— 1 —
Supply Chain Shaman’s
Journal
A Focused Look at Building Value Networks
Volume 2 - Issue 1
Spring 2014
TM
by Lora Ce...
The
Supply Chain Shaman’s
Journal™
A Focused Look at Building Value Networks
Volume 2 – Issue 1
Spring 2014
by
Lora Cecere...
Contents
Introduction5
The Evolution of B2B Networks����������������������������������������������������������������������...
— 4 —
— 5 —
Introduction
The Supply Chain Shaman’s Journal is a collection of blog posts with a common theme. The posts
were wri...
— 6 —
The Evolution of B2B Networks
— 7 —
Whew! Let’s Get This Party Started
Originally published on March 12, 2014
I am an old gal. In six months I will rais...
— 8 —
As we emerged from the Y2K cloud, there was exuberance about e-commerce and the promise of
Business-to-Business conn...
— 9 —
It is important. As we have outsourced logistics and manufacturing, I firmly believe that we need to get
more seriou...
— 10 —
Start a New Conversation. Free the Data to Answer Questions
You Don’t Know to Ask
Originally published on September...
— 11 —
household to individual loyalty data sets. The data explodes as we add shopper
attributes to individual data to dri...
— 12 —
EDI: Workhorse of the Extended Supply Chain
Originally published on November 19, 2013
work·horse
nounˈwərk-ˌhȯrs :...
— 13 —
invested in portals, trading exchanges and automated business networks, the adoption is low. The
reason? Portals ar...
— 14 —
Time to Paint Outside the Lines
Originally published on July 7, 2012
As a creative kid, I never wanted to paint wit...
— 15 —
when I first encountered the founders of Open Ratings that was then bought by Dun and Bradstreet. I
was also skepti...
— 16 —
The ends of the supply chain—sales and procurement—are weak links, and a barrier to forging the
end-to-end supply c...
— 17 —
Long term, I think that the architectures will have a collaborative layer, a transactional layer and
will be enrich...
— 18 —
is slow realization that CRM and SRM architectures are not sufficient to drive
compliance and orchestrate reliable ...
— 19 —
Where Are You Drawing the Lines?
Supply chain architectures are in flux. I would love to know your thoughts. While ...
— 20 —
Building the End-to-End Supply Chain
— 21 —
Piece Parts
Originally published on February 7, 2014
You have brains in your head, and feet in your shoes.
You can ...
— 22 —
Let’s start with history. We have been at this for at least thirty years. This is not a new topic. ERP was
designed...
— 23 —
The Dilemma. How We Got Here.
-Outsourcing Is Growing. It Is Here to Stay. It Is Growing More Important.
In the stu...
— 24 —
The gap in current state to automate the value network is real.
3) Take ownership for the signal that you are sendi...
— 25 —
E2E: Really?
Originally published on January 14, 2014
Over the last month, I have been working with five companies ...
— 26 —
The Definition of B2B Relationships
— 27 —
Improving Relationships within the Health Care Value Chain
Originally published on October 15, 2013
The healthcare ...
— 28 —
4) Stalled Progress on Inventory and Cash-To-Cash Cycles. While hospitals have
improved inventory turns by pushing ...
— 29 —
company like Eli Lilly or Nova Nordisk. Both of these companies actively provide
medications to diabetic patients. ...
— 30 —
A Walk on the Beach? A Run for Supply Chain 2020
Originally published on July 21, 2013
I like art, and love unusual...
— 31 —
The supply chain needs to be designed to be agile. It does not just happen. There is no industry
standard. In this ...
— 32 —
Finance Group. 
The Finance Group sees the largest gaps within operations. For this group, the gap between
operatio...
— 33 —
Supply Chain Team. 
The perceptions of the supply chain show the greatest lack of organizational alignment. In the ...
— 34 —
So, How Do We Run the Race for Supply Chain 2020?
Just as the Strandbeest walks the beach, organizations need align...
— 35 —
Like a Green Lump of Clay
Originally published on October 7, 2012
My iPhone buzzed on my nightstand. I groaned. I h...
— 36 —
Q: Is it only inventory disrupting the agility resulting from inaccurate forecasts by SOP?
What is the biggest chal...
— 37 —
6) Agile Transportation and Distribution Networks: The use of alternate
routing and mode, cross-docking, yard manag...
— 38 —
Tips on Executing Agility Well
Q: You mention that Executive Buy-in is the biggest stumbling block. What techniques...
— 39 —
I continue to be impressed with the work that Llamasoft is doing on simulation and optimization in
network design. ...
— 40 —
Which Boat Do You Sail to Cross a Blue Ocean?
Originally published on August 6, 2012
In a recent post, Time to Pain...
— 41 —
conventional analytical vendors like Teradata and SAS, but they quickly find that these organizations
are used to s...
— 42 —
•	 Phase III. Systems of Commerce for E2E Value Networks. As systems evolve,
companies will come to realize that th...
— 43 —
•	 Business Process Outsourcing Will Grow. The use of analytics and the evolution of
business process outsourcing f...
— 44 —
La Sagrada Familia, NRF and the Emerging Opportunity
Originally published on January 18, 2012
Today, I landed in Ba...
— 45 —
and weeks), and the signal has a singular context. It cannot adapt for role-based
context across the organization.
...
— 46 —
Time to Broaden the Knot in Your Bow Tie?
Originally published on August 17, 2010
With the current economic uncerta...
— 47 —
greater than capabilities. (Retailer’s forecasting processes and demand accuracy was not up to the
test.) It was la...
— 48 —
option C and then reward the trading partner for taking these options through the
use of buying incentives. Include...
— 49 —
Crossing the Great Divide
Originally published on August 31, 2010
It was a hot Atlanta day. The temperature in the ...
— 50 —
level forecasting. At a minimum, it varies by focus (short-term versus long-term), the data model, and
the depth of...
The Supply Chain Shaman's Journal - Spring 2014 - A Focused Look at Building Value Networks
The Supply Chain Shaman's Journal - Spring 2014 - A Focused Look at Building Value Networks
The Supply Chain Shaman's Journal - Spring 2014 - A Focused Look at Building Value Networks
The Supply Chain Shaman's Journal - Spring 2014 - A Focused Look at Building Value Networks
The Supply Chain Shaman's Journal - Spring 2014 - A Focused Look at Building Value Networks
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The Supply Chain Shaman's Journal - Spring 2014 - A Focused Look at Building Value Networks

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The Supply Chain Shaman’s Journal is a collection of blog posts with a common theme. The posts were written between 2010 and 2014 as I worked with clients, gave speeches, and gathered research on the evolution of supply chain management.
The Journal should be read like a collection of short stories with each individual post sharing a unique set of insights on a specific topic. Keep this in mind as you read it. If not, as a collection of blog posts, they may seem disjointed.
This issue is focused on building end-to-end value chains through business networks. The articles are organized around three sub-themes:

The Evolution of B2B Networks

Building the End-to-End Supply Chain

The Definition of B2B Relationships
While companies say that they want to build end-to-end value networks, in essence they are automating the enterprise and running the network on spreadsheets and by phone/fax. The reader will find the journey is in its infancy.
Read and enjoy. Share with your friends and let me know your feedback.
I wish you all the best on your supply chain journey,
Lora Cecere, a.k.a. the Supply Chain Shaman

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The Supply Chain Shaman's Journal - Spring 2014 - A Focused Look at Building Value Networks

  1. 1. — 1 — Supply Chain Shaman’s Journal A Focused Look at Building Value Networks Volume 2 - Issue 1 Spring 2014 TM by Lora Cecere TM
  2. 2. The Supply Chain Shaman’s Journal™ A Focused Look at Building Value Networks Volume 2 – Issue 1 Spring 2014 by Lora Cecere author of Bricks Matter – The Role of Supply Chains in Building Market-Driven Differentiation SUPPLY CHAIN INSIGHTS LLC, PHILADELPHIA Copyright 2014 All rights reserved. Published March, 2014 ISBN # 978-0-9889376-2-8 PDF version
  3. 3. Contents Introduction5 The Evolution of B2B Networks���������������������������������������������������������������������� 6 Whew! Let’s Get This Party Started������������������������������������������������������������������������������������7 Start a New Conversation. Free the Data to Answer Questions You Don’t Know to Ask 10 EDI: Workhorse of the Extended Supply Chain����������������������������������������������������������������� 12 Time to Paint Outside the Lines ���������������������������������������������������������������������������������������������������������������������������������14 Building the End-to-End Supply Chain��������������������������������������������������������20 Piece Parts������������������������������������������������������������������������������������������������������������������������ 21 E2E: Really?���������������������������������������������������������������������������������������������������������������������25 The Definition of B2B Relationships������������������������������������������������������������ 26 Improving Relationships within the Health Care Value Chain �������������������������������������������27 A Walk on the Beach? A Run for Supply Chain 2020 �������������������������������������������������������30 Like a Green Lump of Clay �����������������������������������������������������������������������������������������������35 Which Boat Do You Sail to Cross a Blue Ocean?�������������������������������������������������������������40 La Sagrada Familia, NRF and the Emerging Opportunity ������������������������������������������������44 Time to Broaden the Knot in Your Bow Tie?����������������������������������������������������������������������46 Crossing the Great Divide�������������������������������������������������������������������������������������������������49 Supply Chain Insights Training Sessions����������������������������������������������������54 Supply Chain Insights’ 2014 Global Summit �����������������������������������������������55
  4. 4. — 4 —
  5. 5. — 5 — Introduction The Supply Chain Shaman’s Journal is a collection of blog posts with a common theme. The posts were written between 2010 and 2014 as I worked with clients, gave speeches, and gathered research on the evolution of supply chain management. The Journal should be read like a collection of short stories with each individual post sharing a unique set of insights on a specific topic. Keep this in mind as you read it. If not, as a collection of blog posts, they may seem disjointed. This issue is focused on building end-to-end value chains through business networks. The articles are organized around three sub-themes: • The Evolution of B2B Networks • Building the End-to-End Supply Chain • The Definition of B2B Relationships While companies say that they want to build end-to-end value networks, in essence they are automating the enterprise and running the network on spreadsheets and by phone/fax. The reader will find the journey is in its infancy. Read and enjoy. Share with your friends and let me know your feedback. I wish you all the best on your supply chain journey, Lora Cecere, a.k.a. the Supply Chain Shaman Founder of Supply Chain Insights LLC
  6. 6. — 6 — The Evolution of B2B Networks
  7. 7. — 7 — Whew! Let’s Get This Party Started Originally published on March 12, 2014 I am an old gal. In six months I will raise a toast to my sixtieth birthday. It is hard for me to believe that I am that old and still working. Many of my friends are retiring. The industry is in flux. Daily, I get notices from LinkedIn of job changes. Sometimes, I ask myself, “Where has time gone?” Other times I celebrate how much I have learned.  It will be a long time before I retire. I have a long memory. It is good today to celebrate something that I wished could have happened 14 years ago. As an analyst, I watch trends and the progress of technology adoption. Many times it is slow, and I get frustrated. However, today I am currently involved in a research project where I am seeing fast, and demonstrable results. It is the adoption of new forms of B2B networks for supply chains. History Let me start with some history to provide context. As background for the new reader, I have been an analyst in the supply chain management market for 12 years. First I was employed by Gartner Group and then by AMR Research. This was followed by a short stint at Altimeter Group which led to starting-up my new company Supply Chain Insights. My research projects have been many, and I love new technologies. I often find that new technologies are overhyped and underdeliver on promises. I pride myself on cutting through the hype and getting to the facts. No fluff from me… I am known for telling it straight.
