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Supply Chain Leader: Reaping the Rewards of Innovation (issue 4)

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Supply Chain Leader: Reaping the Rewards of Innovation (issue 4)

  1. 1. October 2007 Ideas & Innovations from i2 Technologies • Cycle-Time Optimization • Demand Sensing • Risk Management • Lean Manufacturing Plus Interview with GM’s Adriana Karaboutis James Champy on Change-Initiative Pitfalls Burt’s Bees on Sustainable Supply Chains Managing in High-Growth Environments The Supply Chain Results Company TM
  2. 2. October 2007 Vol. 2, No. 2 i2 Senior Director, Contributing Writers Editorial Advisory Board Chuck Kramer – Marketing Lauren Bossers Sanjiv Sidhu – Senior Vice President, Retail Beth Elkin Founder and Chairman and Consumer Industries Sector Michael Cohen of the Board Editor Aditya Srivastava – Cynthia Fusco Senior Vice President and Victoria Cooper Pallab Chatterjee – Elizabeth Greer Interim Chief Executive Officer Chief Technology Officer Art Director Jon Kemp Hiten Varia – Kelly Thomas – Peter Klabunde Deborah Navas Executive Vice President, Senior Vice President, Circulation Manager Global Customer Operations Manufacturing Sector Sangeeta Bajaj Tom Smithyman and Chief Customer Officer Razat Gaurav – John Cummings – Vice President, Senior Vice President and Global Logistics Chief Marketing Officer © Copyright 2007, i2 Technologies, Inc. This magazine is available online at www.i2.com. Reproduction of this magazine in whole or in part in any medium is prohibited without written consent of the editor. Contact: supply_chain_leader@i2.com.
  3. 3. In This Issue Cover story Short Product Life Cycles Demand Innovation Throughout the Business by Pallab Chatterjee Page 4 To compete today, consumer goods manufacturers must focus not only on innovations in product development but also on meaningful changes in four key areas of the business—technology, process, partnerships and market strategy. Features Page 17 There’s Power in POS Data—Not Just for Retailers, but for Suppliers Too by Mohan Balachandran and Jim Morganstern Retailers’ new emphasis on inventory at the shelf level adds a new level of customer service. Essentially, it’s vendor-managed inventory—though not at the distribution center. Page 24 Page 42 Managing Supply Chains in The “Lean” Challenge in High-Growth Environments Demand-Driven Value Chains by Gaurang Pandya and by Aamer Rehman and Venky Nayar Kelly Thomas Five key areas must be specifically In the extended enterprise, the addressed for high-growth markets: material-control techniques using organization, supply chain design, the traditional manual/visual planning, demand shaping and methods are no longer sufficient to managing transitions. synchronize material flow. Case studies Page 22 Cooper Tire Rolls Out New Systems for Better Demand Fulfillment, by Lauren Bossers Page 30 Customer-Centric Approach Drives Global Growth for Tata Steel, by Elizabeth Greer Columns Page 10 Cycle-Time Optimization: From Concept to Cash Register Faster—and More Profitably, by Gurdip Singh and Chuck Kramer Page 20 Order Fulfillment: Using Order Management to Get Closer to Your Customers, by Rajat Bhargav Page 39 Risk Management: New Technologies Help Identify and Mitigate Risks, by Darren Ward and Anand Iyer Departments Page 3 Perspective: Innovation Through People, Process and Technology, by Sanjiv Sidhu Page 12 Interview: Inside Supply Chain Globalization at GM. An interview with Adriana Karaboutis, by Victoria Cooper Page 32 Opinion: What are the top priorities in supply chain management for your business? Interviews with Burt’s Bees, AMR Research, ADTRAN and i2, by Michael Cohen Page 36 Focus: Protecting Revenue Through Supply Chain Risk Management, by Ravi Vancheeswaran of ON Semiconductor Page 45 Viewpoint: Changing the Way You Work and Think About Your Business. An interview with James Champy, by Victoria Cooper Page 48 Inside i2: Winners of the 2007 Global Ken Sharma Award for Excellence, by Tom Smithyman Supply Chain Leader / October 2007 1
  4. 4. Perspective by Sanjiv Sidhu Innovation Through People, Process and Technology Companies have been grappling for the past two What should you do about the disconnect? Should you decades with what will drive the evolution of supply chain produce more to meet the demand or, through a combi- management. At General Motors (see Interview, page 12), nation of promotion and production, achieve a demand/ Adriana Karaboutis suggests that it’s people (for domain supply balance of 90-90? Which approach will be more expertise), and business reengineering expert James Champy profitable for your business? maintains that it’s process (see Viewpoint, page 45). Problems like this arise every day in supply chain You would think that we at i2 would cite technology. management, and innovative processes and technologies But we don’t. When I cofounded i2 with Ken Sharma can support the iterative process needed to solve them. almost 20 years ago, we were focused on process innovation. We used a unique combination of process and technology In fact, we embedded many processes in our software. But innovation to create an agile demand/supply management software alone cannot drive change. The companies that process for Panasonic, for example. As Mike