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Manufacturing teams used to manage the supply chain group. Today, in most organizations, the supply chain team manages manufacturing. The irony is that fewer and fewer people within the supply chain team understand manufacturing. Unfortunately, few have worn hard hats, safety shoes and calibrated a machine to run within spec. I feel lucky that I have.


As I work with teams to envision the new tomorrow, I find fewer people know the basic concepts of manufacturing planning–cycle inventories, freeze duration, slush period, bottlenecks and constraints. As a result, it is more difficult for the teams to see the swirl of opportunities that are on our horizon. Instead, many of these teams just accept manufacturing strategy as a constant. However, if we look at the current trends, I think that we have the convergence of new opportunities to drive a manufacturing redesign. It requires rethinking mental models. To do this, leaders need to be knowledgeable on both manufacturing and supply chain concepts.


Here are some opportunities that I see:

Service Parts. Last week, I spoke at a partner meeting for a large consulting company. Many of the partners in the room work on service part supply chains. When they asked about the current state of service-parts planning software, I asked, “Why are you not asking about the redesign of the service supply chain?” Today, using the Internet of Things, companies can sense equipment status and predict failure. We no longer have to plan maintenance based on the prediction of mean-time failure. Instead, we can sense the patterns on the equipment and be proactive about service. I also think that we can use 3D printing to manufacturer more and more of the parts in the field. Perhaps digital files can be sent to the local UPS or FedEx office, which they print using specialized printers and deliver it to the site of the equipment. As a result, we will have to stock fewer and fewer parts. And, the service supply chain can be redesigned to have less inventory and more uptime.


Let me give you an example. I live in West Virginia. The mining equipment in WV is located in remote locations that are hard to service. The equipment is at the heart of the operation. When the equipment is down, the work stops. Today, heavy equipment is equipped with telemetry that transmits signals frequently on the state of motors, oil and belts. Why can’t we sense these in real-time monitoring and provide a newly designed demand-driven service supply chain that senses equipment starting to fail and then stages equipment based on need? And, where possible print the parts in the field, on demand, as needed. I like the thought of having a bearing printed in Boone, WV instead of being stocked in Chicago and then flown into Charleston, WV to then be driven to the coal mining site. The time to service the equipment would be in hours versus days and the amount of inventory to provide the service would be greatly reduced.

Apparel. With the rising costs of labor in China, many apparel manufacturers share that there is only a 6% differential between sewing a garment in China or manufacturing in the United States. When the added costs of transportation and inventory working capital impacts are added, there is a solid logic to bringing manufacturing back to North America.

Mexico has become more attractive, and many companies are looking at alternative sourcing in Latin and South America. With every shift, we have the opportunity to redesign the value network to better sense and translate demand. The focus needs to be based on market drivers with a view on the total impact of the decision. I love the fact that we now have technologies that allow us to make the decisions based on total cost and impact on the Effective Frontier. The decisions on postponement, push-pull strategies and buffer inventory positioning are not always straight forward. The use of technologies like Llamasoft, JDA’s strategist and Solvoyo enable more advanced analysis than the first generation of strategic optimization technologies found in the Oracle and old Manugistics tools.

Medical Device.  Today, implants roll around in the trunk of a salesperson’s car. It is called trunk stock. The inventory in the medical device industry turns at 3X a year. Many times, multiple devices are taken into the operating room to ensure fit. So, what if the patient could be scanned in pre-op and a custom device could be printed in the hospital? Need a new knee? Have it printed the day before based on your scans of the knee using the technologies and specialized substrates in the back room of the hospital complex.


Process Industry. Today, there are thousands of machines in all process manufacturers that emit signals based on programmable logic controllers (PLCs). The outputs of the machines are not used in a comprehensive manner. What if we had a cognitive learning engine with a rules-based ontology sitting on top of these PLC inputs to help us schedule the line? The current planning systems assume that production should be scheduled based on predictive maintenance programs based on mean-time failure and recommended maintenance intervals. However, if we could directly sense the patterns in the equipment could we do a better job of scheduling maintenance and planning production? I think so.