  8. 8. — 8 — As we emerged from the Y2K cloud, there was exuberance about e-commerce and the promise of Business-to-Business connectivity. I actively followed the emergence of marketplaces and watched e-commerce blossom and B2B stagnate. In the period of 2000-2002, when I was at Gartner, I watched the evolution of a model that I violently disagreed with. It was the premise of ERP II. I could not condone investment in ERP as the path forward to building end-to-end value chains. I did not believe that it could happen from the inside-out. Instead, I felt that it needed to happen from the outside-in (from the network or channel back.) When Gartner Group bought AMR Research, I could not go forward. I had left Gartner because I did not feel that they were as serious about supply chain research as I wanted them to be. I wanted to write about cool technologies for the line-of-business buyer. I wanted to be uncorked and out of the control of dominant players in the market to write the unabashed truth as I see it. This journey has taken courage. It is tough to take a hard stand. Today, I want to take another one. Celebration of the Evolution of B2B Networks I am currently working on a series of reports on the state of Business-to-Business Connectivity. The first published this week, and the second will publish next week in our newsletter.  While many companies wax eloquently on the concept of building the end-to-end value chain, I find that they are not clear on the meaning. It is often stated as a goal in meetings, and I see it used in many strategic plans. However, what I observe is continued investment in the automation of enterprise practices. We are busy working on process iterations and continuous improvement programs that I think only inch us towards business transformation. I am excited to state that today I think that we finally have B2B Network alternatives that work. I am also excited to state that I think that they are one of the disruptive technologies that can help us get unstuck in delivering on corporate performance.
  9. 9. — 9 — It is important. As we have outsourced logistics and manufacturing, I firmly believe that we need to get more serious about the building of Business-to-Business (B2B) networks. These are one-to-many and many-to-many architectures that connect logistics providers, contract manufacturers and suppliers into true supply networks. There is a community layer, an application layer, and a connectivity layer. In our recent research reports, line-of-business users are using these networks for 7% of their flows. The primary methods of connecting with trading partners are spreadsheets and EDI. It is easier said than done. We have been at it for over a decade, and I see real progress in the evolution of these technologies in the last two years. An image representing this type of network connection is used in the beginning of this post. (I use it courtesy of GT Nexus.) Here is the essence of what I have found out: • Confusion reigns. The term control tower confuses the market. It is used by Kinaxis in a one-to-one model, by E2open in a one-to-many model, and by GT Nexus in a many-to-many model. What I think that we are seeing is the evolution of different types of supply chain visibility as outlined in Figure 1. To solve the problem, we have to be clear on the type of connectivity that we are seeking. When people use terms loosely we need to ensure clear definitions. • Why business networks over EDI Vans? In the words of my reference callers last week, “They work.” While EDI providers do point-to-point integration, the connections are fragile. Every time there is a software upgrade at a point in the node, the connections break. This is not the case for the B2B business network provider. EDI VANS have consolidated and stagnated, but B2B Networks are maturing. • The answers are not coming from ERP players, and will not in the short-run. Yes, I know that SAP bought Ariba, and that they are hard at work on the integration of SAP APO, SNC and the Ariba business network. I just do not see that it will be a viable alternative in the short-term. (i.e., less than five years.) Why? It lacks the community infrastructure and the depth of application. However, it is important to note that SAP is trying. Oracle is not. As a result, I would invest my money in E2open, Elemica, Exostar, GHX, GT Nexus, or iTradenetworks in the short-term. The specific choice depends on the requirements at the application layer and the desired community. But, look for more on this next week. • The business networks have evolved. I am impressed by the evolution of canonical models in these business networks. We have come a long way from the failed start- ups of over 300 marketplaces in 2001-2005. I am also stoked to see the use of non- relational databases and cloud-based computing to make B2B business networks for supply chain a reality. They have come a long way in the past two years. In fact they had matured faster than I had given them credit for. So the next time you see an analyst compare an EDI VAN and a B2B Business Network on the same model throw up a red flag. It is obvious that they just do not know what they are talking about. They are very different solutions with far-reaching implications. • We need to get on with connecting the value chain. The traditional roles of buyers and sellers make it difficult to get past traditional buy/sell relationships and start the work of building value networks. Less than 1% of companies have a resource aligned to drive this work. It is a gap. I think that we need to just get on with it. So, in closing, I would love to hear about your experiences with the Business-to-Business Supply Chain Networks.
  10. 10. — 10 — Start a New Conversation. Free the Data to Answer Questions You Don’t Know to Ask Originally published on September 14, 2010 It happens all the time. IT says to line of business leaders, “Tell me what you need for Business Intelligence (BI), and I will go find the right technologies.” The issue is that we don’t know, and we will not know soon. We only know that applications are changing and that the data is growing exponentially. The answer to the question, “What is the right data architecture for demand-driven value networks?” The answer is “It is evolving. We don’t know.” All we know is that it will get even bigger and more complex. We are facing a redefinition of applications for consumer products and retail. It will require a rethinking of business intelligence strategies.  The Discussion Today When I talk to most people about BI and demand-driven value networks, the discussion quickly evolves to two topics: • What is the best BI solution to layer on top of Enterprise Resource Planning? • How do I contain and manage the volumes of data in Excel spreadsheets? For me, these are the wrong discussion tracks. It is like going to the wrong church with the wrong pew. For a lady that is knee-deep in building a house, the analogy that I would like to apply is this: It is like a discussion of which window pane will be best for the view, when we should really be talking about the design of the house. Planning for Tomorrow I think that we need to create conversations that don’t exist. We need to free the data to answer the questions that we don’t know to ask. Sensing technologies to support the evolution of pattern recognition technologies, advanced optimization and rules-based ontologies. We also need flexible information architectures that will support changing application infrastructures. Let’s take a closer look at six drivers: 1) Geospatial Data: Maps enable new ways to engage the shopper. The list is endless but includes geomapping for gaming, new technologies to track shopping to drive in-store insights, and searches across banners to understand in-stock positions, pricing strategies and offers. Mapping has grown in importance and generates a new type of data. 2) Sentiment Analysis/Listening Posts: I was speaking to a customer last week that is trying to syndicate data from 800 review sites, and another that was listening to customer sentiment at 500 listening sites. This is unstructured data that needs to be cleansed, syndicated, and managed. A new source of data that will be critical to the evolution of the future of demand-drive value networks. It will allow us to better plan demand, execute assortment and run-out programs, and adjust new product launch programs. 3) Loyalty Programs: Traditionally, loyalty programs have been household level data. As social/mobile/e-commerce programs converge, loyalty programs move from
  11. 11. — 11 — household to individual loyalty data sets. The data explodes as we add shopper attributes to individual data to drive market insights. 4) Engage: Before we have loyalty data we have the tracking of engagement behavior. How do I engage with fans like me? In programs that make sense in my community? The result is social behavior data. Look for a convergence of social and shopping insights data as we try to merge information across the proliferation of channels. The apparel retailer will soon have at least five channels: social, mobile, e-commerce, direct store purchases and purchases within other retail outlets. The term cross-channel will take on a WHOLE new meaning. 5) Point-of-Sale (POS)/Enrichment:  As we move from broad-brushing markets to localized assortments driven by crowd sourcing/social fan engagement, retailers will add enrichment data to POS data. Recently, I attended a Retail Connections conference BTW, Marc Millstein throws a great conference, three retailers mentioned that they have over 100 attributes to add to their retail POS data. Just think about the possibilities of how we can use this enriched data to sense, shape and respond to demand. 6) Data Enrichment/Syndicated Data: Despite the investment in downstream data, syndicated data is not going away. Instead, it will become deeper and we will see a coalescence of social, consumer and shopper insight data. My Take... It is time to stop picking out window panes. We need to build a new foundation—a data foundation— for the new enterprise architecture that is coming. Yes, we do not know exactly what it looks like, but we do know that it will need to: • Manage large quantities of data • Use data that is mostly EXTERNAL • Allow unstructured data to open up new frontiers for sensing true customer service • Be built using a data strategy where data reuse will be key • Be flexible to support changing applications as the vendor landscape rises, wanes and falls. There will be a lot of change. • Support line of business sandboxes that will become prevalent to run specialized analytics • Have advanced master data management (MDM) tools for data maintenance Am I missing anything? What do you see? Where will you turn?