Aguilar, receive the full range of benefits from their software Panasonic’s senior vice president of supply chain strategic implementations also implement business process changes. initiatives, explained, “When Panasonic took on the project What is our approach to supply chain innovation of shifting our emphasis from supply to demand and today? I like to think of it as the analysis of extremes. We shifting our forecasting to a point-of-sale system, we had encourage i2 employees to envision our customers at a two choices. We could go through the traditional process theoretical level of best performance, or what we would of buying software and installing it inside our company… call extreme performance. or we could have i2, which has extensive software develop- Let’s take inventory as an example. We might ask, ment and consulting services, perform the data capture and “How can a customer reduce its inventory by half?” analysis for us. We decided to ‘rent’ both the software and i2’s Instead of contemplating moving from $100 million in expertise in forecasting analysis. We were able to get this inventory to $50 million, we suggest finding ways to project going in just a few months rather than a few years.” achieve near-zero inventory—which would be considered (Supply Chain Leader Interview, Spring 2006, pages 6–7.) extreme performance. Thinking about that near-zero Through this approach, Panasonic achieved increased state helps us to understand with greater clarity the first revenue and inventory performance in a short time. While principles and process changes required to support our we know that profound change is not a short-term propo- goal—in this case, inventory reduction. sition, we also appreciate that early successes are important When thinking about the processes required to effect in overcoming the resistance to change inside companies. such a step-level change in performance, we ask our people i2 Operations Services is helping more and more companies to think about what technologies might not only support like Panasonic move from a less desirable to a more desir- new processes but also be the catalyst for them. At i2, we able end-state of best practices and process excellence in believe that technology should focus on supporting the timeframe demanded by increasing globalization and advanced processes—those that make a company more customization. agile. When this is the case, process innovation is symbiotic Besides driving greater and faster process and technology with what technology is capable of doing. The result is innovation, the approach we take with i2 Operations Services greater agility, or “managing in the face of variability.” In creates a greater synergy among people, process and tech- other words, today’s advanced processes help companies nology. It’s my belief that it isn’t just the functional walls manage risks, exceptions, demand and other variables that need to come down inside companies. It’s also the resulting from market and competitive forces. walls separating these three interlinked engines of high performance. Enhancing iterative capability Innovations in supply chain management have come, Sanjiv Sidhu is the cofounder of i2 and in large measure, from the ability to iterate multiple the chairman of the board. scenarios at high speed, enabling businesses to make better- informed decisions faster, as problems arise. As an example, Contact: supply_chain_leader@i2.com. say your demand level is at 100, but your supply is at 80. Supply Chain Leader / October 2007 3
  5. 5. Short Product Life Cycles Innovation Throughout 4 Supply Chain Leader / October 2007
  6. 6. To compete today, consumer goods manufacturers must focus not only on innovations in product development but also on meaningful changes in four key areas of the business—technology, process, partnerships and market strategy. T he consumer goods marketplace has always been fast paced and unpredictable. After all, selling retail products is based on understanding the current needs of end users, then rapidly developing new offerings that address those needs before they inevitably change. Add the challenges of maintaining high product quality and generating strong Demand profits, while managing increasingly complex supply chains from end to end, and it’s easy to see why so many consumer goods manufacturers struggle to achieve lasting success. Recent trends have made the consumer goods market- place even more difficult to navigate. Product life cycles the Business have been slashed dramatically. The Internet’s increasing importance as a retail sales channel has increased com- petition, often from smaller companies whose Web sites might look very similar. In addition to leveling the playing field, the Internet has also contributed to an increase in price transparency, enabling consumers to make quick purchasing decisions based solely on price. The result? Today, prices are dropping faster than ever following an initial market launch, even on the most exciting, innovative products. Causing prices to fall even faster—and even lower— is the rapid commodization of products today. Even the most groundbreaking technologies or designs are quickly copied or advanced by competitors. The majority of trendy products become obsolete quickly, as they are replaced with “new and improved” concepts that capture By Pallab shoppers’ attention. This rapid pace has led to an even greater demand for Chatterjee new products by both retailers and consumers. Retailers are continually adding new shopping seasons, as well as demanding customized products that help differentiate their stores in a crowded marketplace. In addition, today’s consumers expect to see products that are customized to their exact preferences, or that reflect the latest fashion trend. CYCLES CONTINUED on Next Page . . . Supply Chain Leader / October 2007 5
