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It happened on Thursday morning last week. It will probably happen again on Tuesday. And, again on Wednesday. I am driving on a campaign to change thinking.


It is hard to change a mindset. The brain is wired to believe what it has been told for many years.


Every time that it happens, I smile. I understand. I was once there also.


Let me start with a story. Last week in the middle of a presentation, a supply chain leader made the statement, "We have solved the issues in supply through better optimization and use of data. There is not much more that we can do. The issue is demand. I think that we need to focus there." The statement was delivered with arrogance and conviction.  Many supply chain leaders are so convinced they know the answers that they have stopped listening and learning.


It never occurred to this supply chain leader that there is no place to put "new forms" of demand data into today's supply-centric enterprise architectures. As I mature in my work as an analyst, I am more and more convinced that the redesign of the supply chain outside-in to use new forms of demand data requires us to "blow up" our traditional, and supply centric architectures. Why? The data models are wrong. These architectures were defined based on simple, deterministic optimization using the  principles of a "push-based" supply chain. The systems are based on 1990s thinking.  Remember back then? It was when gasoline was 1/3 the cost of today and there was a lot of excitement about 32-bit architectures and the move to client-server systems. A lot has changed in both business requirements and technology capabilities; yet, the fundamental technologies and the definition of the supply chain footprint remains unchanged.


The Issue


We have been taught, as supply chain leaders, that over the last decade supply chain processes have improved costs, shortened cycle times, improved customer service and decreased inventory. Just ask any consultant and they will quickly tout "best practices."  Or run the statement by any software provider, and they will share that their solutions delivered these "best practices."

When I first started working on the book Bricks Matter, I believed it too. I sadly found that this was not the case. After two years of studying corporate balance sheets and talking to supply chain leaders, I now see things quite differently. Numbers don't lie. Companies are stuck. Based on our recent research, we find that only 1% of process-based companies are making progress on both operating margins and inventory. As a result, I don't believe that we have best practices. It is my belief that we have emerging practices.


Facing the Issue


Most organizations are stuck on their ability to drive improvements in operating margin and inventory cycles. Too few supply chain leaders have held themselves accountable to their balance sheet results.


Currently, we at Supply Chain Insights are working on presentations for our upcoming Supply Chain Insights Global Summit. At this conference, we are excited to share three detailed analyses of corporate performance over the last decade:

  • Performance on the Supply Chain Effective Frontier. An analysis of how companies have made trade-offs between operating margin, inventory cycles, complexity and growth. Which companies have made year-over-year improvements? And, why?
  • Results of the Supply Chain Index. Which supply chain metrics correlate to market capitalization by Morningstar sector? Which sectors have made the most progress? Who are the leaders in each sector?
  • Supply Chain Resiliency. Which companies have been the most resilient delivering year-over-year results with small incremental improvements over the last decade? What are their secrets?


To understand the current state, I built a database of twenty years of supply chain financial ratios for all public companies. (Note that the ratios are better than absolute numbers because it helps in the comparison of large and small companies and performance across currencies.) In 2012, supply chain process evolution was thirty years old, and I wanted to use the book, Bricks Matter, as a litmus test to tell the story of success. However, I could not find it. Progress was good at the beginning of the decade, but as supply chain complexity has increased, progress on operating profit and complexity has tapered off.We find that to cope, companies have pushed costs and waste backwards in the supply chain. For example, they have made improvements in cash-to-cash cycles by increasing payables and lengthening terms to suppliers. This increase in payables has increased risk by decreasing resiliency. As we rethink supply chains, we will need to reverse this thinking and take ownership of the entire value network.Those of you who know me well, know that I no longer believe in the Gartner Top 25 methodology. The six years of work at AMR Research on this methodology was actually the stimulus for me to tackle a new approach.  You can read some of my thoughts in my past blog posts at:Work on the Supply Chain Index My Thoughts on the Gartner Top 25


Moving Forward


Where have we made the most progress? The greatest progress has been made through the introduction of new business models. E-commerce is a more profitable form of retailing. Amazon can now deliver almost every category of item to your home with no shipping cost for Amazon Prime customers. Club store formats improved retail turns and operating margins. Performance-based logistics in aerospace and defense changed the A&D industry forever. Modcloth, a fashion retailer that lets the buyer be the designer, just turned ten-years old with revenue of $100M.


Supply chain is an engine for growth and enabling new capabilities. We are at an inflection point of new technologies and processes. The technologies installed in the last decade are quickly becoming legacy applications. To move forward, in my opinion, we need to do five things well:

  • Build Outside-in. Build supply chains from the outside-in, minimizing demand latency and redefining supply processes to sense and respond to channel demand. Recognize that today, the response is inside-out based on orders and shipments. The order is a poor representation of demand. We have never had a better opportunity to build a customer-centric supply chain; but, to do this we have to recognize the difference between a marketing-driven and market-driven response. The first step is social listening and text mining of customer sentiment.
  • Focus End-to-end. Only 1% of companies have a role focused on managing the end-to-end supply chain.  The greatest synergies happen when the supply chain is managed end-to-end as opposed to management as a limited supply chain function focused on logistics and operations.
  • Move at a New Cadence. Embrace new technologies: Internet of Things, new forms of analytics, mobility, etc. It is no longer weekly data weekly. ...or reporting with a day latency. Instead, it is real-time data. Define and drive new processes like digital manufacturing and digital path to purchase so that our supply chains can operate at the new cadence of data flows.
  • Orchestrate Demand and Supply Market-to-Market. The traditional supply chain drives a volumetric response based on a SKU (item at a location). The future processes, based on new forms of analytics, will be based on matching product attributes to customer attributes while orchestrating price, mix and volume. Experiment with these new forms of analytics.
  • Be Accountable to the Balance Sheet. Today, only 23% of supply chain leaders can easily see the impact of their decisions on profitability. Companies that are outpacing peers have strong supply chain finance functions.


We hope to continue this discussion with you at our Global Summit. It is sold out for technology providers, but there are still seats available for manufacturers, retailers and distributors.  The event is being held at the Phoenician in Scottsdale, AZ on September 11th and 12th. You can watch it live here:

I love retail research. While some gals would call it retail therapy, I actively converge my days of shopping with supply chain research.


Let me give you an example. Recently, I needed new bowls for French onion soup. So I placed the same order on Amazon, Macy’s and JC Penney’s websites. I had some trepidation. The reviews on Amazon listed “in-transit breakage” as a problem, but I shrugged my shoulders and decided to give it a go. Macy’s had been bragging at conferences about their work on cross-channel fulfillment with progress made in using their stores to ship directly to customers. Penney’s was in a major transformation.  When the bowls arrived, I got three different outcomes:


  • Amazon Shipment: The bowls were neatly packed and there was no damage. Amazon had fixed the issues with damage in shipment.
  • Macy’s Shipment: When the bowls arrived, 60% were broken. The wrapping and packing were poor. I called customer service and complained. Macy’s requested that I ship the damaged bowls back.  The box had a return label. It was a mechanical transaction. I received a credit in two weeks. No one said that they were sorry. There were no attempts to improve my brand loyalty.
  • Penney’s Shipment: When I received the JC Penney’s shipment, all the bowls were broken. I called customer service. They requested that I give them some times during the day to enable the UPS delivery man to visit my apartment to inspect the damage. Again, it was a very mechanical transaction. The customer service representative uttered no words of “I am sorry.” I will never order a breakable item online again from Penney’s.


