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2014

Details matter. Execution is essential... it might make a difference on what is under your tree.

 

In 2014, e-commerce strategies grew in importance. In the last decade, e-commerce was a permissible and desirable channel only for retailers. At that time, manufacturers talked about customer-centric supply chains but were afraid to aggressively adopt e-commerce strategies. They were afraid of retail retaliation. This has changed. Manufacturers are aggressively pursuing e-commerce strategies today .

 

When your phone rings, and you and your supply chain team is called to the corporate office to talk about the expansion of your e-commerce strategy for 2015, here are my recommendations:


1) Embrace the Each. Get Good at Having a Real-Time Perpetual Inventory Signal. Foundational for e-commerce is a real-time perpetual inventory (PI) signal. It is necessary and fundamental. Today, only 58% of retailers have a good PI signal in their stores, and only 60% have a good PI signal in their distribution centers. Don't fool yourself. If you are going to be excellent at e-commerce fulfillment you need to have great perpetual inventory capabilities. This is why many retailers have struggled with cross-channel fulfillment.


2) Endless Aisles Need Boundless Fulfillment. Cloud-based logistics and warehouse management are combining with B2B networks to enable multi-tier fulfillment. When a customer places an order, be sure that you can guarantee delivery. No matter where inventory is, put it to work. Select your technology partners based on reliability and flexibility for e-commerce capabilities and aggressively build a multi-tier available-to-promise (ATP) signal to enable drop shipments and merge in transit capabilities.


3) Test and Learn. Aggressively use your e-commerce channel to test and learn. The demand latency of e-commerce is hours and days while traditional channels is days and weeks. Aggressively design and test products online and then bring the data into your forecasting tools to predict sales of new products by channel. Make test-and-learn an active part of your supply chain strategy.


4) Pick Your Partners Carefully. Customer Service Needs to Be All the Way to the Last Mile. If you offer white-glove service, define it and select service providers based on their ability to deliver. Don't assume that there is a standard definition, and just because a 3PL signed a contract to deliver it, don't expect that you are working on the same definition. Define, audit, and pay for premium service.

 

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5) Design the Last Mile. E-commerce is closely coupled with new channels and innovative ways of ordering and payment. The proliferation of the business models is exciting. It was great to see click-and-pay on the London tube, and I love some of the new models that are being developed in grocery and specialty stores for purchasing online and pickup at the stores. However, do not take your last mile for granted. Design it. Define it. Redefine it. Make it work. It will make, or break, your operation.

 

Last year, Amazon struggled to make holiday deliveries. UPS, FedEx, and the U.S. Postal Service could not surge for peak demand. Problems continue, but 2014 was the year of experimentation. New approaches are being tried. Could your package be delivered by taxi? The answer is yes. Cabs in San Francisco are delivering packages in their trunks using an application called FlyWheel and manufacturers are experimenting with Uber.  One thing is known: doing nothing is a recipe for disaster.

 

In summary, I want to leave you with a word of caution. In the last decade 3PLs and 4PL business models have grown, morphed and changed again. There is greater adoption and more hesitancy to use 3PLs for ecommerce. Most lack the ability to invest in picking the each and implementing systems to deliver the personalization and customization that e-commerce requires. So, if I were getting the call to come and talk about expanding the e-commerce strategy in 2015, I would use it as a foundational argument to invest in new forms of logistics infrastructure. I would build my own warehouses or very carefully pick a 3PL partner.

 

While you can outsource the supply chain, you cannot outsource the risk. The brand owner is always responsible for service, and from what I see in the 2014 holiday period, many of these stories are ripe for Saturday night live. I am increasingly skeptical that any 3PL is up to the challenge. What do you think?

 

Some of the packages on the trucks moving right now are the first shipments of Supply Chain Metrics That Matter. The book is the end of three years of research and nine months of writing. Holding the book in my hand was both invigorating and overwhelming at the same time. The book is available in both a digital and hardback format, and both versions are in the top 100 book sales at Amazon in Business and Commerce/Economy. It is exciting to see; and, making my publisher a believer that there are people in the world who care about supply chain!

 

So, if your doorbell rings heralding the arrival of your copy of Supply Chain Metrics That Matter, think about the importance of logistics this holiday season. I hope that it is under your tree. After you finish the book, please be sure to let me know what you think!

 

Have a great holiday and thanks for being a loyal reader of the Supply Chain Shaman blog. Keep the cards and letters coming! I love hearing from readers.  

It was a stuffy, hot day, and I found myself sitting by Bridget. The supply chain team was attempting to explain their demand-driven project. They were asking for funding; and Bridget, the treasurer, was not buying the message. On my way back to the train, I struggled with what had just happened. I had worked hard to teach the team—presenting how to talk the language of demand —but it was not understood at the boardroom level.