  7. 7. Facing so many demands from the marketplace—and The new-generation supply chain the pressure to manage a global supply chain at a break- Most consumer goods supply chains were simply not neck pace—manufacturers often struggle merely to keep designed—and have not been adequately updated—to up. Many companies design and introduce products so support the success of products with short life cycles. rapidly that they don’t have a genuine understanding of “New-generation” products used to be launched every the real-world risks, payoffs and rewards associated with few years. But today new innovations seem to come every each new product, let alone of setting and achieving long- few months, especially in trend-conscious categories such as term strategic goals. They make enormous investments in electronics and apparel. Too many businesses are struggling design, tooling, manufacturing and inventory, often with- to adapt their old, “every few years” business models to the out a well-defined plan for maximizing profitability over realities of launching new products much more frequently. the entire product life cycle. Often, the life cycle ends In addition, supply chains have become increasingly before the manufacturer has a sound sense of the product’s complex, with raw materials suppliers and manufacturing ultimate contribution to the business. facilities around the world contributing to the ultimate profitability of every product. Overwhelmed by the sheer Most consumer goods supply chains were volume of supply chain information available, manufac- not designed to support the success of turers often choose to focus their attention on the upfront products with short life cycles. activities associated with product design, instead of gaining strategic insights across the end-to-end product life cycle. Why do many consumer goods businesses—even those To compete in the current marketplace, they’ll have to with qualified executives, state-of-the art facilities, global re-examine their overall approach and take a fresh look resources and successful retail partners—struggle to achieve at every business process. They’ll need to have in place a profit today? And why do so many new products—even the best possible information, as well as the best processes the truly revolutionary ones—fail? The answer is simple. and technologies, to make rapid decisions that are truly While companies are focusing on innovation in their informed—not just best guesses. product designs, too often they are trying to support these In other words, businesses will need to support their fast-moving, revolutionary products with an outdated product differentiation by innovating across the enterprise, supply chain that can’t keep up. with business and supply chain processes that match the Competing in a fast-paced, unpredictable retail market- speed and counteract the uncertainty of today’s market- place means operating with a global supply chain that is place. When innovation occurs across the business, designed to deliver the seemingly impossible combination completely re-invented business models will emerge. of speed and risk management. But powerful new tech- To create a new-generation supply chain that will nology solutions are available to help manage complex, support a company’s short- and long-term success, mean- end-to-end supply chains that stretch around the world. ingful change must take place in four key areas—technology, To fully leverage these technologies, consumer goods process, partnerships and market strategy. (See Viewpoint manufacturers will have to tailor their global supply net- on page 45 for James Champy’s insights into resistance to work, and their individual business processes, to the change inside organizations.) unique demands of today’s marketplace. Optimize Across Cost, Price Realization and Volume for Entire PLC Design Source Mfg Decision Distribution End of Life • Product Marketing • Launch Readiness • Time Zone vs. • Inbound • Disposition • Reuse Strategy • Supplier Quality Global: where • Outbound • Markdown to produce for • Engineering • Material Cost which market • Conversion Cost • Reuse Customizations • Demand Volume for what device • Service/Returns • Cannibalization • Portfolio Timing • Price Terms • Manufacturing • Product Delivery and Conditions Model Excellence • Flex Capability • Demand vs. Capacity 6 Supply Chain Leader / October 2007