Retail is about people. It is about relationships. It is about seamless and flawless execution. In the case above, Amazon clearly wins. And, while many retailers brag about cross-channel fulfillment and tout their progress on Omni-channel, many retailers are stuck. They are not able to operate effectively cross-channel. As shown in table 1., productivity of bricks and mortar retailers is stalled. More and more companies are struggling to make progress in operating margin and inventory cycles.


Current State


Let’s look more closely to understand the story:


Table 1.


E-commerce is a More Profitable Channel than Traditional Bricks and Mortar Sales. E-commerce is a disruptive business model. There is growth in e-commerce pure plays (e.g., eBay,, Zappos) and stagnation in sales in most conventional bricks and mortar retail formats.

Amazon Effect. No one questions that Amazon has had a pervasive impact on retail. Ten years ago, Amazon was an online book retailer, yet today a family can buy a wide variety of items, including groceries with next day delivery.  With the introduction of Amazon Prime with free shipping, why do customers need to enter a physical store? To understand the pervasive nature of this change, consider Amazon’s 2012 announcement:


“We now have more than 15 million items in Amazon Prime, this is up 15x since we launched in 2005. Prime Instant Video selection tripled in just over a year to more than 38,000 movies and TV episodes. The Kindle Owners’ Lending Library has also more than tripled to over 300,000 books, including an investment of millions of dollars to make the entire Harry Potter series available as part of that selection”.  Amazon 2012 Annual Report


Improving Store Operations is a Major Imperative. As companies face the squeeze from e-commerce models, retailers are attempting to evolve new store formats. They are trying to fight back. To do this, they need to answer the question of “What should be the role of the store in the future?” We recently completed a survey of over 90 retailers to understand this dilemma. As shown in figure 1, all retail formats—grocery, mass merchant and specialty—are struggling with consistency in retail operations.


Figure 1.


Talent issues, supply chain strategy and organizational alignment are also issues for the respondents (as shown in figure 2). Retailers are struggling with the use of data and making demand insights actionable to store performance. It is clear that supply chain matters, but progress on operating margins and cycles are stalled. Based on our research the exceptions are Costco, LuLulemon, Wal-Mart,and Zara. We will be discussing these trends on our webinar tomorrow at 1:00 p.m.


What Should Retailers DO?


Figure 2.


Embrace Showrooming as an Opportunity. Despite the pressures on store performance, very few companies are looking at a redesign to improve the customer experience. Most see showrooming as a problem versus an opportunity. Recently, I hosted a panel of retail experts to discuss turning showrooming into an opportunity. A couple discussed how they are using technologies like RetailNext to look at the differences between traffic and conversion. The heated discussion was on the use of store displays and experiences to convert shoppers in the store to buy. It is hard for the retailer to embrace the showrooming trip type as an opportunity.


Design the Experience from the Customer Back Considering the Role of Each Channel. Retailers are siloed. While there is talk about omnichannel,  we are far away from making it a reality. Most retailers run the channels as distinctly different businesses and profit centers. As a result, companies are unable to operate seamlessly across channels to improve the customer experience.


The traditional metrics within each silo are a barrier. For example, one retailer spoke on the management of returns. The Omni-channel approach that they are implementing encourages shoppers to execute returns at the store; however, the metrics within the store discourages returns. Social and mobile programs are the most closely associated with e-commerce and digital marketing and demand insights are a gap.


To improve the experience, retailers have to focus on changing siloed metrics to cross-functional metrics, and designing the store based on shopper insights and in-store monitoring to better understand and shape conversion.


Make the Store a Destination. In one panel that I recently hosted, a representative from Godiva discussed how they were redefining the role of the store. As their chocolate sales have increased online, they have struggled to improve in-store sales. As a result, they installed a “dipping” station in their stores to allow shoppers to dip fresh fruit into chocolate as part of the in-store experience. The impact on sales was dramatic. So, whether it is an in-store clinic within a drug store, or a pet groomers in a pet store, or a cooking class within a grocery store, retailers are smart to use their store formats to enhance the experience on the use of their product. The goal is to give the shopper a reason to enter the store; and when they do, make the shopping experience seamless so that they will come back.


This is also an opportunity for suppliers. Many do not realize that retailers have a need to make the store a destination. By offering specialized services—make-up specialists in the store, return services for ink cartridges, custom ordering—the supplier can help the retailer redefine the role of the store.


Ensure Excellence in all Forms of Fulfillment. Social and mobile commerce require more customization and single unit shipments. These packages and shipping do not fit well into the traditional warehouse environment, and most store clerks are not trained to handle the packing of shipments within the store. Redesign fulfillment with the goal in mind. Don’t try to force-fit fulfillment processes into situations where they are not a good fit.




The traditional retailer defined store formats before the world of e-commerce, mobile and social sales. Shoppers want to shop anytime and anywhere, but the retailer has designed their processes to serve the customer within a channel.  There is an opportunity to redefine the role of the store to welcome showrooming, improving the experience and making the store a destination. However, as companies move forward, they must first guarantee execution. I still have the memories of my call with JC Penney. It makes a great story on stage.


Join me Thursday, July 25th, at 1:00 PM EST as I discuss these ideas more thoroughly with my friend, and long-term retail expert, Marianne Timmons, previously at Wegmans and now at Cap Gemini. It is still not too late to sign up for the webinar. We hope to see you there!


To access the full report on this study, click on this link.


Additionally, there is still time to sign up for the Supply Chain Insights Global Summit. We cannot wait to share the outcome of the work that we are completing on the Supply Chain Index, and we are proud of our compelling list of speakers. Cannot make up your mind? Check out the post on the five reasons to attend this Global Summit. (Hurry, because the special rates at the hotel end on August 9th. We are almost sold out of the room block at the Phoenician.) We are currently only registering manufacturers, retailers and distributors. The event is limited to 35% technology provider attendees (software and consulting professionals), and all of these seats have been sold.


Please Tell Me HOW

Posted by lcecere Jul 23, 2013


I love hearing from blog readers. This morning, I woke to receive this email in my inbox:


Good morning Lora,


I have read with pleasure the insightful report related to SC 2020 (race for Supply Chain – April 2013).


If it is possible, I would like to use some of the info for a presentation I will deliver in a couple of weeks to the General Management.

I have a question related to 2020.


The “Why” and the “What” seems to be very clear, and I can easily find some directions and value that we need to be aware of.


