what drives value in each.Development of a supply chain design organization with a clear   understanding of what drives value in each supply chain.
Supply Chain Planning DataPlanning data is determined at the time of implementation and is seldom validated and refined.  There is no one in the organization responsible for planning master data.Organization has a clear understanding of the importance of planning   data. A database is built to track planning master data by period and adjust as parameters change.Use of third-party data for transportation lane and drayage times by day/time of week. Integration with manufacturing systems to understand actual run   times and Operating Efficiency (OEE).
Local/Global GovernanceLittle clarity.  Local and   global teams interact on an ad hoc basis.Clear governance of global planning and local decisions.Local and global teams understand and work together to give input into plans.
Sales & Operations   Planning (S&OP)Focus is on matching demand and supply. There is a lack of clarity on what drives value and metrics are functional. Planning data is often debated and participation in S&OP decisions is often ad hoc. The process is not balanced between the “S” and the “OP.”Focus on maximizing opportunity and mitigating risk through well-defined playbooks. Clarity on the quarterback in the organization that calls the plays in the playbooks during the month. Organization is balanced between operations (OP) and sales/marketing (S) in decision making.Monthly design of the supply chain including form and function of inventory and inventory placement. Visualization of supply chain options in S&OP meetings to ensure alignment. Clear understanding of the supply chain as a complex system with   executive capability to manage the trade-offs versus using a common understanding.
InventoryFocus on the level of inventory. Inventory is often focused on as a singular metric, not as part of a complex supply chain system.Focus on the form and function of inventory based on demand and supply variability and business plans. Definition of push/pull decoupling points and the role of   postponement to improve inventory as a supply chain buffer to improve agility.Concerted plans that focus on inventory management as one part of the supply chain as a complex system. Design of cash-to-cash cycles strategically through complexity analysis, sales and procurement policies.
ManufacturingManufacturing programs are implemented as standalone programs. Factory scheduling is either nonexistent or not tied to supply chain processes.Manufacturing trade-offs are closely aligned to network design, tactical planning, and supplier development programs.
There is balance in S&OP between sales and manufacturing.
The most mature clients are moving to digital manufacturing based on the Internet of Things (i.e. direct motor sensing, programmable logic controller inputs).
ProcurementProcurement programs are implemented as standalone processes.Clear understanding of supplier development goals and close integration into the corporate social development programs. Risk management strategies integrated in network design programs.Advancements in supplier sensing are enabling early detection of failure risk.
MetricsFunctional metric orientation. Little insight on cross-functional metrics alignment.Cross-functional metrics alignment. Clarity on which metrics matter by type of supply chain.Clear understanding of how metrics tie to value-based outcomes.

 

Charting the Journey

 

I am currently busy writing a second book. It is named Metrics that Matter.  In preparation for the book, I have worked with Abby Mayer (Twitter ID: @indexgirl) to chart the progress of the Fortune 500 by industry segment on the Effective Frontier (the Company’s ability to balance growth, profitability, cycles and complexity) to drive year-over-year improvements

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<Writing a book is tough work.  As I roll up my sleeves to develop this manuscript, I remember just how much work Bricks Matter was....>

 

As I progress through the research, industry-by-industry, I think back to my work with these many companies over the last ten years as an analyst.  I remember the many discussions. The selection of planning systems and the implementations. As I work through the data, I can clearly see that excellence in supply chain planning makes a difference.  I can also see that over the course of the last decade a gap has grown between leaders and laggards. My surprise is that the gap in performance is bigger than I expected. A large element is the role of the executive team. This is the topic of my next blog post, "How Do You Define a Mature Supply Chain Planning Organization? Part 2."

 

So, help me out here. What did I miss?  How would you have answered the question?

 

Tomorrow, I board my long flight from South Africa. I had a great time at SAPICS. You can follow my tweets at the hashtag #SAPICS2013. In flight, I will be busy writing four reports for our newsletter next week. We would love your feedback on the reports and the research.

 

We also have a webinar next week. You can sign up for our webinar on June 13th at 1:00 p.m. to hear the results of our S&OP research from over 90 respondents.  I hope to see you there!

lcecere

Out of Africa

Posted by lcecere Jun 5, 2013

Global multinational companies have a dilemma. Supply chain talent is primarily coming from North America and Europe, but these are the continents that represent the lowest levels of growth for supply chain 2020 (see figure 1).  Most global multinational companies have a solid base now in South America and Asia, but the race is on for Africa.

 

I spent this week at SAPICS in South Africa. At over 1,000 delegates, the conference is a large supply chain event. There are few global conferences that can boast this level of attendance

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At the end of my talk on the first day, I was asked by the audience to share what I would recommend as action steps for South African supply chains. So in this blog, I want to share my recommendations.

 

SAPICS Has a Unique Opportunity. South Africa is uniquely positioned to gain benefit in the race for supply chain modernization of Africa. However, it requires new forms of corporate/government partnerships. The conference was heavily dominated by third-party logistics firms, consultants and technology providers. SAPICS needs to form deep roots with global multinationals and government agencies to drive talent development. In a population with 29% unemployment, it needs to be about much more than certification. I would love to see it evolve into a program of research grants, co-op and student programs, and educational funding.

