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Voice of the Supply Chain Leader - 2014

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  • 1. Voice of the Supply Chain Leader The Current State of Satisfaction with Supply Chain Software 2/18/2014 By Lora Cecere Founder and CEO Supply Chain Insights LLC
  • 2. Contents Research ................................................................................................................................... 2 Disclosure .................................................................................................................................. 2 Research Methodology and Overview ........................................................................................ 2 Executive Overview ................................................................................................................... 4 Taking Stock: An Overview of the Current State of the Market ................................................... 6 Assessment: A Look Forward and a Look Back.......................................................................... 6 Current Levels of User Satisfaction ............................................................................................ 8 Use of New Deployment Methods .............................................................................................10 Centers of Excellence: Organizational Support for Software Usage .......................................... 11 How Companies Make Decisions to Buy ...................................................................................13 Future Focus: Running the Race for Supply Chain 2020...........................................................14 Recommendations ....................................................................................................................15 Summary ..................................................................................................................................15 Appendix ...................................................................................................................................16 A. Definitions .........................................................................................................................16 B. Demographic Overview of the Quantitative Study .............................................................19 Additional Reports in this Series: ..............................................................................................22 About Supply Chain Insights LLC ..............................................................................................23 About the Author Lora Cecere ...................................................................................................23 Copyright © 2014 Supply Chain Insights LLC Page 1
  • 3. Research This independent research was 100% funded by Supply Chain Insights, LLC and is published using the principles of Open Content research. It is intended for you to read, share, and use in your decision making about supply chain software. When you use it, all we ask for in return is attribution. We publish under the Attribution-Noncommercial-Share Alike 3.0 United States Creative Commons License and Supply Chain Insights’ citation policy. Disclosure Your trust is important to us. As such, we are open and transparent about our financial relationships and our research processes. Research Methodology and Overview This study is based on the results of a quantitative study completed by ninety-six supply chain leaders. The majority of the respondents were from global manufacturers and from those averaging $4B in annual revenue. The respondents are relatively equally distributed across process-based and discrete industry sectors. This is a report that reflects the voice of business leaders not IT. Over 60% of the respondents are director level or above in their supply chain organizations. Figure 1. Voice of Supply Chain Study - Survey Overview Copyright © 2014 Supply Chain Insights LLC Page 2
  • 4. This is Supply Chain Insights’ third year of fielding this study; and where we can, we share yearover-year comparisons. An overview of the report is shared in figure 1. Each study that we do starts with a clear statement of purpose, objectives and goals. Respondents answered this study of their own free will. The only incentive to take the study was the agreement that all respondents would get a copy of the final report with the opportunity to talk through the results at study completion on an hour conference call. Each figure in this report is embedded as an image. At the bottom of each image is the question asked, information about the respondents answering the survey question and some background on the charting. This level of detail is shared to ensure completeness of thought. As part of our standard processes, individual respondent answers and company names are kept confidential. The demographics of this study are outlined in the Appendix section of this report in figures A-F. Copyright © 2014 Supply Chain Insights LLC Page 3