 

Bridget crossed her arms and asked why the project they had just implemented on improving demand planning was not sufficient. Lee, across the table, chimed in to say that the new processes of Integrated Business Planning (IBP) would do the trick. I asked myself, "How ironic is it that the technologies and processes of the past are always presented as the answer." This morning, I was speaking to Rick Davis, of Kellogg, and Rick's quote, "When we are talking, we are not listening" made me think. I smiled and thought of the interaction with Bridget on that awful, hot day.

 

Figure 1. Supply Chain Risk Factors

 

Figure 1: Supply Chain Risk Factors

 

Most people see the problem and think that they have the answer. As shown in Figure 1, demand volatility has increased, the pain is increasing, and the impact on the costs in the supply chain are real. At this point, most leaders wring their hands and say, "If only the forecasting team could do a better job of forecasting."  If this is you, stop! Improving forecasting is not the answer. My blog post is written for you to understand what needs to happen... While companies need to be good at forecasting—and redefining forecasting to be outside-in is needed—it is not sufficient. This doesn't also mean you should abandon forecasting processes. Tactical forecasting helps us to think through the questions of long-term asset strategies and sort through network design optimization alternatives. Recognize that these are tactical processes. Companies need to redefine demand processes to sense and translate from the channel back. Where to start?


1) Actively Build a Demand Organization. I can count the number of companies with a demand organization on one hand. Most have a supply organization that has a subgroup which is chartered with forecasting demand for use by supply. In contrast, the demand organization that I am advocating is an analytics group that crosses over sales and marketing into supply. The group is cross-functional and serves the business by mining demand insights, sensing market patterns based on channel data, and recommends demand shaping programs based on the analysis of revenue management. They are sensing and shaping channel behavior.


2) Invest in New Forms of Analytics. The traditional tools and approaches are not up to the task. Invest in technologies like demand signal repositories, demand sensing analytics, and cognitive learning. Treat demand latency as the evil empire. It is MUDA. Go on a mission to translate demand with as little latency as the data allows. Educate all business leaders on the causality between demand latency and cost/waste.


listen


3) Listen. Don't Believe That You Know the Answers. Push for New Solutions. Let's face it. Our conventional paradigms had us do some crazy things. There are still consultants running around pontificating about the need for one-number forecasting and consensus planning. My advice is to stop and rethink the processes.

 

Understand that the one-number approach is too simplistic, and that the goal should be a common plan (the demand hierarchy is composed of a myriad of numbers). The relationships between the data elements to manage tops-down and bottoms-up forecasting is important. Respect it.

 

Secondly, consensus forecasting may sound like a good approach, but in most organizations, it has not helped. The opinions, if not grounded in a disciplined approach of forecast-value add analysis, can introduce bias and error. Instead, invest in learning the new processes that are evolving to use channel data and to sense demand. Demand sensing is the translation of market data in the short-term duration (days-to-weeks) to improve the supply chain response. Demand sensing typically improves inventory turns by 11% and reduces obsolescence. The greater the demand latency (time to translate purchase in the channel to receiving an order), the greater the value of demand sensing to reduce demand latency.

 

If you want to read more on this topic and understand the impact on the value chain's results, consider picking up my new book, Supply Chain Metrics That Matter, to read over the holidays.I give thanks this holiday season for the opportunity to engage with some amazing readers. Let's make 2015 a great year!

 

Let's help Bridget by giving her new answers.  We can do this together. 

lcecere

Power B2B Networks

Posted by lcecere Dec 24, 2014

If you ask companies if they would like better inventory  and global supply chain visibility, you will get an overwhelming answer of, "Yes!" However, if you ask companies how they define and deliver global business visibility, you will get stares like, "Doesn't everyone know what global visibility means?"

 

The answer is simple. They don't. The term supply chain visibility varies by role. In our recent report on defining supply chain visibility in B2B networks, we provide a definition based on a research study of over 70 participants. In our recent work, we continue to try to understand the trends. In Figure 1, it is clear in process networks (the chemical, pharmaceutical, and food industries) that there is a significant difference in capabilities when companies use B2B Networks versus EDI, Fax, email, or spreadsheets.


Figure 1.

B2B solutions performance

 

It is ironic. Today's supply chain is more outsourced and subject to risk than ever before, and the technologies are more capable, but the average company runs the network on fax/emails and spreadsheets. Only 9% of flows in the value networks move through B2B networks, despite the compelling business value.

 

Today, I published a new report on building Digital Supply Chains. One of the first things I recommend that a supply chain leader tackles is B2B connectivity. The more research that I do, the more convinced I am that we have not powered our networks for success. EDI has too much latency, and spreadsheets and email are not equal to the challenge.

 

So as we enter 2015, I would encourage all supply chain leaders to get serious about building value networks. It is time to give it more than lip service. It matters. I can now prove that the difference in visibility is significant at a 90% confidence level. I hope this gives you confidence to get on with it and power B2B capabilities.

