The Supply Chain Shaman's Journal - Winter 2013 - A Focused Look at Supply Chain Leadership
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The Supply Chain Shaman's Journal - Winter 2013 - A Focused Look at Supply Chain Leadership

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The Supply Chain Shaman’s Journal is a collection of blog posts written over the course of the last four years. I love to write. I find the Supply Chain Shaman blog fun. Many of these posts are......

The Supply Chain Shaman’s Journal is a collection of blog posts written over the course of the last four years. I love to write. I find the Supply Chain Shaman blog fun. Many of these posts are inspired by working with clients.
Working with clients normally involves travel, and business travel is tough. Many of these articles are written hunched over my laptop in an uncomfortable position in a seat on an airplane. To make the time pass by faster, from wheels-up to wheels-down, I try to inject humor and color into the stories. It makes the trip go by faster. I hope that you will enjoy my wry wit and stories from the road.
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 this journal. If not, as a collection of blog posts, they may seem disjointed.
While the first journal focused on Sales and Operations Planning (S&OP), this second journal is focused on the evolution of leadership in supply chain organizations. The articles are organized around five sub-themes:
Insights on Supply Chain Leadership
Evolution of Supply Chain Organizations
Organizational Alignment
The Impending Talent Gap
Interviews with Leaders

Read and enjoy. Share with your friends and let me know your feedback.
I wish you all the best in your supply chain journey

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  • 1. The Supply Chain Shaman’s Journal A Focused Look at Supply Chain Leadership Volume 1 - Issue 2 Winter 2013 TM by —1— Lora Cecere
  • 2. The Supply Chain Shaman’s Journal™ A Focused Look at Supply Chain Leadership Volume 1–Issue 2 Winter 2013 by Lora Cecere author of Bricks Matter – The Role of Supply Chains in Building Market-Driven Differentiation SUPPLY CHAIN INSIGHTS LLC, BALTIMORE Copyright 2013 All rights reserved. Published December, 2013 ISBN # 978-0-9889376-1-1 PDF version
  • 3. Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Insights on Supply Chain Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 The End of a Fairy Tale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Change the Conversation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 How Is Your Supply Chain Chutzpah? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Changing Mental Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Training for the Next Triathlon. Insights for You? . . . . . . . . . . . . . . . . . . . . . . . 19 Herding Geese. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 A Day of Firsts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 . What I Have Learned About Supply Chain Excellence . . . . . . . . . . . . . . . . . . . . 26 The Supply Chain Plateau. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 . Unilever and Colgate: Two Bookends?. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Evolution of the Supply Chain Organization. . . . . . . . . . . . . . . . . . . . . . . . . 35 Frequently Asked Questions on Supply Chain Organizations. . . . . . . . . . . . . . . . . 36 Organizational Alignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Taking the Hill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Why?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 How Can I Move Forward If I Cannot Align? . . . . . . . . . . . . . . . . . . . . . . . . . 49 Scream… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Learning from the Past. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Out of Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Supply Chain Talent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 What Do We Do Now?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Supply Chain Talent: The Missing Link in Your Future?. . . . . . . . . . . . . . . . . . . . 64 Yes, Abby. There Is a Santa Claus!. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Interviews with Leaders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Colgate: A Closer Look at Supply Chain Excellence. . . . . . . . . . . . . . . . . . . . . 69 P&G on Supply Chain Excellence. A Foreward to Bricks Matter . . . . . . . . . . . . . . 77 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Supply Chain Insights Training Sessions. . . . . . . . . . . . . . . . . . . . . . . . . . 80 Supply Chain Insights’ 2014 Global Summit. . . . . . . . . . . . . . . . . . . . . . . . . 81
  • 4. —4—
  • 5. Introduction The Supply Chain Shaman’s Journal is a collection of blog posts written over the course of the last four years. I love to write. I find the Supply Chain Shaman blog fun. Many of these posts are inspired by working with clients. Working with clients normally involves travel, and business travel is tough. Many of these articles are written hunched over my laptop in an uncomfortable position in a seat on an airplane. To make the time pass by faster, from wheels-up to wheels-down, I try to inject humor and color into the stories. It makes the trip go by faster. I hope that you will enjoy my wry wit and stories from the road. 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 this journal. If not, as a collection of blog posts, they may seem disjointed. While the first journal focused on Sales and Operations Planning (S&OP), this second journal is focused on the evolution of leadership in supply chain organizations. The articles are organized around five sub-themes: • Insights on Supply Chain Leadership • Evolution of Supply Chain Organizations • Organizational Alignment • The Impending Talent Gap • Interviews with Leaders Read and enjoy. Share with your friends and let me know your feedback. I wish you all the best in your supply chain journey, Lora Cecere, a.k.a. the Supply Chain Shaman Founder of Supply Chain Insights LLC —5—
  • 6. Insights on Supply Chain Leadership —6—
  • 7. The End of a Fairy Tale Originally published on January 14, 2013 Usually, in a fairy tale, there is a big, bad wolf, or a hairy monster… One that is going to eat you up! In the development of supply chain management processes, we have spun a fairy tale. It is a story where people believed that functional excellence delivers supply chain superiority. As a result, year after year, well intentioned people have toiled against programs and improving metrics that reduced, not improved, the effectiveness of the supply chain. An example of misaligned metrics is an organization with a strong focus on Return on Assets (ROA). We find that a strong focus on ROA may actually degrade operating margin. For the supply chain traditionalist this may seem counterintuitive; but for most companies, it is true. ROA is no longer a good proxy metric for total supply chain costs. There is a need to manage the supply chain crossfunctionally to drive end-to-end cost management. In distribution-based companies, distribution costs outstripped manufacturing costs in 1991. A blind focus on functional excellence will cause the supply chain to become out of balance. So, what is the big, bad wolf? The big, bad wolf that is swallowing up the supply chain is the continued investment in multi-year Enterprise Resource Planning (ERP) projects. The big, bad wolf is usually most prevalent in a functional organization, and ERP systems are usually very focused on driving functional metrics. Please do not get me wrong, I believe that companies need an ERP implementation; and that they need to do it ONCE and do it well. The big, bad wolf raises it head, when the ERP project grows arms and legs and becomes a multi-year project to solve everything. It also becomes the big, bad wolf when the system is focused on local optimums and functional metrics. There is an opportunity cost to multi-year ERP rollouts for the organization. When I see a company working on their third, or fourth, ERP upgrade and look blindly, and only, at supply chain planning and analytics from their ERP vendor, I see the big, bad wolf at play. The argument that I want to make here is that the supply chain problem has changed, but we are implementing the same old technologies without stopping to realign against new goals. Let’s look at this more closely: Based on recent research, today, over 90% of companies have an Enterprise Resource Planning (ERP) system and an Advanced Planning System (APS). These technologies are mature. They are in the evolution phase: being refined by user-based enhancements. The consolidation of this industry has served the technology providers well, but has largely stymied innovation. Yet many manufacturing and distribution companies are still investing millions of dollars in ERP upgrades expecting to improve operational excellence. I feel that many of these technologies are now legacy and that it is time to slow down the upgrades to upgrade only for mandatory system upgrades. The opportunity cost for multi-year ERP project deployments to an organization is huge. Based on the analysis of financial ratios, we can clearly see that companies with the best results on revenueper-employee have strong ERP systems, but they have implemented once and have avoided multiyear evolution projects. ERP is valuable to improve transactional accuracy, but continued investments have not reduced inventory or improved cash-to-cash cycles. The ERP and APS systems that were developed in the 1990s are now largely legacy applications. As a result, we believe that companies should stabilize their investments in these technology areas and begin to push the acquisition of technologies that can better align with the organization’s need to reduce operating margins, absorb volatility and drive agility. —7—
  • 8. For most companies, the use of supply chains to redefine business models is not a current reality. Instead, they see supply chain as a function within the greater organization; and do not see the endto-end supply chain process as a way of doing business. They do not have the power to redefine business systems to be an Apple, Amazon, Dell or Zara. So, to use these examples “as points of light” to help companies go forward is a bit like saying that Lora Cecere will be the February cover girl model on Vogue magazine. You got it! It is a low probability that this will ever happen. To understand this point, let’s take a closer look at the food manufacturing sector. A Case Study As a researcher, due to merger and acquisition activity, it is getting harder and harder to compare companies. The peer groups are growing more and more complex. I do not believe that you can put companies from all industries in a spreadsheet and shake them up and gain insights about supply chain excellence. Instead, I think that the best insights come from comparing peer groups. In Table 1.1 we compare ten year averages (2001-2011) for food manufacturing companies. In this industry, operating margin has decreased by 1%, Return on Assets has decreased by 2%, SG&A margin has increased by 1%, and days of inventory has increased by 3%. As shown in Table 1.1, the food manufacturing industry is a tough market, and supply chain excellence matters. The only good news for the industry is that revenue/employee has improved by 29%. Table 1.1 Ten Year Averages – Food Manufacturing Companies The answer for this industry is not to copy the supply chain from Amazon or Apple. Instead, I think that the answer is to be more like General Mills. Note in Figure 1.1 how General Mills has improved operating margin for the past three years whereas Kellogg has gone backwards. Over this period, the cereal business has been hard-hit by commodity price increases and private labels. Corn and fuel oil have tripled in cost. Both commodities are more volatile. So why has General Mills been able to increase operating margin, and Kellogg has not? General Mills has side-stepped the big-bad wolf. General Mills implemented ERP once and well, and Kellogg has had multiple ERP implementations. General Mills is more aligned on cross-functional metrics and has made more progress on the implementation of horizontal processes. —8—
  • 9. Figure 1.1 Metrics Comparison of the Kellogg Company vs. General Mills, Inc. Supply chain planning maturity also matters. One of the core reasons for the difference is General Mills is good at supply chain planning. They are at the top of their peer group in forecasting, and they use their forecasting analytics to drive better plans. They have become best-in-class at network design and they are very active in the use of advanced technologies for inventory optimization. Unlike many companies that buy technologies for a project and then do not use them, General Mills has built the teams to actively model demand and supply and drive better results. They had the courage to give up ROA to drive better operating margin. Where to Invest? So, if you are a supply chain leader, what do you do? Where do you invest? I feel strongly that the answer lies in the use of new forms of analytics for network design, demand and supply sensing, supply chain visualization, demand orchestration (horizontal orchestration of demand and supply variability for price, material substitution, and alternate sourcing), and the use of listening posts to better understand unstructured data from the channel. The adoptions of these new technologies cannot be a fad. Instead, it needs to be part of the DNA of the organization. For example, multi-tier inventory optimization was a fad in the last decade. It was overhyped and the projects largely under-delivered. Unfortunately, I see that many companies have invested in inventory optimization and have not reduced inventories. The answer is a lot like why people do not lose weight on diets. It takes commitment, hard work, and discipline. These three characteristics elude many organizations. In closing, I want to leave you with a couple of thoughts. There are many technology vendors that will knock at your door today, and ask for your time. Stay focused on what matters. Our goal in the supply chain is to reduce costs, improve customer service, reduce inventories and drive growth. Over the course of the last decade, most companies have gone backwards not forwards. I think that we need to hold ourselves accountable to improve financial results. I think that it takes new forms of analytics, and —9—
  • 10. cross-functional thinking, to push us off of this supply chain plateau. However, it has to be part of the organizational DNA to evolve and take advantage of new opportunities. You cannot be held hostage by the big, bad wolf, and it cannot be a fad diet or the program of the month. — 10 —
  • 11. Change the Conversation Originally published on October 29, 2013 It is Monday morning. As the sun rises, I find myself on the 6:00 AM train drinking coffee. I am giving thanks that I am able to do what I do. There is nothing like a cup of coffee at this time of morning. As I hold the warm ceramic mug in my hands, the horizon rolls forward with the rhythmic sounds of the train on the track. I love the sounds of the train. I am lost in thought about the client that I am going to spend the day with. It is the end of a long project, and I am excited to share their data. There is such power in being able to pull together quantitative data with financial benchmarking analysis and qualitative interviews to help them see new insights. It is great to pull back the covers and help companies see the new trends and insights on supply chain excellence through research methods. In work with clients, I find that they have good intentions and they want to be more outside-in and demand driven, but they get caught in traps, because they have not changed the conversation. This will be a primary focus of my session today. Volatility is rising, supply chains are becoming more important and complexity is making resiliency tougher. All are good reasons to have the conversation…. Here are the sticking points that I see: • Focus Less on Perfect Numbers. Embrace Demand Error. Demand volatility is increasing and the technologies to manage demand are maturing. In this transition, it is more critical to learn to use demand data than to make the demand number perfect. As a result, the discussion needs to be less about the “demand forecast number” and more about the probability of demand. Companies need to try to reduce demand error to the extent possible, but realize that demand error is a reality of managing a supply chain. As a result, leaders need to drive the effort to embrace demand error and design the network to drive the same cost, quality and customer service levels given the level of demand error. This requires using new forms of analytics for inventory optimization and network design and doing less on spreadsheets. • Help Others to Understand the Impact of Complexity. Nine out of ten companies are stuck in their ability to make progress on operating margin and inventory turns. To understand this, good places to start are the measurement of the forecastability of the products in the demand plan and understand how this is changing. Track the impact of rising complexity on forecastability and the impact on the inventory plan. • Reduce Bias and Error. If only companies could sell what they forecast. Most companies have a large and positive bias. To counteract this, actively use Forecast Value Add techniques (FVA) to reduce bias and error. Communicate progress on a monthly basis. Push to help leaders understand the impact of demand bias on customer service, safety stock and slow and obsolete inventory. • Help Others to See the Options. Actively Design the Network.  As you do, focus less on the levels of inventory and more on the trends and right sizing of the forms and function of inventory. (The form of inventory is the state of inventory and includes decisions for raw, semi-finished goods and finished goods. The function of inventory is the role that the inventory plays in driving the right supply chain response. The function of inventory includes cycle stock, in-transit stock, promotional stock, safety stock, seasonal stock, etc.) Actively model and help peers to understand the impact of rising complexity on the form and function of inventory. As — 11 —
  • 12. you design the network, build push/pull decoupling points and buffers. • Focus Forward. Finance and accounting use largely backward measurements. Push the executive team to focus forward in the design of measurement systems. Lead teams to focus on forward-looking business flows through the channel. Align the flows to maximize customer service taking ownership for sell through the channel not just sell-into the channel. Don’t stumble and get hung up on only measuring backward-looking measures. — 12 —