  • 5. Executive Overview Supply chain is an important enabler of corporate performance. Growth is slowing. Success in global operations is an organizational imperative. With the rise in complexity (products, markets and rate of change), supply chain excellence is more important for companies to effectively compete. As a result, 55% of supply chain leaders report that they will be increasing spending on software deployments this year. The goal is to balance growth with customer service, operating cost and inventory levels. It is easier said than done. The accomplishment of this goal requires supply chain software, but the selection is not easy. Today the market is more confusing that it was five years ago. The supply chain software market is not an easy market to navigate. It was conceived in the mid-1980s, and redesigned for client-server software in the 1990s. Due to the number of technology provider consolidations, it has been slow to adapt to cloud and mobile computing. The gap between the importance of the software and the current level of performance is high, and has remained so over the course of the three years of this study. The reasons are many. They include leadership, organizational, and technology barriers. Some of these barriers are outlined in figure 2. Figure 2. Barriers and Business Pain for the Supply Chain Leader Copyright © 2014 Supply Chain Insights LLC Page 4
  • 6. Here, based on phone interviews and strategy days with supply chain leaders, we add some color to three of the top gaps: • Executive Understanding of Supply Chain Management. A major gap in the implementation of supply chain software is the executive level understanding of supply chain as a complex system. Functional metrics lack alignment, complexity is rising and the pressure is on to drive improvement. Unfortunately, all too many companies reward the urgent, not the important; and as a result, companies are not able to fully take advantage of planning software. The gap between importance and satisfaction is lower for functional planning—examples include product life cycle management, transportation management and warehouse management—than with demand planning where companies have to make trade-offs to improve corporate performance across functions. • Ability to Get to the Right Data. As companies implemented supply chain software, they learned the hard way that they needed both systems of record and systems of differentiation. Supply chain planning requires “what-if” analysis and multiple optimization runs through systems of differentiation. Visibility systems require a robust system of record to enable the consolidation of data from multiple systems to be used by both casual users and supply chain planners. Supply chains need both. Line-of-business leaders drive discussions on the depth of optimization and the depth of functionality in systems of differentiation while Information Technology (IT) teams focus on integration and systems of record. The larger the company, the more diverse the architectures and the tougher the problem to build scalable systems of record to support multiple forms of systems of differentiation. Today, it is more difficult for companies to get clear on selection criteria and align. • Actionable Analytics. With the increase in global supply chain complexity, simplistic deterministic optimization of the first generation of supply chain planning software is not sufficient. Companies find that they need deeper forms of optimization. They want to pair predictive analytics with visualization to drive better decisions. This leads to a struggle between advanced users of the software and technology providers. The advanced users want more advanced analytics quickly, and the technology providers struggle to keep up with requests. The path forward is not clear. As a result, more and more companies are engaging in the building of custom code and working with technology providers on codevelopment. In this report, we share insights on the current state of supply chain software, provide data on the adoption of new forms of software, while sharing research on the evolution of supply chain centers of excellence and giving guidance on the future of supply chain software. Copyright © 2014 Supply Chain Insights LLC Page 5
  • 7. Taking Stock: An Overview of the Current State of the Market Today, 90% of companies have a supply chain team. They have multiple forms of software. One out of nine companies that we work with is not clear on which solutions do what in their IT architecture. For most companies, their software landscape has become more complex through Mergers and Acquisitions (M&A) activity. The technology vendor landscape has also gone through intense consolidation. With mergers and acquisitions by technology vendors, the landscape looks very different than it did five years ago. The supply chain leader wants to build muscle at the core and innovation at the edge. They would like to partner with technology providers that can give them new forms of analytics and visualization, but the solutions are not clear. Assessment: A Look Forward and a Look Back. When we look forward, it is helpful to also look back and gain perspective. As shown in figure 3, today’s supply chain is more global than two years ago. It is also more aligned and proactive. However it is not working well. Figure 3. A Look at What Has Been Accomplished in the Last Two Years Copyright © 2014 Supply Chain Insights LLC Page 6