 

Enjoy the holidays. If you miss reading the Shaman in the next few weeks, and you want some new reading in the area of supply chain excellence, consider tucking my new book, Supply Chain Metrics That Matter, into your suitcase. Today, it is rolling off the presses, as I write, and it will ship from the Amazon warehouses on December 15th.

 

cover

 

The book is full of research on building value networks; and as you read it, drop me a line. I welcome your feedback.

 

I look forward to cracking the first copy of the book and smelling the odor of ink. I may find it so intoxicating, that I will be compelled to write a sequel.... So, bring on the feedback. I am working on the plot... Let me know what you think happens to Joe (the character in Supply Chain Metrics That Matter that doesn't want to be the 'average' Joe) in the next edition.

Recently it was Thanksgiving in the United States, and as a good Yank, I was reflective. I gave thanks. This blog was started in 2010. Today, 270 posts and five years later, I am thankful for the opportunity to sit at my kitchen table and communicate to almost 20,000 supply chain professionals globally (directly through this blog and through connections on Linkedin). I am in awe of what is possible today.

 

No doubt about it, we live in a digital age in our personal lives. However, this is not the case in our supply chains. In my travels, I find supply chain leaders expressing rising frustration about the gap of what they see as possible in the digital age and what they experience in their day-to-day world in their offices. It is a conundrum.

 

Two weeks ago, I sat in the audience at Pivotcon, a conference focused on the advancement of digital business. I listened to digital marketers wax eloquently on the future of business. In their world view, the future would be the coalescence of robotics, learning systems, and voice automation. They shared a vision of the world where everyone had more voice—expressions through social media—but everyone is heard less. Their expressed world view of digital printing, a collaborative economy, and automated systems has major ramifications for the supply chain. The portrait was a world of no smokestacks and few workers. As they talked, I winced. Manufacturing is core to the middle class and a healthy economy. Digital business offers so much more opportunity.

 

At the end of the session, I felt tired.  I asked myself, "Why are we letting digital marketers define the world view of the future of supply chain?"  As I stomped through the rain puddles back to the train station, I mused. The Pivotcon perspectives seem so rarefied, and out of touch with the greater reality that I see.... I asked myself, "How do I help?"  I feel stuck between the world that digital marketers project—where they want to propel processes quickly into new forms of digital business that I don't think make sense—and the traditional supply chain leader that is struggling to make their processes work today.

 

At the end of 2014, many leaders that I work with are preparing their 2015 strategies. The word digital is everywhere in their presentations—digital path to purchase, digital agriculture, and digital manufacturing. As I read them, I laugh. I give them credit. They are trying to be more 'sexy'.

 

Digital business processes are now the buzz with sex appeal. While supply chain professionals would like to embrace some of the more advanced concepts, and no one likes the systems and technologies that they have today, most feel stuck. It is an awkward feeling. I feel their pain. They don't know the right questions to ask and how to get started. They want to embrace the new, but they are having problems making their current systems and technologies work today. This is the goal of this blog post.

 

 

For many, it is a paradox. How do supply chain leaders modernize their visions? What is a fad and what drives real value?

 

The technology shifts are many: the Internet of Things, mobility, analytics for social and unstructured data, cognitive learning, cloud-based software, canonical integration in B2B networks, e-commerce, and digital images. We are starting to see the convergence of these technologies into digital processes, but only for early adopters. Here are some insights from our recent research:


Digital Path to Purchase: In a study on trade promotion management in early 2014, we find that 60% of marketing teams within consumer packaged goods companies are working on a digital path to purchase strategy. This includes the automation of the list and driving demand before the store, driving demand in the store, mining the data from checkout, and listening to sentiment post-purchase. We find that most of these efforts are bogged down by the concepts of traditional Customer Relationship Management solutions and the lack of a basic understanding of supply chain. Only 57% of retailers have a perpetual inventory signal, and too few companies (22%) have invested in mining channel data through the use of a Demand Signal Repository (DSR). Too few companies understand the differences between syndicated data sources and the use of channel data. We are very early in our understanding of outside-in processes.


Digital Manufacturing: We have been trying to finish a research study on digital manufacturing for ten months. It is hard to find enough people knowledgeable on the subject of digital manufacturing to finish the research. This gap is telling. We have 100 completes with 41 respondents from process-based industries and 60 completes with discrete-based businesses. Only 5% are attempting to use mobility within manufacturing and only 15% of the discrete manufacturers are actively pursuing 3D printing for production-based processes (digital printing is being used more for prototypes).


Cognitive Learning: I think that we are five years away from supply chain planning systems that can learn as we sleep. Today, 9% of process-based companies in a 120 respondent survey on analytics are experimenting with cognitive learning. These technologies allow the sensing, learning and acting of processes based on rules-based ontologies. As you build your 2015 plans, experimentation is the operative word and promise should be capitalized in the following sentence.