  • 13. How Is Your Supply Chain Chutzpah? Originally published on September 24, 2013 Chutzpah: A personal confidence or courage that allows someone to do or say things that may seem shocking to others Merriam Webster If you are fluent in Yiddish, you know chutzpah, meaning nerve, is akin to the Spanish word ”cojones” meaning courage, but without an anatomical context as in tener cojones. So, as I sit in this uncomfortable seat, fighting sleep, winging my way to Chicago, I am asking myself a simple set of questions. My circular logic goes like this. The supply chain world is dominated by men. Men have cojones. So, why is it that in this male-dominated world of supply chain there is very little chutzpah? In short, I think that it is because we want to please. Commercial teams are paid to sell. Marketing teams have an agenda to increase market share. The supply chain team takes and ships orders. Everyone claims that they care about the customer, but the system is ineffective. The supply chain team with chutzpah has courage. They build the end-to-end value chain outsidein and align commercial and operational strategies. They focus on improving value to the customer. Those without any chutzpah define the “supply chain” as an organizational function that focuses only on distribution, manufacturing and procurement. The later definition fits most organizations that I see. So, how do you increase your chutzpah? Here is my six step plan: 1) Help Commercial and Business Leaders to See the Supply Chain as a Business Process That They Are a Part Of. Many supply chain teams have aggressively cut costs to fund an organization’s growth. Sometimes, in this process, they have cut muscle, not just the fat. This limits the potential of the supply chain to balance costs, inventory cycles and complexity. How can companies do this better? I work with an organization that is using a mobile network design application in their S&OP meetings. When the commercial team makes one of those eye-rolling, offthe-wall requests, the team quickly shows the group the impact of this hairy, audacious go-to-market plan on the base business. They then say, “We can do that, but here is the impact.” And, of course, the commercial team quickly sees the relative importance of their request. The visualization of the impact to the commercial teams on base business helps to drive alignment. Without the visualization, the commercial teams see the supply chain team as a bunch of whiners. This approach lets the commercial teams actively participate in the decision. 2) Build a Strong Center of Excellence. While 37% of companies have a Supply Chain Center of Excellence, most define it too narrowly. As a result, only half of the Centers of Excellence meet the business expectations. The Center of Excellence is successful when it SERVES the business. It fails when it becomes ACADEMIC. The greatest chance of success happens when the Supply Chain Center of Excellence is built with a goal in mind of building cross-functional alignment. Use the work in the Center of Excellence to help drive a holistic cross-functional understanding of the supply chain as a complex system outside-in (from the customer back). Use the team to facilitate a cross-functional understanding of trade-offs. When the Center of Excellence is defined to drive alignment there is 3x greater alignment between the finance and marketing teams. — 13 —
  • 14. Figure 1.3 Success of Supply Chain Centers of Excellence 3) Say Yes and Mean It! The supply chain team is pressured to say “Yes” to commercial plans. However, trouble brews in Dodge City when the promise cannot be delivered due to reliability issues. When given the choice between fast and reliable, choose reliable. Actively design the supply chain to say “Yes” and mean it. 4) Challenge the Status Quo. Last week, I was with a client that is working with SAP to run their supply chain planning system, SAP APO, on SAP’s HANA platform. I asked them “Why?” They looked surprised. I believe that there are many wonderful uses for HANA like visibility across multiple ERP instances, but I question on why to continue to invest Advanced Planning System (APS) logic, like APO? The basic footprint of APS was defined when planning was constrained by 32-bit architectures. Computing power has increased 100X since the 1990s, but the definition of APS remains unchanged. I think that our new opportunity lies in redefining planning not just making old approaches faster. The supply chain team with chutzpah asks hard questions. 5) Build Supply Chain Potential. I recently interviewed Daniel Weber, leader of the Beiersdorf supply chain team for the Supply Chain Insights Podcast Series Straight Talk with Supply Chain Insights. Listen carefully to Daniel’s story as he shares how he used the need to improve customer service as the means to convince the company to REDUCE inventory. This starts with the belief that you can improve the potential of this complex system called supply chain to both improve customer service while reducing inventory. 6) Build Muscle at the Core and Innovation at the Edge. The supply chain leader with chutzpah has the courage to invest in new technologies for the supply chain. They actively lead efforts to test and learn through new forms of analytics. They understand that there are no “best practices” that come out of a software box; instead, they realize that they have to learn from others to tailor processes to fit their needs based on a clear supply chain strategy. — 14 —
  • 15. Figure 1.4 Food Manufacturers’ Progress on Cash-To-Cash Versus Revenue Per Employee For example, I love Hershey’s results. Check out their impressive results in Figure 1.4, and give Jason Reiman, leader of the Hershey team, a “Congratulations!” on his new promotion to Vice President. Jason Reiman and Daniel Weber have both increased the potential in their supply chain to manage trade-offs. Many, unfortunately, just do not believe that this can be done. So, what do you think? Do you think it is appropriate for me to ask for my family to lay me to rest on a small grassy knoll at my farm underneath a small marker that says, “Here lies Lora Cecere. She was a small-town girl with lots of chutzpah?” You needn’t send me replies on this one... — 15 —
  • 16. Changing Mental Models Originally published on May 21, 2013 Healthcare is at a pivotal transition point. I firmly believe that supply chain leadership can make a difference. Over the last decade, power shifted in the healthcare value chain. Originally healthcare suppliers sold to physicians. At the dawn of the decade, the supplier had the power. In the last five years, while the physician is still important, the buying decisions transitioned from the supplier to the care provider. It is now shifting again. With the introduction of managed care, the transition of power is to the payer. It needs to shift to the patient. Here are some of the quotes from the workshop I led yesterday that helped me to better understand the industry: • “A process born out of chaos is chaos. The problem is us. We have to change the mental model of our organizations to move forward.” Medical Device Manufacturer • “Does everyone realize how bad the problem is? We cannot process map ourselves out of this problem, it requires new thinking.” New Supply Chain Leader of a Regional Children’s Hospital • “We have used Lean process systems and ‘swim-laned’ ourselves to death. Today, we are efficiently swimming in the lanes without alignment on value-based outcomes.” Supply Chain Leader of a Large Hospital • “We are a large part of the problem. We cannot drive change without taking a hard look at ourselves. It starts with redefining our processes and what we reward.” Supply Chain Leader of a Large Hospital No one questions the statement that managed care will dramatically affect the healthcare value chain. The change will not be incremental: It will be a step change. Hospital receivables will lengthen and supply chain roles within the hospital will become more important. The traditional focus on efficient sickness will shift to health and wellness. It requires a redesign, from inside-out to outside-in, based on value-based outcomes. The change in accountable healthcare will give more voice to the patient. Data driven discussions on patient satisfaction, re-admittance rates and hospital-induced infections will be transformative. The question in front of us is “How do we get started?” Hospitals are fragmented. They are small regional players. While processes have matured, it is hard for individual healthcare providers to get traction. Suppliers now have a dance partner. But, the tune has changed, and they are unsure how to dance together. Hospital supply chains have matured. Seventy-five percent of hospitals have a supply chain organization. The average tenure of the supply chain professional in the hospital is six years. Hospital supply chain teams have 1/3 the tenure of the supplier’s supply chain organization. The most common reporting relationship in the organization is to the hospital’s Chief Financial Officer (CFO). The most common reporting relationship in the supplier organization is to a leader of supply (focus on logistics, distribution, materials sourcing and customer service). The focus has been on sourcing and managed costs. They lack the greater understanding of planning and value network design. While hospital supply chain organizations have made progress in the last decade, the gap has widened between the supplier sectors of pharmaceuticals and medical device manufacturers and other manufacturing industries. — 16 —
  • 17. For suppliers, the focus has been on the supply chain organization as a function, not the building of end-to-end processes. Both sets of trading partners have concrete mental models that define the supply chain. For the hospital, the focus has been on materials management and negotiating of lower costs. While 72% have a value analysis team, they have not matured to assess value. These processes are still in their infancy. They are primarily focused on cost management on new purchase decisions. By and large, they struggle to gain cross-functional alignment on process redesign to improve outcomes. They lack the understanding of continuous improvement programs and struggle with alignment. Figure 1.5 Healthcare Cost-Cutting Programs: Importance Versus Performance Most care providers are working to get physician and clinical alignment to focus on the right balance of standardization, product utilization, and innovation. The historic practice of incentives for direct payment to physicians drives bad behavior that is hard to control. Through employee downsizing and consignment-based sales, they have shifted costs to the suppliers. These costs now lack controls. The answers to healthcare are about much, much more than process mapping. In contrast, suppliers are large and global players. Over the course of the last five years, they have fought the shift in power. In fighting for every sale they have become very sales-driven. They have taken on consignment-based sales without redesigning processes outside-in.  (In exchange for acceptance of a consignment model, suppliers could have redesigned processes to enable better sharing of daily usage and case scheduling on a daily basis.) The mental model is one of supply. For the supplier team, they see the supply chain as a function. They struggle to define end-to-end processes. The teams fight for recognition to participate in top-to-top meetings. In the evolution of supply chain excellence over the last decade, the gap in core capabilities to drive supply chain excellence has grown between healthcare suppliers and other industries. They have lost core talent while the industry is facing a talent shortage. — 17 —
  • 18. There are new challenges: • With managed care, in the United States, the hospital will bear the costs of infections from hospital stays. The standards for accountable care are evolving. • 63% of hospital operating room costs are implantable devices. The supply chain for implantable devices is complex and immature. • Pharmaceutical products are growing more complex. Cold chain capabilities and serialization require a redesign in product handling and supply chain execution. • The industry has created the most complex rebate incentives of any industry value chain. The administration of bifurcated trade is a barrier to the improvement of trading partner relationships. The changes in reimbursement make this even more complex. • Pharmaceutical companies are facing a patent cliff with a 24% decline in operating margins over the last decade. What Should Companies Do? This cannot be about process mapping and improvement of the current state. It requires a shift in the mental model and leadership. New models are required. This is both an opportunity and a risk for existing organizations. Table 1.2 Next Steps The good news is that trading partners want to get started. There is a compelling event to move a fragmented industry forward. The challenge is changing the mental model to move from supply‑centered processes focused on transactions to more holistic supply chain thinking based on value-based outcomes.  — 18 —
  • 19. Training for the Next Triathlon. Insights for You? Originally published on March 4, 2013 I have never been an athlete. At the age of 58, I buried my mother in November 2012. She died of complications from Alzheimer’s disease. It was a long hard eight-year struggle that was tough on my family. One of the sad outcomes of the disease is that you don’t know how to grieve. The victim of Alzheimer’s slowly slips away. The person that you bury has very few resemblances to the person that you love. So, as I buried her, I became obsessed with learning how I could reduce my chances of getting the disease. As a daughter of a mother with Alzheimer’s, I have a high risk of getting the disease (35%). This landed me in an intense discussion with my trainer and my doctor about blood flow into the brain through endurance training, and how that might reduce the risk of me getting Alzheimer’s. My long-term blog readers may remember that two years ago, when I left AMR Research after the acquisition by Gartner Group, that I became more serious about my health. I started training six hours a week and lost 37 pounds. Those of you that know me personally also know my frustration with trying to drop another twenty pounds. It has been a goal for the past two years. While I have lost 22 inches through diet and exercise, and improved my Body Mass Index by 11%, I have not dropped weight. So, with the death of my mom, and the discussions with my physician about fighting the probability of getting Alzheimer’s, I started training with a new vengeance over the holidays. My goal is to live better for the rest of my life. It is hard. My trainer is unmerciful. He has set new targets for heart rate monitoring for me, and I have kept up the training. Last week, I ran and completed my first triathlon. Yes, it was ONLY a sprint triathlon (10-minute swim, 30-minute bike and 20-minute run), but I finished it. I never thought that I would do a triathlon. A year ago, I could not run to the mailbox; but I not only finished the event, I was at the middle of the overall rankings as an overweight 58-year-old woman. I finished despite cramps in my calves and a tough travel schedule getting to the event. So, why do I tell you the story? I see a lot of parallels in the training that I did for the triathlon, and the work that I am doing on financial ratios. To write the book Metrics That Matter, we have been analyzing 20 years of supply chain financial ratios and looking at the trends. As I look at the preliminary analysis results for the e-book, I see many parallels to my triathlete experience. It has been fascinating for me to study the financial results of clients that I have worked with for the past twenty years and to see how their supply chain — 19 —
  • 20. strategy documents translated (or did not translate) into financial results. I spoke more about this during my European Book Tour for Bricks Matter. • Balance. When I first started training, my muscles got as stiff as a board. Through aging, I lost flexibility and balance. I now spend an equal amount of time stretching to improve balance, as I spend on weights in the strength training. I am amazed how strength training reduces balance. Similarly, in the evolution of supply chain practices in the past decade, I feel that we have not had a sufficient focus on balance and flexibility. The evolution of tightly integrated ERP solutions to BI and APS has created tight and inflexible links. As part of the training plan, for supply chain excellence, companies need to focus on balance and flexibility. Only 10% of companies today are happy with their “what-if” analyses and the ability to understand change. We need balance between front and back office activities and we need to understand the implications through “what-if” analysis to drive flexibility. It is about much more than short cycles. It needs to be deliberate. I think that we have taken tight integration of supply chain applications to ERP too far and lost balance and flexibility.  • A Clear Plan. I am a strong swimmer and a weak runner. While I can swim 75 minutes and enjoy the time in the pool, I have to force myself to run. To complete this event, I had to focus on what I did not like to do, and I had to learn how to balance my energy and body motions to finish the run. Likewise, in today’s supply chain environment, I find that supply chain leaders favor a single function of logistics, manufacturing or sourcing. They have not forced themselves to learn all three. To complete the race for supply chain excellence, the company needs to be good at all three and have a strategy on how to reach balance between the functions in dayto-day operations. It requires a plan. Too few companies have a clear supply chain strategy. While the answers to quantitative surveys that we complete at Supply Chain Insights state that over 60% of companies are comfortable with their supply chain strategy, I find that only 5% of companies truly have an adequate plan that drives a clear road map to help the organization transition from business strategy to supply chain strategy. (And, for clarity this is not a strategy for the supply chain department. Instead, it is the design and implementation of a value chain strategy that gives a plan to create differentiation from the customer’s customer to the supplier’s supplier.) • Measurement. Over the last decade, the only metric that we have improved in the supply chain is revenue/employee, a measurement of productivity. Only the high-tech industry has been able to effectively make improvements on the effective frontier of supply chain management–the balance of growth, productivity, cycles and complexity–and drive resilience out of the Great Recession of 2007-2009. Companies that are not looking holistically at metrics are stuck. What do I mean? The process industries have mistakenly viewed Return on Assets (ROA) as the proxy metric for reducing operating costs. In many ways, it is like my focus on weight in my training for the triathlon versus the BMI or inches. The measurement of the BMI is harder. It is easy to hop on a scale and know your body weight. It is harder to understand lean body mass. Similarly, only 23% of manufacturers can easily measure profitability. And, in my research on profitability models for manufacturers, I cannot find a good packaged solution for companies to easily model profitability in building market-driven value networks. As a result, companies will be forced to build it themselves using technologies for “what-if” analysis on strategic modeling from network design tools. However, it is worth it. • Need for a Coach, Leadership and Grit. In the study of financial metrics, I find an inverse relationship between companies that have had a strong dependency on supply chain consultants and results. Instead, the companies that have done it the best, have driven supply chain excellence based on internal leadership. This does not mean that the organization — 20 —