  8. 8. Benchmark Life Cycle Cost Components Design Sell Liquidate Cost Cost to Market Cost Cost Cost of After- to Produce and Promote to Sell to Fulfill Sales Support • Engineering • Marketing/Demand • Sales and Operations • Inbound/Inter- • Warranty • Platform/Software Generation Cost Cost: Sales Comps, Facility Freight: • Returns (cost • Direct Materials • Promotions Planning Costs Plant to DC, of poor quality): DC to DC Cost • Operator/Channel • Process and Activity • Warehousing: Freight, • Manufacturing/ Subsidy Cost: Receive, Store, Special Processing Conversion Cost: (Price Protection) Order Management, Services, Pick, Ship Direct Labor, Inquiries, VMI • Promotional Indirect Overhead, • Freight: Packaging: Outsourcing, Inbound/Outbound, Operator-Specific Packaging and Labeling Tools and Dies, Expedite • Outbound Freight: Scrap Truck Load, LTL, Parcel, Air Technology innovation: look beyond the business and cost effectiveness. Broad supply chain innovations are To keep up with the incredibly fast pace of technology needed, as well as a new level of visibility into every corner development, consumer goods manufacturers may have of the global supply chain. Processes must change from to look beyond their own organization. Most businesses the beginning to the end of the total product life cycle, invest heavily in internal product development, but may from prototype development to end-of-life liquidation. overlook the opportunity to acquire existing technologies Pioneers in process innovation include Toyota, which developed by smaller companies. As consumers demand revolutionized automotive manufacturing with its tight increasingly inventive products, manufacturers may find control of the total supply chain—resulting in high quality, that their own internal development efforts cannot keep short lead times and outstanding cost efficiencies. Dell is pace—and that they need to consider more innovative known for its innovative strategy of selling computers ways of maintaining their technology leadership. directly to consumers, generating enormous profits by A number of companies have emerged as leaders in eliminating inventory. These kinds of groundbreaking this area, including Cisco, which has continually expanded process innovations could help consumer goods manu- its business model and global supply chain to include facturers differentiate themselves in the marketplace, as specialized technology companies that complement its own well as significantly improve their profitability. strengths and strategies. Both the open-source approach of Linux and Microsoft’s independent software vendor Partnership innovation: join forces network have demonstrated that the Internet can be To increase their chances for success, and share both leveraged to create a global community of experts who the risks and the rewards of today’s fast-paced market- continually contribute to product improvements. These place, a number of manufacturers are working with other examples should inspire consumer goods manufacturers businesses—including customers, suppliers and even to explore similar innovations in their own technology competitors—to create a new ecosystem that supports development efforts. their mutual success. An extraordinary example of this kind of partnership Process innovation: reinvent the supply chain approach is the Wi-Fi Alliance, a group of industry lead- Nearly every manufacturer has a process improvement ers—including Motorola, Sony, Nokia and Intel—that initiative in place, but the vast majority of these initiatives have joined to enforce product quality and compatibility are too narrow—focusing on a single metric that may not by creating a certification program for wireless devices. be related to larger strategic goals. And, while consumer This effort supports the success of each member’s products, goods manufacturers have invested in sophisticated tech- as well as promoting thought leadership and a commit- nology solutions, these tools cannot fulfill their potential ment to quality across the entire product category. unless the end-to-end supply chain is configured in the Another innovative partnership between General most efficient manner. To support shorter product life Motors’ OnStar and the communications industry has cycles, nearly every process within the supply chain must be reviewed to ensure that it is operating at maximum speed CYCLES CONTINUED on Next Page . . . Supply Chain Leader / October 2007 7
  9. 9. led to dramatic growth in the demand for integrated cycle can mean the ultimate failure of the product, no communications and data systems in automobiles. By matter what the business does to counter that mistake partnering to promote both the importance and the as the life cycle continues. availability of OnStar services, these companies have Making intelligent, correct decisions quickly might seem made OnStar’s telematics technology the industry standard. like an impossible challenge, and there is a long history It is now being licensed to many other automakers. of failed product launches to support this conclusion. The Achieving success in today’s challenging environment answer lies in making decisions that are based on real- may require consumer goods manufacturers to explore world data and information—from suppliers, customers, strategic partnerships like these. end users and every part of the business itself—as well as basing decisions on a logical, predetermined set of criteria. Market innovation: make the sale (See Opinion on supply chain priorities, page 32.) At each Consumer goods manufacturers must also innovate stage of the product life cycle, the business must gather through their ability to understand the end users