  12. 12. — 12 — EDI: Workhorse of the Extended Supply Chain Originally published on November 19, 2013 work·horse nounˈwərk-ˌhȯrs : a dependable person who does a lot of work : a dependable machine or vehicle that is used to do a lot of work EDI is the workhorse of B2B connectivity. It is not new. It is not sexy. Four decades after its creation, supply chain executives see it as slow and expensive. They are frustrated. They question the value. But it does matter and slowly, we are making progress. In our recent research study of 89 companies, we find that EDI is used nearly six times more frequently in the connection of trading partners than portals, and eight times more frequently than the use of business networks (e.g., trading exchanges or specialized industry hubs). We also find when companies can achieve hands-free orders, order-to-shipment cycles decrease by 50% and there is greater accuracy in fulfillment. The current state of B2B connectivity is outlined in figure 1. Figure 1. Current State of Trading Partner Connectivity Most companies see EDI and the exchange of documents through established protocols as old-school processes. Many technology options have promised to make EDI outdated, but it has not happened. Today, no company studied uses just one method for B2B connectivity. The connectivity with trading partners is usually a mix of portal, business network and manual processes. While companies have
  13. 13. — 13 — invested in portals, trading exchanges and automated business networks, the adoption is low. The reason? Portals are one-way communication. The use of portals is too passive and companies struggle to synchronize the many changes that occur in sales and purchase order processing through this passive form of connectivity. Business networks represent 7% of B2B connectivity. The value proposition for automation is compelling. The messaging is pennies and the value proposition is in dollars. Here are some of the findings of the study: • Irrespective of how they are processed, over 40% of customer orders change at least once. The use of EDI reduces errors and improves processing times. • Today, there are few incentives to use EDI in trading partner relationships. Despite the strong value proposition, only 6% of respondents offer order discounts to customers for using EDI for order processing. • The use of EDI reduces costs. Today, 30% of shipments are received without Advance Shipment Notification (ASN). Shipments without an ASN cost the average company an additional $78 per purchase order to process. Does this match what you are seeing? Any stories to share?
  14. 14. — 14 — Time to Paint Outside the Lines Originally published on July 7, 2012 As a creative kid, I never wanted to paint within the lines. Did you? I found that it was just too confining. While my mother knew that the teacher’s goal was to help me develop fine motor skills, she let me race past the boundaries to make the picture my masterpiece... my expression of the day. She never forced me to paint within the lines. As an analyst, in an attempt to explain supply chain planning to the potential buyer, I have not done as well. I have unwittingly asked supply chain leaders to paint within the lines. The origins were well intended. In an effort to better explain technologies, I defined application areas. I drew lines and boxes and defined taxonomies. I rated vendors within these frameworks. These diagrams provided order in a crazy world. This was done in an attempt to provide clarity; but today, I find what I built ten years ago too confining. However, I still see them being used. I have unknowingly constrained thinking. The analyst community traditionally penalizes technology vendors that do not fit into “nice and neat” boxes. We unknowingly want the vendors to stay within the lines, and then ironically complain that there is no “innovation.” (Admittedly, I am part of a tough group of characters.) Let’s take a look at history. I was part of a group at Gartner Group that put Ariba on Problem Watch in 2001  http://www.marketwatch.com/story/ariba-rebounds-after-it-replies-to-negative-report We predicted that this builder of procurement networks would struggle and be acquired in 2002. We were wrong, Ariba had a good run for a decade after the report predicted its demise. The company was acquired in 2012 by SAP for $4.3 billion after establishing cloud-based networks for procurement. Cloud and networks were new concepts in 2001. They went to the cloud and painted outside the lines. In a similar way, I feel that this bias limited the potential of vendors like Kinaxis. The overzealous coverage of i2 Technologies by AMR Research did not allow for others to shine, and Kinaxis did not fit into the «nice and neat» boxes. Quite frankly, understanding the value proposition of new technology vendors is hard. As analysts we have to sort through a lot of hype to find out what is real. Many come and go. It took me two years to understand the value proposition of Terra Technology. I was dubious
  15. 15. — 15 — when I first encountered the founders of Open Ratings that was then bought by Dun and Bradstreet. I was also skeptical when I first met the founder of Enterra Solutions. All of these vendors have had the courage to paint outside the lines. Recently, I was visiting the offices of a major ERP/APS technology provider. They were proud to show me some new software that ran the old definitions of supply chain planning faster in memory. They thought that I would be excited, and were a bit surprised when I was not. Initially the meeting was contentious, then they mellowed when I asked them, like I ask you, to paint outside the lines. As I drew what I think is the future of supply chain planning, the drawings were contested by the group; but as they left the room, they took pictures of the drawings before they erased the board for the next meetings. They wanted to be sure that they had them. In this blog, I want to give my readers permission, even encouragement, to paint outside the lines. The traditional definitions of supply chain planning are being redefined. The business problem has changed and new technologies enable new approaches. With the evolution of Big Data systems, new forms of analytics and greater power of in-memory processing, old architectures are antiquating. I believe that it is time for the old and traditional architectures to give way, and for gals like me to try to paint new lines and boxes within new frameworks. In this blog, I contrast the old and new views. An Aside As I have traveled the country and talked about the exciting things we are cooking up at Supply Chain Insights, I have had a lot of push back on the name Supply Chain Insights. This happens most often in Europe or in discussions with Indian system integrators. As I describe the research agenda of my new company, and the aggressive publishing schedule, their standard comment is “You are covering so much more than supply chain. Why did you name the company with such a limiting definition by using the term supply chain?”  I smile. And then I respond, “I believe that we should be discussing how to connect the customer’s customer to the supplier’s supplier. I believe that we should not be marketing driven, but market driven. I believe that the vertical processes of sales, marketing, logistics, manufacturing and procurement need to cede and give way to the building of outside-in horizontal processes. The traditional views are too limiting. We have built inflexible inside-out processes that need to transition to outside-in processes to improve sensing and drive an intelligent response. We need to start with the ends of the supply chain (commercial and procurement teams) and work back. This is my mission.” They smile. Sometimes dubiously.... I know that it is a different world. I am painting outside of the lines again. Their world view is within functional lines that they are comfortable with. I am challenging the hard and fast lines that defined the traditional functional buyer of enterprise applications. I write for the buyer of enterprise applications that is pushing the boundaries. As a result, I will always paint outside the lines. The Old Lines The old lines of supply chain planning were hard and fast. The traditional supply chain frameworks had a strong focus on vertical process focus. Supply chain execution (SCE) was only defined as systems -- transportation, warehouse management, and order fulfillment-- that improved order to cash processes. Demand planning was defined tactically, but lacked an operational component. Demand sensing definitions evolved in the past five years to fill this void to replace rules-based consumption with short-term forecasting processes, but it is not sufficient. Customer Relationship Management (CRM) has never lived up to its believed potential.
  16. 16. — 16 — The ends of the supply chain—sales and procurement—are weak links, and a barrier to forging the end-to-end supply chain. We will never build strong value networks with the current definitions of enterprise applications. My New Lines Today, I think the processes need to start outside-in. They need to be constructed from the customer back to the supply chain within the enterprise. The focus needs to be on value-based outcomes.