  • 21. does not need a coach; but, there is no substitute for internal leadership, discipline and true grit. In the words of a supply chain pioneer in the book Bricks Matter, “No true supply chain transformation can happen in less than three years” and “There is no substitute for leadership.” The coach needs to be carefully selected based on the training needs, but is there to guide the plan, not to do the hard work. • Compelling Event. I would not have done this without a compelling event. My mother’s death and the probability of dying a similar death is a compelling event. I am trying to fight back. Likewise, in the history of supply chain management, over the course of the last twenty years, more success has happened through failure than success. Company transformation usually happens following a deleterious event. Anyway, long story short, finishing my first triathlon was exhilarating. I had no idea that I could do it! I am now in training for a longer and tougher event (1/2 mile swim, 15 mile bike ride and a 5K run.) I have built a one year plan, and I am working hard with my coach. I am monitoring my heart rate, BMI and time. I am also focused on building strength, flexibility and balance. Each of these elements requires hard work for this gal that has never been an athlete, but I am trying hard to fight back the momentum of time. I think that there are insights here for the supply chain leader. What do you think? — 21 —
  • 22. Herding Geese Originally published on December 11, 2012 Geese fly in a V-shaped pattern and walk in single file. There are well-established patterns of leadership. Smaller flocks fare better than large ones. When they lose their leaders, many liken it to a wild goose chase. But, can they be herded? Last week, I visited Steve Keifer, who gave me a copy of his book, Herding Geese. Without thinking, I thanked him and put it in my bag. I get a lot of books. I did not think much about it. Later that night, I started thumbing through it. The book is a good read. < For supply chain leaders, let me requalify the recommendation, it is a great read.> I am often asked for a list of good books on supply chain, and I don’t have many on my list. I will add Steve’s. I like the grounded reality and the sense of humor used in the book. Both of which, I find sadly missing in today’s market. Steve’s book chronicles the rise and fall of the promise of B2B connectivity. I remember the hope and promise of yesterday’s initiatives like it was yesterday. I remember the go-go years of XML, B2B Trading Exchanges, RFID, CPFR, and Global Data Synchronization. They were overhyped and I think that all would agree that they largely under-delivered on the promise. We could easily dismiss the importance of B2B connectivity, but Steve’s math shows that it has grown twice as fast as the much more overhyped traditional software market. We laughed together at the new cadre of overhyped terms like Big Data, Hadoop, and Omnichannel Retailing. I was encouraged. Insights In many ways, Steve and I are “birds of a feather.” We are both, in our own way, attempting to herd geese in the software industry. Many would see this as a lost cause. Over the course of the last year, we have seen more and more vendor consolidation and less visionary leadership from the suppliers of technology. I remain firmly convinced that the only people who win in software consolidation are the shareholders of the software industry. There are too few examples where merger and acquisition activity has added value for the line-of-business user. In fact, I struggle to find an example. As a result, I believe that the first generation of supply chain applications was based on best-of-breed leadership. Successful technology companies in this era had a visionary leader and the company was fueled by passion. These best-of-breed solutions gave way to the rise of the extended ERP platform implemented largely by consultants that understood transactional feeds, but lacked an understanding of planning. Ironically, as computing power increased and machine learning accelerated, the supply chain technology market has been slow to respond. However, I think that the third generation of technology will be owned by new best-of-breed providers. As shown in Figure 1.6, Supply Chain Leaders are loosening the purse strings on IT in 2013, but there is confusion on what to buy. The primary focus is on demand management: the ability to sense and shape demand. Companies are more serious about demand and are looking at new options. These include cloud-based solutions and they are openly looking for new forms of analytics in the demand space. While there is a high level of confusion, it is about more than traditional demand forecasting. A rising issue is the ability to get to data to drive new forms of analytics. The gaps in technology are compounded by the lack of understanding of the supply chain by the executive team. In Figure 1.7, which represents individual pain of the respondent, we see that after two decades of technology implementation, teams are still trying to get at data to use it. — 22 —
  • 23. Figure 1.6 Expected Change in Technology Spending to Improve Supply Chains One of the primary issues is that most implementations of technology were implemented in a vertically siloed approach without looking at the extended supply chain from the customer’s customer to the supplier’s supplier outside-in. Too few companies have charted a look at how to build the end-to-end supply chain outside-in using advanced analytics. In this study, 40% of companies were not clear on supply chain strategy. Figure 1.7 Levels of Business Pain for Supply Chain Leaders — 23 —
  • 24. When geese fly, there is a clear leader. There is a bird at the head of the pack and when it gets tired they alternate and stay in the V-shaped formation. They are clear on the goal and have a clear plan. I strongly feel that the answer here is leadership. I feel that it is time for the supply chain leader to clarify the end-to-end vision and chart the course. However, it requires enlightened business leadership on new technologies and questioning traditional paradigms. The lack of clarity of what defines supply chain excellence permeates the organization and the traditional approaches do not lend themselves to being able to get to data for clear decision making. We believe that it will mean a return to best-of-breed providers. Let’s just hope that it does not lead to an overhyped market around meaningless terms like Big Data and Omnichannel retail. If so, we are probably involved in a true “wild goose chase.” I sadly hope not. — 24 —
  • 25. A Day of Firsts Originally published on September 24, 2012 Today, was a day of firsts. My first book is edited. Today, the book Bricks Matter went to the printers. We have completed the editing of the first press run of Bricks Matter. Oh my, what a job! With the help of my assistant, Jill, we have now read 411 pages, and checked 72 graphics over 25 times. The book is scheduled to publish the beginning of December. What did we find? The high level summary is: • Consumer Packaged Goods Companies Have Stronger Supply Chains Than Other Process Industries. (e.g., CPG when compared to Food and Beverage, Chemical or Pharmaceutical manufacturers show greater year-over year improvement.) Why? The supply chains were more resilient through the economic recovery of the Great Recession and they showed less gyration in year-over-year results. P&G is the clear winner based on balance and resiliency of the global CPG companies of Colgate, Kimberly-Clark, Kraft, P&G, and Unilever. • The Companies with the Best Scores on Gross Margin Were Less Resilient through the Economic Downturn of 2007-2009. These companies tend to “Sweat Assets” and throw their supply chains out of balance. In our analysis of five process sectors, only Colgate has been able to remain resilient with best-in-class gross margin (no substantial change in inventory or cash-to-cash cycles). • Inventory Everywhere. Only high-tech and electronics companies have made TRUE progress on managing inventory (improved inventory turns). For the rest, progress on cash-to-cash cycles has been largely driven by squeezing the procurement relationship and improving the Days of Payables Outstanding (DPO).We have rewarded supply chain leaders in the last decade for pushing costs back in the value chain. When DPO is squeezed too hard, there is an adverse effect on Gross Margin. With the rise of Corporate Social Responsibility (CSR), I predict that this will be less prevalent. • Flat Growth. The last decade was a race for global expansion and new product innovation. With flattening growth, and declining margins, supply chain excellence will matter more than ever. I think that the next decade will see the rise of the “T-shaped Manager” to lead horizontal end-to-end processes, and that superiority in supply chain leadership will transfigure relationships to drive new business models and allow companies to improve the Supply Chain Effective Frontier. Over the past decade, we have seen that the fastest progress in supply chain management happens when margins are tight, product cycles are short, and metrics are aligned across the organization to balance the supply chain holistically (growth, profits, working capital, customer service, and forecast accuracy) as a complex system. This analysis is hard work, but it is fun. And it is rewarding. — 25 —
  • 26. What I Have Learned About Supply Chain Excellence Originally published on August 18, 2012 I go back and forth. At times, I reflect on how fast things have changed; while at other times, I struggle with why supply chain processes cannot happen quickly enough, and be transformed faster. For me, it is a conundrum. I have been studying this for the past nine years. I have decided that I think that it is much like this picture of a man on a moving sidewalk. As we push forward, the supply chain processes are slowly evolving, and propelling us forward, but we are moving at a faster pace. After a year of studying supply chain excellence for the book Bricks Matter, I do not think that we have BEST practices. Instead, I think that we have EVOLVING practices. Here I want to share my insights. What Is Supply Chain Excellence? After studying supply chain excellence for a year, I do not think that companies can start with “process.’ I think that the application of generic processes without a sound understanding of supply chain strategy has been a mistake for many companies. I believe that the best companies propel themselves forward with a clear understanding of supply chain strategy, a well-defined multi-year road map, and an unobstructed view of how to make tradeoffs on the supply chain effective frontier shown in Figure 1.8. They invest in talent and they have a sound understanding that the best supply chain is not the most efficient. Instead, they understand that the most effective supply chain balances the trade-offs of growth, revenue and costs while managing working capital, corporate social responsibility and asset strategies. These trade-offs need to be based on the corporate strategy. — 26 —
  • 27. Figure 1.8 The Supply Chain Effective Frontier Companies that shine and are good at delivering value through their supply chains focus on the tradeoffs at the top of Figure 1.8. This is in contrast with companies that are laggards and only look at the waste, or the symptoms of poor performance at the bottom of this figure. Leaders understand there needs to be balance and that the policies for channel strategy, product portfolio management and supplier development strategies make a difference. They also understand that supply chain excellence requires the mastery, or the knitting together, of complex processes into a complex system. It must be managed as a complex system. My Frustration In the past month, I have worked with multiple companies that believed that they had a clear understanding of supply chain excellence, but they were only looking at a limited view of manufacturing or procurement excellence. I am frustrated because I see poor work, over and over again, on supply chain benchmarking. I believe that 90% of the supply chain benchmarking projects is fundamentally flawed in three ways: — 27 —
  • 28. 1) Self-Reported Data Is Inaccurate:  Any time that you have self-reported data on forecast accuracy, customer service (on-time delivery or perfect order) or manufacturing reliability, expect problems. Each of these measurements lacks a clear industry standard for reporting; and, as a result, they are based on very different definitions. In addition, based on real-world experience of supply chain benchmarking, there is usually a positive organizational bias to overstate results in each of these areas. 2) Peer Group Is Essential: I believe strongly that supply chains must be compared by peer group. You cannot put all supply chains in a spreadsheet and shake them up. 3) Apples-To-Apples Comparisons Are Fundamental: The data must also be from the same time period. It must be current. Table 1.5 A Study of Financial Ratios to Understand the Supply Chain Effective Frontier Making Trade-Offs As a result, I have started studying the financial trade-offs that companies have made in supply chain leadership by analyzing 25 years of financial balance sheets. To understand supply chain excellence, we are plotting peer groups at the intersection of these metrics and attempting to tie this understanding to the maturity models that are built into our research studies. We believe that the companies with the best supply chains have three characteristics: 1) Positive System Momentum in Peer Group Performance. Each supply chain has its own unique potential, but the best supply chain has a positive upward momentum while balancing the trade-offs. 2) Balance. Supply chain leaders maintain balance of these metrics against a supply chain strategy.  They show positive momentum in peer group comparisons in each area. 3) Steady, Unfaltering Year-Over-Year Progress. The supply chain journey happens over many years. The best supply chains are reliable and able to drive year-over-year progress. — 28 —
  • 29. A Case Study Consider the results of two competitors, PepsiCo and Coca-Cola. When comparing year-over-year revenue/employee to cash-to-cash cycles, PepsiCo (red in Figure 1.9) shows a positive trend (revenue per employee shows steady progress without swings in cash-to-cash cycles) while Coca-Cola’s (purple in the figure) results are erratic. Figure 1.9 Comparing Cash-To-Cash and Revenue Per Employee And, just remember, we are all on moving sidewalks. Keep in mind that it is a journey not a sprint, and be clear on the final destination. — 29 —
  • 30. The Supply Chain Plateau Originally published on January 13, 2013 A plateau: a period of stability with no change. Growth has stalled. To compensate and stimulate revenue, companies increased SG&A margin by 1%. However, the conditions were more complex; the average company, over the last ten years, experienced a decline of 1% in operating margin, and an increase in the days of inventory of 5%.  While cycle times have improved, the majority of the progress has come from lengthening of days of payables and squeezing suppliers. While I believe that individual projects may have had these results, it did not make its way to the balance sheet. I believe that we have reached a plateau and that supply chain performance is declining. One of the primary issues as shown in Figure 1.8 is the gap in technologies. Figure 1.8 Gap in Supply Chain Technologies A Need to Rethink Technologies? The good news is that companies are increasing their spend on supply chain solutions. The bad news is that there are major gaps in the solutions where they want to invest. It reminds me of the old Turkish proverb, “No matter how far you have gone on a wrong road, turn back.” I think that this is true. The fundamental design of supply chain systems has not changed since the mid-1990s despite the evolution of greater computing capabilities and the change in the business problem within the supply chain. The process requirements have changed in five fundamental ways that are not reflected in the software: • Vertical to Horizontal Processes. There is a need for automation and new forms of predictive analytics to power horizontal processes. The need to automate revenue management, social responsibility, supplier development and Sales and Operations Planning (S&OP). — 30 —