I think the chart is a very good summary, but can you elaborate on the HOW?  I understand the “how” may be industry specific, if not even region-specific. However, there must be some common process/approach that I can adapt in order to give an idea and visibility about what’s involved for us to “stay relevant / stay in the race”.


Would you know where I can get such insights ?


My Answer


Dear Patrick,


Thanks for the email. It is always great to hear from a reader.  Here are the steps that I would suggest your company focuses on to address the HOW.

I have built this plan with the realization that your company can only "DIGEST" so much change at once. Please let me know if you have any questions.



  • Focus Outside-in, End-to-end. Define and map end-to-end supply chain processes. Start from the channel back. Gain a clear understanding that the supply chain is an end-to-end process, not a function with limited span of control within the greater organization.
  • Train and align the team. Educate the group to understand the difference between sales-driven and marketing-driven processes and market-driven processes. Focus on market drivers, and the use of channel data, and less on sales and marketing forecasting. For more on these differences, reference the book that I co-authored, Bricks Matter.
  • Design the supply chain for agility and flexibility. Determine the number of supply chains that you have, based on rhythms and cycles, and design the supply chains with appropriate push/pull decoupling points.  Use technologies like IBM (Logictools), JDA (i2 Strategist), Llamasoft, and Logility (Optiant) to design inventory buffers and determine the right form and function of inventory. If you cannot afford the technologies or feel that you do not have the talent or executive support to do this work, hire a consultant that is experienced in the use of the technologies. I recommend the use of small, focused groups like Chainalytics or Spinnaker.
  • Build strong horizontal processes. Turn your supply chain on its ear and move the focus from vertical excellence to cross-functional horizontal processes. Start with Sales and Operations Planning and then move to include the focus on Revenue Management, Supplier Development and Corporate Social Responsibility. Build the end-to-end supply chain based on a well-defined supply chain strategy with a clear definition for each of these horizontal processes.
  • Stabilize your investments in ERP. Make sure that you have a stable platform for Enterprise Resource Planning (ERP) and realize that the Race for Supply Chain 2020 will not be run solely on the back of ERP. It is not sufficient. New adaptors are necessary to build the end-to-end value network to connect companies into value networks to deliver on value-based outcomes. The definitions of CRM and SRM are not up to the task and companies will need to invest in inter-enterprise systems of record.
  • Invest in new forms of cloud-based self-service analytics. The average company has 150 applications. There will never be one throat to choke. As a result, cloud-based analytics need to be selected to work in a heterogeneous systems environments. They need to be designed to enable reporting and discovery by line-of-business leaders. Currently less than 23% have sufficient modeling to determine profitability, and less than 11% can adequately model "what-if" scenarios. My clients are currently having success with investments in Kinaxis, Qlikview, Spotfire and Tableau.
  • Plan based on what you sell. Focus less on sales and marketing forecasting and build your demand plan on attribute-based models based on channel data outside-in. The modeling is focused on "what you sell through the channel." This is in stark contrast to the item/location models (SKU) that are based on orders and shipments. This will often mean the reimplementation of demand planning. Attribute modeling is a more advanced form of demand management that is only found in more advanced technologies like Logility, Oracle (Demantra), and SAS. (Channel data is the data that you currently receive from retailers and syndicated data providers. Harmonize this channel data with distributor data and build the new models that use this data to sense demand shifts in the market).
  • Establish a True North. Eliminate bias and error in demand planning through Forecast-Value Added Analysis. For more on this reference the book by Mike Gilliland, The Business Forecasting Deal.


  • Add math. Replace rules-based forecast consumption with better math through solutions like Terra Technology or ToolsGroup.
  • Model profitability. Move the focus of the S&OP process from a process of matching demand and supply volumes to orchestrating demand and maximizing profitability. Consider solutions like Signal Demand and Steelwedge. Move supply chain planning from a focus on determining what volume you should make by item at a location, to orchestrating demand and supply based on attribute-based models that recognize constraints and enable visualization of decisions based on changes in mix, and commodity pricing. For more on demand and supply orchestration check out my blog Bait and Switch.
  • Collaborative logistics. Analyze opportunities to pool outbound freight with other manufacturers. Work collaboratively with third-party logistics companies to maximize small, frequent shipments.


  • Plan for the Internet of Things. Focus on the design and implementation of digital manufacturing using mobility in combination with sensor, and machine inputs from the plant floor.  As an SAP client, investigate the work that is happening within the SAP Manufacturing group in Mobility and MII to begin small-scale pilots to better manage the plant floor. Build new processes based on real-time data using mobility and the Internet of Things. Start small and build over time.
  • Start work on new forms of analytics and big data. Map all forms of unstructured data and brainstorm how unstructured and structured data can be used together to sense and improve the supply chain response. Form a small cross-functional team and focus on one or two pilot projects. Start with problems that are relevant to the business and focus on small, iterative projects. Use new forms of analytics from companies like Aster Data (Teradata), Enterra Solutions, IBM and SAS. Where possible, use private-hosted cloud-based analytics to minimize the capital investment. A couple of projects that have helped my other clients are:
    1. Listening Posts. Start by working on listening posts (the sharing of social data across functions to understand sentiment) or the use of  rating-and-review data as causal factors into demand planning.
    2. Social Emoticons. The use of specialized emoticons on Facebook to better understand customer preferences for package size, assortment or trade promotions.
    3. Mining of Quality Data. Use text mining to better understand the issues with quality data and patterns from production records.
    4. Use of Contract Data.  Most contracts that are negotiated with suppliers are not actively used in the management of the supply chain. Tie channel contracts to order management terms and conditions to minimize costs and improve customer service reliability.


Patrick, I hope that this helps. I know that you are in Asia and are looking for local help. I will work with some of these vendors to find distributors and system integrators that they recommend.


See you There?


I would love to see you and your team at my upcoming Supply Chain Insights Global Summit where we will be discussing these topics in great detail. The event is in Scottsdale, AZ on September 11th and 12th, 2013 at the Phoenician. I hope to see you there!

I like art, and love unusual sculpture. Some days when I need a pick-me-up, I watch the videos of Theo Jansen's Strandbeests. These self-propelling plastic pipe structures use wind power to walk. I am amazed as one of these ungainly creatures catch the wind and walk easily across the sand. It is carefully designed alignment.


Over time, these modern sculptures have become more resilient. The artist, over two decades, refined the sculptures to withstand the rigors of the environment. In an interview this morning, on Sunday Morning, he discussed two factors that improve performance:

  • Flexibility at the joints
  • Design of the ends to catch and propel the sculpture in the wind.


As he shared his secrets, I smiled. I had started this blog post on Friday afternoon. It is a discussion of supply chain design and the sharing of research that supports that the best supply chains have flexibility in the joints and are well designed on the ends to propel commerce. Like the Strandbeest, using these two design elements, the supply chain is more resilient. It might even propel your organization to win the race for Supply Chain 2020. Take a minute and watch the video of the Strandbeest and contrast this effortless movement to what you see in your organization and see if you agree.