Also, order streams are recorded and processed in batches. As this happens in the process industries, companies lose visibility of flows. Let me explain. Is customer X ordering more or less of product Y than expected? What is the pattern and how does this tie to market drivers or past demand? Today, companies can see volume, but they cannot see patterns. I think that the combination of cognitive learning for planning along with the use of signals through the Internet of Things has the opportunity to usher in a new era of process manufacturing. I envision a greener process with less inventory and lower costs. I was speaking to one manufacturer the other day that told me of a factory that has two employees. The operators sit at home and run the factory in their PJs in front of their terminals in their living room. Quite a different story than the large teams I used to manage in a factory.

The redesign is exciting. The potential is endless. It requires the adoption of new mental models. We are currently doing research on this topic for a July report. If you fill out the survey, and share your story, we will be glad to share the results.


We would love to hear from you on where you are on adapting your manufacturing processes to adopt these new techniques. And, as always, if you fill out one of our surveys, we will keep your responses anonymous, and only share the data in aggregate.

I look forward to hearing your story.



Posted by lcecere May 30, 2014

Mush is a thick cornmeal pudding boiled in water or milk. It sits until the gel forms a semisolid state. In the United States, we lick it up with maple syrup or molasses, while in Eastern Europe it is served cold. It is a tasteless, innocuous food with little form or satisfaction.

Mush in the Real World


Last week, the Gartner Top 25 was announced with great fanfare. The announcement marks a decade of Gartner Top 25 annual lists. I hope that it is the last one. My reason? It is just mush. I find the Gartner Top 25 to be a muddled methodology that is boiled and allowed to congeal into a bland product with little use.


Here, I would like to share my thoughts...


The good thing about the Gartner Top 25 was that it highlighted the need for a measuring stick. Supply chain leaders are competitive and they want to measure their success. They want to do well, and they are eager to have an objective measure. However, here are my concerns:

1. Meaningless Comparison. The first, and my major issue with the Gartner Top 25 methodology, is that it attempts to compare all companies in a spreadsheet. I just don't think the comparison of very different industries in a spreadsheet based on growth, inventory values, and Return on Assets (ROA) is meaningful.  The methodology unfairly favors companies that do not have assets. It is for this reason that the high-tech sector and franchise businesses do well on the methodology. The reason why? They have shed their assets. In many businesses, assets are a core part of the supply chain. Take the chemical industry. I like what BASF has accomplished, but they will never make the top listing on the Gartner Top 25. The reason is that as a chemical company, they must run assets, and the methodology penalizes companies with deep asset strategies. To be valid, I believe that companies must be compared within a peer group.

2. It Should Not Be a Beauty Pageant. For five of the past ten years, I voted on the Top 25 when I was an analyst at AMR Research (before the acquisition of AMR Research by Gartner). The more work that I do on trying to understand corporate balance sheet information and the connection to supply chain excellence, the more I realize how unqualified I was to vote.


Fifty percent of the Gartner ranking is based on opinion. It is both the opinion of analysts and peers. When I voted then, I never felt qualified. I am even more convinced now that my vote was irrelevant. The environment for the analyst is worse today. Over the past decade, companies have lobbied the Gartner analysts for higher scores. Public Relations firms have mounted campaigns. I think that the discussion on supply chain excellence should be a data-driven discussion.

3. It Should Be More Applicable. The Gartner Top 25 methodology is focused on very large companies. There is no methodology in the market today that applies to companies that do not qualify for the Global 1000. I feel that there needs to be a methodology that is applicable to the greater market.

4. The Supply Chain Is a Complex System with Increasing Complexity. As a result, the metrics have to be viewed together as a pattern over time. I think that the duration of time in the Gartner Top 25 is too short to measure tangible results. In summary, supply Chain progress takes patience and discipline over many years. In the journey, the supply chain leader needs to improve the potential of a portfolio of metrics. The metrics of growth, Return on Invested Capital, Inventory Turns and Operating Margin have the highest correlation to market capitalization. I find value in looking at these metrics together.