  • 31. • New Forms of Analytics. A need for new forms of analytics to sense using structured and unstructured data. Today’s supply chains respond. They do not sense.  As a result, the response is usually late. There is a need to use unstructured text data  mining technologies to listen and learn. • Utilize the Cloud. Inter-Enterprise Solutions Using Cloud-Based Computing. The supply chain is slowly adopting new forms of cloud-based computing to align and synchronize. • Movement from Inside-Out to Outside-In. The traditional supply chain planning systems primarily use orders and shipment data for planning. There is a need to redesign the technologies to use channel data market-to-market to sense, shape and drive a more flexible response. • Visualization and Better Use of Data. The traditional definition of supply chain planning was data intensive and insight poor. There is an opportunity to build a new generation of applications using new forms of mapping and visualization to drive new insights. Today, we have the evolution, not the reinvention, of current systems. Vendors are consolidating and innovation is largely absent. The other day, I was reading about IBM in 1964, and the introduction of the IBM 360. The IBM 360 was a tough decision for Thomas Watson because it made the prior computers obsolete. The supply chain APS market needs this type of leadership. I think that there is a discontinuity and we need to declare the APS and ERP systems of the 1990s obsolete and start again. I think that they are legacy. What do you think? — 31 —
  • 32. Unilever and Colgate: Two Bookends? Originally published on February 13, 2013 Bookend: to be positioned at the end or on either side of (something) Oxford Dictionary As I worked on my last report, I waded through spreadsheet after spreadsheet of data for three weeks and contrasted the progress of the high-tech, consumer products, food manufacturing, pharmaceutical and industrial sectors. The storyline of the report is that ONLY the high-tech industry is making progress on the Supply Chain Effective Frontier (effectively balancing progress on growth, profitability, cycles and complexity simultaneously). The rest of the industries are either stuck or moving backwards. Consumer packaged goods (CPG), food and chemical manufacturers are stuck and pharmaceutical and industrial companies are losing ground and moving backwards. Table 1.6 Growth by Industry As I worked with the data, several stories emerged in parallel to the main theme of the report on supply chain resiliency and the progress (or lack thereof) of companies on the path to supply chain excellence. One story that stands out for me is the race for supply chain excellence within the CPG peer group. It is a very competitive set of companies. Overall, as shown in Table 1.6, the CPG group composed of Church & Dwight, Clorox, Colgate, Kimberly-Clark, Procter & Gamble, Reckitt Benckiser and Unilever, is facing slower growth. With rising commodity prices, increasing complexity of the product portfolio, and escalating costs for transportation, the companies in the peer group are fighting to reduce costs and protect market share. — 32 —
  • 33. As an industry analyst, over the course of the last ten years, I have worked with all of these companies. In the process, because I had not done an in-depth analysis of their progress on what I now call the Supply Chain Effective Frontier (performance on driving growth, reducing costs, improving cycles and managing complexity), I saw each of them as equals. They are not. The analysis is tough. This data is hard to get. I am only able to do it now because we invested in systems to analyze financial supply chain ratios at Supply Chain Insights. Who Did It Best? As I write this, I hang my head. Over and over again, over the course of many years, I have heralded the progress of Procter & Gamble (P&G) on revenue/employee as a characteristic of supply chain excellence. As I wrote and pushed forward these ideas, I was challenged by Mark Vollrath, of the Colgate team, on the analysis that I was doing. He pushed back and asked me to look beyond productivity. After an in-depth analysis of the data over the course of the last three weeks, on ten years of financial ratios, I see his point. (I know, I know. I can be hard-headed at times.) I now believe that the choice of Colgate versus P&G as the winner on supply chain excellence is based on what is valued. If productivity is valued, the choice is P&G.  If the definition is the balancing of costs and inventory, the winner is Colgate. However, what is now clear to me is that whatever the evaluative metric, Unilever is at the bottom of the CPG peer group and should never be seen as a supply chain leader. Unilever is at the bottom of the list in driving performance improvements in productivity, cost, margin, inventory performance, and growth. The only improvement was an extreme increase in Days of Payables that improved cash-tocash, but weakened their suppliers. In Table 1.7, I share insights on progress that the two companies made in the last two years. Unilever is roughly 4X the size of Colgate. In 2011, Colgate had revenues of $16.7 billion and had 38,000 employees. In contrast, in 2011, Unilever had revenues of $64.6 billion and had 169,000 employees. They have some commonalities: both of the companies operate global teams and each defined their supply chain organizations at about the same time.  However, as anyone that has worked with both companies knows, they are VERY different cultures. Table 1.7 Corporate Performance: Colgate Versus Unilever — 33 —
  • 34. When I first started working with Unilever in Europe, the teams would laugh and say “that you could not work at Unilever without the ability to have a spirited debate.” They are right. The Unilever teams in the United States used to laugh that it was hard for them to sort through all of their “science projects,” while the Colgate teams were focused on one or two major objectives. The teams are composed of very smart people; however, they have always struggled to gain the same recognition of supply chain excellence at the board level that Colgate and P&G were able to enjoy much earlier. Unilever also relied heavily on strategic consultants and they started many waves of independent projects. Colgate, on the other hand, was largely driven by internal leadership with a conservative focus on supply chain basics. The definition of global was also quite different for the two companies. For Unilever, the regional teams operated with a strong independent spirit. Each region had a high level of autonomy. As I worked with them, I watched the Indian Unilever team gain a strong market presence as the market stature of the United States declined. Colgate, on the other hand, operated with a stronger global hand. The goal of Colgate was to get regional input, but manage a global brand presence. The focus was far more multinational. When the Great Recession of 2007 happened, Unilever restructured the organization resulting in a number of layoffs. Suddenly, inventory management became very important, and the teams got serious cross-functionally at the management of working capital. Colgate, on the other hand, withstood the market shocks better than Unilever, and continued to build talent systems. The Colgate team focused on a common IT architecture while the Unilever team allowed more freedom for project-based and functionally-driven IT decisions. In comparative analysis, I see two bookends. Over the course of the decade, Colgate maintained margin of 21% against an industry average of 16% and drove a high return on assets (ROA) of 18% against an industry norm of 11%. The team continued to reduce costs through the recession. The Colgate team achieved better growth and margins with lower inventory levels than the Unilever team (the average days of inventory for the peer group is 59). They performed better than their peer group on growth. In contrast P&G, often touted as the CPG leader, had an average operating margin average of .18, an ROA average of 9.5%, an average number of days of inventory of 65 with a growth rate of 7%. This is sharp contrast to the rankings when you study the three companies’ performance on improvements on productivity over the last decade as measured by revenue/employee. The CPG average was $443,000/employee.  P&G was the industry leader with an average of $532,000/ employee. Colgate was under the average at $352,000/employee, and Unilever was the laggard at $259,000/employee. Conclusion So in conclusion, when I use a more holistic measurement of supply chain excellence as managing the trade-offs of growth, profitability, cycles and complexity, I believe that Colgate and Unilever form the bookends of the CPG peer group. Colgate should be given the award for excellence and Unilever ranks at the bottom of the pack. Sorry, Mark. I think that you are right. This is a much better view of supply chain excellence than the easier metric that I used previously of revenue/employee. My take? It is easier to say “supply chain excellence” than to define it. The definition varies by organization. It also needs to align to strategy. What works for one company, may not be a fit for the other. However, I find too few supply chain teams stop to analyze the potential of their supply chains and their progress on the Effective Frontier of managing growth, costs, complexity and cycles. — 34 —
  • 35. Evolution of the Supply Chain Organization — 35 —
  • 36. Frequently Asked Questions on Supply Chain Organizations Originally published on November 4, 2013 Supply chain organizations come in many shapes and sizes. While the definition of a supply chain organization is relatively new, and is still evolving, we get many questions on the design and definition. In this post we share the answers to the questions that we get most frequently. What Are the Most Typical Reporting Structures? Today, over 80% of companies have a supply chain organization. However, they look quite different. There are normally six functions reporting to the supply chain leader. In the early days of supply chain evolution, the supply chain group often reported to manufacturing (in process industries) or procurement (in discrete industries). Today, this is reversed with procurement reporting to the supply chain organization over 50% of the time, and manufacturing reporting to the supply chain organization in more than 40% of organizations. In addition, the supply chain organization is reporting to a higher level within the organization. Over 80% of the supply chain organizations report to a C-level manager or senior vice president. This was not the case five years ago. These reporting relationships are outlined in Figure 2.1. Figure 2.1 Typical Supply Chain Reporting What Are the Stages of Organizational Maturity? The processes of supply chain execution are more mature than those of planning. In the early stage of supply chain evolution, the organizational focus is transactional and backward looking with little appreciation for supply chain planning. In these formative years, they tend to reward the urgent and not value the need for the important. — 36 —
  • 37. As the organization matures, the focus moves from a transactional, backward view to the management of forward-looking rhythms and cycles based on demand and supply. It is less about absolute numbers and more about probabilities and planning books. The focus also changes from inside-out to outsidein with a focus on market drivers and ownership of inventories through the channel. It also shifts from the management of functional silos in operations to the management of the end-to-end process from the customer’s customer to the suppliers’ supplier. How Are We Doing on Order-To-Cash Maturity? Organizations are slowly making progress. In a recent study, we found that roughly 1/3 of sales and purchase orders are moving through B2B systems hands free. We also found that when the orders can move without manual intervention that the time to ship the order is reduced by 50%. EDI is still the workhorse of the industry. The evolution of the portal fell short of expectations to build strong B2B relationships and we are just starting to take advantage of business networks to enable B2B transactions more seamlessly through multiple tiers of the network. Figure 2.2 Status of Hands-Free B2B Orders How Is the Corporate Social Responsibility (CSR) Defined? What Is a Normal Reporting Relationship? The average company has had a corporate social responsibility organization for six years. While the name may differ, today, there is a Corporate Social Responsibility (CSR) organization in over 90% of companies greater than $1 billion in revenue. The reporting relationship is more random than that of the supply chain organization. As shown in Figure 2.3, there is less of a “typical organizational structure” in the reporting of the CSR function. — 37 —
  • 38. Figure 2.3 Corporate Social Responsibility Reporting Relationships Figure 2.4 Who Does Supply Chain Best? — 38 —
  • 39. Who Does It Best? As you read this report, you will learn that the concept of supply chain excellence is a deep and complex topic. However, when we ask supply chain leaders who excel on supply chain excellence and CSR process delivery, we get the response depicted in Figure 2.4. What Percentage of Supply Chain Organizations Have a Dedicated Human Resources Function? The average length of time of the supply chain human resource organization is six years. The supply chain human resource function is found the most frequently in organizations greater than $5 billion in revenue. Today, roughly 25% of companies have a supply chain human resource organization. Figure 2.5 Supply Chain Human Resource Departments: Organizational Tenure What Is the Tenure of the Chief Supply Chain Officer (CSCO)? At this time, this is unknown. We see that roughly a quarter of supply chain organizations have a CSCO at this time. Many organizations greater than $5 billion in revenue have had a person in the role for more than five years. While the data is not conclusive, it appears that the job is much more stable with less turnover than the CSCO’s counterpart, the Chief Information Officer (CIO). How Many Companies Have a Supply Chain Center of Excellence? What Defines Success? Today, there is a supply chain center of excellence in one in three organizations; but only 50% are rated as effective. They are the most common when the organization is complex by product line or geography. The gap in performance is typically related to a lack of alignment in supply chain strategy and the inability to meet expectations in the design and execution of horizontal processes as shown in Figure 2.6. — 39 —
  • 40. Figure 2.6 Importance Versus Performance of the Supply Chain Center of Excellence Figure 2.7 How Supply Chain IT Decisions Are Made — 40 —
  • 41. How Do Organizations Make Decisions on the Purchase of Supply Chain Planning Software? Most of the purchase decisions of supply chain software are made jointly between the line-of-business leadership team and the IT organization. As shown in Figure 2.7, this happens over 70% of the time. The supply chain leader, in this process, must overcome a number of pitfalls and hurdles. In the selection of IT systems the supply chain leader needs to keep these things in mind: • Alignment. The Information Technology (IT) group tends to see the goal of technology as improving transactional efficiency; whereas, the supply chain leader is seeking better visibility and transparency of flows, rhythms and cycles, and business drivers. Teams see what they understand. As a result, in the best organizations, companies have built career paths that enable cross-functional movement and skill attainment between IT professionals and line of business leaders. This enables a more holistic understanding. • Define a Clear Business Strategy. A barrier to system selection is a commonly held vision of supply chain excellence. <This is not a trivial discussion.> The IT team also believes that the line of business leaders are much more aligned than they are in reality. The gaps between leaders in source, make and deliver are quite large in most organizations. Companies that make the best selections on IT infrastructure work first to close these gaps through the definition of IT strategy. This enables a much more seamless selection of technologies. Companies need to work to gain clarity before engaging a technology vendor. Because the sale of software is both complex and expensive, the sales teams at the technology providers are trained to sell to organizational factions, often making the lack of alignment worse. • Avoid Gridlock. Define how you are going to make a decision before you get started with your selection process. This sounds simple; but it is not. Many, many teams go through months of deliberation because they were not clear in the beginning of the technology evaluation. These are the questions that I am asked the most often. Have I missed anything? — 41 —
  • 42. Organizational Alignment — 42 —
  • 43. Taking the Hill Originally published on May 14, 2013 Growth has slowed. Profits are sluggish. Complexity reigns and cycles are longer. The challenges and opportunities of business are greater. We believe that supply chain excellence helps a company to better balance demand and supply. We also believe that it helps companies to be more resilient: weathering demand and supply volatility while maximizing opportunities and mitigating risks. We believe that supply chain excellence matters and is important to improving financial market performance. After a decade of investment, many companies are asking me, “How do I take this next hill? How do I push forward? What does the future of supply chain excellence look like?”  For many, despite spending 1.7% of revenue on supply chain applications, the promise of an agile, flexible supply chain that can respond as the business changes seems like an illusion. As shown in Figure 3.1, companies are struggling to balance growth, profitability, cycles and complexity. We term this the Supply Chain Effective Frontier. Figure 3.1 The Supply Chain Effective Frontier This week, at Supply Chain Insights LLC, we published our 11th report in the series titled Supply Chain Metrics That Matter. Over the course of a year, we analyzed a decade of financial data to gain an understanding of how companies and industry sectors are balancing growth, profitability, cycles and complexity. To write these reports, we start by analyzing industry sector progress on company growth, profitability, cycles and complexity. Using our database of financial ratios (shown in Table 3.1), we analyze company and industry sector progress over the last decade. Financial ratios allow us to analyze performance across the peer group (large against small companies) and across currencies. We look for year-over-year improvement. We also look for companies that have out-performed their peer groups. When we find these two characteristics, we interview industry leaders to analyze why. We do not believe that there is much value in putting all companies into a spreadsheet and shaking them up… or looking at singular metrics without analyzing the intricate trade-offs of the supply chain when viewed as a complex system. — 43 —