B2B Networks: We have completed three studies on the use of B2B networks and the evolution on canonical integration structures. No doubt about it, these many-to-many data models and more advanced forms of integration offer significant advantages to the traditional EDI integration, but the primary technology for B2B networks today is the Excel spreadsheet. Only 9% of commerce flows through B2B networks. For all, this is an opportunity. Big


Data and Analytics: We are also completing a study on big data and advanced analytics. We now have 106 completes, but only 21% of companies have a team focused on experimenting with big data concepts. Data lakes, streams and pools offer opportunities that manufacturers will not be able to use unless they open their wallets.


e-commerce: What a difference a decade makes in the definition of e-commerce. While e-commerce at the beginning of the decade was relegated to retailers, today, it should be a strategy for almost every manufacturer. Selling directly to the consumer is a powerful engine of growth, but requires the redesign of logistics systems to embrace the 'each'. Many companies that I work with are quickly moving into 2-6% direct sales, but learning the hard way that it requires rethinking warehouse management and order management.

 

What should you do? In short, get started. No one likes what we have today, and I think that we are in a world of hurt if we allow the digital marketing folks to define the future of supply chain.  My recommendations:

 

1) Brainstorm the Future Cross-Functionally. Schedule some time with your digital marketing teams and brainstorm how their efforts and yours could coalesce. Focus on how the supply chain can be the engine of growth through the use of concepts from the collaborative economy, test-and-learn strategies, or e-commerce. Think through what the future of the channel means to your supply chain. Before you have the meeting, you might want to listen to Jeremiah Owyang's podcast on the Collaborative Economy.

 

2) Fund New Forms of Analytics. One of the issues in today's supply chain is that we cannot get to data. In our investments over the last decade, we have successfully put data into systems, but companies are unable to get data out and use it successfully in analytics. (One of my clients uses the analogy of "Hotel California." Data checks in, but cannot check-out.) Manufacturers are behind other sectors like insurance and banking. There are many reasons—lack of clear analytics strategy, belief that it is an add-on from an ERP vendor, and lack of funding (manufacturers are cheap when it comes to spending on analytics). In a recent webinar on the Race for Supply Chain 2020, Marty Kisliuk, Global Operations Director at FMC commented when he heard Chris Clowes', Supply Chain Manager at Costa Enterprises, presentation on the Internet of Things and the automation of coffee machines using the Internet of Things at Costa Coffee, that "Maybe, we should give funds to our 30-year old teams to experiment." Many in the audience laughed, but I think that there is wisdom in Marty's statement. New forms of analytics—QlikView, Tableau, and Spotfire—are easier to expense and faster to deploy than the more conventional analytics from traditional analytics vendors. Why not let the younger members on the team experiment with new forms of analytics?  In 2015, why not put aside some money for testing? I love the insights from Fran O'Sullivan, General Manager of IBM.

 

3) Imagine What the Supply Chain Can Be. Free yourself from today's paradigms. To help you, we are working on a series of webinars and research projects. Check out our recent webinar on the Race for Supply Chain 2020 and join us for a panel discussion with Roddy Martin from Accenture, and Mickey North Rizza from Bravo Solutions (both Roddy and Mickey were past AMR Research analysts) for a Review of 2014 Infographics. To help, we just published a collection of our best research articles from 2014 and in the first quarter of next year, we will be publishing a number of articles on Big Data, Digital Manufacturing, Mobility, Digital Path to Purchase and the Internet of Things. This is a countdown to our Supply Chain Insights Global Summit on September 9-10, 2015 at the Phoenician, in Scottsdale, AZ. At this conference, we will challenge supply chain leaders to rethink business models and break traditional paradigms. I hope to see you there!

 

4) Build  Organizational Muscle. Our recent research studies show that we are losing the battle on talent development. More and more companies are rating themselves lower on their ability to hire and train supply chain talent. Check out the research on talent, and start to focus on how to build that mid-management muscle and enable it through digital business.

 

I want to help. It is my vision to provide content for the next evolution of supply chain. During the year, we will be launching a number of team simulation games on outside-in processes and digital business to consider, and I am continuing my work with the operations research team at Arizona State University for the Supply Chains to Admire in 2015. No doubt about it: Supply chains are complex systems that need to be adaptive. They are based on flows. I am convinced that our traditional systems based on inside-out processes use the wrong rules. We are not clear how to do this yet, but I think that in this world of digital business explosion, there is an opportunity to reinvent supply chain processes and technologies. I believe that companies do not have to be stuck, unable to make progress at the intersection of operating margin and inventory turns.

 

In addition, my new book Supply Chain Metrics that Matter is designed to help build cross-functional teams. The book is the culmination of three years of research. As I watched the pre-orders of the book climb recently on Amazon, placing the book at #12 in business book sales, I poured a glass of wine and toasted digital business... digital business gives me the opportunity to drive a new business concept. I give thanks for you the reader, and I hope that in a small way, the work that we are doing helps you to be more successful.