  17. 17. — 17 — Long term, I think that the architectures will have a collaborative layer, a transactional layer and will be enriched and supported by a new Business Intelligence (BI) architecture. Companies will also realize they need to build an inter-enterprise system of record. The purple areas in the drawing are new forms of analytics that are evolving to help organizations better sense and respond to market shifts. I also believe that in this next decade we will see our current transactional systems (often termed ERP, CRM and SRM) become legacy applications. Business differentiation will occur through new forms of predictive analytics and pattern recognition that will happen within the new suites of emerging applications by vendors that paint outside the lines. Look for them in the areas of sentiment analysis, natural language processing, text mining, advanced pattern recognition, rules-based ontologies, and advanced optimization techniques. I think we will get new sets of “black boxes” that will combine these techniques for the supply chain. Within the supply chain planning suite within the enterprise, I predict that the new world will be based on analytics. Demand signal repositories, supply signal repositories and enterprise data warehouses. There will be a shift from transactional systems to Business Intelligence (BI) architectures. BI will mean much more than rows and columns and reporting. This drawing is aspirational, it is not today’s reality. There are eight shifts in the drawing that are a major shift from the traditional view portrayed above. 1) Shift from Vertical to Horizontal Processes.  While there has been a resurgence in Sales and Operations Planning (SOP), there is also slow momentum growing for revenue management and supplier development programs. There
  18. 18. — 18 — is slow realization that CRM and SRM architectures are not sufficient to drive compliance and orchestrate reliable networks. As a result, companies are beginning to invest in three, not one, horizontal processes (definitions listed below): revenue management, SOP, and Supplier Development. 2) Demand Translation and Demand Orchestration.  With the increasing volatility of commodity markets, companies need to quickly translate demand implications of channel strategies and orchestrate them bidirectionally market-to-market through demand orchestration. In demand orchestration, advanced analytics are used to rationalize customer, product and material strategies to predicted shifts in commodity markets against market potential. An early example of this type of functionality is Signal Demand in the process industries. The work by Cargill Beef and Fonterra are case studies to follow closely. 3) Management of the Supply Chain Planning Market-to-Market from Contract- to-Contract. Contract management has not played heavily in supply chain planning. With the slowing growth and increased market volatility, this is changing. In the future, I believe that text mining and natural language processing will be used to translate contract terms to demand orchestration processes. Early work in this area is seen in contract compliance by Enterra Solutions’ work at Conair and Newell Rubbermaid. 4) Completion of the Demand Management Footprint. Traditional demand planning was defined as a tactical planning process with no tie to market execution. As demand sensing capabilities are replacing rules-based consumption, there is the evolution of a demand execution footprint complete with forecast value- added analysis (FVA) to evaluate continuous improvement programs in demand management. Look for new footprints in this area from SAS and Terra Technology. 5) Building of Demand and Supply Sensing Capabilities. The use of unstructured and structured data to sense demand and supply capabilities will first evolve through Big Data Services and then be integrated with enterprise data repositories. Bazaarvoice’s listening service for ratings and reviews and Dun Bradstreet’s listening for supplier performance are early examples of this type of service. 6) New Capabilities for Demand and Supply Execution. Long term, both demand and supply execution and functionality for demand and supply networks will be constructed from the outside-in. This is where the average company will first encounter Big Data concepts as they try to fuse streaming data, geolocation and mobile data, and large transactional data sets. Kinaxis’ work in in-memory processing of supply data is an early form of this functionality. 7) Closed Loop Processes for Demand and Supply. Large scale parallel processing and advanced optimization and new predictive analytics techniques will allow companies to sense, respond and evaluate. This will evolve to listen, test and learn strategies for both demand and supply over the course of the next five years.  8) Building of Supply and Demand Networks. The traditional programs for Vendor Managed Inventory (VMI) and Supplier Managed Inventory (SMI) systems have been implemented, but never tightly integrated because the enterprise data models were inside-out not outside-in. As the enterprise architectures are redefined, VMI and SMI will become tightly integrated and enriched with unstructured data like quality, return, warranty and social data. This will redefine demand and supply visibility.
  19. 19. — 19 — Where Are You Drawing the Lines? Supply chain architectures are in flux. I would love to know your thoughts. While I hesitate to replace one set of boxes and lines with another, I know no other way to communicate the changes. However, this does not mean that you or your teams need to paint within the lines. All I know for sure is that the traditional architectures are too constraining and no longer meet the business need; and that new forms of technologies allow us to rethink how companies can draw the lines. OK, enough from me on a sizzling July afternoon. Drop me a note and let me know your thoughts. I would love to hear from you on where you are drawing the new lines. Next week, I am attending the SAP Base Camp followed by a full agenda to work with clients on these concepts in strategy workshops. I have made good progress on my new reports. I should publish four by Friday next week. Things are exciting in my new company. We appreciate your support of Supply Chain Insights. Definitions For those that have not read some of my fundamental writing on these topics, for clarity, I list the definitions of the terms below: • Demand Sensing: Shortening the time to sense “true” market data to understand “true” market shifts in the demand response. This is in contrast to the use of order-to- shipment data that can have 1-3 weeks latency in translating “true” market demand. • Demand Shaping: The use of techniques to stimulate demand. This includes new product launch, price and revenue management, assortment, merchandising, placement, sales incentives and marketing programs. • Demand Translation: The translation of demand outside-in from the market to each role within the organization. Recognizing that the requirements for distribution, manufacturing and procurement are different. • Demand Orchestration: The process of making trade-offs market-to-market based on the right balance of demand risk and opportunity. • Demand Shifting: The shifting of demand from one period to another through advanced shipments, and moving more products into the channel without stimulating base demand. • Revenue Management: The process of stimulating demand through demand shaping efforts and carefully managing payment capture to ensure that the changes in payment terms do not result in deductions. Evaluation of the effectiveness of demand shaping programs through sales analytics. • Supply Sensing: The use of unstructured and structured data to sense supplier failure and pending supply shortages. • Supplier Development: The process of supplier selection, training, onboarding and adherence to supplier policies. Supplier development programs have increased in importance to accelerate innovation, improve supply and ensure compliance to corporate social responsibility initiatives.
  20. 20. — 20 — Building the End-to-End Supply Chain
  21. 21. — 21 — Piece Parts Originally published on February 7, 2014 You have brains in your head, and feet in your shoes. You can steer yourself any direction you choose. You’re on your own and know what you know. And, you are the only one that will decide where to go. Dr. Seuss In this blog we are going to focus on the word part. By definition it is: ...one of the pieces, sections, qualities, etc., that make or form something. Merriam-Webster Dictionary I love Dr. Seuss. When my daughter was six, I would beg her to let me read her another whimsical Dr. Seuss story before she went to bed. It was fun. The words from Seuss would flow from the pages as I held a promising young girl full of life and energy. We laughed at the illustrations. The sing-song words rang through the night air as we turned out the light and said good night. Tonight, as I return from a client, I thought that I would start with Seuss to lighten up a bad story. It is a story of parts. It is a tale of pieces that do not assemble to build the whole. It is 2014. Leaders tell me the real story of monies spent and pennies saved. The consultants and technology vendors tell the stories of small dollars invested and large value gained. The advertisements in the airports boast of great gains. There is a disconnect. I do not see value when I am visiting clients. So I ask myself, “Why?” These leaders are well-equipped. They have brains in their heads and feet in their shoes. They can steer themselves any direction they choose. Why are we not making more progress? Figure 1.
  22. 22. — 22 — Let’s start with history. We have been at this for at least thirty years. This is not a new topic. ERP was designed to deliver transactional efficiency. It accomplished this goal. It was not designed to be a planning architecture. At the beginning of the last decade, the promise of the tightly-integrated enterprise was born. Companies invested in tight integration of ERP with supply chain planning (APS). It was a mistake. ERP vendors rushed to provide planning solutions that were less robust than best-of-breed providers. Consultants touted that 80% was good enough. Today, ERP investments have consumed IT budgets. The monies have flowed to the consultants. Today, only 8% of companies are satisfied with their “what-if” capabilities and only 22% of companies can get to cost data in making planning decisions. We are stuck. We have not been able to build the planning architectures that effectively let manufacturers plan from the customer’s customer to the supplier’s supplier. As shown in figure 1, the gaps in the value chain network are large. The Problem The goal was to automate the process of planning from the customer’s customer to the supplier’s supplier. However, today, we have pieces that do not fit together to make a whole. Sadly, our architectures are a compilation of piece parts. Most companies have defined enterprise architectures that are inside-out, but lack the ability to take them outside-in. The focus is on the enterprise not the value network. With the investment in transactional systems for order-to-cash and procure-to-plan, many have lost focus on planning. As a result, they are not effectively able to connect to customers and suppliers. We have talked about it for a long time, but we are not making much progress.
  23. 23. — 23 — The Dilemma. How We Got Here. -Outsourcing Is Growing. It Is Here to Stay. It Is Growing More Important. In the study of 63 manufacturers, the average company has outsourced 49% of logistics and 30% of manufacturing. Physically, the supply chain is becoming a network. Logically it is not. Companies are more dependent on each other and there is less excess capacity. It is more brittle and less flexible. Upstream companies have systemically pushed costs and waste backwards on suppliers. While EDI is used to share transactional data, and progress has been made in this area, the software of choice to share plans is an Excel spreadsheet. Yes, we have brains in our heads and feet in our shoes, but we communicate most of the important information about the supply chain in an Excel spreadsheet? Does this make sense? I do not think so. I spoke to one client last week that gets 13,000 spreadsheets from one customer that has 72 manufacturing plants with changes two to three times a day. After these discussions, I am amazed that we have made as much progress as we have. -Nine out of Ten Companies Are Stuck at the Intersection of Operating Margin and Inventory Turns. I am convinced that the greatest opportunity to unstick the supply chain lies in the value network. We have got to break the cycle of pushing costs and waste backwards in the supply chain and paying a higher price for materials. Modern procurement practices have lengthened payables by 30 days and made it almost impossible to have a true relationship.  -ERP Was to Be the Solution. We have naively gone down this path. ERP vendors were to build the architectures to extend the enterprise to their trading partners. It has not happened. As shown in Figure 2, connectivity of planning information with trading partners for third-party logistics, transportation and material suppliers is important to companies, and supply chain leaders have lost confidence that this gap can be closed by an ERP vendor. The investment in supply chain planning is growing by 55% in 2014, yet 56% of supply chain leaders report that it is focused on the work with their strategic vendors which are most often the ERP provider. The selection of IT solutions is typically a joint decision where IT is involved 80% of the time and the line of business leaders are involved 85% of the time. This just does not make sense to me. -Supply Chain Business Networks Are New and Promising; Yet Only Represent 7% of the Flow. Today, there are a number of cloud-based supply chain planning solutions and new forms of business networks that offer both applications and communities to facilitate these planning flows; however, the awareness of these by line-of-business supply chain leaders is low and the ability to get funding for these projects is tough because most of the corporate funding is locked into ERP programs. Where Do We Go from Here? What Do We Do About It? Supply chain leaders have brains in their heads and feet in their shoes. Only they can direct what they do. They need to act. Ownership of the extended value chain is more important to drive differentiation and improve Corporate Social Responsibility initiatives. What steps to take? 1) Get clear on a planning road map. Put the parts together to make the whole. Build a multi-year road map. 2) Recognize the reality. Stabilize ERP investments. Recognize them for what they are. You need them as a planning system of record and to automate transactions.