  • 44. Table 3.1 Financial Ratios Used in the Analysis of the Supply Chain Effective Frontier Six trends are clear: 1) The Industries Are Not Making Equal Progress. Companies are competitive. They are constantly asking us “Who does this best? Which industry sector can we learn from?” Through this series of reports, we now can see that consumer electronics has pulled ahead of the pack. Consumer Packaged Goods (CPG) and chemical companies are close behind, but they are having difficulty “taking the hill.” The hospital industry has made progress, while the pharmaceutical and medical device companies are stalled. Apparel is actually moving backwards. 2) Planning Matters. Companies that are good at planning—use of supply chain design and supply chain planning technologies—are outpacing other industries. Active management of value networks and scenario planning makes a difference. When companies look at singular metrics (labor costs or inventory), they have moved backwards. 3) There Is No Substitute for Leadership. Industries that have formed cross-functional leadership teams combining source, make and deliver together have made the fastest progress. In parallel, when supply chain concepts are well-integrated into the design of trading partner relationships by both sales and procurement, there is an acceleration of value. The trade-offs are easier and the value network strategies more straightforward. 4) Aligning Metrics Matters. Companies making the fastest progress have designed metrics to ensure that all functions are held accountable for operating margin, cash-to-cash cycles, growth and productivity. When this happens, proxy metrics like Return on Assets (ROA), Overall Equipment Effectiveness (OEE), Days of Payables (DOP), Material Costs, Transportation Costs or Sales and General Administrative Costs (SG&A) can be discussed and trade-offs can be made easily crossfunctionally. Functional metrics used in isolation degrade corporate performance. — 44 —
  • 45. 5) The Gaps between Industry Sectors Have Widened Over the Decade. I have studied supply chain excellence for the last decade as an industry analyst. As I write these reports and work with the team, I am amazed how much these gaps have widened. It is clear basics matter.  Leaders manage the supply chain as a system and improve the potential of the system to make trade-offs. Laggards let the supply chain whip them around and make unconscious trade-offs through indecision. The gaps between the two have grown. Figure 3.2 Taking the Hill and Overcoming the Supply Chain Plateau 6) Supply Chain Excellence Matters. In our work on the Supply Chain Index, where we are correlating progress on the Supply Chain Effective Frontier to financial market performance, we can see that supply chain matters. The leaders that have managed the supply chain as a complete system are able to achieve better financial market valuations. In closing, in our writings and our research, we define the term supply chain as processes from the customer’s customer to the supplier’s supplier. Unfortunately, for many of our readers, the word supply chain is now a politically charged term. We find this unfortunate and often disheartening. The shift in definitions can be a barrier to driving progress. How so? For software application providers, it is often reduced as a subset of applications. I find it sad, when I attend a conference where the term supply chain is only used to describe supply chain execution (SCE) or advanced planning optimization (APS). Likewise, I find it sad when I work with a company that had defined the supply chain organization very narrowly. It is often reduced to be the Supply Chain Department that has been functionally defined to ONLY focus on a part of the supply chain like transportation, customer service or distribution planning. These limiting definitions confine the potential. The companies that are the furthest along in “taking the hill” have a process manager focused on managing the “end-to-end supply chain.”  For these companies, the mission is clear. There is no debate on what supply chain means. It is about the company’s ability to manage growth, profitability, — 45 —
  • 46. cycles and complexity to improve the potential and capabilities of the company. In the end, isn’t this what matters anyway? I have little energy to debate the term supply chain. I just want to get on with driving value. — 46 —
  • 47. Why? Originally published on June 19, 2013 Supply chain management, as a practice in commercial operations, is now thirty years old. Early 2012 marked the end of the third decade and 2013 finds us into the fourth. When we look backwards, and use the results on corporate financials as a litmus test on supply chain excellence, we find: • We Have Made Improvements in Productivity. Due to improvements in connectivity, 90% of industries have made improvements in productivity (revenue/employee). The chemical and consumer electronics industries have made the most progress. • Balance an Issue. Companies are stalled on improving customer service and forecast accuracy. • Complexity Increased. It comes in many flavors—increase in inventory, changes in sales policies, new product lines—all add to the complexity.  Supply chains have not morphed to manage the complexity at the same cost, quality and level of customer service. • Cycle Management Stalled. The only industry that has made progress in inventory management is consumer electronics. Recently, I spoke at the Chief Supply Chain Officer conference in Chicago. When I finished the presentation, I asked for questions. A person in the audience asked me, “Why do you believe that this happened? And, why do supply chain professionals believe that they have made improvements when they really have not?” Here I share my answer: 1) Accountability. When it comes to supply chain processes, companies have not held themselves accountable to the balance sheet. Most companies are surprised when we share their results on the Supply Chain Effective Frontier. 2) Definition of Supply Chain as a Function Versus a Way of Doing Business. The original intent of the supply chain was to build “end-to-end processes.” Over time the term has evolved to describe a function.” Less than 1% of companies have a leader focused on the building of end-to-end processes. Most of the opportunity lies in the crevices between functions within the organization and between companies. 3) Leadership. Many executives lack an understanding of the supply chain as a complex system and how to manage trade-offs. There is a lack of understanding of the basics of agility and responsiveness. This manifests itself into a lack of alignment as seen in Figure 3.3. 4) Need for Strong Horizontal Processes. Companies have focused on vertical processes. There is a need for cross-functional alignment through horizontal processes. Companies with strong horizontal processes of revenue management, new product launch, Sales and Operations Planning (S&OP), Supplier Development and Corporate Social Responsibility have higher performance. 5) Alignment. By and large, organizations are not aligned to drive cross-functional performance. Based on recent research, we find that companies that have invested in Supply Chain Centers of Excellence, as shown in Figure 3.3, rate themselves higher on cross-functional alignment. The presence of these centers is relatively new. Without them, the gaps are large. 6) Project Focus Versus Systemic Improvements. I believe that we have made progress on projects, but that we have not translated these projects into holistic improvements. — 47 —
  • 48. Figure 3.3 Organizational Alignment 7) Belief That We Had Best Practices.  I strongly feel that we have evolving practices.  I have seen too many companies adopt practices that were not a good fit because they were recommended as best practices. Examples include one-number forecasting, consensus forecasting without bias and error accountability, CPFR without measuring forecast accuracy of the downstream partner…. The list could go on and on. What do you think? How would you have answered the question? Anything you would add? Next week is the first time that I am home in three months. WHEW!!! It will be nice to be home and to have time to write on this second book, Metrics That Matter. If you have a story of supply chain excellence that you want to share for my book, please drop me a line.   — 48 —
  • 49. How Can I Move Forward If I Cannot Align? Originally published on July 12, 2013 For years, as an industry analyst, I have written the statement that “IT and line-of-business teams need to be aligned.”  As I finished a report on organizational alignment, I felt a bit silly ever writing this statement. Why?  The statement is hogwash. The functions within the line-of-business teams are so misaligned that I cannot imagine that IT could ever align to all of them. In fact, as the research shows, alignment happens through leadership in horizontal processes. Last month, we finished a study of organizational alignment with over 200 respondents. We asked the IT, finance and supply chain teams to self-assess their views of organizational alignment. The supply chain view is listed in Figure 3.4. As we tabulated the data for the report, what fascinated me was how differently each of these organizations view functional alignment. For the supply chain team, the largest area of misalignment is between the supply chain and the sales group. I find it interesting that the supply chain teams perceive greater gaps between functions than their counterparts in the finance or IT teams. Figure 3.4 Organizational Alignment Why Does It Matter? Today, for most organizations, things are not going well. Demand volatility is escalating, product portfolios are more complex, and supplier networks are harder to manage. Supply teams are being pressured to reduce costs while demand groups are feeling the squeeze to get the “demand plan right.” The technology investments from the last decade are not meeting expectations. Supply chains are not agile enough. Finger-pointing abounds. Understanding and problem solving often falls short. What is an executive team to do? Supply Chains are complex systems, and are often not well-understood in the organization. In prior studies, the lack of understanding by the executive team is a major barrier.  As a result, it is incumbent upon supply chain leaders to talk the language of business, hold themselves accountable — 49 —
  • 50. for corporate performance (versus functional performance) and learn to serve. To align, we have to give up our supply chain geek-speak, stop our three- and four-letter acronym descriptions, and help the organization to better understand the supply chain. In the report, we outline three actions that a team can take today to deploy these skills. What Do We Do About It? 1) Define a Supply Chain Strategy and Focus on Agility and Orchestration. In this process, be sure that the team members understand that the supply chain is a complex system that must be managed in totality, and that the most efficient supply chain is usually not the most effective supply chain. Use tools like network design optimization and simulation modeling to help people model tradeoffs. Force finance and sales teams off of spreadsheets that cannot model the complex relationships of trade-offs. Advance their thinking to use more advanced supply chain modeling tools. Define what agility is, what it can do for your organization, and show why it matters. Do not talk in abstract terms. Make it real. It is not short cycles. It is more than that. It is the ability to have the same cost, quality and customer service given a level of demand and supply volatility. Design the supply chain to perform at these levels of volatility. Focus the organization on understanding the “probability and patterns of demand” and how to design push/pull decoupling points, supplier networks and inventory buffers to improve agility (focusing on form and function of inventory in the supply chain). Use modeling tools to help teams to visualize these concepts. 2) Build Strong Horizontal Processes Like S&OP. We have completed two studies now that show Sales and Operations planning improves both agility and alignment. The impacts are profound. Find a champion within the organization and start working the process. Focus on improving corporate performance—profitability, cycles, revenue growth, customer service and forecast accuracy—against the supply chain strategy. 3) Build an Effective Supply Chain Center of Excellence. Unfortunately, only 1-in-2 supply chain centers of excellence are self-assessed in surveys as meeting expectations. The issues abound, but we cannot let the problems with execution blind us. The value proposition still holds. Supply chain centers of excellence help with metrics alignment, and product portfolio alignment, between finance and the supply chain team, and the supply chain team and marketing. We can see the impact of an effective center of excellence in this report. Too many companies have let their centers of excellence lose relevancy and become academic. The best supply chain centers of excellence serve the business. In the last seven years of writing reports, this was one of my favorites. I think that we took a new angle to understand a tough problem. I would love to hear your feedback. — 50 —
  • 51. Scream… Originally published on May 18, 2012 scream: v. screamed, scream·ing, screams v.intr. 1. To utter a long loud piercing cry, as from pain or  fear. The Scream - Edvard Munch This week, I found myself wanting to scream. Not once, but several times. Imagine that’s me in the picture going from client to client. Not a pretty sight. Don’t you just love Edvard Munch’s work The Scream? I think the fact that on 2 May 2012 it broke the highest nominal price record for art sold at an auction is a metaphor for today’s dilemma for the supply chain leader. You might say, “How so?” We have spent bucko bucko bucks for supply chain systems; yet, the satisfaction is low. Many supply chain leaders that I talk to want to scream. Here I share some insights: What is this thing called “Supply Chain” anyway? I am biased. I believe that–for manufacturers, retailers and distributors–supply chain is business. However, not all see it this way. This is especially true in Europe. Every time that I present at a conference in Europe, I get a stark reminder that for many, the supply chain is still about trucks and sheds. Why are we so siloed? Most companies have only themselves to blame: many supply chain leaders have not been good business partners. The trappings of acronyms, supply chain speak and functional views have not served them well. The slow progress drives me nuts. We will never successfully connect the customer’s customer to the supplier’s supplier with this parochial view. I also want to scream when I hear that finance and supply chain cannot talk the same language. I know. I know. The supply chain team has conventionally spoken the language of “volume” and the finance team has traditionally spoken the language of the “balance sheet”; but, I believe that it takes both. They need to be business partners. I also believe that teams need to be aligned to an operating strategy; and based on research, for 85% of companies this is a problem. They do not have a successful operating strategy. — 51 —
  • 52. Figure 3.6 Challenges in Defining a Successful S&OP Process In a recent webinar, we asked “What was the greatest barrier to improving Sales and Operations Planning (S&OP)?” There were three big ones, as outlined in Figure 3.6: the understanding and support by the executive teams, clarity of supply chain strategy, technologies to support the process, and the role of finance. In this study, they could only pick one. I believe that if they could have picked multiple answers, each of these would have had high scores. Next week I will present at a conference of supply chain leaders working on improving Sales and Operations Planning (S&OP). There will be a second group in a second room divided by a BIG WALL that will be discussing Integrated Business Planning (IBP). Most of the people in the IBP room will be finance guys and most of the people in the S&OP room will be supply chain leaders. See the problem? As I sit in these conferences, and look at the strong wall that separates the two groups, I am reminded of The Ronald Reagan speech at the Brandenburg Gate in front of two panes of bulletproof glass, “ … if you seek liberalization: Come here to this gate! Mr. Gorbachev, open this gate! Mr. Gorbachev, tear down this wall!” Later on in his speech, President Reagan said, “As I looked out a moment ago from the Reichstag, that embodiment of German unity, I noticed words crudely spray-painted upon the wall, perhaps by a young Berliner: ‘This wall will fall. Beliefs become reality.’ Yes, across Europe, this wall will fall. For it cannot withstand faith; it cannot withstand truth. The wall cannot withstand freedom.” Similarly, this functional wall cannot withstand petty bickering between finance and supply chain; but to tear down the wall, supply chain leaders have got to define the supply chain strategy. Without it they cannot align… — 52 —
  • 53. Here are the issues: • Cost Versus Value. This week, I had two discussions with two companies considering what I think is blasphemy. <I know… ask me how I really feel! > They were considering setting up a profit center for their supply chain functions utilizing transfer pricing. I also spoke to two veterans that had recently returned from Unilever start-ups trying to implement this type of supply chain organization. The discussions make me believe even stronger that every time that the supply chain creates transfer pricing and a profit center, that they are making the wall between make, source and deliver thicker. Leaders need to break down walls… • Define Value. The mature supply chain is not just about cost. It is about the delivery of value. In my work I see that every profit center is a barrier to creating higher value. I know that it might sound good in some consultant’s backroom, but trust me, in the real world you do not want to constrain the discussions between the supply chain organization and the other groups by accounting rules. • Balance. A couple of weeks ago I wrote that an athlete needs strength, balance and agility. I feel that the athlete analogy is a good one as companies get ready to run the race for Supply Chain 2020. They have built strength, but need greater balance and agility. We find that only 20% of companies, as shown in Figure 3.7 have balance in S&OP processes. Figure 3.7 How Balanced Are Your S&OP Processes? In the definition of traditional supply chains, leaders focused on improving strength. While 90% of companies responded that they can improve supply chain agility through a mature S&OP process, they believe that they need leadership, and a clear supply chain strategy, and alignment to achieve balance. It is not just about strength…. Companies with a well-defined supply chain strategy and a more mature S&OP process, rate themselves higher on balance. Companies with greater balance also rate themselves better on a self-assessment of supply chain agility.) We define supply chain agility as the ability of an organization to have the same cost, quality and customer service given a level of demand and supply volatility. In Figure 3.8, attendees at the webinar rated themselves on agility and the ability to improve agility through the deployment of “what-if scenarios” in planning. Only 8% of companies are satisfied with their current “what-if” capabilities. • Hype and Honesty. Last week, I spoke of supply chain purchases as hope and helplessness due to market confusion. This week, I want to speak of hype and honesty. The evolution of the tightly integrated supply chain (supply chain planning with enterprise resource planning) reduced the emphasis on “what-if simulation.” Over the past ten years, supply chain technology — 53 —