Flexibility at the Joints


Sometimes I find the writing of reports drudgery. Sometimes, it is fun. One that I enjoyed the most was the recent report Three Techniques to Improve Organizational Alignment. The study looked closely at the views of over 190 respondents from three functions within the organization: supply chain, finance and IT. In the survey, each of the organizations rate the need for agility high, and rate it low. As shown in figure 1, the gap is wide. The supply chain group rates it the lowest.


The supply chain needs to be designed to be agile. It does not just happen. There is no industry standard. In this research, we define an agile organization as one that is designed to withstand the levels of demand and supply volatility and deliver the same levels of cost, quality and customer service.


An agile organization, like the Strandbeest, has flexibility in the joints (at the connections between functions within the organization and in the interconnectivity between organizations in the creation of value networks).  A barrier to creating this level of flexibility is the tight integration of functions.  While the transactions need to be tightly integrated, the planning and analytics need to be based on "what-if" analysis and visualization. In our research, we find that only 11% of companies feel that these criteria are being met in their IT architectures today.


Figure 1.


To have this flexibility, the organization also needs to be aligned. In this study, we asked each organization to rate how well each organization was aligned. In figures 2-4, we share the ratings and perspectives of the individual functions. The self-assessed ratings are very different. The only commonality in the three views is the gap between sales and the rest of the organization. Many companies have made the  mistake of rewarding sales for volume and the rest of the organization for profitability. This, by definition, creates misalignment. In the figures below, we share the perceptions of each "teams'" view of alignment. Contrast how different these three views are. Information Technology Group. As shown in figure 2, the Information Technology (IT) team views the organization as more aligned, with fewer gaps, than their finance and supply chain counterparts. They also have a false sense of how well they are aligned with the business teams. They believe that the team has achieved greater alignment than is seen by the other line-of-business counterparts.


Figure 2.


Finance Group. The Finance Group sees the largest gaps within operations. For this group, the gap between operations and finance,  and sales and finance, are both acute. They also feel that there is a gap between manufacturing and procurement, and sales and operations. While they see the gap between sales and IT, they see it as less important than the gap between other functions.


Figure 3.


Supply Chain Team. The perceptions of the supply chain show the greatest lack of organizational alignment. In the views of this team, there is a greater gap in organizational alignment than felt by the finance or the IT teams. This is particularly true in the teams' view of alignment between the operations group and IT.  This group also feels a large gap in manufacturing and procurement alignment and the gap between sales and operations. They see that the operations and finance team are more closely aligned than the views of the finance team around this alignment.


Figure 4.


So, how do we Run the Race for Supply Chain 2020?


Just as the Strandbeest walks the beach, organizations need alignment to run the Race for Supply Chain 2020. To improve alignment, the research study supports three next steps:


1) Improve Sales and Operations Planning. In our research, we see that companies that have a mature view of S&OP and are modeling the network, and planning to maximize opportunity and mitigate risk, nearly double their perceptions of organizational alignment.


2) Clear Supply Chain Strategy. Agility does not just happen. It requires design. Postponement, demand and supply orchestration, and supplier network flexibility are all tactics that require careful design and deliberation. Today, 95% of organizations are not clear on supply chain strategy.  Like the Strandbeests, the supply chain needs to be carefully designed, and redesigned, to improve agility. Some organizations see agility as shorter cycles. This is a mistake. Many times people can do the wrong things quickly and create a heap of problems. Take the example of a shoe manufacturer that I worked with for many years. The CEO believed that the best supply chain had short cycles. The team focused on improving cycles and were surprised to find that their costs were 38% higher and that their supply chain cash-to-cash cycle was 49% longer.


3) An Effective Supply Chain Center of Excellence. While the supply chain center of excellence is present in over 35% of organizations, only 53% of companies surveyed  feel that they have a successful supply chain center of excellence. The primary issues lie in the design of supply chain strategy and the facilitation of cross-functional horizontal processes. Most of these issues lie with the organization's view of supply chain as a function versus the definition as an end-to-end process.


What do you think? Any ideas on how to improve organizational alignment and flexibility? We would love to hear your thoughts.


We will be sharing more on this research and other snippets from our 18 research studies at our upcoming Global Summit to be held at the Phoenician in Scottsdale, AZ on September 11th and 12th. For more on how to register check out our Supply Chain Insights Global Summit website .

Espresso: A strong coffee prepared by forcing hot water through finely ground dark-roast coffee beans



Today, I am preparing to speak at a global supply chain conference for a group of enterprise architects at a global manufacturer. This manufacturer is an industry leader. They want me to speak to the future of Supply Chain Applications. They read my last blog --A Pot of Coffee--and they have challenged me to boil it down to a cup of espresso.  In their words, "Cut to the chase, Lora. Give us the key sound bites." 


Here is my first try:


What Will Define the Supply Chains of the Future?


Supply Chains of the future will need to:


-Think and translate in attributes. The architectures will need to quickly detect patterns between market attributes and product attributes. Supply chains need visibility into performance-based outcomes in the channel. This is a stark contrast to what we have today. Architectures today are tightly integrated against the concept of an SKU (a stock-keeping unit) and the information for that SKU is tightly integrated. The architectures are inflexible. As an SKU changes, the history cannot be mapped. As a result, most of our current architectures will become obsolete.


Today, supply chain applications focus on volume translation against SKU and item nomenclatures. The translation of volume to mix applications, and the impact on profitability, cannot be easily determined. Only 11% of companies have sufficient what-if models and only 23% can model profitability of decisions. The current architectures will have to be redefined to think and act based on attribute-based models to see the impact of decisions against the Effective Frontier (the trade-offs between growth, profitability, cycles and complexity).


-Redefine the rules of the game. Change them as you go. Today, the supply chain operates under one-to-one rules. E.g., "If this happens, then do this." In the future, the supply chain will be able to process multiple ifs and connect them to multiple thens through cognitive learning engines. As a result, Available to Promise (ATP) and Allocation logic will adapt and learn based on market conditions.  Additionally, Master Data Management technologies with one-to-one mapping will become obsolete.


-Sense before responding and learn as you go. Today's supply chains are inside-out. They respond based on order and shipment data. This data does not accurately represent what is happening in the channel. In the future, the translation of daily channel data daily and the visualization of geographic patterns will define the response. Channel data will grow in importance, and the importance of the order will be relegated to back-end collection processes.


-Test. Learn. Act. Adapt. More data, and more varied data, yields additional capabilities. Customer patterns of behavior through transactions and images, and social sentiment will fuse. As we sleep, supply chains will learn globally.  They will create and test new hypotheses.  The engines will optimize assortment locally for the store of the community.  They will develop new patterns daily on new item and category acceptance. -Translate, synchronize and orchestrate. While companies used to think that the supply chain of the future would be tightly integrated, they now realize that the future is about data translation, synchronization and orchestration. To build value networks, companies will invest in Inter-Enterprise Systems of Record that give a history of the terms and agreements of multiparty commerce at a point in time. This will give rise to a new set of marketplace offerings.