  24. 24. — 24 — The gap in current state to automate the value network is real. 3) Take ownership for the signal that you are sending your suppliers. 4) Partner with emerging cloud-based solutions and business network technologies to connect the extended value chain. Today, there is no perfect solution. However, the path that we are going down is not closing the gap. It reminds me of the old Turkish proverb, “No matter how far you have gone on a wrong road, turn back.” I would love to hear your thoughts. What do you think?
  25. 25. — 25 — E2E: Really? Originally published on January 14, 2014 Over the last month, I have been working with five companies that say that they want to implement an End-to-End (E2E) Supply Chain Strategy. However, when I hear their stories and get their PowerPoint slides outlining their design, I laugh. Why? The slides all look the same. And, they are anything BUT end-to-end. Why does it matter? Nine out of ten companies are stuck. Organizations are unable to power progress on operating margin and inventory turns together in the same year. The answer lies with a new approach. Complexity has increased, and companies need to reach a better balance between profitability, cycles and complexity. They cannot today. I love the fact that companies are stepping up to ask the questions, but I often find them asking the wrong questions. Here is what I see is missing: -Strategic. Tactical. Operational. Executional. There are four distinct layers of planning functionality. For E2E processes, each needs to be redefined. Each layer of planning has a different time horizon, planning cycle and level of data granularity. It needs to be designed with the goal in mind. In the building of E2E planning processes, the supply chain systems needs to start at the channel and end with the supplier. The flows need to be bidirectional. Most companies start at the middle of the planning architecture with supply; not at the channel. And, the flows are sequential not bidirectional. For most this is a big change. -Consumption Logic. Each layer of planning needs to be a market-to-market connector. There needs to be consumption and synchronization between the layers. The design needs to drive synergy bottoms-up and tops-down. Most companies are not using the data that they have. For example, I have just finished interviewing thirteen Vendor Managed Inventory (VMI) leaders. In my interviews, no company has successfully integrated VMI into their E2E planning processes. This is sad. VMI was defined in the 1980s. -Clear Definition of Each Planning Horizon. Each of the planning horizons need to be defined and redefined with new forms of analytics. I find that most companies have gotten quite muddled in these definitions, forgetting the basics of planning. -Plan with the Goal in Mind. I also find that companies get overzealous about a technology and use it without rethinking the planning architectures. Just because you have lots of data does not mean that it should be loaded for every cycle. So, here is my challenge. Please rethink mental models. The traditional Advanced Planning Systems (APS) are not designed to be end-to-end. It requires a redesign.
  26. 26. — 26 — The Definition of B2B Relationships
  27. 27. — 27 — Improving Relationships within the Health Care Value Chain Originally published on October 15, 2013 The healthcare provider network is fragmented. As the power shifted from the supplier to the healthcare provider, over the last decade, the healthcare provider responded. The hospital built a supply chain organization that is now viewed as stronger than that of its suppliers. Today, providers of healthcare self-assess that they are more successful meeting their goals than the supplier. The supplier, or healthcare manufacturer (pharmaceutical or medical device), in the healthcare value chain is three times larger than the provider. They have four times the profits. However, in our recent study on healthcare, the supplier rates themselves 15% less successful than healthcare providers in their ability to deliver on their supply chain goals. Here are the highlights from our recent study: 1) Rising Complexity. Nearly two-thirds of manufacturers are offshoring to reduce costs. They have longer more complex supply chains, but rate themselves low on their ability to plan demand and manage a network. 2) Enterprise Alignment. Only 1/3 of suppliers feel that they can effectively integrate their supply chain and sales processes within their own organization. This is a barrier to forming a successful value network. 3) End-To-End Focus Not in Sight for Suppliers. Two out of five manufacturers report that they have someone responsible for the end-to-end supply chain. For the supplier, the focus to move from a supply chain to build a value network is just starting. To focus on the patient, there needs to be a value-chain focus.
  28. 28. — 28 — 4) Stalled Progress on Inventory and Cash-To-Cash Cycles. While hospitals have improved inventory turns by pushing the responsibility backwards onto the supplier, in the last decade, there has been no improvement in cash-to-cash and inventory cycles for the value network. Each party self-assesses their capabilities in demand, supply and network planning at a very low level. There is a need for both parties to step up and improve capabilities. So, in the absence of supply chain leadership, the government will step in to try to heal the healthcare value chain. What they will find is: 1) Value Analysis and Supplier Collaboration Programs by Hospitals Just Starting. Over 70% of healthcare providers now have value analysis programs. They are being used to evaluate new products and services. Sixty-seven percent of companies rate them effective in meeting the goals of managing costs, determining physician preferences and reducing infection rates. However, most of the processes are not about VALUE; instead, they are about cost mitigation. There is a need to align value-based outcomes to serve the patient. The toughest nut to crack is the incentive systems. 2) Business Model Innovation Needed. Unlike other industries, no company in the healthcare value chain has stepped forward to use power to drive business model innovation (E.g. like Walmart in retail or Intel in the semiconductor industry) to significantly improve the end-to-end value chain. This is an opportunity for a
  29. 29. — 29 — company like Eli Lilly or Nova Nordisk. Both of these companies actively provide medications to diabetic patients. The movement to patient sensing and monitoring and direct delivery of services to the patient through better communication and monitoring for the physician is now within our grasp at a technology level. The greater barriers lie in the building of systems and effective networks for patient delivery. The most movement is with CVS and Walgreens. 3) Lack of Alignment on Outcomes. Regulations, taxation and talent are the top three challenges for manufacturers while the top three challenges for providers are costs, inventory, and contract management. Sadly, the patient does not make the list. We are a long way from a focus on value-based outcomes to serve the patient. If I had a magic wand, what I would like to see happen is: 1) A Redesign from the Patient Back with a Focus on Wellness. I would like to see us rethink the value network and the delivery systems to focus end-to-end. Since we are facing government intervention, perhaps a tax credit for big pharma and medical device companies to invest in innovation to use the Internet of Things to focus on real-time patient monitoring to improve wellness? 2) Investment by Manufacturers in Supply Chain Planning. It is hard for companies that have high profit margins to focus on supply chain planning to improve costs, inventories and customer service. With the rise in complexity, it is time for manufacturers to get to work to close the gap between themselves and the other manufacturing industries. Perhaps an audit system on supply chain excellence to get reimbursement levels? 3) Data Sharing on Usage. The management of goods throughout the channel and the sharing of downstream data in a meaningful way can streamline the entire value network. The redesign of these systems outside-in could dramatically reduce costs and improve service. 4) Eliminate Rebates. The healthcare value network has the most antiquated and ineffective system for rebate management. The waste and time spent trying to manage bifurcated trade should be eliminated. 5) Building of Strong Networks for Case Management. I like what GHX is doing on the building of an inter-enterprise system of record for case management for scheduling a patient and the management/tracking of use in the operating room. I would love to see this type of approach more widely adopted. What are your thoughts? I look forward to hearing from you.
  30. 30. — 30 — A Walk on the Beach? A Run for Supply Chain 2020 Originally published on July 21, 2013 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 catches the wind and walks 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 rates the need for agility high, and rates it low. As shown in figure 1, the gap is wide. The supply chain group rates it the lowest. Figure 1
  31. 31. — 31 — 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. 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.
  32. 32. — 32 — 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.
  33. 33. — 33 — 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 teams are more closely aligned than the views of the finance team around this alignment. Figure 4.
  34. 34. — 34 — 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 SOP 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 was 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.
  35. 35. — 35 — Like a Green Lump of Clay Originally published on October 7, 2012 My iPhone buzzed on my nightstand. I groaned. I had gotten to bed late. It was 6:00 AM. This was before my wake-up call. I am not a morning person. As I picked it up, I saw a twitter alert welcoming people to the APICS webinar with @lcecere on Agility that afternoon. Much to my chagrin, I rubbed my eyes and checked my calendar. The APICS event was not there. My schedule had me on a plane to Chicago at the time of the presentation. There were 250 attendees signed up and I needed to adapt. We rescheduled my flight and I quickly put together some slides for the presentation. (To see what I built, check it out on SlideShare or view/ download it in the SCI Community) As we went live with the webinar, I laughed. I had successfully adapted to give a presentation on agility to 254 people. Defining Agility When I think of the definition of the word agility, I think of Gumby, pictured here. Gumby can bend and adapt. He started as a green lump of clay. He was designed to be agile. Your supply chain needs to be agile too. The best supply chains are also designed for purpose. They are balanced. They also have the right amount of agility. The foundation is a base of strong processes to deliver business results. “But,” you might say, “what is the right amount of agility? And, how do I design for agility?” The answer is the goal of this post. For the purpose of this discussion, I define agility as the design of the supply chain to deliver the same cost, quality and customer service given a level of both market volatility and process variability. It requires design. For mature supply chain organizations, it is a natural extension of Six Sigma. It is a goal for 87% of companies, but only 27% of organizations feel that they have met their internal goals to achieve agility. One of the largest issues for organizations to drive supply chain agility is the lack of a commonly held and well-understood definition. As you will see in the questions from the respondents, people often confuse agility and responsiveness. They are also very confused. It is something that they want, but they cannot describe it and they do not know the steps to take to make it happen. Seven Levers of Agility In this blog post, I publicly answer the questions from the webinar. The astute reader will quickly see that the concepts, while simple, are not well understood.