of their the most recent insights needed to make truly informed products. By achieving far greater insight into consumers’ decisions about the product’s future. Even though the needs and desires, manufacturers can design products that marketplace will always be unpredictable, the business have a greater probability of success, minimizing the risks must respond in predictable and pre-defined ways that that are inherent in short-life-cycle products. maximize its profit margins, and minimize its financial Marketing success stories such as the Motorola RAZR risks, throughout the end-to-end product life cycle. and the Apple iPod were both based on generating and meeting unprecedented demand from the marketplace. As product life cycles are compressed, While neither of these products featured new or dramati- each individual decision assumes more cally different technologies, their appealing, slim designs— weight and carries farther-reaching as well as marketing campaigns that addressed end-user consequences. needs—resulted in breakthrough sales. Dramatic success stories like these may be the exception. For example, during the typical life cycle for a trendy But every consumer goods manufacturer can be inspired new product, there will be a time when point-of-sale data by them to achieve a better understanding of marketplace indicate a drop-off in cash-register sales—often in antici- needs, as well as to develop winning launch strategies that pation of a new, competitive product that is about to generate excitement and increase demand. launch. Instead of holding a series of panicky meetings, and rushing to make an ill-informed decision, businesses Plan-do-check-act—at warp speed must learn to react in a way that has been determined to The task of innovating in these four key areas—tech- manage margin squeeze and extend a specific product’s nology, process, partnerships and market strategy—may profitability as long as possible. Meanwhile, other business seem daunting enough, but consumer goods manufacturers actions might be triggered, such as expediting the launch face yet another imperative if they want to succeed in the of the new product that will replace the current one, so new era of short product life cycles. Most businesses also that the organization can boost the chances of its long- need to change their foundational culture and philosophy, term success. matching the speed of the marketplace with a corresponding Because every consumer goods business operates with sense of urgency and agility across the business. Simply its own set of selling channels, profit margins, transporta- put, they must take the traditional plan-do-check-act tion and distribution systems, inventory and materials cycle to warp speed. constraints and supply networks, these decision criteria With product life cycles squeezed to their limits, con- must be customized to each business. In fact, a separate sumer goods executives can no longer form committees set of decision criteria should be established for every and conduct months-long studies when a product fails to new product to address the unique challenges associated perform as expected. Instead, they must create a new way with that particular offering. Businesses face dramatically for the business to react immediately to changes in sales different challenges when they are introducing an entirely volume, new pricing pressures or other critical trends that new product genre, versus an improved technology platform can mean the success or failure of their products. or a new product model—and their decisions should be Consumer goods manufacturers need to ensure not based on an entirely different set of criteria. (See sidebar, only that they are making decisions quickly, but also that “Ensuring Continuous Product Innovation” on next page.) they are making the correct decisions to support each It may be tempting for consumer goods manufacturers, product’s success in the marketplace. As product life already overwhelmed with the demands of today’s market- cycles are compressed, each individual decision assumes place, to install a “one size fits all” decision solution. But this more weight and carries farther-reaching consequences. approach overlooks the nuances of each new product, and In fact, a wrong decision made early in the product life the distinct market environment in which it will be launched. 8 Supply Chain Leader / October 2007
  10. 10. The new supply chain model New-generation supply chain solutions can help man- While the new world of short product life cycles has ufacturers increase visibility and control across the total brought enormous success to many companies—including design-launch-sell-liquidate life cycle of their products, as innovators such as Motorola and Apple—the majority well as provide critical support for their ongoing decisions of consumer goods manufacturers today are simply not about price volumes and market attributes. But leveraging prepared for this new market reality. Most experience these solutions to their fullest potential usually requires a uneven results, at best, as they struggle to adapt their significant effort to innovate across the global supply chain. old ways of doing business to a new, demanding and By matching every part of their business model and competitive landscape. Overall, there