 

 

However, to capitalize on this opportunity, manufacturers need to step up. The presence of large South African manufacturers was limited at the conference (as was the thought leadership of global multinationals with operations in Africa).  It needs to be about industry/government/community partnership. South Africa is in a unique position to capitalize on the growing opportunity, and SAPICS has an opportunity to lead.

 

It Could Be a Step Change. Map Outside-in. Leverage Mobility.  I love what is happening in Africa on mobile application development. Most African households will never know a wire in the wall for a conventional phone. Instead, they are innovating in new ways on mobile devices.

 

One of my favorite presentations at the event was by Francis Marabula, Executive head of Supply Chain, Safaricom, Kenya. He spoke of M-Pesa and the evolution of new models for mobile commerce in Kenya. Mobile penetration is forecasted to be 85% of the households in Afria by 2015. In contrast, commercial banking will be 25% of households. The M-Pesa service allows users to deposit money into an account stored on their cell phones,  and to send balances using SMS technology to other users (including sellers of goods and services), and to redeem deposits for regular money. Users are charged a fee for sending and withdrawing money using the service.  It has spread quickly, and has become the most successful mobile phone based financial service in the developing world. It started with simple money transfers in 2007 and now includes a range of services. The M-Pesa mobile application now represents 30% of GDP in Kenya with 60,000 outlets.

 

Mobility and the direct connection to the shopper is a wonderful opportunity for the supply chain innovator to create new business models for the supply chain OUTSIDE-IN. Just as the African household will never know a conventional phone, there is no reason for them to know a conventional INSIDE-OUT supply chain.

 

Internet of Things As an Enabler. The conference kicked off with a presentation on robotics.  Tom Bonkenburg, Director of European Operations for St. Onge, Netherlands, presented a very compelling picture of robotics. He forecasted that today, robotics could save 10% of logistics labor costs. He also believes that in five years, robotics and smart vehicles could reduce total logistics costs by 48%. It was  a brilliant presentation, but I don't think that robotics with the high unemployment rate, and the low wage rates, is the answer for Africa. Instead, I think that the answer for Africa is about mobility, new forms of analytics, and The Internet of Things.

 

What do I mean by The Internet of Things? It is the use of real-time sensing to power the supply chain outside-in. For example, Africa is constructing new infrastructure. Investment is happening in pumps for water, turbines for electricity, windmills, tollgates for roads, and modern factories with Programmable Logic Controllers (PLCs) and equipment sensing.  The common thread is The Internet of Things: Sensors that can transmit and share real-time status. This has two impacts on the supply chain: improvement of signaling for outside-in processes and the movement from mean-time failure on service supply chains to real-time sensing of equipment. It is my hope that the African supply chain leaders never know demand latency because they have the opportunity to design the supply chain to capture useage real-time. I hope that they can bypass the conventional licensed Advanced Planning Systems and leapfrog into cloud-based computing with learning systems and automated benchmarking.  If I had a magic wand, I would love to see SAPICS invest in a shared vision for industry leaders in Africa to combine mobility, Internet of Things, and new forms of anlaytics to build OUTSIDE-IN supply chain processes to leapfrog and improve current thinking

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In summary, I appreciate SAPICS invitation. I can now say that I have been to Africa. It is impressive to see such a large gathering of supply chain professionals in a small country at a time where unemployment is 29%. Congratulations on a successful event, but can we take it to the next level? SAPICS, be a leader. I believe that outside-in supply chain process thinking can happen out of Africa.

Over the Memorial Day weekend, I stumbled on an old article that I wrote in 2001. At the time,  I was a junior Gartner analyst. The piece, "CPG/Retail E-Marketplaces: The Emperor's New Clothes?” was controversial. At a time that marketplace offerings were super-hyped, I forecasted the doom of ten e-marketplace providers. I was dubbed by my boss as the ultimate-contrarian. This was to such a degree that one of the e-marketplace providers, Transora, called me to task and launched an investigation. This landed me in front of the Vendor Review Board at Gartner to defend my research. <This is an experience that I would never care to repeat.>  I reminisced about the experience over a glass of wine with some friends and we laughed. Sometimes being an analyst, and pushing an unpopular view, is no fun. I could not laugh about it then....

 

Today, the Dust has Cleared

 

Today, nine of these ten providers, including Transora, are history. The stories border on the ridiculous. Transora was an extreme. It was funded by 50 large consumer products manufacturing companies (CPG). In the dawn of e-commerce, conservative manufacturers, anteed up $240 million in four months. The high-flying company had no clarity of purpose or clear governance, but the funds kept coming. Transora had a short history. It ceased to exist in 2005 when it merged with 1Sync.

 

In the Gartner article, I cautioned companies to invest only if three conditions were met:

  • A well-defined scope.
  • The solution solved a relevant industry issue.
  • Clear governance.