  36. 36. — 36 — Q: Is it only inventory disrupting the agility resulting from inaccurate forecasts by SOP? What is the biggest challenge in supply chain agility in balancing the cash-to-cash cycle? Is it SOP? In the supply chain, variability and volatility come from many sources. The best way to start the design of an agile supply chain is to look at the sources of variability and market volatility that your supply chain encountered in the prior year. These can be shift in the channel, issues in manufacturing, increasing variability in transportation, or a shift in commodity prices. Make a list and identify the degree of impact. The reasons are usually many. Then match the type of variation with a potential agility design element to absorb the variability. The biggest barrier is looking at the design holistically. The focus in agility is in horizontal processes. There are seven primary agility levers: 1) Analysis of Form and Function of Inventory: Form of inventory is the decision of what form to hold the inventory in: raw material, semi-finished good or finished good. The less conversion of materials in the inventory strategy, the greater the flexibility of the supply chain. Likewise, the functional forms of inventory are cycle stock, seasonal inventory, and safety stock. Companies that are agile try to minimize the need for cycle stock and use discipline in run out of seasonal/promotional inventories. These companies have accurate inventories counts and analyze the form and function of inventory quarterly. 2) Alternate Bill of Materials and Alternate Sourcing: The more alternatives that exist through the manufacturing and procurement processes, the easier it is to design the supply chain to absorb cost and supplier variability. Additionally, through network strategies, be sure to design your warehouses for flows. Products with dissimilar flows should not be stored together. 3) ATP. Product Substitution Logic and Accurate Inventories: Clarity of product substitution and accurate inventories enables a robust Available to Promise Signal which helps to align demand and supply for order fulfillment. Companies that have implemented ATP well rate themselves more agile. 4) Common Platforms: The more that products are standardized and platforms are rationalized, the easier it is to design for agility. I worked with one liquor manufacturer that had the same product in 197 different bottles each with a different “footprint” for the conveyor, the manufacturer improved agility by reducing the number of packaging types and designing the packaging for common footprints (similar shape of the bottom of the bottle) to minimize changeovers. Likewise, I also worked with a company that had 67 varieties of carrots that they processed. Most of them similar cuts, but different specifications. They worked with RD to simplify the ingredient lines to get more common ingredients across the products. Due to the need for RD support, this agility lever is the hardest to make actionable. 5) Flexible Manufacturing Scheduling Practices: The design of manufacturing processes to flex with market fluctuations. This is the design of alternate work centers, high performance work teams, alternate plant sourcing, and quick changeovers. Companies with long order lead times and a long freeze duration have a difficult time being agile. (However, a note of caution: I still believe in a freeze period to reduce cycle stock. The goal here should be to make the right trade-offs between inventory strategies and manufacturing policies. These should be evaluated together frequently.)
  37. 37. — 37 — 6) Agile Transportation and Distribution Networks: The use of alternate routing and mode, cross-docking, yard management and warehouse management to absorb changes in volume and the shifts in tasks. The network is designed to allow shipments from multiple origins with tight workflow integration between transportation, order management and warehouse systems. Additionally, through network strategies, be sure to design your warehouses for flows. Products with dissimilar flows should not be stored together. 7) Streamline Horizontal Processes: Decrease data latency and friction between organizational silos. Design the supply chain outside in with the processes minimizing data latency and maximizing cross-functional process understanding to minimize the impact of organizational silos. Also, invest time in improving the cross-functional processes of revenue management, Sales and Operations Planning (SOP) and Supplier Development. In the determination of policies for each of these important horizontal processes invest in “what-if” analysis and test for feasibility based on predicted levels of demand and supply volatility. Caution: This analysis is more critical now than a decade ago. Why? Ten years ago, the supply chain had two buffers: manufacturing and inventory. However, with the outsourcing of manufacturing, the analysis, placement and determination of inventory becomes more critical. This realization gave rise to the use of inventory optimization technologies that use deeper optimization than the traditional deterministic logic found in the traditional Advanced Planning Systems (APS) and Enterprise Resource Planning (ERP) systems.
  38. 38. — 38 — Tips on Executing Agility Well Q: You mention that Executive Buy-in is the biggest stumbling block. What techniques are being used to get executive buy-in? In the webinar, I spoke about the lack of understanding of supply chain fundamentals by the executive team being a major stumbling block to the implementation of supply chain excellence and the adoption of the seven levers of agility. The best way to help the executive team understand that the supply chain is a complex system with increasing complexity that requires design to be agile is to show them through experiential training activities, what-if optimization or discrete simulation. The other advice that I would give is get alignment on each supply chain definition. The lack of alignment and agreed upon definition is a barrier to the adoption of practices to improve agility. Q: Our techniques for agility usually involve expedite vs. de-expedite in our planning teams which keeps our teams in fire-fighting mode. What do you recommend for breaking that cycle? I would start with a clear definition. Shortening cycle times improves responsiveness: the time to react. It helps, but is not the answer to improving supply chain agility. Achieving supply chain agility requires a much deeper design. Use simulation technologies to show executives the impact of using the seven agility levers to improve the quality of response. It is about much more than the time of the response. Q: What will be the role of the freight companies in the supply chain agility? Freight companies and alternate modes are key elements of agile networks. Companies that are the most agile have strong relationships with their carriers and share forward visibility for equipment requirements. They are disciplined in dock scheduling times and loading practices to ensure that the “controllable time on the dock and being loaded” is minimized and performed consistently to the same time schedule. Q: For a business that perhaps has not done a sufficient job defining and documenting their supply chain strategy, how would you suggest they get started so that all the key elements are covered?  In my research, I find that 95% of companies are not clear on their supply chain strategy. Companies complain that there is insufficient detail in the business strategy to make it actionable, but I find few teams walking the extra mile to define the supply chain strategy as defined in figure 1. The seven levers of agility need to be woven into the supply chain strategy in each of the white boxes below. Where most organizations have failed is by starting with process. The most successful supply chains start at the top of the chart and work down. The laggards believe that they can copy processes without a definition of strategy and as a result, they implement pockets of technologies without a holistic focus to drive value. Q: What is the best metric to begin analyzing when starting to evaluate Supply Chain agility? The best way to evaluate agility is to simulate volatility through either event simulation or “what-if” analysis and see the impact on cost (Cost of Goods Sold), customer service (on-time delivery and orders shipped full and complete), and quality of output (first pass yield, recalls, etc.) The quality element is the toughest to model. Q: You touched on robust network design tools which allow you to test your network to determine your agility. Can you give a few examples of tools that are available today?
  39. 39. — 39 — I continue to be impressed with the work that Llamasoft is doing on simulation and optimization in network design. They have the most «packaged» network simulation capabilities. I also like their new iPad tool, Llamasoft Sherpa for network visualization. There are also good what-if analysis tools. Insights (Product Insight Supply Chain Optimizer) has also been working on some «what-if» tools to maximize profitability that you might want to consider, and many clients have i2 Technology’s Network Strategy tool (now owned by JDA) or the Logictools Network Analyzer Product (now owned by IBM). (Logictools is best deployed for a single user.) I also have a lot of faith in Chainalytics as a source of business process outsourcing.  Q: I notice example for large companies, for small firms “what-if” may not be practiced, what do you recommend for smaller firms? The same principles apply. I just used larger companies in the examples. I see many small companies doing a great job at building an agile supply chain. Q: Given the graphs shown in the slides is the following true: The less working capital days the better? Yes, the goal is to reduce the amount of working capital by decreasing inventory and better managing receivables and payables. Progress in working capital has primarily been made by companies increasing the terms of payables. Very few have done a good job of reducing inventory or improving inventory turns. Like a Green Lump of Clay In short, it is like working with a green lump of clay. Work with your team to try to craft a flexible and agile supply chain out of your supply chain. Carefully work cross-functionally on the seven levers of agility and the understanding of the executive team. Your supply chain is like a green lump of clay that is ready to be molded. It is not as easy as one or two process changes. Instead, it is a holistic redefinition. Good luck on your journey. Let us know if we can help. And, if we missed an agility technique that has worked for you, please share it!