are far more failed supply chain to the challenges and competitive impera- product launches today than enormously successful ones. tives of the marketplace, consumer goods manufacturers There will always be a certain level of inherent risk can significantly increase the success rates for individual when trying to devise and launch new-generation products products, as well as their long-term revenues and profits. that are aimed at the ever-changing needs of fickle con- sumers. But manufacturers can maximize their chances of success by rethinking their supply chain, and their overall business model, to support the new way they need to do Pallab Chatterjee is i2’s interim chief executive officer. business today. Ensuring Continuous Product Innovation As product life cycles are slashed, consumer goods competitors will be focusing substantial resources on manufacturers face two challenges: managing the profit- launching the next category-changing innovation. ability of each individual product and ensuring that there New product platforms represent an opportunity for is a continuous stream of new offerings to support long- manufacturers to introduce technology enhancements to term profitability and growth. Too often, manufacturers existing genres, refreshing consumer demand levels every become so focused on a winning new product that they 12–18 months. New platforms create an ongoing revenue are caught unaware when demand suddenly—and stream and help to support a position of technology lead- inevitably—shifts. ership. However, manufacturers must ensure that each Ongoing product launches cannot simply focus on platform launch signifies a meaningful technology upgrade new technology platforms or models that are merely that current users will perceive as valuable. Successful updates of a successful product. While these can represent a platform innovations include Microsoft Windows NT, significant revenue stream, consumer goods manufacturers the introduction of the 1080p HDTV video mode and cannot lose sight of the importance of launching new the launch of three-megapixel camera phones. product genres that will revolutionize the entire category New product models can help a successful genre continue and dramatically alter the competitive landscape. to generate revenue, as well as address previously untapped Each of these three kinds of product introductions— consumer preferences. Introducing an additional product genres, platforms and models—must be managed in color or an innovative feature every 3–6 months helps drive different ways to ensure their profitability, as well as to continued cash-register traffic and win new consumers. support the long-term success of the business. Product models are often based on fashion trends, so they New product genres, which are typically launched every must be brought to market quickly. The colorful array of two to three years, represent a breakthrough capability in laptops, cell phones and MP3 players that are continually either technology or design. Some examples of successful introduced demonstrate the marketing and sales power new product genres include Apple’s iPhone, Nintendo’s of new product models. Wii gaming console and the wireless BlackBerry devel- In many fast-moving categories, such as electronics, oped by Research in Motion. lasting retail success comes from maximizing the financial Since these kinds of product introductions have the contribution of individual product life cycles and fostering potential to redefine the category, they are typically the ongoing product development to ensure a continuous focus of significant investment. Consumer goods manu- flow of new genres, platforms and models. Manufacturers facturers are certainly justified in betting significant who focus too narrowly on one area—for example, con- resources on the success of a new product genre, but they stantly introducing new product colors and features, cannot afford to grow complacent. Even the most revolu- instead of anticipating the next category-changing genre— tionary new offering will be replaced eventually, and will miss a larger opportunity for long-term market leader- manufacturers need to start looking toward the next ship and profitability. genre almost immediately. After all, every one of their –Pallab Chatterjee Supply Chain Leader / October 2007 9
  11. 11. Cycle-Time Optimization by Gurdip Singh and Chuck Kramer Singh Kramer From Concept to Cash Register Faster—and More Profitably For retailers, achieving growth year after year used to profits, greater differentiation and increased loyalty. be fairly straightforward. The formula for success seemed However, retailers are discovering that there is enormous simple: aggressively open new stores. But, in today’s financial risk in assuming responsibility for the entire increasingly crowded and diverse marketplace, a one- design-to-shelf process. Retailers may wield significant dimensional strategy based on rapid store expansion is not power when purchasing finished goods, but that power enough to guarantee growth in either revenues or profits. disappears when they become the designer and the man- Retail space is at a premium today, and consumers enjoy ufacturer—and there is no longer anyone to accept their more shopping options than ever. They are often able to product