5. Can We Really Determine Who Does It Best? The methodology attempts to understand and identify the "best supply chain." I question this as a goal. Instead, I think that our goal should be to measure improvement. I think that the "best supply chain" is based on business strategy and as such, cannot be measured. (e.g.,  What is good for one company may not be right for another.) However, I do think that we can measure supply chain improvement by looking at balance sheet data.


Let me give you an example to explain my point. I am training for a triathlon. It is a small one: an Olympic format in December where I will swim .7 miles, bike 22 miles,  and run a 10K. I am no spring chicken. As an overweight lady of sixty, I will never post the scores of Lance Armstrong. {Lance recently won the Ironman at Kona.}  Yes, you got it. We are at very different levels of potential. His is very high and mine is very low.


Measurement is possible in athletic endeavors independent of performance level. I can measure if I am getting better, and Lance can measure if his training is making him better. We can measure the impact of our workouts on the output of heart rate recovery, calories burned, BMI, ratings on our power meter on the bake, and cadence. Day-by-day we both can see progress on strength, balance and endurance. I wanted to do the same thing for the supply chain leader.


Today, it is tough for a supply chain team to assess if they are getting better. They work hard, but the balance sheet data is so complicated, that it is hard to see if they are making progress.


It is for this reason that we are busy at work on the Supply Chain Index.


What is the Supply Chain Index?


Figure 1.


Figure 2.


It is our attempt at Supply Chain Insights to change the discussion to be a data-driven dialogue on supply chain improvement. For the last three years, we have been plotting corporate financial data and studying the trends. This culminated over the course of the last four months into a methodology that we developed along with the Operations Research team at Arizona State University. They applied the right mathematical techniques to read the patterns to see if supply chains are more balanced (greater progress at the intersection of growth and Return on Invested Capital), making improvements (getting stronger at the intersection of operating margin and inventory turns), and if they are resilient (a tight predictable pattern with reliable year-over-year results). The larger the value for balance and strength in the two tables the better, and the smaller the number on resiliency the better.


We have defined the Supply Chain Index methodology in a recent report, along with a separate report on Supply Chain Resiliency. Over the course of the summer, we will be taking a closer look at industries within each value chain. We will be plotting their progress for the period of 2006-2012.


In June, we will publish the results on the consumer value chain. Our focus in July will be on the healthcare value chain, and in August it will turn to the industrial value chain. In the preparation of the reports, we will be interviewing companies that are making more progress than their peers. After we finish all of the data collection and publish the reports, we will ask the members of the Shaman's Circle to vote, and then we'll publish the companies that we most admire based on their progress on improving performance. (The Shaman's Circle votes will count 10% on the final rankings.)

Applying the Supply Chain Index


For example, let's take the food and beverage industry that is outlined in figure 1. Campbell's Soup, Hershey, and General Mills rise to the top. (Compare the gaps between General Mills and Kellogg or Hershey and Kraft. No one can argue that they are making more progress.)


In general, we find that the trends within an industry are greater than we could have ever imagined, and that smaller companies are making progress at a faster rate than smaller ones. In addition, companies with consistent leadership have a more positive trend.



So, as the blogs, tweets, and articles flow from the Gartner conference, I sit back and look at the meaningless mush.  I think that supply chain leaders need a more data-driven, meaningful and applicable methodology.


I want to help. I would love to hear your thoughts on what we are doing.


As for the Gartner 25, I say, "Mush, Mush, Mush."  This is a term that is used in sled dog races to run fast. I hope that it goes away quickly. Supply chain is too important to be measured simplistically.    

It is about the right balance of the carrot and the stick. Progress happens when you measure. Relationships happen faster when there is more carrot than a stick. Over the last decade, scorecards have become more of a stick than a carrot.


Figure 1.


retail scorecards



Some days, in my coverage of consumer value networks, it seems like we are making slow progress. So slow, that I often feel like I am watching paint dry.  We talk collaboration, but we automate buy/sell relationships.


Then I go to a conference like Logimed USA, and I get immersed in another industry—like medical devices—which is a decade behind CPG/retail, and I get a reality check. It is useful to get perspective.


In the medical device industry, they have no scorecards with hospitals and they are just starting on the adoption of the GS1 standards. (Reference my article on Throwback Thursday.)