  40. 40. — 40 — Which Boat Do You Sail to Cross a Blue Ocean? Originally published on August 6, 2012 In a recent post, Time to Paint Outside the Lines, I advocated that we needed to expand our current concepts of supply chain management. I challenged readers to rethink conventional processes and to think outside the lines; to redefine them using the new capabilities of mobile, social, cloud-based computing and more advanced analytics. The post was about the “what.” In a discussion with a client, I was challenged to write about a third dimension. The client asked me to write about the delivery of the services or the “who.” Here I share my insights. When we start to paint outside the lines, we begin to enter the world of blue oceans. By definition, a blue ocean is a new market that is uncontested. For the deliverer of services, it is a vast opportunity. Full of hope and promise, the deliverer of services is bullish and aggressive on how they will cross the blue ocean. For the user of technology, it is a situation fraught with indecision, risk and uncertainty. Blurring of Lines The lines are blurring on packaged application delivery. (When I use the term ‘supply chain management,’ I am using the broad definition of defining cash, inventory, information and product flows from the customer’s customer to the supplier’s supplier.) My goal is to help clients build the end-to-end supply chain (E2E). Mobility, advanced analytics, cloud-based computing, advanced predictive analytics, and the Internet of Things offer us the ability to deliver new and improved solutions. By definition, Software as a Service (SaaS) applications open the door to enable this innovation. It allows us new opportunities to deliver value in the areas of pervasive computing and analytics. The traditional software licensing model--always held back by the delivery of user-based enhancements--can now be untethered and cast free to deliver new applications through SaaS delivery. Market requirements are driving it. The processes need to be designed outside-in and there is a need for horizontal business processes to enable a level of agility that is not possible in today’s organization. As I attend conference after conference, for me, it seems that everyone is talking the talk, but they have one foot in the first phase and one foot in the next phase trying to figure it all out. While Silicon Valley is still in a love-fest with social applications, I see companies slowly realizing that social for the sake of social is too limiting. It is about SO MUCH more than digital marketing. Likewise, it is not mobile for the sake of mobile. It is about pervasive computing and real-time information. There is also a growing recognition that it will not happen through the sticking of mobile and social data in the outdated models of CRM and SRM. These applications were defined too narrowly to sense and translate market signals into enterprise workflows. The delivery of services and products in these new more pervasive models requires the redefinition of enterprise applications. The traditional definitions of Enterprise Resource Planning (ERP) and Advanced Planning Systems (APS) are slowly becoming legacy. After the first and second decades of digital marketing, companies are now starting to ask questions about digital business. They want to know how to transform their very “transactionally-focused enterprise applications” into solutions that can sense and deliver a more agile response. They want to turn to Oracle and SAP, but these very sales-driven solution organizations are well-tuned to deliver traditional solutions, not to help users cross these blue oceans. They would like to turn to the traditional supply chain planning vendors like JDA and INFOR, but they find that these organizations are busy trying to harmonize and rationalize many acquisitions and that they have lost many of their thought leaders. Deep within the IT groups of organizations, companies may reach out to the
  41. 41. — 41 — conventional analytical vendors like Teradata and SAS, but they quickly find that these organizations are used to selling servers and analytical tools and lack the deeper understanding of enterprise application processes. The Phases As we progress, I feel that there are three phases. While we can argue about the names, please read past the labels to understand the broader discussion, and then let’s engage in a discussion. • Phase I. The Efficient Organization. The first phase of enterprise applications is ending. It is where companies have invested and know best. The focus was on transactional efficiency. In this phase, the organization was defined from the inside- out and the order-to-cash cycle was automated. (In most cases, it was very rigid. The focus was on control.) Decision support was layered on top of the transactional systems to improve decision making using order and shipment data. This era is ending. Leaders now realize that the dream of ERP II and building the end-to-end supply chain on the back of ERP and B2B connectivity was too limiting. • Phase II. Digital Business. The redefinition of processes outside-in from market to market is the phase that we are entering. It will be enabled by cloud-based computing, business-process outsourcing, and pervasive computing. New forms of predictive analytics will enable listening (e.g., sentiment analysis and text analysis) to understand the questions that we do not know to ask, and systems will be able to adapt through horizontal process orchestration. This movement to “listen, test and learn,” and towards bidirectional horizontal process management is just beginning. It is the new blue ocean. It is the era of digital business.
  42. 42. — 42 — • Phase III. Systems of Commerce for E2E Value Networks. As systems evolve, companies will come to realize that there needs to be a greater focus on value-based outcomes and inter-enterprise systems of record to better manage bifurcated trade. This phase will no longer be about industry-specific applications. Instead, it will enable the process flows of end-to-end value networks. For example, in healthcare, the shift will move from efficient sickness (checking patients in and out of the hospital and lowering the admission rate) to sensing the body and focusing on health and wellness. Likewise, in transportation, the focus will shift from selling cars to safe transport using sensors to guide vehicles with improved safety and lower carbon footprints. We are already seeing this shift in Performance-based Logistics (PBL) in the department of defense. Users are confused. They want to know, “Which horse do we ride to cross the blue ocean?” Simply speaking, the Best-of-Breed service provider will be the best bet. Here are my predictions: • Consultants Will Stumble. As the gravy train of ERP implementations winds down, more and more consultants are attempting to build software. This includes traditional consulting partners like Accenture, IBM, Infosys and Wipro. I do not believe that they will be successful. The client model for consulting is just too strong. While they fundamentally understand the client relationship for the delivery of services, they lack the understanding of product marketing and product development. Of the four, IBM will do the best. They have a long history of building software, but they have struggled to market and capitalize on the software’s potential. While they will continue to have success in the areas of analytics and data mining, and retail, they will struggle in penetrating the deeper areas of enterprise applications. I believe that each will have some initial success selling SaaS solutions, but will wake up within the year and align their skills to contribute to the market in a greater ecosystem play (e.g., putting SAP solutions into cloud-based delivery systems). I think that they would be better served to combine business-process outsourcing with global centers of excellence targeting large business problems like the Race for Africa for consumer products or the Redefinition of the Cold Chain for biologic products. • Best-Of-Breed Vendors Will Prevail. For me, the most exciting news is coming from the Best-of-Breed providers. These solutions are becoming mainstream, helping to fill the gaps that the extended ERP solutions cannot fill due to cost and depth of solutions. • Oracle and SAP Will Follow. While Oracle and SAP will talk «blue ocean talk,» internally they will struggle to “walk the walk.” Neither has been successful at driving partnerships and each is handicapped by a very strong sales-centered (as opposed to market-driven) model. • Conglomerates Will Circle the Drain. The JDA and Infor models will continue to consolidate, and the solutions will progress, but slowly. They will continue to be a good fit for software evolution of existing implementations, but they will not be the horse to ride across the blue ocean. • Analytic Companies Will be Best Supporting Actors. GreenPlum, SAS, Teradata and IBM will continue to help with analytic applications, but they will bring up the rear. None of the analytic vendors really understand how to sell and market supply chain applications to line of business leaders.
  43. 43. — 43 — • Business Process Outsourcing Will Grow. The use of analytics and the evolution of business process outsourcing for multi-tier processing will continue to grow. The work that CapGemini or Genpact is doing on retail deductions or Accenture on consumer insights will continue to grow. My Take… So, as we set our sails for new places, and plan to navigate blue oceans, be sure that you are working with partners that can help you get there. Long term, it will take a village. Short term, it will be hoisted on the back of best-of-breed providers. Sailing in the waters of enterprise applications for supply chain management is always choppy, but it is time to look ahead. I look forward to your thoughts. Anchors aweigh!  
  44. 44. — 44 — La Sagrada Familia, NRF and the Emerging Opportunity Originally published on January 18, 2012 Today, I landed in Barcelona. It is one of my favorite cities. Tomorrow, after I speak to twenty-one CEOs on the concepts of Market-driven Value Networks, I will put on my sneakers and walk to La Sagrada Familia. For those that have seen this wonderful architecture, you know how moving this famous work by Antoni Gaudi is. And, you know the story... The cathedral has been under construction since 1882, and the dates for completion range from 2040-2100. It may never be completed. No kidding. One of the things that I love about the architecture is the detail. It is ornate with small ceramics and intricate embellishment. It combines many forms of art and nature. It was a revolutionary approach to architecture. It was so different that Gaudi will forever remain a controversial figure in the history of architecture. It took many years. He died before finishing his work... What Is a Market-Driven Value Network? My work is helping the world understand Market-driven Value Networks and the power that lies in the redefinition of supply chain architectures. For those familiar with my writings you know that Market- driven Value Networks are supply chain networks that sense and shape demand while translating demand requirements from customer’s customer to supplier’s supplier with a near-zero latency. It is still aspirational and depends on the evolution of new technologies and processes. It builds on my six years of research on becoming demand-driven, but is different in three ways: 1) Market to Market. In market-driven value networks, the extended supply chain is connected bidirectionally from market to market (Note: The original demand-driven concepts that I initially wrote about did not sense and shape market to market.) Trade-offs are made through demand orchestration processes that trade-off risks and opportunities in both buy and sell-side markets. The technologies for demand orchestration are just now entering the market in the form of advanced optimization in combination with natural language processing. 2) New Processes. The concept depends on the building of strong horizontal processes to translate and orchestrate the demand signal. (Demand translation is the seamless translation of customer requirements across the organization by role and need (e.g. the translation of demand requirements across different units of measure, reflections of changing mix and from ship to (market views) to ship from (operations views) in near real-time)).  Today, the demand signal is late (seen in days
  45. 45. — 45 — and weeks), and the signal has a singular context. It cannot adapt for role-based context across the organization. 3) From the Market Back. Traditional processes were also built with an internal view. The signals are mapped from the corporation to the market. In market-driven value networks there is an outside-in focus. Companies use demand signals to listen, test, and learn. It is outside-in. (The focus from a fixed response to a learning system is also a departure from demand-driven supply chain concepts.)