  • 54. capabilities in this area have not improved, but the need has increased. In the webinar, when we asked how many companies were happy with their “what-if capabilities,” only 8% responded positively. When I asked this question in a webinar two years ago, I got a similar response. I think that it is time we get honest with ourselves. Companies cannot be agile without “what-if” capabilities to model demand and supply volatility, and the majority of the industry is not happy. Whether you call this hope and helplessness, or hype and honesty, it is just plain sad. Figure 3.8 Webinar Response on Agility through “What-If” Planning   Wrap-Up So, why did I scream? Because so much can be done with supply chain management by those that understand it. I feel that the efforts are stalled. I see it, but I don’t know how to fix it. As a result, I SCREAM. Can you hear the SHAMAN screaming? What are your thoughts? What do you think companies should do? Is there a way that you scream to help you cope? Let us know your thoughts. — 54 —
  • 55. Learning from the Past Originally published on May 16, 2012 I think that we have to learn from the past, and not repeat past mistakes. As the large consulting projects for Enterprise Resource Planning (ERP) wind-down, more and more consultants are hanging out a shingle to help companies define supply chain leadership. I am worried. I see too many people and too few of them with a good understanding of the basics. Here are three recommendations that I have for my friends in supply chain management: • Process Is the Wrong Place to Start. Start with Supply Chain Strategy. When people speak to me about starting with process and best practices, I smile. I think that we have few BEST practices. Instead, I feel that we have EMERGING practices. Please avoid those consultants that start with slick powerpoints advocating BEST PRACTICES. • Balance. The processes that are the most mature today are in the areas of transactional processing: order-to-cash and procure-to-pay. Yes, today we know how to pay an invoice and write to a code of accounts. And, hopefully, you have made progress on building a reliable supply chain: one that can take and process orders reliably. If so, it is ok to give yourself a pat on the back in this area. It was hard work. Hopefully, you are done with your ERP implementation now and can move on and use the data. If not, stay focused on the basics. • Moving Forward. As you move forward, you will find that the least mature areas are growing in importance. This includes demand and supply sensing, risk management, revenue management, Sales and Operations Planning (S&OP), demand orchestration, and supplier development. These are horizontal processes. Companies have focused on the definition of strong vertical processes (make, source and deliver) without a clear road map of how to make trade-offs horizontally. What supply chain leaders have failed to define is an actionable supply chain strategy that helps companies make decisions cross-functionally. While the functions have become stronger, most organizations lack clarity on how to make trade-offs. Functional excellence can be a deterrent to supply chain excellence. So, what is supply chain excellence? In short, you need to define it.  It is the delivery of the business strategy at maximum supply chain potential.  So, if I were in your shoes, the first place that I would start is in the definition of Supply Chain Strategy as defined by Figure 3.9. I would not phone a big consulting company. Instead, I would start outside-in: from the markets back. I would work to actively define meaningful customer and supplier relationships: • What is happening in key relationships on both the demand and supply-side of your business that needs alignment?  • How do you use the redefinition of these relationships to sense market changes? No, I am not speaking of last week’s changes, or last month’s market shifts. Instead, I am speaking about the use of daily data used daily with near real-time latency powered by new forms of analytics that allow you to sense and learn. The ends of the supply chain are fragile. The center definition of the supply chain is stronger. To define the supply chain outside-in, the supply chain leader will need to win the support of the Chief Operating Officer to build and execute this strategy. Why? It requires the definition of the extended supply chain from the customer’s customer to the supplier’s supplier, and the redefinition of customer and supplier relationships. Sales and procurement will be very resistant because the traditional roles of sales and procurement have been very transactional. Be patient in this journey. — 55 —
  • 56. Figure 3.9 Defining a Clear Supply Chain Strategy Then focus on the product platforms and the acceleration of new product launch processes. How well are you bringing new products to market?  And, rationalizing product life cycles? And, using supplier innovation networks to fuel design? Build strong relationships with R&D to help infuse supply chain thinking into the stage-gate processes for new product launch, and work to bring more value into the value chain through actively defining these processes. After answering these key questions, define the network design for each of your supply chains while clearly defining the supply chain response. I love what is happening with the new generation of network design tools. Invest in them to understand the effective frontier for each supply chain and how to make the right trade-offs between cost, service, forecast accuracy and working capital. Actively define the supply chain response and communicate it to your teams. This will require work; and remember, the most efficient supply chain is seldom the most effective. Then focus on the building of talent. Augment the good work in supply lean initiatives by investing in Forecast-Value Add (FVA) initiatives and “what-if” modeling. Build a cross-functional understanding in your team through horizontal career paths and focus on horizontal process excellence in Sales and Operations Planning (S&OP), Supplier Development, Corporate Social Responsibility (CSR), and Revenue Management. Supply chain talent is becoming a constraint. In the words of one manager from South Africa, “I looked at the situation. Yes, the gaps in my team were large. One option was to just terminate them all. There was sufficient cause, but I had a problem. The issue was that the available candidates in the market were no better than what I had on my team. As a result, I sucked it up and took responsibility to train the supply chain team.” After doing this, then move to process. Define the process definition for your company. You are then ready to define your three-year road map for process improvement. A Project-Based, Piecemeal Approach Is Limiting. Many companies have deployed a functional strategy of many projects working on continuous improvement in isolation. This just will not work anymore. In the words of one supply chain leader, “We have made a lot of supply chain investments, — 56 —
  • 57. and all the project teams report outstanding progress, but the overall progress in supply chain excellence for my organization is stalled. I am to blame. We have outsourced the responsibility for crafting our supply chain vision to ill-prepared consultants and wrongly believed that we would deliver supply chain excellence through an extended ERP project. Yes, we can now better see and record transactions, but we have not improved our ability to sense and adapt to market changes. The ends of our supply chain are fragile. The fault lies with me and my lack of vision for the organization. We will not make progress through this traditional piecemeal approach.” In short, there is no substitute for leadership. While supply chains can be outsourced, and talent can be obtained through new ways of deployment, supply chain leadership and vision are the largest barriers to progress. A piecemeal approach will not get you there. “No real impact can be made in a supply chain in less than three years.  It takes time.” Marty Kisliuk, Director of Global Operations and Business Development, FMC Corporation Agricultural Products Group Marty, I could not agree more. However, the supply chain leader has to build the guiding coalition to earn the organizations’ support over this journey. I firmly believe that it is about the delivery of value. — 57 —
  • 58. Out of Africa Originally published on June 4, 2013 Global multinational companies have a dilemma. Supply chain talent is primarily coming from North America and Europe, but these are the continents that represent the lowest levels of growth for supply chain 2020 (see Figure 3.10). Most global multinational companies have a solid base now in South America and Asia, but the race is on for Africa. I spent this week at SAPICS in South Africa. At over 1,000 delegates, the conference is a large supply chain event. There are few global conferences that can boast this level of attendance. At the end of my talk on the first day, I was asked by the audience to share what I would recommend as action steps for South African supply chains. So in this blog, I want to share my recommendations. SAPICS Has a Unique Opportunity. South Africa is uniquely positioned to gain benefit in the race for supply chain modernization of Africa. However, it requires new forms of corporate/government partnerships. The conference was heavily dominated by third-party logistics firms, consultants and technology providers. SAPICS needs to form deep roots with global multinationals and government agencies to drive talent development. In a population with 29% unemployment, it needs to be about much more than certification. I would love to see it evolve into a program of research grants, co-op and student programs, and educational funding. Figure 3.10 Continental Supply Chain Growth   — 58 —
  • 59. However, to capitalize on this opportunity, manufacturers need to step up. The presence of large South African manufacturers was limited at the conference (as was the thought leadership of global multinationals with operations in Africa). It needs to be about industry/government/community partnership. South Africa is in a unique position to capitalize on the growing opportunity, and SAPICS has an opportunity to lead. It Could Be a Step Change. Map Outside-In. Leverage Mobility. I love what is happening in Africa on mobile application development. Most African households will never know a wire in the wall for a conventional phone. Instead, they are innovating in new ways on mobile devices. One of my favorite presentations at the event was by Francis Marabula, Executive head of Supply Chain, Safaricom, Kenya. He spoke of M-Pesa and the evolution of new models for mobile commerce in Kenya. Mobile penetration is forecasted to be 85% of the households in Africa by 2015. In contrast, commercial banking will be 25% of households. The M-Pesa service allows users to deposit money into an account stored on their cell phones, and to send balances using SMS technology to other users (including sellers of goods and services), and to redeem deposits for regular money. Users are charged a fee for sending and withdrawing money using the service. It has spread quickly, and has become the most successful mobile phone based financial service in the developing world. It started with simple money transfers in 2007 and now includes a range of services. The M-Pesa mobile application now represents 30% of GDP in Kenya with 60,000 outlets. Mobility and the direct connection to the shopper is a wonderful opportunity for the supply chain innovator to create new business models for the supply chain OUTSIDE-IN. Just as the African household will never know a conventional phone, there is no reason for them to know a conventional INSIDE-OUT supply chain. Internet of Things as an Enabler. The conference kicked off with a presentation on robotics. Tom Bonkenburg, Director of European Operations for St. Onge, Netherlands, presented a very compelling picture of robotics. He forecasted that today, robotics could save 10% of logistics labor costs. He also believes that in five years, robotics and smart vehicles could reduce total logistics costs by 48%. It was a brilliant presentation, but I don’t think that robotics with the high unemployment rate, and the low wage rates, is the answer for Africa. Instead, I think that the answer for Africa is about mobility, new forms of analytics, and The Internet of Things. What do I mean by The Internet of Things? It is the use of real-time sensing to power the supply chain outside-in. For example, Africa is constructing new infrastructure. Investment is happening in pumps for water, turbines for electricity, windmills, tollgates for roads, and modern factories with Programmable Logic Controllers (PLCs) and equipment sensing. The common thread is The Internet of Things: Sensors that can transmit and share real-time status. This has two impacts on the supply chain: improvement of signaling for outside-in processes and the movement from mean-time failure on service supply chains to real-time sensing of equipment. It is my hope that the African supply chain leaders never know demand latency because they have the opportunity to design the supply chain to capture useage real-time. I hope that they can bypass the conventional licensed Advanced Planning Systems and leapfrog into cloud-based computing with learning systems and automated benchmarking. If I had a magic wand, I would love to see SAPICS invest in a shared vision for industry leaders in Africa to combine mobility, Internet of Things, and new forms of analytics to build OUTSIDEIN supply chain processes to leapfrog and improve current thinking. In summary, I appreciate SAPICS invitation. I can now say that I have been to Africa. It is impressive to see such a large gathering of supply chain professionals in a small country at a time where unemployment is 29%. Congratulations on a successful event, but can we take it to the next level? SAPICS, be a leader. I believe that outside-in supply chain process thinking can happen out of Africa. — 59 —
  • 60. Supply Chain Talent — 60 —
  • 61. Figure 4.1 Supply Chain Talent Infographic — 61 —
  • 62. What Do We Do Now? Originally published on September 20, 2013 Supply chain talent is a growing gap for leaders. The impact is great. The biggest issues are in midmanagement roles. Let’s examine some of the facts from recent research. Today, 60% of companies have open positions. Fifteen percent of the planning positions are open for an average time of five months. An IBM survey reports that 51% of companies are seeing an increase in turnover of supply chain leaders. Have I convinced you yet to be worried? If so, let’s start working on an answer. Let me give you the first clue. The answer is not recruiting more college recruits. There is currently a 9:1 demand-to-supply ratio for supply chain graduates, and the skill level of new hires cannot stretch to fill the missing mid-management gaps. It starts with leadership. This week, I have been reviewing supply chain strategy documents for companies planning their 2014 strategies. I love talking to supply chain teams about their future. However, I am surprised that most companies do not see the gap in supply chain talent as a critical need to fill.  The plans that they are sharing are not including the need to move aggressively on building supply chain talent. There is just no understanding that the WORLD TODAY is not the WORLD of FIVE YEARS AGO. Five years ago talent was plentiful, companies could easily recruit for supply chain planners, and it was easier to recruit supply chain graduates. Not so today…. If only more companies had the view of Mike Corbo, current leader of the Colgate supply chain team. In my recent interview with Mike, he said he spent 30% of his time on team development. Notice how talent management is at the top of his mind: “As an organization, we believe in building talent systems and hiring from within. I take my job as the leader of the 22,000 global members of the Colgate supply chain team seriously. I oversee succession planning for the supply chain organization. When it comes to talent management, it is a “single threaded needle.” While I am supported by an experienced and talented supply chain human resource team, managing talent is a large part of what I do. It takes time. It is 30% of what I do on a day-to-day basis. As a result, the reward and feedback systems for talent development are very consistent. The leader of the supply chain team has led succession planning for the last twenty-five years. When people come to see me and ask for career advice, I tell them to do their current job VERY well. My advice is to “get real good at something and drive value today.” I believe that success is not always about moving up. I encourage members of the team to take enrichment opportunities in other areas of the company or other geographies; but I don’t want them to just spend time, I want them to contribute and learn. I believe that we should encourage people to move across the organization to get a greater understanding of the business. We do succession planning three times a year. I value cross-functional experiences. I strongly believe that we cannot let regions operate as islands. We hire with the expectation that people will spend time in multiple regions and multiple functions.”   — 62 —