Impacts of Customer Scorecards


Consumer value networks are now in their second decade of scorecard automation. In most relationships there is more than one scorecard. The most common one is a scorecard for supply chain.  Today the focus is on physical movement. As shown in Figures 1 and 2, labeling, on-time shipments, and Advanced Shipment Notification (ASNs) have improved through the use of scorecards.


Figure 2.


benefits of retail scorecards

However, the Scorecards Are Anything but Balanced.


The use of scorecards has improved customer service. Shipments are now on-time and there is progress on in-full shipments. Why? Primarily because of better communication on the retail requirements and the tracking of the shipments. However, the use of scorecards has not improved cost or assortment. At a rVCF conference that I attended this week, one of the retailers asked me why an on-time and full shipment was not representative of the lowest cost. Yes, there is still much work to be done.

What Is Preventing Us from Making Greater Progress?


In short, it is about alignment and incentives. The gaps between sales and operations is a barrier on the supplier side, and the gaps between merchandising and operations for the retailer are equally as bad. Additionally, the incentives are not aligned to serve the shopper. Consumer packaged goods companies are paid when the goods land in the retailer's warehouse, not when they cross the register, and trade funds can distort the demand signal. Too much dependency on trade promotions and deep discounts is an addiction and disruptive for some relationships.


The studies for the VMI and the Retail Scorecard surveys are still open. We would love your input. It is our plan to correlate maturity in consumer relationships to the Supply Chain Index over the summer.


We are also finishing up the project on supply chain planning maturity. It is close to completion.We would love your insights. As always, we keep your responses confidential.


This morning, I am writing from Istanbul. The book, Metrics That Matter, is almost finished. I will be speaking at the Integrated Supply Chain Conference on Thursday. Lots of interest in the Supply Chain Index. People cannot get enough on metrics. 


Throwback Thursday

Posted by lcecere May 9, 2014

This week, as the east coast of the United States was deluged with rain, I basked in beautiful San Diego sun while attending the Logimed USA event. This was WBR's first event in the United States targeted for the Medical Device Supply Chain Leader. I had not been to a medical device event and I wanted to listen.


When I finished my presentation on "past practices," that I cannot call "best practices," and outlined the methodology for the upcoming Supply Chain Index, a woman who had listened intently in the audience told me that I had thrown "cold water" on the audience.


I said, "I am sorry, but I think that the industry needs to face some cold hard facts." The discussions at the event reminded me of dialogue that I heard in other industries a decade ago. So, the title of this post is Throwback Thursday.

Current State


Today, managing a medical device supply chain is tougher. It is much more complex than it was a decade ago. Many are enamored with the "good old days." As shown in Table 1, operating margin has declined 16% over the course of the decade. This precipitous drop in margin hurts. As hospitals adopted consignment planning programs, inventory progress slowed. The turns are the lowest of any industry, and despite investments in technologies and processes, inventory turns have only improved 3%, and Cash-T0-Cash (C2C) cycles have declined 4%.  Companies are feeling pain.


Table 1.


Industry performance benchmarks for 2000 -1012


This is why I think that the industry needs to get serious about supply chain management. And,  I believe that it needs to happen FAST! There is no time for whining. The operating margin for the medical device industry is 4X that of the automotive manufacturer and 2x the margin of the hospital. The business operating environment has changed. The pressures of affordable care and global regulation are transforming the market, but are they redefining the supply chain fast enough? I don't think so.


My message in the presentation was simple. There is an inverse relationship between margin and supply chain excellence. Companies with lower margins tend to get better at supply chain faster. It matters more. In these industries, the adoption of technologies and processes becomes essential to doing business. In industries with high margin, change happens slowly and the leaders tend to be insular.


In doing studies of different industry subgroups, we find that the medical device industry is resilient. The patterns at the intersection of inventory turns and operating margin are tighter than other industries, but we do  not find "strength" or year-over-year performance improvements in the numbers. Note that in this comparison of the top three medical device companies in Figure 1, that Zimmer is substantially underperforming against the other two, and that all three companies are going backwards in operating margin. However, all three of these industry leaders have margin averages that are SIGNIFICANTLY better than the industry average for the period of 16%, but are underperforming on inventory turns.