  46. 46. — 46 — Time to Broaden the Knot in Your Bow Tie? Originally published on August 17, 2010 With the current economic uncertainty, is it time to step out and to make lasting and meaningful supply chain relationships and unleash the opportunities in the end to end supply chain? However, before you take that step, do you need to broaden the knot in your bow tie? I have been writing about supply chain collaboration for the last fifteen years. The term is bandied about. Supply chain strategy documents drip with it. Conference presentations are ladened with the concept. They include phrases like collaborate with your trading partners, build collaborative networks, implement collaborative technologies, and collaborate to build value…. Can you imagine how unpopular I am, when I give clients the feedback that “true supply chain can only really happen when you have a lasting win-win value proposition.” My goal of this blog: stop the madness. Reset expectations. Stop fooling yourself. What most people call collaboration is really data sharing. Collaboration can only really happen when you have a lasting win-win value proposition; and in this changing world of power structures, constraints, and demand volatility, this is harder than ever. By and large, we have failed in the creation of true collaborative relationships in Supply Chain Management (SCM). Here I share insights on how to turn the tables and make true collaboration—a lasting win-win value proposition – a reality.  It is enabled by technology; but technology alone is not sufficient. Peeling Back the Onion In reviewing history, there have been a lot of well-intended initiatives. Before we look at how we go forward, let’s examine what went wrong and how we learn from history: CPFR: Continuous Planning Forecasting and Replenishment failed for three reasons. Aspirations were
  47. 47. — 47 — greater than capabilities. (Retailer’s forecasting processes and demand accuracy was not up to the test.) It was labor intensive; and the planning processes was not connected well to execution. It was overhyped by industry professionals which delayed a correction course for salvation. Scorecards: This effort failed to reach potential due to a lack of standardization and connection of the output back to buying behavior. For example, over 95% of companies do not align scorecards with commercial buying processes. As a result, they are there (often there are many), and they are talked about, but they fall short in driving TRUE collaborative behavior. Collaborative Design: Collaborative design efforts have been the most successful tactic for collaborative SCM, but thy have not been escalated to strategic importance. They are growing in importance in companies green initiatives and micro-marketing efforts for packaging design; but most companies do not know how to break down the walls between RD and supply chain to make collaborative design systems work for them more holistically. VMI/SMI: Vendor managed and supplier managed inventory programs have also had limited success. Why? For 80% of companies the focus was on SHIFTING inventory responsibility as opposed to improving value in the value chain. Companies that have gone the extra mile to focus on reducing demand latency and downstream data sharing have achieved the greatest advantage. An additional problem has been the labor required to support VMI initiatives and the sequence of VMI orders in the order stream. A little known fact is that VMI orders while usually the most strategic, get a lower priority on tight inventory. Why? Due to the amount of time to calculate replenishment constraints, they are usually processed as the last orders in the day letting orders processed earlier in the day drain tight inventory requirements. Kaizen Events: Kaizen events, where two parties are focused on improving the value chain through lean methods, can be effective if both parties are aligned against the same goals; but if they are not, it is merely another program. While I am a big supporter of this type of initiative, it requires a focused team and aligned objectives which are usually tough obstacles to conquer. Building True Collaborative Practices So, what does it take to have true collaboration? The key is to broaden the knot in your bow tie, align goals and develop deep cross-organizational relationships. While traditional approaches have focused on data sharing or transactional efficiency, the use of collaborative technologies allows you to connect people-to-people across the value chain to build more long-lasting relationships.  Consider Three Tactics: 1) If You Are a Buyer. Put Your Money Where Your Mouth Is: If you are a buyer, tie scorecards to buying decisions through multi-variant bid techniques from companies like Ariba, Emptoris, Oracle and SAP. Reward suppliers for supply chain excellence, contribution to open innovation and cash-to-cash improvements. Tie scorecards to real money and review them monthly.  2) If You Are a Seller. Teach Sales How to Pitch a Winning Menu: While most incentives for sellers are volume based, work with sales to build a menu of options that can reduce costs and improve the trading relationships. Experience shows that this is not the place for dictating policy. It is impossible to implement standardized practices that can be adopted equally by all trading partners. Instead, focus on a menu program where you incent the partner for buying like option A, option B,
  48. 48. — 48 — option C and then reward the trading partner for taking these options through the use of buying incentives. Include tangible items like shipping programs (backhauls, continuous moves, private fleet utilization, etc.) to reduce costs and improve carbon footprint, use of standards, taking new products, quick unloading of shipments, payment schedules, and sharing of downstream data. 3) Broaden Your Bow Tie: Conceptually this concept has been around for a long time, but it has been difficult to execute. Just too time consuming to connect trading partner warehouse managers, traffic managers, customer service personnel, etc. Not anymore. Use social technologies like Lithium and Jive as a core on partner extranets to connect people to people. Complete with pictures, interests, microblogging, instant messaging, and fan pages. Who says that supply chain cannot be more social? One of the most successful collaborative efforts that I ever accomplished was when I was a warehouse manager. I started a customer advocacy program where each lift operator owned a client. The energy of having direct customer/supplier contact to clarify shipping issues that transcended orders was an unmeasurable, and wonderful benefit. I close my eyes and imagine how much easier my life as a customer service manager, warehouse manager or transportation manager would have been if I could have broadened the knot on my bow tie. Then I laugh.... I am imagining the discussions with the union steward to prep for the training and helping the organization to become an open organization. It makes me ponder. While we have technologies, can we ever break the barriers to truly build collaborative relationships and broaden the knot on our bow ties to build long-lasting supply chain relationships: people to people? What do you think? Any tips to share on how you have broadened your bow tie? 
  49. 49. — 49 — Crossing the Great Divide Originally published on August 31, 2010 It was a hot Atlanta day. The temperature in the cab was sweltering. It was the kind of day that makes you feel like a grease spot on the pavement. As I bustled through the air-conditioned lobby, past reception and not catching my breath until I sat down in the deep leather chairs in the Chief Financial Officer’s conference room, I tried to compose myself. However, the question that I was asked did not have an easy answer. I was in the HOT seat. Bob, the CFO, opened the meeting with the statement, “Our SAP implementation was expensive. I know we need it, but I am trying to get a Return on the Investment (ROI). I think that I can improve the ROI by using retail Point of Sale (POS) data to improve forecasting and replenishment. How are others using POS data?” I swallowed hard. This question does not have an easy answer. Most companies are struggling to answer the same question. The company had built a repository for demand data and wanted to plug it into SAP APO, but I knew that it was not as easy as that. I replied, “You cannot get there from here. The data in the repository used by the account teams cannot just be plugged into APO for three reasons: scalability, granularity, and usability.” And I started to tell him a story. The Story: We Have Puzzle Pieces That Do Not Fit Together The good news is that the sharing of retail data by retailers is increasing and the data is cleaner and more granular than it has ever been before. For most consumer goods manufacturers, 40-60% of the channel is available as daily data received on a weekly basis.  The bad news is that POS technologies are overhyped and confusing. In the fourth quarter of 2009, there were 72 instances of downstream data repositories sold in the North American market. Often at more than one per company, and sometimes more than one technology sold into the same account team. It is not unusual to have 4-6 different technologies to manage POS in the technology ecosystem of a branded manufacturer. The market for downstream data repository vendors is very competitive and overcrowded. To improve market positioning, several technology providers have added forecasting to their offering. These companies have very little understanding of the differences between account level and corporate
  50. 50. — 50 — level forecasting. At a minimum, it varies by focus (short-term versus long-term), the data model, and the depth of statistical forecasting. (Account level forecasting is short-term (0-8 weeks) and corporate forecasting is longer term forecast. On average the longer term corporate forecasting process uses demand data to project the period of 0-78 weeks). Likewise, more than 80% of the market has an Advanced Planning System (APS) for corporate forecasting. Most companies implement APS to model ship from data—either shipments or orders— on a monthly or a weekly basis. Traditional APS technologies also use rules-based consumption to split the forecast into daily targets—usually termed “buckets” to drive replenishment. The problem is that rules-based replenishment is never right. And, POS data requires a ship-to or a market-driven forecasting data model (outside in). The data in the account team is used for weekly forecasting and replenishment. It is isolated, seldom integrated and used for ad hoc analysis. Very few companies have figured out how to plan globally at a corporate level to act with greater insight at a sales account team level. Similarly, the data needs to flow bidirectionally to enable demand sensing by the account team to spotlight opportunities for improving sales through pull-based replenishment, minimizing costs through demand orchestration, and reducing channel and company inventories. Today, 98% of companies do not have a synchronized demand signal and it is not as easy as just plugging POS data into APO. It takes more than that. To use the POS data and drive maximum value, you have to cross the Great Divide. The Answer: It Is Like Crossing the Great Divide   Demand data is the river that runs through the corporation that gives it life. There are many—not just one— streams of demand data to harness. The great divide is a name given to a mountainous region that forms a hydrological divide separating watersheds. For example, the continental divide in the United States separates the watersheds that drain into the Pacific Ocean from those river systems that drain into the Atlantic Ocean. In a similar vein, forecasting is the great divide between go-to-market and supply-side processes. It is a rocky process—each company defining it a bit differently—and few companies being entirely happy with what they have. In this time of demand volatility, where demand error is the largest risk to the corporation, it is often contentious. To be successful with POS data integration, you need two hierarchies: a demand and a supply hierarchy. Most companies only have one: a supply hierarchy. Therefore, they cannot cross the great divide, and they have no place to put POS data for modeling. Good forecasting processes start with the end in mind. Each of the functions have a different goal. Let’s take a look at history. As you read this synopsis, it is clear that the goal has changed, the data input choices have improved and the processes are being redefined to move from a supply-focused forecast to a demand-driven process. It is a shift from an inside-out (supply side modeling based on shipments and orders) to an outside-in forecasting process (demand side modeling based on downstream data) to focus on market drivers. Forecasting Supply In the 1990s—the go-go years of supply chain management—new forecasting systems answered two questions for supply:  1) What should manufacturing make? 2) What should we stock in the warehouse to improve customer service?

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