 

And I hope that you can also  find time to raise a toast to digital business this holiday season. I think that it matters. It is more than a fad. I welcome your thoughts. 

"What did you learn?" asked the client. I smiled and reflected. It was a thought-provoking question.

 

The ROI study on supply chain planning was completed. We were reviewing the data that is showcased in the blog post Three Questions People are Afraid to Ask.  The data is clear: best-of-breed supply chain planning solutions are faster to implement, have a better ROI and yield higher satisfaction than planning systems from ERP providers.

 

When I finished the blog post last week, I sent the research to fifteen supply chain leaders in manufacturing and asked for their opinions on the study. These were large multi-national manufacturing companies with very senior supply chain leaders. Their response surprised me. They said, "I am surprised that companies in your study rate themselves so highly on the use of supply chain planning technologies. For us, the results of supply chain planning solutions are disappointing. We struggle to find solutions in the market that meet our needs. We don't think that anyone is happy."

 

So, I answered the question from the client in a dry, understated tone, " I don't think that we have met the needs of large multinational manufacturers in the design of supply chain planning as we know it today. I think that vendors are largely competing with each other, and not able to see the true needs of users.


There have been many obstacles. Initially, the market was over-hyped and the first generation of solutions under-delivered. The second generation solutions (extended ERP footprints) made this even worse. As we can see from the research, these solutions were more expensive, harder to use, and required larger teams to run (30-40% more people). In parallel, supply chain planning talent became more scarce and the attainable market for software vendors contracted as 38% of their targeted customers went through M&A. The merger mania created a more complex IT environment.


Today, the gray-hairs of the first and second generation are retiring. We have the opportunity to build solutions that can better meet the needs of large manufacturers (greater than 5B$), but to do this, we have to get past the historical baggage of this market evolution to accomplish this goal." It was an answer that the client did not want to hear. It is also an answer that I really do not want to tell. I was a part of the evolution of supply chain planning solutions; and today, we have a quagmire. I firmly believe that the next generation of supply chain planning will come from new best-of-breed providers in the Third Act.

 

 

So, what should a global manufacturer do? Here are five actions to consider:


1) Stabilize Current Investments. The first step is to stabilize current investments. My recommendation is to not rip and replace software at this time. Instead, I would invest in software tuning. Many software companies offer an audit that you may also want to consider. Use your current platform as a planning system of record to add planning functionality for S&OP, deeper forms of predictive analytics and what-if analysis tools.


2) Augment Current Functionality Based on Risk Profile.  Using the standard maturity model for technology adoption, consider augmenting the current functionality based on risk aversion. To help, I have built a chart outlining where I see the market. My heart is with the innovator, and in much of my writing, I will advocate the emerging solutions; but in my head, I know that most of the market is a late majority buyer. The market has become more and more conservative in my time as an analyst.


3) Build Planning Talent. Talent is the missing link for many organizations. The average time to fill a demand or supply planning role is five months. Start now to build a planning organization. Train a new generation of employees to understand planning.


4) Experiment with New Forms of Analytics. Build a small group to test and learn with new forms of analytics. Provide funds for this group to experiment with tools like Tableau, Spotfire and Qlikview. One of my favorite discussions of this approach was a podcast  with Fran O'Sullivan of IBM. IBM is one of the few organizations that I have worked with that focuses on seed capital for small analytic projects and encourages the line-of-business leaders to test and learn.


5) Closely Follow the Evolution of the Next Generation of Solutions. You may not have the organizational risk profile to step out and text cognitive learning, new forms of B2B networks or Digital Manufacturing, but you can actively follow the industry pilots and learn from those doing the testing.

 

These are my thoughts this morning over a cup of coffee. I would love to hear from you. Please listen to our Rave for Supply Chain 2020 on-demand webinar.

 

The focus is on the adoption of new technologies and processes in digital business in the Race for Supply Chain 2020. In the webinar, I featured a panel of thought leaders. Marty Kisliuk, Global Operations Director at FMC,  and Chris Clowes, Supply Chain Manager at Costa Enterprises (think Costa Coffee) who shared their plans for digital business. When you think about the decades, I think we all can agree it is a time of change.  I penciled this timeline on my notebook this morning:

 

  1. 1970-1980: Definition of MRP and DRP.  Power of Computing.
  2. 1980-1990: Definition of Supply Chain Planning. Rise of Client Server Technology.
  3. 1990-2000: Race for Y2K. Rapid Advances in Connectivity.
  4. 2000-2010: Dawn of eCommerce and B2b Networks. Race for the Global Supply Chain.
  5. 2010-2020: Digital Business.

 

How do you see it?
lcecere

Misnomer

Posted by lcecere Dec 24, 2014

Misnomer (n): A wrong name. The misuse of a term or name.

Merriam-Webster Dictionary

 

I am a supply chain gal. I work with many organizations on their supply chain strategies.