What Will Be the Challenges?


The biggest barrier here will not be the adoption of the technology. It will be the changing of mindset. The enemy is us. There are four main problems:


1) The Functional Leader. The functional leader that thinks that they KNOW BEST PRACTICES. As a result, they will not see that the practices are happening and that new business models are evolving.


Let me give you some specifics. The transformation will be the shift from marketing-driven thinking to market-driven processes. Organizations will have to think  holistically about the supply chain end-to-end, as opposed to thinking about the supply chain as a limited function of distribution and logistics.


2) Implementation. Another problem is how we think about technology deployments. The traditional manager thinks of technology implementations as a "waterfall" approach. Mapping of "as is" to "to be" conditions, and the application of technologies in a large project, with a fixed ROI. The investments in new analytics to evolve the supply chain will be about small iterative projects. It will require the investment of funds based on innovation. There will not be a fixed ROI.


3) The Ecosystem.  The current ecosystem of analysts, system integrators and technology providers is driven by a traditional model. The research and adoption of these new technologies based on Software as a Service models, and cloud-based analytics will evolve into a very different ecosystem. Payment will be based on usage. Deployment will be as easy as the mobile application on your iPhone. It will challenge the commercial structures of thought leaders and technology providers.


4) Clock speed. Tempo. Rhythm.  I used to take piano lessons. On the top of my piano, on the right-hand side, was a metronome. It helped me to move my hands at a different tempo and to understand a new rhythm. The tempo of the supply chain is speeding up. Just as I had to teach myself new techniques to learn to play in moderato to allegretto, the leader of the supply chain team needs to adapt processes to use new forms of data that are arriving more quickly, with less latency, offering more information. It isn't your father's  supply chain. It does not run via "LARGO" processes anymore. The tempo is changing. There is a new clock speed. Welcome in the world of real-time data. Learn to dance to a new tempo.


What does this mean to the adoption of the SCOR model?


The SCOR model is an inside-out model. It will be helpful for the functional leader, but will not be able to serve as a road map for building outside-in practices.


How does this affect ERP deployments and the definition of the integrated supply chain?


The tightly integrated supply chain (planning to ERP) was a mistake. The greatest advancements in analytics are happening with best-of-breed providers, not with ERP providers. As a result, most companies will need to stabilize their ERP deployments and put them on maintenance, and begin the investment into new forms of analytics. So, these are my thoughts. What do you think? Did I miss anything?


We would love to hear your thoughts.


Our first Global Summit in Scottsdale AZ on September 11th and 12th, 2013 will enable thought leaders to continue this dialogue. At this conference, we will use our research as a backdrop for supply chain leaders to discuss the future of supply chains. The central themes are many. They include: the use of different forms of data, the impact of the Internet of Things, the evolution of new forms of analytics, 3-D Printing and digital manufacturing, risk management, corporate social responsibility, big data, social and the evolution of the collaborative economy.

This morning was an intense morning of back-to-back calls.  I love talking to clients, and relish mornings like this. Yet, today, I was frustrated. As the morning progressed, my discomfort heightened.


The discussions were all with very bright people trying to figure out the basics of becoming demand driven. The gaps were many. It resulted in deep reflection on how I communicate these concepts more effectively.


As I talked to clients, I drank a pot of coffee. I like it black. No sugar. No cream. Straight up. Hot and strong is my preference.


People that know me well will tell you I am a lot like that pot of BLACK COFFEE. I give advice straight. There is no sugar-coating, no sweeteners added, and you will not find me muddying the waters with cream. In writing this post, I would like to let you into the dialogue as a tacit listener. I write this in the hopes that my answers can help you and your teams.


The Questions Clients Asked


The discussions were intense. On the calls, I heard some central themes:


  • "Can we back up? Can you tell me the basics of demand-driven? I am confused. Everyone talks the language of being demand-driven, but I am not sure what it really means? When do the concepts make the MOST sense?"
  • "To become demand-driven, I need to work with new technologies. I am convinced that this is not what I get from the conventional ERP project. I also see that there is no one company (technology partner or consulting partner) that rolls it up for me. I am convinced that it is not one technology to help me get to my goal. Instead, it is about having them all working together in a different way. Do you have a picture of what this looks like?"
  • "We are victims of our own success. We are working with black boxes behind a dark curtain in the dark room. Most people do not understand what we do, but they like the results. How do we now move from inside-out to outside-in?"
  • "We have a mature supply chain planning group. How can we, as a team, influence the greater organization? We have made an impact on business results, but how can we influence the marketing and sales group to move from marketing-driven or sales-driven to demand-driven or market-driven?"
  • "Supply chain for us is a function. We are put off to the side. We want to contribute more, but our hands are tied. How do we get permission and acceptance of the larger organization to work on a more holistic supply chain plan from the customer's customer to the supplier's supplier?"
  • "What are the real benefits of becoming demand-driven? Market-driven?"
  • "Good news on market acceptance of our products travels fast, and for the most part, we as a supply chain team can run fast with the good news and make up the differences in volume. However, this is not the case with bad news. When demand goes down, it takes a LONG time to translate what is happening in the market to action by the supply chain organization. I believe that this is a key value proposition for becoming demand-driven. Do you agree?"
  • "I am good at forecasting. I hear companies talk about new technologies to improve demand-sensing and demand-translation, but I question why I should care? My forecast is already so good that I don't think that I need to consider a new approach."


My Frustration


Before, I give you my answers, I want to share some frustration. Tomorrow, I turn 59. I put the first words to paper on the concepts of becoming demand-driven on my 50th birthday at AMR Research. It was nine years ago. I have now written on the concepts of becoming demand-driven in over 700 articles and worked with over 350 companies.  I see the concepts of becoming demand-driven as yesterday's news and have advanced the concepts to become market-driven in my book Bricks Matter; but to my amazement, as I watch people parrot the words,  I am constantly amazed by how FEW people REALLY understand the concepts.


Let me give you an example. A long-term client called me on vacation last week with a plea to help with some extensive work on becoming demand-driven. At first I was excited to help. He then followed with a Statement of Work (SOW) to four companies: two strategic consulting companies and a small boutique Lean consulting company and myself. I know of no strategic consulting firm that understands the concepts of becoming demand-driven. And, we cannot confuse Lean with demand-driven. The issuance of this statement of work to three companies that I would never have short-listed to help with a demand-driven journey told me how little my client really understands about being demand-driven. As a result, I politely called and declined his opportunity. I wished him well in his journey and declined to do a bake-off.