  • 8. As shown in figure 4, the largest issues today are centered on traditional, functional thinking. As organizations have consolidated, the walls of functions have become thicker. As a result, it is harder for companies to build the end-to-end supply chain functionality. They are unable to gain agreement on demand-driven or market-driven initiatives to build the processes outside-in from the customer’s customer to the suppliers’ supplier. Today’s supply chain is too reactive and there is much room for improvement. Too few companies actually use the software purchased. The issues with usability, scalability and the fit of the data model to solve the business problem are pervasive. As a result, the most commonly used system is the spreadsheet. Most planners are planning in isolation, and the spreadsheet cannot adequately model the trade-offs of cost, inventory and customer service. Figure 4. The Current Gaps Despite the rise in demand and supply volatility, and the rising costs of commodities, companies are not able to align market-to-market to improve the response due to these gaps. In recent reviews with companies on their architectures, there are five major issues: • Clear Definition of the Role of Planning within Time Horizons to Drive Better Decisions. With the churn in the market, many companies have not learned the basics of planning. Planning architectures need to be designed with a clear role of strategic, tactical, operational, executional and transactional processes. There are five levels of planning and each should start with the channel and end with the supplier with the ability to orchestrate with bidirectional flows end-to-end. They need to be carefully designed for Copyright © 2014 Supply Chain Insights LLC Page 7
  • 9. consumption logic for bottoms-up and tops-down planning. And the systems of record and systems of differentiation need to be aligned so that companies can both drive flexible, “what-if” analysis and also get to data through clear systems of record. Today, only 8% of companies are satisfied with their “what-if” analysis and only 24% are able to easily get to cost data. i These time horizons are defined in greater detail in Appendix section A of this report. • Poor Design of Initial Deployments. Many companies are hampered by poorly designed initial implementations. Instead of redesigning processes to utilize new forms of optimization, many companies automated old practices with new technologies. As a result, they were not able to maximize the value of the new and more advanced forms of analytics. • Tune-Up of Optimizers. Like a car, optimization engines in supply chain planning need consistent tune-up and refinement. Many companies have implemented software and never refined it through optimization engine tune-ups. • Management of Planning Master Data. Many systems were implemented with planning parameters for lead-time and cycle time that have not been updated. In the most advanced systems, these planning considerations are based on planning master data systems. • Frequency of Planning and Scalability of Architectures. As manufacturers and distributors consolidated and became larger, the scalability of supply chain systems to meet the business needs in one instance became problematic due to scalability. Today, the average company with ERP has seven different ERP instances. ii Each ERP instance adds to the issues in building supply chain visibility systems to support holistic planning. Current Levels of User Satisfaction Today within a company, there are many systems. In fact, as shown in figure 5, the average company has multiple systems in all forms of supply chain technologies. The importance of supply chain systems is high. However, as shown in figure 6, the satisfaction of users is low. The gaps are higher when technologies cross-over functions. Among the highest levels of satisfaction are for the areas of transportation planning and manufacturing execution. Copyright © 2014 Supply Chain Insights LLC Page 8
  • 10. Figure 5. Overview of Supply Chain Systems The importance of supply chain systems is high. However, as shown in figure 6, the satisfaction of users is low. The gaps are higher when technologies cross over functions. Among the highest levels of satisfaction are the areas of transportation planning and manufacturing execution. Figure 6. Current Levels of Satisfaction Copyright © 2014 Supply Chain Insights LLC Page 9
  • 11. Use of New Deployment Methods Cloud-based computing offers opportunities to improve scalability and drive an improved response. As shown in figure 7, 7% of companies are using cloud-based computing and 17% are using business process outsourcing. Most of the cloud-based computing is for tactical supply chain planning and most of the business-process outsourcing is associated with thirdparty logistics providers. These trends are shown in figure 8. Figure 7. Use of New Forms of Software Deployment Figure 8. Granularity on Application of Cloud and BPO Copyright © 2014 Supply Chain Insights LLC Page 10
  • 12. Centers of Excellence: Organizational Support for Software Usage Centers of Excellence (COE) were defined over the last decade to improve the use of technologies and drive process improvement. In this study, as shown in figure 9, 48% of companies have a supply chain center of excellence; and among them, 61% rate them as effective. There is no statistical difference in user satisfaction of software for those having a center of excellence and those that do not. Figure 9. Supply Chain Centers of Excellence The design of the center of excellence is shown in figure 10 and the gaps in figure 11. The supply chain is a complex system with increasing complexity. For a COE to be effective it requires active leadership. Without supportive leadership, and an executive understanding of supply chain, the COE cannot align metrics and build cross-functional processes. Copyright © 2014 Supply Chain Insights LLC Page 11
  • 13. Figure 10. The Role of the Supply Chain Center of Excellence Figure 11. Current Gaps in the Supply Chain Center of Excellence Copyright © 2014 Supply Chain Insights LLC Page 12