 

One of the important lessons I have learned in my lifetime of doing this work is to never be afraid to ask what a term means ... especially when everyone in the room is comfortable. The more content people are, the more important it is to ask the tough questions to drive alignment. I find that many times companies have the wrong name, or a misnomer, for what they are trying to achieve. Let me give you an example:

 

Last week, I gave a presentation at a global supply chain team meeting of 175 professionals. It was a large multinational company. It was my first time working with this group. They had seen my videos on the website and needed a speaker for their global kick-off meeting. They really did not know me, and I did not know them. While we had spoken by phone, this was our first opportunity to work together.

 

As I sat in the back of the room, shifting in my chair, waiting for my time to speak, I watched speaker after speaker endorse the concept of one team. For a couple of hours I looked around the room and saw glazed eyes. "Lucky me," I thought, and smiled. This team is not buying the message. They were as uncomfortable with the message as I am with the scratchy fabric of my boiled-wool jacket rubbing my neck.

 

The team was organized around the functional silos of source, make and deliver. Their career paths, their identities, and their comfort zones were steeped in the traditional definitions.  It had been this way for over two decades.

 

I was asked to be an agent of change. This is why I was selected to speak. As I cleared my throat, and pushed my toes deep into my shoes, I bounded up the stairs to start the presentation. I shook hands with the moderator and patted him on the back as he apologized publicly for mispronouncing my name.  (As I laughed it off, I stopped and thought, "What is in a name?" I grimaced and reflected. "Today, everything. This is why I am here..." )

 

I opened, "Hi, my name is Lora Cecere. My name is often mispronounced. The first name is Irish. My second name is Italian. No one gets it right on the first try."  I looked into the audience and caught a couple of eyes and winked. The group laughed. I let the laughter subside and continued, "When someone mispronounces my name, it opens up an opportunity for me to explain to others what I do."

 

 

I walked to the center of the stage, looked stage left and continued. "I study supply chains. I am passionate about it. So much so, that three years ago, I founded a research company to focus on understanding supply chain excellence.

 

In our work, we tie research from quantitative and qualitative studies to financial results to drive new insights.   This morning, I heard you use the term 'one team' and I am worried. We find these words used frequently, but with very different meanings. Most companies think that they know what this means; but, to be actionable they need definition. Let me explain."

 

I looked stage right and continued, "Let's start with the phrase 'one team'. What is a team? If you played sports, you know that the rules for soccer, football and baseball are quite different, and that a team-based sport looks quite different than an individual sport like swimming or track. The teams can come together because the rules are defined. The problem is that in today's supply chain organization the rules are not well-defined. In my interviews with your organization, I find that you, like most companies, are struggling with conflicting objectives between functions." I then showed them the slide shown here as Conflicting Objectives.

 

"Let's take a minute and look at this slide. It's a lot to digest.... It is the essence of both the problem and the opportunity in the definition of what 'one team' means for you." The group was quiet as we discussed the fact in the traditional organization that functional silos are not designed to work together. "Working together requires more than a name change. You cannot move from a functional orientation to a end-to-end value chain focus with just a name change," I stated.

 

"Let me tell you a story... Seven years ago, I worked with a woman named Deborah. I was a new analyst and felt quite cocky in my knowledge of supply chain. I, like you, spent many years learning from hard work the process industry. I had managed factories and distribution centers, and strongly believed that the best supply chain results stemmed from strong, well-run functions. Proudly, I had led my division to have the lowest manufacturing costs with the highest Return on Assets. I was proud of my record, and shared it with Deborah. She asked me, 'What was the impact on total costs?' I answered that I did not know. It was not measured.

 

When we started benchmarking companies, Deborah and I had a friendly wager. I believed that we would find a company with the lowest distribution costs (warehousing and transportation), and the lowest manufacturing costs, and this would result in the best overall cost structure. I also believed that this company would have the best inventory and customer service. I was wrong. We never found this company. I now know that this is not reality.

 

Deborah and I benchmarked 97 supply chains; and, we found the inverse to be true. Instead, we found that the companies with the lowest total supply chain cost (a total of source, make and deliver) had average costs in manufacturing and distribution. We found that it was the sum of the parts that mattered. Surprisingly, to me then, I found that a function run as a function drove up total supply chain costs. The reason? Functions within the supply chain are not naturally aligned. When an organization optimizes one function, by definition they company will suboptimize the others, unless there is a clear end-to-end vision of how the functions should work together to deliver on the operating plan. Hence the need to define the word team.

 

 

This is important. Why? In our research, we find that only 8% of companies can access total supply chain costs to anchor decisions, and that less than 1% have a clear end-to-end vision. Most say the word 'team', but they do not define it.

 

In building one team, alignment is critical. This can either be through direct reporting or a matrixed organization. We find the fastest results when the organizations have a direct reporting relationship.