returns. Every private-label strategy represents compare prices on the same product across multiple a tremendous financial investment, with no guarantee shopping channels, such as online and catalog, versus of success. physical store location. Channel blurring has added to Cycle-time optimization, always a strategic imperative, shoppers’ choices, while eroding their loyalty to any single plays an absolutely critical role in the private-label business retailer. For example, as mass merchants have begun to model. To accurately predict and capitalize on fashion sell groceries, and grocery stores have begun to sell gas, trends and regional preferences, retailers must drastically consumers can choose from a seemingly unlimited reduce cycle times so that they can delay decisions as number of options for these common purchases. close to the start of the selling season as possible. This means taking a close look at every aspect of their supply 37% of total sales were derived from chains, as well as rethinking their traditional relationships own-brand products in 2007, according with supply chain partners. to AMR Research. This enormous range of choices has resulted in Beyond business as usual demanding shoppers. Consumers today expect not only To design and deliver private-label products, retailers low prices, but also product assortments that are customized must extend their traditional supply chains to include to their specific preferences—creating new pressures for raw-materials suppliers and manufacturing organizations retailers to custom-tailor their store assortments to diverse around the world. In this new model—which requires local markets. retailers to assume the risks associated with raw materials, To differentiate themselves in an increasingly crowded manufacturing and inventory—retailers must view each marketplace, and offer truly unique products, many retailers supply chain process as an opportunity to cut time and costs. have turned to private-label product strategies. By design- Retailers need to realize that information sharing and ing and manufacturing products, retailers can leverage visibility—both within their own businesses and across their own customer knowledge to create one-of-a-kind the supply network—can lead to faster cycle times, lower offerings that are customized to the needs of their local costs, increased margins and higher revenues. By fostering stores, while also maximizing their profit margins. collaboration, retailers can collapse individual process Given the potential payoff, it’s not surprising that in- times, drive out unnecessary costs and turn the concept- house brands are growing in both popularity and influence. to-market cycle into a series of parallel, not sequential, In fact, a recent study by AMR Research states, “Survey steps that move products continuously and quickly toward responses show consistent growth in private-label pene- the cash register. tration from 2006 to 2008. 37% of total sales were derived Closer inter- and intra-enterprise collaboration also from own-brand products in 2007 and [this category] is enables retailers to maximize their forward visibility, expected to grow by 11%.” (AMR Research Report, since any constraints can be more easily identified and April 2007, “The State of Fast-Moving Consumer Goods addressed. Retailers can also track any changes in demand Retailers: the 2007 Technology and Process Review,” by forecasts or materials reservations, increasing their agility Mike Griswold and Fenella Sirkisoon.) and responsiveness. And, by sharing the same cycle-time Private-label products offer the potential for higher metrics across the global supply chain, retailers can ensure 10 Supply Chain Leader / October 2007
  12. 12. ongoing improvements in overall time and cost performance. of suppliers, team members can also use this preliminary information to position multiple products and raw materials Optimizing cycle times: five key areas across vendors, ensuring high capacity utilization and a Competing in the private-label marketplace requires constant flow of product through the supply chain. retailers to embrace collaboration and visibility in every part of the business. Through i2’s work with both retailers 4. Dynamic inventory utilization. Similarly, buyers and manufacturers, we have identified five key areas in can work with multiple raw-materials suppliers to allocate which enhanced visibility and collaboration can eliminate materials in the most timely and profitable manner. The months in private-label cycle time. private-label buying team can consider such factors as material costs and capacity levels to make more strategic 1. Integrated design and demand planning. decisions about acquiring raw materials, and to ensure Typically, a private-label sourcing team learns of new that materials are shipped just in time to keep the overall product designs and associated raw-materials needs about supply chain running efficiently and profitably. six months before the beginning of a selling season. But i2 has discovered that 8–10 weeks can be taken out of 5. Flexible distribution. A flexible approach to the the product development cycle by sharing information distribution process can save significant time and costs by about designs at a much earlier stage. Buyers can actively allowing retailers to