I am constantly amazed by how little the large strategic consulting firms know about supply chain; much less the concepts of becoming demand-driven. Demand-driven has grown in popularity and has become a buzzword. It is overhyped. The overuse of the term demand-driven by companies espousing Lean processes, and the bait-and-switch tactics of System Integrators, drives me nuts. In almost all of the cases that I see in the market, the client asks for a road map for "Demand-driven Value Networks" and they are given an implementation plan for ERP by the consulting firms, or a road map for Lean by a Lean group.


Please do not get me wrong, I believe that Lean practices and ERP have their places; but, as I see it, they are each are a small part of the demand-driven journey. A demand-driven journey needs to start with the building of outside-in processes and the use of channel data. It requires an understanding of WHY the current supply chain systems that are dependent on tightly integrated technologies based on orders and shipments are inadequate.  It has the following characteristics:

  • It is not a strategy for an integrated ERP project. Becoming demand-driven is about data synchronization and harmonization. While companies need a system of record, the advanced planning, SRM and CRM applications of most ERP vendors do not help in actualizing the demand-driven vision. They are too limiting. Stop the presses and cancel the buses of consulting partners that are on their way to help you.
  • The most progress is coming from best-of-breed industry-specific solutions. It is about building processes to improve demand sensing, shaping, translation and orchestration. It often requires advanced analytics. These solutions are most likely to come from small best-of-breed providers. These solutions need to be implemented by these vendors as well. They are not well known by the larger consulting houses.
  • It is not about the supply chain as a function. A Demand-driven Value Network strategy is about building a strategy that goes from the customer's customer to the suppliers' supplier and embraces the use of customer data with integrated test-and-learn strategies. The supply chain as a function is too limiting.
  • Data latency must GO!  Customers that are demand-driven understand that they need to wipe out data latency and improve role-based decision making based on channel and customer data. As a result, they are embracing programs that enable the visualization of daily channel sales data. They are aggressively embracing business strategies to bring this data into cloud-based in-memory analytics with advanced visualization technologies.

Today, companies are stuck. Progress on growth, operating margin and cycle management is grinding to a halt. As I work on the analysis of corporate balance sheet data, I am more and more convinced of this fact. Despite all of the pretty ads in airports and compelling PowerPoints by well-intended technology partners, by and large most of the projects implemented in the last decade failed to deliver against their promise.


Today, companies lack systems to manage supply chains as a complex system and drive progress on the Supply Chain Effective Frontier (the balance between growth, profitability, costs and working capital and inventory cycles). The processes that were designed over the course of the last decade are legacy. Instead, we need to embrace new forms of analytics, the use of structured and unstructured data to sense demand, and the building of end-to-end processes. The processes and technologies that got us here are not going to be what drives differentiation on the path for Supply Chain 2020.


My Answers


So, with that said, here are my answers:


What are the basics?


Demand-driven is a value network that senses demand with minimal latency to drive a near real-time response for demand shaping and demand translation. When mature, the processes become outside-in with a focus on value-based outcomes.


This is in stark contrast to the traditional supply chain: a small function within the greater organization,  that is inside-out focused on orders and shipments.


How do the pieces fit together?


It starts with the gathering and use of channel data.  It requires a strong understanding that an order is not an accurate representation of demand and that a forecast needs additional analytics to be consumed to be useful. The traditional processes of forecasting and order management are not sufficient.


Channel data takes different forms. For a consumer products company, it is point-of-sales (POS) data. For a heavy equipment manufacturer, it is direct sensing from pumps and motors of machines as they are used in the field. For a chemical manufacturer of paints, it was the use of channel data on Lowe's and Home Depot paint sales, and the use of weekly automotive sales data, in the channel on color and pigments. For a crop protection company, it is the sensing of crop progress in the growing season and the adoption of processes to sense regional needs. A medical device manufacturer is sensing the scheduling of cases in hospitals and the use of components in surgery. The data is different, but in all supply chains it is more available. This is especially true if relationships are designed to include data sharing.


The project needs to include a demand-signal repository that enables the cleansing, harmonization, and usage of channel data (both structured and unstructured data like social and rating and review data) to be used by advanced analytics. This data is then able to be consumed by sales for role-based reporting, category management, and by marketing for category management and market-share analysis, and by the supply chain team for replenishment and account planning.


The most advanced clients are working on the use of the channel data to build a test-and-learn environment. These companies are working on the combination of optimization and cognitive learning engines to sense market conditions and applying test-and-learn engines to improve growth and advance market positioning.


The key is that channel data is now more available. The use of the channel data enables a quicker and a more meaningful response than conventional order processes. For one consumer products client that I worked with it meant a four-week quicker signal for replenishment resulting in additional sales of over $500M a year. For a chemical company, it cut two months of latency in sensing true channel demand resulting in a 2% increase in sales and 32% reduction in inventory. For a heavy equipment manufacturer, it meant better service and the reduction of three months of spare parts inventory through direct machine sensing.


What are the real benefits?


Most of the benefits are cross-functional. They are about making decisions faster and improving the effectiveness of the organizations to make good decisions.

  • Making decisions faster. If a company uses channel data and builds the capabilities to use daily data daily for decision making, the company can make market decisions in 4-6 weeks less time.
  • Good news travels fast. Bad news travels slowly. In most organizations, strong sales travels quickly, but there is a resistance to accept market signals that trigger slowing sales. As a result, companies make too much product, write-off and mark-down items, and fight slow-moving inventory.  The building of demand-driven processes aligns the value network to the market signal.
  • Improves service. On a new product launch, it helps with the timing of the next production run. In the areas of trade promotions, it helps the decision to improve replenishment.


Is there a sector where it works best?


The greatest benefits happen when the latency of demand is the longest.  The greater the latency in the order signal, the larger the opportunity. Some of the largest benefits that I have seen are in the heavy industrial and chemical industries. It is a mistake to think that the applicability is only for consumer products. I believe that it is necessary to reform health care and that it is an important element of Corporate Social Responsibility (CSR) programs.


In addition, the more demand shaping that occurs, the greater the opportunity. Demand shaping includes new product launch, marketing and sales programs, merchandising campaigns, price management shifts, trade promotional activities, and run-out strategies.


For more on being Demand Driven consider reading these articles:


Story of Kimberly-Clark, a Demand-driven Leader:

Overall on Demand:

For years, as an industry analyst, I have written  the statement that "IT and line-of-business teams need to be aligned." As I finished the report on organizational alignment, I felt a bit silly ever writing this statement. Why?  The statement is hogwash. The functions within the line-of-business teams are so misaligned that I cannot imagine that IT could ever align to all of them. In fact, as the research shows, alignment happens through leadership in horizontal processes.


Last month, we finished a study of organizational alignment with over 200 respondents. We asked the IT, finance and supply chain teams to self-assess their views of organizational alignment. The supply chain view is listed in figure 1. As we tabulated the data for the report, what fascinated me was how differently each of these organizations view functional alignment.  For the supply chain team, the largest area of misalignment is between the supply chain and the sales group. I find it interesting that the supply chain teams perceive greater gaps between functions than their counterparts in the finance or IT teams.