 

I rubbed my hands together, and looked at the audience and stated, "So, see... you are in good company. Most companies are stuck in this functional quagmire. It is one of the primary reasons why nine out of ten manufacturing companies are stuck at the intersection of operating margins and inventory turns." 


In contrast, we find in our research that companies with procurement and manufacturing reporting to the supply chain organization have stronger, and more reliable results on inventory, operating margin and Return on Invested Capital (ROIC). Today, 60% of sourcing organizations and 45% of manufacturing organizations report through the supply chain organization."

 

As I travel from organization to organization, I find that each company defines supply chain slightly differently. They say they want to achieve one team, but they fail to define it. There is a desire to minimize the friction between silos and operate as one entity. This starts by clearly defining the roles of  each function, and then focusing the cross-functional teams on the same metrics. My favorites are customer service, operating margin, inventory turns, and ROIC. The goal is to manage the supply chain as a system, together.

 

When all functions are jointly focused on improving these metrics, then we can have one team. If not, I am afraid we have a misnomer. What do you think?

 

My new book, Supply Chain Metrics that Matter has published and is shipping now. I am excited! I cannot wait to smell the ink. The publication of a book takes a couple of years. I have spent a year of weekends hunched over my kitchen table writing, rewriting, and writing more. It will be great to hold it in my hands!

 

I recently traveled to Bentonville, Arkansas to facilitate a customer meeting on the use of channel data. We are the middle of closing the study on the use of downstream data and would love to have you in the survey. If you give to us, we hold all responses confidential. In response to filling out the survey, we will share the results with respondents on a one-hour conference call.

 

We hosted a webinar on the Race for Supply Chain 2020. We invited two visionary speakers—Marty Kisliuk, Global Operations Director at FMC,  and Chris Clowes, Supply Chain Manager at Costa Enterprises—to share their thoughts. Very different, but insightful presentations.

 

I hope to talk to you soon either on the road or in one of our webcasts.

Groupthink is a psychological phenomenon that occurs within a group of people in which there is a desire for harmony within the group, but the result is an irrational or dysfunctional outcome.  Wikipedia

 

You know the drill. The meeting is on everyone's calendar. It has been set up by the CEO or a board member's assistant months in advance. The room is big, the PowerPoint deck is large, and the coffee cups are arranged in neat rows on the counter of the side of the room. There is an abundance of pastries flowing from the basket, and the stage is set for an impactful meeting. Even though things seem to be going well (all of the meeting details are well-executed and the speaker is giving an energized presentation), the room is eerily quiet. The speaker is speaking, the beautiful slides move quickly at the front of the room, but the audience is not engaged.

 

In my travels, I attend these meetings frequently. They are precipitated by a strategic relationship between a consulting company and the executive team. The consulting team pitches a theme—vision of supply chain best practices, big data analytics, or demand-driven value networks—to the executive team, and a new project is initiated. The first step in the journey is a kick-off meeting. The second step is usually a large implementation of a technology project—Enterprise Resource Planning, Customer Relationship Planning or Analytics. I feel that the industry is engaged in 'Group Think'. No one in this meeting is going to ask tough questions. The board has not set up the team for success. Here are the three questions that I would like people to ask:

 

Table 1. Comparison of Results for Best of Breed Solution Providers to ERP Expansionists in Supply Chain Planning


Question 1: What drives a successful implementation of supply chain planning?  Supply chain planning is now in its fourth decade. The first evolution of technologies were built by best-of-breed solution vendors. These solutions were usually implemented by the technology provider by consultants with specialized skill sets. The promise was the delivery of a decision support system that would allow the organization to optimize the relationships between cash, cost, and customer service against the strategy.

 

The second-generation of solutions were built and marketed by Enterprise Resource Planning technology companies like SAP and Oracle. The promise of these solutions was that an 'integrated planning solution with ERP would deliver greater value'. (This solution is termed the ERP Expansionist in Table 1.) This new solution was favored by the Information Technology (IT) organization. By purchasing planning and transactional systems for a common vendor, they had one throat to choke and they were familiar with the architectural elements. It was also the preference of the consulting partners because the projects were longer, more costly and better aligned with the consulting model. But, did it add more value? The answer is no. As shown in Table 1, the movement to adopt "integrated ERP and Supply Chain Planning software from an ERP vendor" moved the industry backward. Ironically, the solutions implemented by the consultants, as contrasted to those implemented by the technology vendors, also produced less desirable results.

 

How do I know this?  The results in Table 1 come from a nine-month research project of 120 respondents representing 183 instances of demand and supply planning. (The average company has more than one instance of both.) In the study, the respondents were asked to rate time to Return on Investment, and satisfaction. We also correlated the results to balance sheet performance. What do we find? Best-of-breed solutions have a higher Return on Investment and are quicker to implement. They also have higher satisfaction rates. The highest satisfaction comes when the technology vendor implements the solution. It is significantly different at a 90% level of confidence. In the data, we can also see that the implementations from the ERP Expansionists have significant gaps—requiring more planners, longer times to plan, and greater difficulties getting to data.