  • 14. How Companies Make Decisions to Buy In 2014, the supply chain leader is increasing the focus on supply chain planning. This is different than in the past two studies where the primary focus was on supply chain execution. As shown in figure 12, in 2014, there is an increased focus on supply chain planning. Figure 12. Focus Areas Figure 13. Levels of Spending in 2014 In 2014, 55% of companies expect to increase spending. However, because the purchase is a complex buying decision with joint decision-making from line-of-business and IT teams, it is incumbent on both teams to get clear on the definitions and requirements of these new investments. Copyright © 2014 Supply Chain Insights LLC Page 13
  • 15. Figure 15. How Decisions Are Made Future Focus: Running the Race for Supply Chain 2020 While consultants and analysts talk of the advantages of mobile, social and cloud computing, the supply chain leader just wants something that works today. As shown in figure 16, the focus is on visualization, visibility, and sensing. Figure 16. Future Focus Copyright © 2014 Supply Chain Insights LLC Page 14
  • 16. Getting there and achieving these goals is not easy. These terms mean different things to different people. To move forward and close these gaps, the supply chain leader will have to carefully define requirements to enable action. They must avoid the trap of believing that everyone knows what these words mean because the answer is that each of these terms have hundreds of different meanings and without a clear definition to build a solution, the supply chain team may have a disappointing result. Recommendations The technology market has never been messier in the past thirty years. Vendors have consolidated and the implementations lack standard terms. To improve the chances of success, focus on four things: 1. Business Leadership Alignment: Get Clear on Why Software Matters. For planning software to be effective, planners need to be able to plan. The organizational hurdles are as great as the implementation of the technology. The gaps in leadership and understanding of the supply chain as a complex system are a major barrier. 2. Align Goals, Metrics and Incentives to be Successful. Ensure Understanding by Both the Operating and Technology Teams. Companies with functional metrics struggle to drive benefits from supply chain software. 3. Get Clear on Terms. The terms integration, visibility, orchestration and demand sensing have many different definitions. Get clear on terms before engaging third parties. Collaboration with technology partners is only as good as the clarity of definitions of the terms that you use. 4. Focus on Building Supply Chain Architectures. Drive transparency and clearly define systems of record and systems of differentiation. Both matter (for greater clarity on these definitions refer to section A in the appendix). In the development of supply chain planning, ensure that there is goal clarity for strategic, tactical, operational and executional planning horizons. Summary The supply chain software market is both important and confused. It is imperative for supply chain leaders to build an understanding of technology to be a good partner to IT. The biggest gap to be closed is one of leadership. The second is the definition of requirements. When these two gaps are closed companies can use new forms of technology to build muscle at the core and innovation at the edge. Copyright © 2014 Supply Chain Insights LLC Page 15
  • 17. Appendix A. Definitions In this report, we reference some terms that may be unfamiliar. Here we provide definitions to give the reader a more complete understanding of the report. Advanced Planning Systems (APS). The conventional definition of supply chain planning as defined by architecture like figure 17. The most common solutions include demand and supply planning, distribution requirements planning, and production scheduling. Some may also include strategic network planning and warehouse management. Figure 17. Common Definition of Advanced Planning IT Supply Chain Architectures Dependent Demand. This is the translation of channel demand to manufacturing and distribution requirements. This may include the translation of the selling unit, the time period, and the location. The best solutions translate independent to dependent demand in a meaningful way by role with little latency. Demand and Supply Orchestration. The translation of demand and supply levers bidirectionally to manage volume at the right mix for the right cost to maximize profitability while ensuring the meeting of the right levels of customer service and inventory turns. When these Copyright © 2014 Supply Chain Insights LLC Page 16
  • 18. can be orchestrated market-to-market bidirectionally, the company is able to drive a marketdriven response. A simplistic model for evaluating the levers is shown in figure 18. Figure 18. Demand and Supply Orchestration Demand Visibility. This is the visibility of independent and dependent demand by role (sales, distribution, manufacturing and sourcing within the organization) to drive a better supply response. This visibility layer synchronizes and harmonizes demand outside-in from the channel back into the enterprise. Independent Demand. Channel demand or the purchase of a product in the channel by a customer. Enterprise Resource Planning (ERP). This is a transactional system for the organization to ensure consistency in financial, human resources, order management and materials planning. Planning Horizons. There are five planning horizons that need to be designed and synchronized market-to-market. Each level of planning has a different cadence, level of granularity, and a different set of users. To integrate planning across functions, the planning horizons have to be synchronized with the signals consumed level to level. The definitions include: • Strategic Planning: A longer term view of planning including network design and supply chain policy using strategic planning tools. The duration of planning is usually 1-5 years in the future with analysis done at monthly, quarterly, yearly, or on an ad hoc basis. Copyright © 2014 Supply Chain Insights LLC Page 17