Why Does It Matter?


Today, for most organizations, things are not going well. Demand volatility is escalating, product portfolios are more complex, and supplier networks are harder to manage. Supply teams are being pressured to reduce costs while demand groups are feeling the squeeze to get the "demand plan right." The technology investments from the last decade are not meeting expectations. Supply chains are not agile enough. Finger pointing abounds. Understanding and problem solving often falls short. What is an executive team to do?


Supply Chains are complex systems, and are often not well-understood in the organization. In prior studies, the lack of understanding by the executive team is a major barrier.  As a result, it is incumbent upon supply chain leaders to talk the language of business, hold themselves accountable for corporate performance (versus functional performance) and learn to serve. To align, we have to give up our supply chain geek-speak, stop our three- and four-letter acronym descriptions, and help the organization to better understand the supply chain. In the report, we outline three actions that a team can take today to deploy these skills.


What Do We Do About It?


1) Define a Supply Chain Strategy and focus on Agility and Orchestration. In this process, be sure that the team members understand that the supply chain is a complex system that must be managed in totality, and that the most efficient supply chain is usually not the most effective supply chain. Use tools like network design optimization and simulation modeling to help people model trade-offs. Force finance and sales teams off of spreadsheets that cannot model the complex relationships of trade-offs. Advance their thinking to use more advanced supply chain modeling tools.


Define what agility is, what it can do for your organization, and show why it matters. Do not talk in abstract terms. Make it real. It is not short cycles. It is more than that. It is the ability to have the same cost, quality and customer service given a level of demand and supply volatility. Design the supply chain to perform at these levels of volatility. Focus the organization on understanding the "probability and patterns of demand" and how to design push/pull decoupling points, supplier networks and inventory buffers to improve agility (focusing on form and function of inventory in the supply chain). Use modeling tools to help teams to visualize these concepts.


2) Build Strong Horizontal Processes like S&OP. We have completed two studies now that show Sales and Operations planning improves both agility and alignment. The impacts are profound. Find a champion within the organization and start working the process. Focus on improving corporate performance—profitability, cycles, revenue growth, customer service and forecast accuracy—against the supply chain strategy.


3) Build an Effective Supply Chain Center of Excellence. Unfortunately, only 1-in-2 supply chain centers of excellence are self-assessed in surveys as meeting expectations. The issues abound, but we cannot let the problems with execution blind us. The value proposition still holds. Supply chain centers of excellence help with metrics alignment, and product portfolio alignment, between finance and the supply chain team, and the supply chain team and marketing. We can see the impact of an effective center of excellence in this report. Too many companies have let their centers of excellence lose relevancy and become academic. The best supply chain centers of excellence serve the business.


Over the course of the last seven years of writing reports, this was one of my favorite reports to write. I think that we took a new angle to understand a tough problem. I would love to hear your feedback. What did you think of the report?


This morning I am in Chicago helping a client to become market-driven. Next week, I will be writing on my new book Metrics That Matter. Let me know what you think of the blog. It is always great to hear from readers.

Big Data Outlook

Big Data Initiative



The term big data is moving up the charts as a "hot topic." This week, we published our second quantitative study on the evolution of big data concepts, it gave us the opportunity to talk to supply chain leaders on the evolution of technologies and the use of analytics in the Race for Supply Chain 2020.  We wanted to understand where companies are at in the adoption of big data concepts and we had a good time writing the report on the research.


The study was completed by over 120 respondents in the period of June-July, 2013 and the complete study can be accessed on the Supply Chain Insights website or through slideshare.


What Did We Learn?


We believe that the adoption of new concepts for big data is a step change for supply chain teams. It is not about force-fitting new forms of data into applications based on relational databases. Is cannot be treated as an evolution.


It requires change management. It is about small and iterative projects using new forms of analytics. The projects have to be based on a business problem and the focus needs to be on continuous learning. This is quite different from the traditional waterfall project approach of mapping "as is" and "to be" states and managing a large project against a goal. Companies have to be open to the outcome and invest in innovation through analytics.


To drive success companies have to sidestep the hype. While the powerpoints on big data concepts abound, very few technology companies and consulting partners have built solutions to harness this opportunity, and even fewer supply chain leaders are ready to have the discussion. We find the work by Aster Data (now a division of Teradata) and the work by IBM and Enterra Solutions on cognitive learning engines to be promising. We are also encouraged by SAS's work on unstructured text mining, Bazaarvoice on the translaltion of blog and sentiment data, and the work by APT on test-and-learn strategies is exciting. We are also encouraged by the work on cold chain and serialization by a number of consultants working on sensor data and counterfeiting.


The Findings


In the study, big data was defined as volume that is at least a petabyte, working with a variety of data that goes beyond traditional structured data, and building processes that are based on an increased velocity of data that is associated with real-time flows. In the results, we see several trends:


-The biggest opportunity is not with the volume or velocity of data. Instead, it is with the management of opportunity associated with new forms of data. In the study,  76% of companies see big data as an opportunity and 12% see it as a big data problem.


-Databases are growing, but they can be managed. 15% of companies have a database today that is at least at a petabyte. The largest databases are not Enterprise Resource Planning (ERP). Instead they are in the areas of product management or channel data. -The work is starting: 28% of companies have a Big Data Initiative today with 37% planning to implement a big data team.


-Companies that have worked on a data-driven culture have a leg-up. Organizations that have active teams on Master Data Management are more likely to have a big data cross-functional team. 54% of companies with big data initiatives believe that big data techniques help with MDM.


In the words of a supply chain leader, the path forward requires a disruption. It is for this reason that we have asked experts from the Department of Defense to join us to discuss these findings on our webinar this Thursday at 1:00 PM EDT. We hope to see you there.


We will also be continuing the discussion at our Supply Chain Insights Global Summit in Scottsdale, AZ on September 11th and 12th. There will be several panel discussions on the future of analytics, the evolution of new technologies for healthcare, and the evolution of digital manufacturing with real-time data.  The event will sell out at 150 participants and the cutoff date for the discounted room block at the Phoenician is August 8th. So register soon to reserve your seat. (The event is now sold out for technology providers.)

Over the course of the last six years, I have helped many companies with their demand-driven initiatives. The Kimberly-Clark organization has been my best student. Their transformation took six years. The results are now clearly visible on the balance sheet. In this blog post, I would like to celebrate their story.


The Journey

The first day that I worked with the Kimberly-Clark team, it was snowing in Neenah, Wisconsin. It was one of those days where the small heater in the local hotel room could not keep pace with the falling temperatures of the blinding snow storm that happened that evening. As I pulled my blanket tight and tossed on my bed, I questioned why I was doing this work. Would it really make a difference?