  • 63. What Do We Do About It? So, when companies agree that this is a problem, the next question is, What do we do about it?” Here are five steps that I think that supply chain leaders can take today: • Recruit Heavily from Engineering Programs and Train New Hires on Supply Chain Concepts. Today many companies are competing for the same talent from supply chain programs in business schools. An untapped and more available talent pool is in the engineering schools. They can be trained to fill in the process mastery gaps. While they will need to be trained on the practical supply chain processes, they understand the concepts of process systems and they have the raw talent to build both technical and process mastery. In fact in some ways this may be helpful, because many supply chain programs are teaching old supply chain concepts, and very functional views, of the past. • Focus on Making Your Teams Loyal Employees. Loyal and valued employees stay with organizations. Planning roles are at the bull’s eye of this “perfect storm.” Supply chain planning roles have the largest number of vacancies with the longest time to source. So, a perfect place to start is to make sure that your planning teams feel appreciated. Most planning teams have a low-level of satisfaction due to the fact that traditional processes reward the urgent, not the important. The research that we are doing strongly supports that companies that are good at planning are better able to balance costs, inventory and customer service. • Cross Train. Enrich and improve cross-functional understandings through short-term assignments. Use the principles of co-op positions for permanent employees to give them both job enrichment and cross-functional experiences. The largest gaps are in the areas of strategy and finance. • Invest in Learning. In our recent studies, 1/3 of employees are asked to own their own training programs. And, we all know that training is usually the first thing that is cut in a downturn or a budgetary cycle.  And, as my friend Marcia Conner points out so eloquently in our webinars, training is not the same as learning. Training is only one way to learn. Build stronger teams by embracing learning as a cultural value. One opportunity to do this is through the onboarding of new employees from other companies. One mistake I see companies make over and over again is that they believe they have a clear understanding of best practices. Next week, I will teach a class where former P&G, Unilever and Dell employees have joined the same organization. They each believe that they understand “best practices”, but they are unaware of how different their understandings of processes like forecasting, network design, inventory management and sales and operations planning are. Each employee comes with a different paradigm. Use these understandings to forge better processes. Challenge why companies operate in certain ways and be sure to clear understanding of how these processes evolved based on constraints, cycles and market shifts. Help new employees build a bridge from prior experiences to the new environment early and encourage team discussions so that the entire team can learn through the process. • Don’t Take Mid-Management for Granted. Most organizations have programs for entry-level employees and “high-performers.” Most training plans take mid-management employees for granted. Don’t make this mistake. Build your own learning programs to help mid-management employees build process and technical mastery. While there are historic programs through APICS, CSCMP and other associations, leaders like Colgate, DuPont and Johnson & Johnson are upping the ante to build the next generation of thinking. They feel that these industry training programs have not kept pace with the needs of the industry. Partner with these industry leaders to take advantage of new ideas. — 63 —
  • 64. Supply Chain Talent: The Missing Link in Your Future? Originally published on August 12, 2013 Today, I finished up a report on supply chain talent. This is our second year to do this study. After doing the analysis of the results, I even more firmly believe that supply chain talent is the missing link in the supply chain. In Figure 4.2, I outline the company’s biggest gaps. It is the sourcing and development of mid-management talent. YOWZA! It is large. Figure 4.2 Mid-Management Talent Gap   Isn’t this ironic? Most of the current company’s efforts are focused on new-hire recruitment or mentoring for high-performance development for executive level positions. There are few companies that understand and have addressed the mid-management talent issue. OUCH! As a result, mid-management supply chain talent is getting short shrift. To turn this around, consider: • Opportunity to Improve. Overall, companies rate their capabilities to manage supply chain talent worse than their peers. In the study, when companies were asked to self-assess their capabilities to manage supply chain talent, 17% self-rated that they perform better than their peer group while 34% reported that they do worse than their peers. And, we all know that selfassessment scores tend to overstate capabilities. <It is a bit like me reporting my weight on my driver’s license.> I think that it is worse than reported… • High Turnover. Average turnover of supply chain managers is 15%. It is increasing. In the study, 46% of companies attempt to hire from within the company, and 17% fill roles primarily through recruiting talent from other companies.  External recruiting is becoming less and less successful. • Shortage of Talent. The average company in the study has four positions open for five months. Companies are feeling the pain of open positions. The most difficult positions to — 64 —
  • 65. fill are in the areas of planning that require both a technical mastery of technology and an organizational understanding of the business drivers. • Stiff Competition for College Graduates. Today, there is a 6:1 demand to supply ratio for new college graduates in supply chain management. Competition is intense and there is a lot of effort to attract the best and brightest from college recruiting; however, the larger issue is with the retention of mid-management talent. • Working on the Right Stuff? In short, we need to broaden our scope. The current focus is on recruiting college graduates and high-performing talent with little attention being given to middle-management talent development. Only 23% of companies responding to the study have a planned cross-functional training program for existing employees. This study points out the need for skill development in the areas of training and career progression to give employees cross-functional breadth. Figure 4.8 Current Level of Recruiting Ease/Difficulty I would love to hear your thoughts. Does the study mirror what you are seeing in your organization? — 65 —
  • 66. Yes, Abby. There Is a Santa Claus! Originally published on December 6, 2011 Happy Holidays to All. I started this blog in 2010, and have grown the readership to over 3000 regular readers. At first, very few people would post back. <To say that the traditional supply chain audience is a bit uncomfortable with twitter and blogging is an understatement.> As the blog matured, it attracted a different audience. I now have a number of university students of SCM following me. I find it very rewarding to get their comments. Last week, a reader replied to my supply chain trends piece: “As a current graduate student in Supply Chain Management, I have seen significant discussion on talent management. Is this a trend that you are seeing? And, can you give some advice to graduates on how to improve their skills to align with what employers are seeking? I stumbled upon your blog a couple of months ago, and have really enjoyed your perspective on the challenges and opportunities within supply chain roles.” Abby, I don’t know you, but this blog post is designed to answer your question. In short, the answer to your question is YES. I feel a bit like I am answering the inquiry by Virginia on September 21, 1897 which was answered by the famous editorial of The New York Sun, “Yes, Virginia there is a Santa Claus.” His reply was that Santa exists as love and generosity. My answer is that there will be very different jobs than the jobs that you see today. If you are the Abigail Mayer of Plymouth University, UK born in 1990, you are in the third generation of supply chain leaders. My generation is currently passing the baton to the second generation. I write this blog post so that all of you and your classmates may find rewarding jobs in the world of supply chain management. Here I answer your question, and give advice to new graduates entering the world of Supply Chain Management. Making the Transition The term supply chain management is new. It was first used widely by the audience in the period of 1992-1995. As the baton is passed, let’s celebrate the legacy. Within the last two years, leaders like Donald Bowersox of Georgia Tech, Dick Clark of Procter and Gamble, Eli Goldratt leader of the AGI-Goldratt Institute, Tom Mentzer of University of Tennessee, and Stefan Theis of SAP have died. 30% of the people that I am interviewing have retired or are ready to retire. My first words of advice is spend time with these folks to learn the evolution of the concepts. Understand what it was like before technology made the concept of Supply Chain Management possible. These were the days when writing meant a pad of paper and a pencil, when a presentation focused on the right transparencies and bulbs for the overhead projectors, the creation of a report involved lots of Wite-Out and typewriters, and the final report was sent by interoffice mail. Calculations were done on adding machines and mainframes. The concepts of near real-time data and predictive analytics were as much a fantasy then as Santa Claus is today. The second generation of supply chain professional (ages 35-50) is where we are currently seeing the greatest talent issues. This is the generation that implemented ERP, ecommerce, and Advanced Planning Systems (APS). They were often the boots on the ground for the global supply chain. Many of them were pioneers: relocating their families and learning the nuances of global supply chain management the hard way. In short, there are too few of these trained individuals to fill the gaps of the retirees. The good news is that if you learn fast, you can help fill in the gap. — 66 —
  • 67. I see from LinkedIn, that you are in the third generation. We give thanks that academic programs are fueling the wave for the third generation of workers, but we are unsure what your world will look like. We think that the forecast entry-level jobs will be rosy, but we are unsure of how SCM practices will evolve. To help you, I share five pieces of advice: 1) Get Good at Math. SCM is a world where math geeks excel. Be proud of it, but learn how to use data to drive value-based outcomes. Think analytically, and use it to influence cross-functional groups. Data for the sake of data or math for the sake of math does us no good. 2) It Starts with Clarity of Strategy. I cannot count the times that I hear that it is about “people, process and technology.” Yawn, I say. I think that the REAL secret to supply chain excellence is alignment on supply chain strategy. If this is done right, it is the foundational building block to aligning people, building processes and selecting technology. Without the clarity on what is supply chain excellence, the world circles, functional organizations cannot align, and the technologies never work. Help to forge clarity in the organizations where you go on supply chain strategy. 3) Take What You Have Learned in School with a Grain of Salt. No two supply chains are the same, and no one company has it all figured out. Leave school with a solid foundation of the concepts, but realize that these practices are evolving. The real world is not as absolute as the writings of textbooks. Embrace the fact that SCM is ever-changing based on market drivers. Learn to think outside-in. Start first with what is happening in outside markets and then map the possibilities outsidein. 4) Learn to Ask the Hard Questions, but Nicely. It is not a world for a “bull in a China Shop,” but there are a lot of paradigms that need to be broken. Learn to ask the tough questions, but with respect. Ask how processes evolved, and what they could become if we could improve data quality, reduce latency and build stronger cross-functional processes. 5) Dance with the World of Gray. In SCM, there are no black and white answers. Success happens when you can take the world of gray and see patterns, build processes and forge bonds crossfunctionally. I am spending the month of December, staring out my window, writing. I am working on a book on Supply Chain Management (SCM). The working title is Bricks Matter, A Market-Driven Approach to Supply Chain Management. To prepare, I have interviewed 50 supply chain executives. It has been a time to reflect and give thanks for a rich career in SCM. Abby, I hope you have the same. I would love thoughts from others. This is my start on insights for Abby and her peers. Any advice to share for Abby? — 67 —
  • 68. Interviews with Leaders — 68 —
  • 69. Colgate: A Closer Look at Supply Chain Excellence Originally published on April 26, 2013 Recently, I wrote a blog post that contrasted Colgate and Unilever. As a follow-up to this article, I wanted to talk one-on-one with the leadership teams of the two companies and get their insights on the ten-year comparison.  In this blog post, I share insights from Michael Corbo, the head of supply chain at Colgate. Tell me about your job as a leader at Colgate.  I am very impressed with your organization’s delivery of results over the last decade. What do you believe has driven this success? We believe in consistency. My job starts with the shelf and service to the customer. I am responsible for the supply chain processes that deliver the goods and services to the shelf globally.  This is not a new mission for the supply chain organization. Over the last decade, we have had consistency in leadership and purpose. Eleven years ago we defined the supply chain organization to focus on improving processes from the customer’s customer to the supplier’s supplier. As a team, we believe in funding the growth. We ask the organization to take out waste and invest it back into the business. 60% of our focus goes to business expansion or driving productivity. We partner with the business leaders. In doing this, we want to leverage scale. We are data driven and hold ourselves accountable to the balance sheet. We realized, in this journey, that we needed to build systems to analyze data to drive better decisions. To do this, six years ago, we built a support group of supply chain finance to support our decisions. It is a parallel group to our corporate finance group that reports directly to me. — 69 —
  • 70. It is easier said than done. Our business is complex. We have worked hard to get good at understanding the financial levers of the supply chain. We are disciplined in making capital investment decisions. For example, we seldom outsource manufacturing. We take pride in our innovations in manufacturing. Today 95% of manufacturing is directly managed by the Colgate team and we have taken steps to vertically integrate some of the operations. For example, we make the tubes for our toothpaste. This has allowed us to improve operating margin, and return on assets (ROA); but has hurt the revenue/employee productivity numbers in your analysis. This is a conscious choice. Table 5.1 Corporate Performance: Colgate Versus Procter & Gamble You are what you measure. We manage supply chain metrics. We pay attention from case fill to customers’ customer feedback, on-time deliveries, plant efficiencies and forecast accuracy. Success is never final. Thanks Mike these are great insights. I have written a lot about supply chain talent, and I question if it is the true missing link of the supply chain.  What do you think? Do we have a talent crisis? As an organization, we believe in building talent systems and hiring from within. I take my job as the leader of the 22,000 global members of the Colgate supply chain team seriously.  I oversee succession planning for the supply chain organization.  When it comes to talent management, it is a “single threaded needle.” While I am supported by an experienced and talented supply chain human resource team, managing talent is a large part of what I do.  It takes time. It is 30% of what I do on a day-to-day basis. As a result, the reward and feedback systems for talent development are very consistent. The leader of the supply chain team has led succession planning for the last twenty-five years. When people come to see me and ask for career advice, I tell them to do their current job VERY well. My advice is to “get real good at something and drive value today.”  I believe that success is not always about moving up.  I encourage members of the team to take enrichment opportunities in other areas of the company or other geographies; but I don’t want them to just spend time, I want them to contribute and learn.  I believe that we should encourage people to move across the organization to get a greater understanding of the business. We do succession planning three times a year. I value cross-functional experiences. — 70 —
  • 71. I strongly believe that we cannot let regions operate as islands. We hire with the expectation that people will spend time in multiple regions and multiple functions. How do you see Supply Chain 2020? When we were starting to plan for Supply Chain 2020, the first thing that I asked my team to do was to imagine ourselves on a beach somewhere enjoying life.  We took ourselves out of the equation and imagined how we can pass on what we have built to this next generation. We want to continue the culture. We have significant opportunity to strengthen inventory management. We know that corporate sustainability and enterprise risk management are going to play a larger role in our future vision. I believe that we have made great progress on the integration of corporate social responsibility programs into our continuous improvement efforts. I also believe that we are making good progress in the use of digital and mobile in the factories.  We want to continue these paths. We are also trying to embrace change.  We are asking ourselves, “What is the role of ecommerce in our future vision?”  We are reconsidering the role of ecommerce (demand signals from others like Amazon or direct shipments to customers) on our supply chain. I asked my team to think harder about the management of end-to-end processes and our relationship with the shopper. I am excited about the future with analytics.  We want to make data work for us. We want to better manage the present and shape the future. I think that the use of advanced analytics holds promise. What advice do you have for ecosystem partners trying to help supply chain leaders move forward? I would like for the community to work on improving the experience of using analytics. Our vision is that it is as simple as the application on a mobile phone  …or downloading a digital book from Amazon. Today, we are a long way away from applications that are this easy to use. I would like to see more work on a shared vision of how we can make data work for us.  We lose too much in the complexity. Thanks Mike. I appreciate the interview.  For more on Colgate’s results and their role in driving supply chain excellence, check out their results in the Supply Chain Insights Report, Supply Chain Excellence, a Step Forward and a Step Back. — 71 —