Change is under foot. Zimmer Holdings is growing larger. Last week Zimmer announced the acquisition of Biomet for a cash and stock transaction valued at approximately $13.35 billion.


Figure 1.


Figure 1: Medical Device Firms





















This transaction, which is subject to customary closing conditions and regulatory approvals, is expected to close in the first quarter of 2015. The merger of Zimmer and Biomet will position the combined company as a leader in the $45 billion musculoskeletal industry.  Zimmer’s strategic framework focuses on growth, operational excellence and prudent capital allocation. Let's hope that this will drive channel leadership that is sorely needed.

My Challenge.


So, my challenge for these three companies is: leaders need to lead. We don't have time for Throwback Thursday. This value chain needs a supply chain leader. Hospitals are too fragmented to lead, and the GPOs are dysfunctional. We need for supply chain leadership to step up to the plate. Why do I call this Throwback Thursday? It is because the conversations at the conference were yesterday's discussions. The leaders from the medical device industry need to learn from both the success and failures in other industries. Here are five areas where I would start:


-Scorecards. In healthcare, there are no customer scorecards. While companies talk about being customer-centric, there is little recognition that the customer has changed from a focus on the physician to the care center and in some cases to wellness in the patient's home. My take: The industry is 10-15 years behind in measuring itself in the "eyes of the customer." To build more effective outside-in processes, the focus needs to be less on a sales-driven organization and more on effective channel usage. Leaders need to start a system to improve measurement and tie performance to buying incentives.


-Embrace Standards. GS1 standards adoption is sooooooooooooo slow. I heard Stryker share the story of adoption over a period of five years at the GHX conference last year. At the Logimed conference, no one in the audience was aggressively adopting the standards. My take: When the adoption of standards happened in CPG/retail, Danny Wegman of Wegmans, Sandy Douglas of Coca-Cola, and Tim Smucker of Smucker's led the charge. This industry has no leader(s) driving the initiative. Instead, companies are letting the federal government stuff a standards mandate with UDI. The leaders in CPG drove the change while medical device leaders are fighting it. The discussion that I heard at this conference was reminiscent of the laggards in CPG discussing GS1 standards in 1999.

-Get the Labels Right. With changing legislation and country-specific regulations, having the right label on the product is a big deal. My Take: I was at a hospital last month watching the receiving of agents and pharmaceutical products. 30% of the items did not scan. Hospitals have aggressively adopted B2B automation. This has happened faster in hospitals than in retail. As a result, scanning has grown in importance. Late-stage postponement and effective in-country labeling and tracking is essential. I dusted off a 2002 presentation from P&G to share with the audience. Yet, the attendees wanted to discuss Lean warehousing.

-Aggressively Get and Use Channel Data. With the shift of inventory back in the supply chain, there is a lot of discussion on Vendor Managed Inventory (VMI). In the discussions, there was not one mention of usage data. My take: VMI should be used to sense and respond to channel demand. The shift of inventory without the sharing of data is a mistake. Let's learn from the lessons of the last decade. For more on the state of VMI, please reference last week's blog Stasis.


-Share Data. The clock speed, and the need for supply chain decisions, is accelerating. There is no Walmart or channel power broker in this value network. As a result, the large medical device companies need to decide on a value network and endorse it to get channel data. The goal needs to be the use of daily data daily. Right now there are many contenders. My POV. The leaders in the medical device industry need to pick—GHX, Owens and Minor, Cardinal Health, or Integrichain—and support an industry standard. The supply chain will not improve unless the processes move from Inside-out to Outside-in.


At Supply Chain Insights, we are busy preparing the Supply Chain Index methodology for a May 13th launch. Don't miss it.  To be sure that you get our research through the summer, please sign up for our newsletter. And finally, our survey on supply chain planning is closing. In this survey we find out some benchmark metrics on the number of demand planners per item, and the rate of adoption of demand and supply chain planning systems. If you are questioning where you are on your journey and how you compare to others, this survey is one that you do not want to miss. And, like all surveys, we share the final results and keep the individual responses confidential.