As I stomped the snow off of my boots to start the strategy day, I faced a room of disbelievers. The group was skeptical. As we discussed the concepts of a demand driven organization, they offered excuses like, “You need to understand that we are different. We run large assets. Our teams make more money keeping them running. We cannot be like these other companies.”



The push back was high. The willingness to change was low. However, over time it slowly changed. There were three strong drivers:

1) Fierce Competition. The rise of branded generics, and the intense competition between P&G and Kimberly-Clark in the consumer products paper business, forced Kimberly-Clark to adapt. They needed to reconsider their position to be more competitive. It was a case of when the going gets tough the tough get going.

2) Bias to Innovate. Six years ago, the Kimberly-Clark team was an innovator in the use of RFID. The company worked through two implementations of downstream data technology with strong insights for the team. As a member of the midwestern data sharing consortia between General Mills and SC Johnson, they had the benefit of networking with other supply chain leaders. As a team, they have a strong culture of learning.

3) Goal Driven. When I started Supply Chain Insights, I ran into Scott DeGroot, Director of the Customer Supply Chain Team; Rick Sather, Vice President of the Customer Supply Chain Team; and Mike Kalinowski, Director of Supply Chain Operations, at conferences. The presentations were all hard-hitting. The Kimberly-Clark team is bullish. It is great to see a team so positive about their accomplishments. They set a target to improve top line revenue over the course of five years. The focus was on channel sell-through of products. It was their BHAG (Big Hairy Audacious Goal). At first they were nervous, they had set an aggressive goal. Now they are bullish, they beat it! They measured out-of-stocks at the shelf and they made improvements. The current focus is on store-by-store productivity and the design of the supply chain from the outside-in.



Why it Matters

In the Supply Chain Metrics that Mattertable, we can clearly see that "operating margin" and "inventory turns" matter to public financial performance. The table above is a comparison of three Consumer Products Manufacturing leaders—Kimberly-Clark, Procter & Gamble, and Colgate—on driving year-over-year performance. Note the trends in operating margins and inventory turns.


To understand supply chain performance, companies need to be compared with their peer group. If not, it is hard to get context on the meaning of the data.


In the Supply Chain Index (the correlation of supply chain ratios to market capitalization) for consumer products companies (CPG), operating margin represents 7% of the impact and inventory management represents 9%. Over the past twelve years, Colgate clearly outperformed against the peer group on operating margin, but is not making progress on inventory. In contrast, over the last five years, P&G and Kimberly-Clark have both struggled to maintain margins. Each faces four years of deterioration on this important supply chain metric. However, based on their work in becoming demand driven, in the past year, Kimberly-Clark has improved both margin and inventory turns. 2012 was their fourth consecutive year of making improvements in inventory management.


An Interview with Rick Sather

This week, I interviewed Rick Sather, Vice President of Customer Supply Chain, on the improvements. I wanted to gain his insights on their demand-driven journey:


Rick, you have been able to add revenue to the top line and beat your goals. What made you successful?

We have successfully added millions of dollars to net sales. I cannot give you a definitive number. The question of how long it took is difficult. We had accumulated learning with a couple of customers. We learned in year one and then applied this accumulated learning in year two to make a substantial difference.  In four years, we delivered what we feel is "breakthrough innovation." In the last two years, our results have been in excess of the goal. Every time that we look at the opportunity before us, we see more value than we ever first imagined. We believe that there is a lot of fruit on those vines….


What have you Learned?

Small format is a big opportunity. Today, retailers have a large store count with increased velocity. We have a diffusion of inventory in the channel with excess and shortfalls. Not every retailer is at the same place. Imagine that you have several thousand locations and you have an event coming. We learned to adapt quickly. We needed to plan strategically and then review promotional events on a daily basis. The response needed to be outside-in. I feel that more and more of the industry, over time, will look at a smaller batch more frequently. We learned through experimentation. If you make a big bet and you are wrong, you lose a lot of time. New forms of analytics allow you to do this. There is a lot of old thinking what is happening in the consumer side and the speed of that changing. Technologies are becoming more user-friendly. This is worth multimillion dollars of savings and top line sales benefit. With one customer, focusing on a few items promotional event –where we had too much in one store and out-of-stock in others –resulted in multimillion dollars of sales. Our problems are limited bandwidth and having insights that are actionable. Information and collaboration to make the right decisions is more important. Bandwidth enormous. It is not a question of how can we drive it deeper and further. We now have data. We have to focus on removing the handoffs. It is about flow. There are a lot of barriers to flow. Companies have been on Lean journey. Historically, it has been take a production line and change how we think about it. At Kimberly-Clark, we were masters of big batch thinking. Let me give you an example of small and frequent analysis in a repeatable cycle. We have translated it into everything. We used to look at damage in distribution centers one time per month. We now look at it every day in every location. We have reduced our damage by 50%. It is a big mind shift. The traditional ERP/MRP logic is a barrier. Companies need to move to flow logic. Small batches done frequently based on pull. Another example is the work that we are doing on collaborative shipping. We are a high bulk, low weight and high frequency shipper. We are looking to marry up with other shippers with higher weight and lower velocity. There is a double-digit opportunity in costs. We are experimenting. Great learning, but we have a need for some infrastructure changes. Retailers and shippers have their own master data systems, we need a breakthrough technology to change how we map data.


What excites you?

There is no one technology that excites me. What I find exciting is bringing of all of the technologies together. I think that the market is ready for breakthrough innovation. I recently changed the Vendor Managed Inventory (VMI) software and moved to Datalliance. We are working with third-party logistics solution providers to implement collaborative shipping. We want to tie VMI and collaborative shipping together. Terra Technology and the use of their demand sensing is helping us drive a better demand signal. I think that it is a combination of VMI, forward-looking forecasting and analytics. We need to bring these processes together from the customer back into the traditional supply chain.



As I think about Kimberly-Clark, I am proud. They took the demand-driven lessons to heart. As others aspire to make a similar difference in their balance sheets, I have three closing thoughts.

  • Use of Downstream Data. Kimberly-Clark actively works with downstream data. While other companies talk about it, Kimberly-Clark is aggressively using it. The team shares and uses point-of-sale data with 80% of their customers (based on volume). They are an innovator. For example, the company was a leader in the implementation of Terra Technology’s MDS product with 31% improvement in demand planning seven days out on the horizon. They implemented the Terra Technology MDS product the fastest  of any consumer products leader that I have followed. The biggest impact of this forecast improvement is better decision making on new product launch planning and replenishment.
  • Driving Innovation. Kimberly-Clark has partnered with Colgate and is leading an initiative for collaborative, multiparty shipping. They have the courage to push a new industry model.
  • Reduction of Inventory. Note in the table, the recent improvements in the Kimberly-Clark inventory cycle. The change is year-over-year. While Kraft moved on a similar pattern of technology adoption and discussions of downstream data, Kimberly-Clark made progress while Kraft did not.


Want to know more? You can hear Rick Sather share his story directly on a recent Straight Talk with Supply Chain Insights podcast.