 

Today, I feel that this advice is still relevant. I asked companies to “Navigate through the hype focusing on the feasibility of scope and technology.” Today, while the hype has dissipated, some data exchanges remain, and a few are starting to thrive again.

 

In the height of the e-commerce craze, the marketplace offerings started with a focus on e-procurement. I clearly remember the weekly calls where over 30 Gartner analysts would feverishly discuss the future of marketplace offerings. The debates were heated. At the time, the popular belief was that Enterprise Resource Planning (ERP) technologies would build multi-tier capabilities. The thought was that the ERP infrastructure would build adapters to marketplace offerings. The widely-held view was that the e-procurement market would fuel the next generation of marketplace applications. Today, we know that these assumptions were incorrect.

 

Today, the multi-tier capabilities for supply chain management are coming from the born-again marketplaces. They are industry-specific niche offerings. While there is work within SAP to rethink SNC and use the assets purchased with Ariba to build multi-tier capabilities, the progress is not encouraging.

 

Marketplace Rebirth

 

The rebirth of marketplace offerings is not on the back of e-procurement or ERP. Instead, they are standalone marketplace offerings solving one of four business problems:  supply chain multi-tier visibility,  inter-enterprise systems of record, benchmark analytics, and delivering collaborative workflows. We missed the understanding and future vision for these solutions in our early calls at the genesis of these solutions when I was at Gartner.  I will be publishing a comprehensive summary of these solutions in October; but until then, I would like to share my insights on three announcements that happened in May. I am favorably impressed by the changes that GHX, E2open, and Elemica have made in this area. This has made me believe, what is old is new again.

 

GHX.  Founded as the Global Healthcare Exchange in 2000 by five of the world’s largest medical product manufacturers—Johnson & Johnson, GE Healthcare, Baxter International Inc., Abbott Laboratories and Medtronic, Inc.—the company is owned today by 20 organizations representing manufacturers, distributors, hospitals and group purchasing organizations (GPOs). This month, the company introduced a multi-party solution for hospitals, physicians, payers, and medical device manufacturers for the scheduling and billing of implantable devices. This is both an inter-enterprise system of record and a multi-tier visibility system to enable translation of sixteen steps for case requirements and planning into downstream visibility. While early in launch and execution, the solution received good reviews at the GHX Summit in Las Vegas last week.  It has been designed by the parties in the healthcare supply chain over the past year, and is extremely promising. An overview of the solution is shown in figures 1 and 2.

 

15_steps - current case processing steps

 

Case Xpert - fewer process steps

 

E2open. This month, E2open launched a new product Rapid Resolutions. This multi-tier solution is designed to reduce the bullwhip effect by improving demand and supply translation through multi-tier concurrency. It is a more mature version of Supply Chain Visibility, enabling multi-tier orchestration of demand and supply matching. E2open was founded in 2000 by eight high-tech companies. It went public last year in one of the few successful IPOs in the supply chain software space. The company serves 32,000 enterprise trading partners and has successfully diversified to other industries. Companies looking to translate supply and demand across complex networks should consider the new E2open solution.

 

Elemica. Formed in 1999 to serve the process chemical industry, Elemica is moving from a singular vision of e-procurement to multi-tier visibility and collaborative workflow. The solution has been rebuilt from the ground-up to be a multi-tier data model and is named the Supply Chain Operating Network. The first year is a foundational connectivity play with future plans to enable partners to write software on top of the platform. Today, Elemica processes nearly $200 billion in annual transactions across more than 5,000 process industry trading partners.  The user interface of the solution is very promising. I will be speaking at the Elemica customer conference Insights and will share my reviews with the Shaman’s readership from Philadelphia on June 11th.

 

I am often asked about the differences between these and the conventional supply chain visibility solutions. In short, it is the evolution of a multi-tier data model and new forms of collaborative workflows for supply chain visibility. The conventional supply chain planning systems are designed for the enterprise. They are not designed for multi-tier functionality. For example, an application like SAP SNC, while functioning across supply chain tiers, is an enterprise data model that is inside-out, not outside-in.

 

Supply chain management (SCM) is now in its fourth decade. While we have talked about the evolution of multi-tier functionality, we may actually see it become a reality in this decade.

What do you think? Is there a multi-tier exchange that I should include in my October report? Let me know. I look forward to hearing your comments.

 

Until then, I am traveling to South Africa to speak at SAPICS 2013 on the book Bricks Matter. On the trip to and from South Africa (16 hours door-to-door), I started writing the new book that I will be publishing in 2014. Termed Metrics That Matter, it is based on our work on the Supply Chain Index, and the industry studies that we have completed in the Supply Chain Metrics That Matter series.  I have never been in Africa. I am looking forward to sharing my insights about the supply chain leaders there.

 

I am also busy lining up great speakers for the Supply Chain Insights Global Summit at the Phoenician on September 11th-12th.  This event is limited to 150 supply chain leaders and only 35% of the attendees can be technology providers. There are only five seats left for technology providers, so if you want to attend, send in your registration soon.