  • 72. Kimberly-Clark: A Demand-Driven Leader Originally published on July 8, 2013 Over the course of the last six years, I have helped many companies with their demand-driven initiatives. The Kimberly-Clark organization has been my best student. Their transformation took six years. The results are now clearly visible on the balance sheet. In this blog post, I would like to celebrate their story. The Journey The first day that I worked with the Kimberly-Clark team, it was snowing in Neenah, Wisconsin. It was one of those days where the small heater in the local hotel room could not keep pace with the falling temperatures of the blinding snow storm that happened that evening. As I pulled my blanket tight and tossed on my bed, I questioned why I was doing this work. Would it really make a difference? As I stomped the snow off of my boots to start the strategy day, I faced a room of disbelievers. The group was skeptical. As we discussed the concepts of a demand driven organization, they offered excuses like, “You need to understand that we are different. We run large assets. Our teams make more money keeping them running. We cannot be like these other companies.” Figure 5.1 Corporate Performance Changes Inventory Turns Versus Operating Margin The push back was high. The willingness to change was low. However, over time it slowly changed. There were three strong drivers: 1) Fierce Competition. The rise of branded generics, and the intense competition between P&G and Kimberly-Clark in the consumer products paper business, forced Kimberly-Clark to adapt. They needed to reconsider their position to be more competitive. It was a case of when the going gets tough the tough get going. — 72 —
  • 73. 2) Bias to Innovate. Six years ago, the Kimberly-Clark team was an innovator in the use of RFID. The company worked through two implementations of downstream data technology with strong insights for the team. As a member of the Midwestern data sharing consortia between General Mills and SC Johnson, they had the benefit of networking with other supply chain leaders. As a team, they have a strong culture of learning. 3) Goal Driven. When I started Supply Chain Insights, I ran into Scott DeGroot, Director of the Customer Supply Chain Team; Rick Sather, Vice President of the Customer Supply Chain Team; and Mike Kalinowski, Director of Supply Chain Operations, at conferences. The presentations were all hard-hitting. The Kimberly-Clark team is bullish. It is great to see a team so positive about their accomplishments. They set a target to improve top line revenue over the course of five years. The focus was on channel sell-through of products. It was their BHAG (Big Hairy Audacious Goal). At first they were nervous, they had set an aggressive goal. Now they are bullish, they beat it! They measured out-of-stocks at the shelf and they made improvements. The current focus is on store-by-store productivity and the design of the supply chain from the outside-in. Table 5.2 Corporate Performance Comparison: Colgate Palmolive, Kimberly-Clark and Procter & Gamble Why It Matters In the Supply Chain Metrics That Matter table, we can clearly see that “operating margin” and “inventory turns” matter to public financial performance. Table 5.2 shows a comparison of three Consumer Products Manufacturing leaders—Kimberly-Clark, Procter & Gamble, and Colgate—on driving year-over-year performance. Note the trends in operating margins and inventory turns. To understand supply chain performance, companies need to be compared with their peer group. If not, it is hard to get context on the meaning of the data. In the Supply Chain Index (the correlation of supply chain ratios to market capitalization) for consumer products companies (CPG), operating margin represents 7% of the impact and inventory management represents 9%. Over the past twelve years, Colgate clearly outperformed against the peer group on operating margin, but is not making progress on inventory. In contrast, over the last five years, P&G and Kimberly-Clark have both struggled to maintain margins. Each faces four years of deterioration — 73 —
  • 74. on this important supply chain metric. However, based on their work in becoming demand driven, in the past year, Kimberly-Clark has improved both margin and inventory turns. 2012 was their fourth consecutive year of making improvements in inventory management. An Interview with Rick Sather This week, I interviewed Rick Sather, Vice President of Customer Supply Chain, on the improvements. I wanted to gain his insights on their demand-driven journey: Rick, you have been able to add revenue to the top line and beat your goals. What made you successful? We have successfully added millions of dollars to net sales. I cannot give you a definitive number. The question of how long it took is difficult. We had accumulated learning with a couple of customers. We learned in year one and then applied this accumulated learning in year two to make a substantial difference.  In four years, we delivered what we feel is “breakthrough innovation.” In the last two years, our results have been in excess of the goal. Every time that we look at the opportunity before us, we see more value than we ever first imagined. We believe that there is a lot of fruit on those vines…. Figure 5.2 Overview: Kimberly-Clark’s Demand-Driven Journey What have you learned? Small format is a big opportunity. Today, retailers have a large store count with increased velocity. We have a diffusion of inventory in the channel with excess and shortfalls. Not every retailer is at the same place. Imagine that you have several thousand locations and you have an event coming. We learned to adapt quickly. We needed to plan strategically and then review promotional events on a daily basis. The response needed to be outside-in. I feel that more and more of the industry, over time, will look at a smaller batch more frequently. — 74 —
  • 75. We learned through experimentation. If you make a big bet and you are wrong, you lose a lot of time. New forms of analytics allow you to do this. There is a lot of old thinking what is happening in the consumer side and the speed of that changing. Technologies are becoming more user-friendly. This is worth multimillion dollars of savings and top line sales benefit. With one customer, focusing on a few items promotional event—where we had too much in one store and out-of-stock in others— resulted in multimillion dollars of sales. Our problems are limited bandwidth and having insights that are actionable. Information and collaboration to make the right decisions is more important. Bandwidth enormous. It is not a question of how can we drive it deeper and further. We now have data. We have to focus on removing the handoffs. It is about flow. There are a lot of barriers to flow. Companies have been on Lean journey. Historically, it has been take a production line and change how we think about it. At Kimberly-Clark, we were masters of big batch thinking. Let me give you an example of small and frequent analysis in a repeatable cycle. We have translated it into everything. We used to look at damage in distribution centers one time per month. We now look at it every day in every location. We have reduced our damage by 50%. It is a big mind shift. The traditional ERP/MRP logic is a barrier. Companies need to move to flow logic. Small batches done frequently based on pull. Another example is the work that we are doing on collaborative shipping. We are a high bulk, low weight and high frequency shipper. We are looking to marry up with other shippers with higher weight and lower velocity. There is a double-digit opportunity in costs. We are experimenting. Great learning, but we have a need for some infrastructure changes. Retailers and shippers have their own master data systems, we need a breakthrough technology to change how we map data. What excites you? There is no one technology that excites me. What I find exciting is bringing of all of the technologies together. I think that the market is ready for breakthrough innovation. I recently changed the Vendor Managed Inventory (VMI) software and moved to Datalliance. We are working with third-party logistics solution providers to implement collaborative shipping. We want to tie VMI and collaborative shipping together. Terra Technology and the use of their demand sensing is helping us drive a better demand signal. I think that it is a combination of VMI, forward-looking forecasting and analytics. We need to bring these processes together from the customer back into the traditional supply chain. Summary As I think about Kimberly-Clark, I am proud. They took the demand-driven lessons to heart. As others aspire to make a similar difference in their balance sheets, I have three closing thoughts. 1) Use of Downstream Data. Kimberly-Clark actively works with downstream data. While other companies talk about it, Kimberly-Clark is aggressively using it. The team shares and uses pointof-sale data with 80% of their customers (based on volume). They are an innovator. For example, the company was a leader in the implementation of Terra Technology’s MDS product with 31% improvement in demand planning seven days out on the horizon. They implemented the Terra Technology MDS product the fastest  of any consumer products leader that I have followed. The biggest impact of this forecast improvement is better decision making on new product launch planning and replenishment. 2) Driving Innovation. Kimberly-Clark has partnered with Colgate and is leading an initiative for collaborative, multiparty shipping. They have the courage to push a new industry model. — 75 —
  • 76. 3) Reduction of Inventory.  Note in the table, the recent improvements in the Kimberly-Clark inventory cycle. The change is year-over-year. While Kraft moved on a similar pattern of technology adoption and discussions of downstream data, Kimberly-Clark made progress while Kraft did not. This is a story of supply chain leadership. — 76 —
  • 77. P&G on Supply Chain Excellence. A Foreward to Bricks Matter By Keith Harrison, Retired Product Global Supply Manager, Procter & Gamble Company Bricks Matter published in December 2012. Keith Harrison, retired Global Product Supply Manager of Procter & Gamble, was kind enough to write the forward: “Historically, successful companies were typically known for their marketing expertise or technological innovation. Today, great companies are also defined by supply chain excellence. Throughout my 40 years at Procter & Gamble (P&G), I watched the concept of a well-run supply chain evolve from one that was barely on anyone’s radar screen, to one that is front and center as part of any company’s business strategy. The fact that Supply Chain Management is now an academic discipline further changes the game. PhDs enter the market with strong business backgrounds; they bring a new and important focus to topics like data synchronization, information systems and demand shaping – the horizontal structures within a supply chain organization. While it’s gratifying to see this evolution, part of the challenge is integrating this data-driven approach with an appreciation for what, in my opinion, makes a great supply chain organization great: a foundation of functional excellence. Because it’s the vertical supply chain functions – manufacturing, logistics, engineering, procurement and quality – that allow a company to leverage the capabilities that information can provide. A company’s synchronization and information systems may be the best in the world, but without outstanding execution and support, systems alone cannot deliver. The companies that view both elements as essential – cutting-edge systems and strong functional organizations – are the companies that knit the horizontal and vertical together in ways that truly add value to the business. The second challenge I see is one that’s critical to every business: leadership. Just as any company is always tweaking its marketing or innovation strategies to better anticipate and respond to marketplace dynamics, its supply chain strategies need to evolve as well. It’s the supply chain leader’s job to recognize how things are changing, where they are going and when it’s time to tear down and rebuild. While we like to think that our people on the ground are best positioned to identify what’s not working or what could work better, in my experience that’s not how it happens. Organizations, by nature, generate inertia; there is always a tremendous investment in the status quo. The supply chain leader must be the one to take on transformation – the organization simply won’t go there on its own. I served as P&G’s Global Product Supply Officer from 2001 through 2011. One example of rethinking our organization resulted in the creation of centralized purchasing spend-pools; another was the consolidation of the P&G’s planning function within the supply chain organization. In both cases, each of our business units were managing these activities in their own way. The redesign led to increased scale and flexibility, greater focus and stronger supply chain capabilities. Another critical, and closely related element of supply chain leadership is perspective: supply chain excellence is about continual improvement. To be clear, we sometimes innovate with big ideas that have immediate impact. But that’s rarely the case. Supply chain organizations are large and complex; they require persistent, day-in and day-out focus. The core work of creating a world-class supply chain is a journey. I’d also like to say a few words about culture, and the power that comes from building an entire organization focused on excellence. A strong supply chain culture starts with communication – making — 77 —
  • 78. sure that people understand the business need, and how their role within the supply chain supports and drives the business. It requires leaders who see themselves as coaches – leaders who explicitly model what “good” looks like and show up as being there to help solve problems. A strong supply chain culture is about cultivating people with a healthy dissatisfaction, people who believe that what’s good enough, or even great today, isn’t good enough for tomorrow. When you develop a critical mass of people who take ownership for their results, that’s when magic happens. When everyone is pulling in the same direction, people transcend their functional boxes because they are aligned to a bigger idea – a larger vision of success. I am proud to have been a part of Procter & Gamble’s supply chain journey – a journey outlined here. This is the right place to start. I know from experience that it works. I wish each of you success on your quest for a world-class supply chain. As you progress, remember that it is a journey, not a sprint. It requires leadership, tenacity, a deep understanding of the fundamentals and a commitment to be in it for “the long haul.” — 78 —
  • 79. Conclusion Progress by a supply chain leader has to be measured in inches not miles. It takes patience over many years. The winning team has focus, discipline and alignment. They know what matters. The supply chain strategy is clear and the mission is embedded in behaviors and outcomes. Good luck in your journey! — 79 —
  • 80. Supply Chain Insights Training Sessions Two Day Training in Two Cities Designed for Supply Chain Directors and Managers Who Are Ready to Think Differently Lead Instructor: Lora Cecere, Founder and CEO of Supply Chain Insights January 16-17, 2014 Atlanta, Georgia USA and March 25-26, 2014 San Diego, California USA What You Get in Two Full Days of Training: • A full understanding of how to build the supply chain outside-in to actualize demand-driven and market-driven opportunities. • Gain insights on what defines supply chain excellence. • Gain unique insights by analyzing your financial benchmarking of supply chain financial ratios. • Better understand the supply chain as a complex system to improve corporate performance, balance and resiliency. • Move from cost to value. Accelerate the understanding of value networks through the redefinition of relationships. • Gain insights on what has worked and what has not over the last decade. • Link the supply chain end-to-end through the building of successful horizontal processes to improve agility and alignment. Sort through the evolution of new technologies to understand current maturity and the impact on future success. Our classes are small in nature and are hands-on. Everyone will have a chance to build upon their concept of supply chain excellence and take home knowledge they can immediately implement back at the office. Register Today! at the Supply Chain Insights Training page. — 80 —
  • 81. Supply Chain Insights’ 2014 Global Summit The Supply Chain Insights Global Summit is designed for the line-of-business leader including Supply Chain Leaders, Chief Financial Officers, and Corporate Social Responsibility Leaders. Attendance will be limited to 15% vendor/sponsor representation. Summit highlights include: • Supply Chain Leaders’ Vision For the Future • Six 30-minute presentations by senior supply chain leaders • Five hard-hitting panel discussions that combine the recent research on supply chain talent, corporate social responsibility, technology and analytics, and risk management into a spirited dialogue • Launch of a new method of rewarding companies for supply chain excellence based on performance on the Supply Chain Effective Frontier Sponsorships Are Now Available (first-come, first-served). Get our Sponsorship Brochure. For the Preliminary Agenda and to Register Visit our Supply Chain Insights Global Summit site. Summit site: Agenda: Registration: — 81 —