  • 19. • Tactical Planning: Planning for 12-18 months in the future in weekly or monthly buckets performed in a weekly or monthly cadence. • Operational Planning: Weekly or daily planning for 5-15 weeks in the future performed in daily or sub-daily increments at a daily or a weekly cadence. • Executional Planning: Hourly or near real-time planning for a period of 1-3 days. • Transactional Planning: The initiation and recording of transactions with pattern recognition. Planning Consumption Logic. The rules or logic used to consume planning data from one planning level to another. Planning Master Data. This is the data used in planning assumptions. This includes lead-times for planning, in-transit times, manufacturing cycle times, cube and weight, and product life cycle. Supply Visibility. The visibility of products, shipments, orders at differing states including, but not limited to, states like in-transit, on-hand inventories, planned production, orders shipped, and available to promise. As companies mature, supply chain visibility functionality matures. It starts as an ad hoc query to answer the question “Where is my stuff?” Over time, it matures to be predictive to indicate “If this happens then these events could happen, and if I take these actions then I reduce the impact” and cognitive visibility to drive learning systems to predict the future based on multiple inputs, to drive multiple outputs for unlikely inferences, using structured and unstructured data. Systems of Differentiation. Systems to drive differentiation through enhanced decision support using business analytics to drive an improved outcome. Systems of Record. IT systems used to record planning decisions to feed visibility systems for the larger organization. Copyright © 2014 Supply Chain Insights LLC Page 18
  • 20. B. Demographic Overview of the Quantitative Study In this section, we share the demographic information of survey respondents as well as additional charts referenced in the report to substantiate the findings. The participants in this research answered the surveys of their own free will. There was no exchange of currency to drive an improved response rate. The only incentive made to stimulate the response was an offer to share and discuss the survey results in the form of Open Content research at the end of the study. The names, both of individual respondents and companies participating, are held in confidence. The demographics are shared to help the readers of this report gain a better perspective on the results. The demographics and additional charts are found below in figures A–F. Figure A. Type of Respondent Copyright © 2014 Supply Chain Insights LLC Page 19
  • 21. Figure B. Company Size Figure C. Presence of a Supply Chain Organization Copyright © 2014 Supply Chain Insights LLC Page 20
  • 22. Figure D. Respondent Role within the Company Figure E. Definition of the Supply Chain Organization Copyright © 2014 Supply Chain Insights LLC Page 21
  • 23. Figure F. Industry Demographics of the Respondent Additional Reports in this Series: Voice of the Supply Chain Leader (2012) Voice of the Supply Chain: Leaders Speak on Technology (2013) Copyright © 2014 Supply Chain Insights LLC Page 22
  • 24. About Supply Chain Insights LLC Founded in February, 2012 by Lora Cecere, Supply Chain Insights LLC is focused on delivering independent, actionable and objective advice for supply chain leaders. If you need to know which practices and technologies make the biggest difference to corporate performance, turn to us. We are a company dedicated to this research. We help you understand supply chain trends, evolving technologies and which metrics matter. About the Author Lora Cecere Lora Cecere (twitter ID @lcecere) is the Founder of Supply Chain Insights LLC and the author of popular enterprise software blog Supply Chain Shaman currently read by 5,000 supply chain professionals. Her book, Bricks Matter, (co-authored with Charlie Chase) published on December 26th, 2012. She is currently working on a second book, Metrics That Matter, to publish in the fall of 2014. With over nine years as a research analyst with AMR Research, Altimeter Group, and Gartner Group and now as a Founder of Supply Chain Insights, Lora understands supply chain. She has worked with over 600 companies on their supply chain strategy and speaks at over 50 conferences a year on the evolution of supply chain processes and technologies. Her research is designed for the early adopter seeking first mover advantage. i Data comes from previous Supply Chain Insights reports. The “what if analysis” reference comes from the Supply Chain Insights Report “Market-driven Sales and Operations Planning,” and the supply chain cost detail comes from the Supply Chain Insights Report on Transportation Planning.(Mikey please link to these reports.) ii Data comes from a previous Supply Chain Insights report on Supply Chain Visibility in Business Networks.(Mikey please link to these reports.) Copyright © 2014 Supply Chain Insights LLC Page 23

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