 

Why does this happen? Leadership teams struggle with the trade-offs between cash, cost and customer service. As a result, supply chain planning is often a targeted project when the strategic consulting partners talk to their clients at a board level. The strategic consulting partners are respected in these relationships and seldom questioned, and the stage is set. In parallel, there is a low-level of trust for the best-of-breed technology vendors. Many are very sales-driven and difficult to work with. The market was overhyped at an early stage and trust eroded. Would the board deliberately select a system that takes longer to implement, with a lower Return on Investment, requiring more ongoing labor and producing lower results? Of course not. But, the industry is in a groupthink. No one is having a fact-based discussion. This is how we see our role.

 

Table 2. Characteristics of those Satisfied with Supply Chain Planning


Q2: Who does supply chain planning well? What can we learn? As shown in table 2, the companies that are the most satisfied with planning are smaller organizations with 15 or less planners and without high item complexity.

 

To drive maximizing the value of planning, organizations need to be aligned against an operating strategy. Companies adopt planning to optimize the organization's response from the customer's customer to the supplier's supplier. The supply chain planning cannot be effective if implemented by a supply chain function that is focused only on customer service, logistics and distribution. It requires the support of the organization to optimize the response for the end-to-end value chain that crosses functions.

 

What can we learn from this table, and the research? A successful supply chain planning implementation is about more than technology. The implementation of decision support tools needs to be a way of life. Planners need time to plan, and the organization needs to be aligned against a shared vision or operating plan. It cannot be about the optimization of vertical silos within the organization. This leads to a sub-optimal response.

 

The second thing that I learned from the research is that we do not have good solutions for large organizations in the market today. If you have a large number of planners and high item complexity, you are at risk. This I think leads us to the Third act of Planning. In the third act, I believe that the technologies are very different from those in the first three decades of evolution. In the Third Act, I believe that the processes and technologies are redesigned outside-in from the channel back to the enterprise. I think that it is a new world of cognitive learning, rules-based ontologies, concurrent optimization, and B2B Networks based on canonical infrastructures with many-to-many data models. These new technologies are evolving. (I will write more on this in my next blog post.)


Q3: How do I become demand-driven? Data surrounds the company. The data in the channel is changing faster than the company can adopt processes and technologies to use it. It is piling up on the doorsteps of most major companies. Some may be used by the digital marketing teams for marketing purposes, but the average company does not know how to use it. They struggle to listen to and interpret market signals. It is ironic that there has never been a time in history where customer data is more available, and the demand higher for companies to operate a customer-centric value network to sense and respond to true demand, but the solutions to use the data are evolving. Today, they do not exist.

 

Most consultants and technologists are guilty of bait and switch. The discussion is on becoming demand-driven, but the recommended solution is a traditional approach. When the pretty slides are over, the consultant submits a project plan to implement the traditional forecasting, order management and supply planning that does not sense market demand and translate it into usable outcomes. The audience listening to these presentations does not have the courage to raise their hands and ask the question, "How do you define demand-driven value networks?" and then follow with the question of, "Can the traditional technologies really help us to become demand driven?" The consultants are incented to recommend the solutions that they are familiar with in implementing. Most know very little about the true definition of demand driven.

 

Tomorrow, I get to deliver this message to a large manufacturing client. I am speaking at their global kick-off. I am going to encourage them to not be guilt of industry groupthink. In this blog, I hope that I push you too. I want you to raise your hand and question the status quo. And, if you do not have the courage to do it directly, share the research and ask your leadership team to give me a call. I answer all emails and phone calls. I want to change the dialogue. It is tough for me to see that nine out of ten companies are stuck, and not making progress, at the intersection of operating margin and inventory turns. I grow weary of all of the consultant presentations of how supply chains can reduce inventory without looking at the form and function of inventory and the real needs for inventory to be a buffer of demand and supply volatility.

 

Listen our on-demand webinar on Supply Chain 2020. In this session, we will share research on the future of supply chain technologies, and I will be joined by a panel of two leaders that will share their insights on what the future means for them. In addition, I am now done with the page proofs for my new book, Metrics that Matter. The book is a story. It is a fable about a guy by the name of Joe that does not want to be an average Joe. Instead, he wants to drive supply chain excellence and build the metrics that matter. To do this, he has to build a guiding coalition and  define outside-in processes. Like you, he works with a group of characters within his organization, and is struggling with how to define the opportunity for the company. To do this, he has to use political capital, against great opposition, within the organization to redefine supply chain excellence. The book publishes in December 2014. In parallel, we are busy building a simulation game for organizations to play to understand the concepts of managing the metrics as a system and the importance of outside-in processes. Attendees at our 2015 Global Summit will get to participate in the launch of this new simulated exercise. We hope to see you there!