analyze data on prices, profit margins collaborate with designers, as well as with a core group of and capacity constraints at various supplier facilities—and suppliers, to choose the most cost-effective materials and make more fluid decisions about how to move products manufacturing processes. Instead of being presented with through the supply chain. At most companies, such decisions final designs, and then scrambling to line up materials are made on a product-by-product basis by individual and manufacturing facilities, buyers become part of a fluid sourcing managers, but i2 helps retailers gain visibility design process that considers materials and manufacturing across all their private-label offerings. This ensures that costs up front. the right assortments will hit the right stores at the right In addition, the forecasting team has a much greater time, and in the most cost-effective manner. opportunity to study market trends and create accurate demand projections when specific product-design infor- Sharing information across the network mation is shared earlier. By sharing forecast information While many retailers may be initially reluctant to as early as possible, retailers can minimize risk and maxi- share so much of their strategic information with their mize responsiveness across the supply network. global supply network, it is the only way to achieve the dramatic time and cost improvements that today’s new 2. Strategic sourcing. Early notification also allows retail environments demand. buyers to consolidate orders for raw materials across It’s also the only way to manage the financial risk and numerous products, pre-position materials that may be demand uncertainty that come with private-label strategies. difficult to find and create flexible supplier contracts that By fostering greater collaboration with worldwide partners, include options to purchase additional materials—or retailers can delay critical decisions until closer to the withdraw from contracts—as demand projections shift. start of the selling season. When retailers can make more While actual purchase orders are not formalized until intelligent and timely decisions about their private-label closer to the selling season, buyers can gain an earlier offerings, they maximize their chances of selling products understanding of supplier costs and capacity constraints. at full price—and minimize the real financial risks associ- Products are manufactured and brought to market faster, ated with excess inventory and markdowns. The tangible and profitability is enhanced through strategic supplier results are lower inventory levels, higher rates of in-stocks negotiations that make the most of purchasing investments. and faster inventory turns—leading to significantly enhanced profitability. 3. Integrated manufacturing planning. Private-label product teams can cut significant cycle time by using Gurdip Singh is vice president of services for i2’s Retail early design specifications to choose the most cost-effective and Consumer Industries sector, and Chuck Kramer is manufacturer, as well as to plan exactly how products will the senior vice president for that sector. Adam Hatch also be made and shipped. For example, the sourcing team can contributed to this article. weigh the positive financial implications of manufacturing in large quantities against the costs associated with carrying For more information, contact supply_chain_leader@i2.com. inventory. If the sourcing team partners with a core group Supply Chain Leader / October 2007 11
  13. 13. Interview by Victoria Cooper Inside Supply Chain Scaling to different markets around the world calls for innovation and flexibility in the systems that support the business processes. Here’s what GM is doing to meet the challenge. Adriana Karaboutis is the process information officer How did you get into the field of supply chain for Global Purchasing and Supply Chain (GPSC) at management? General Motors. She has been with the company for three years and reports to both the group vice president and My career has been in and out of IT—I received my chief information officer, Ralph Szygenda, and the group degree in computer science and electrical control systems vice president of GPSC, Bo Andersson. from Wayne State University—but I’ve always been fasci- Karaboutis is responsible for GM’s IT innovation and nated by the complexity of supply chain issues. As supply modernization for purchasing, order fulfillment, supply chains become longer due to globalization, the problems operations and logistics worldwide. The systems she is get even more complex. responsible for support the more than $100 billion that I’ve worked in IT as well, in the supply chain business GM spends for direct and indirect materials as well as for organization. At various automakers, I ran production inbound and outbound logistics. scheduling as well as worked on the IT side. My business In this interview, conducted by Supply Chain Leader process knowledge has definitely helped me in this role at editor Victoria Cooper in Detroit in early August, Karaboutis GM, lending to more credibility on the operations side of describes the impact of globalization and digitization on the business. The supply chain organization here centers GM’s IT strategy for global purchasing and supply chain. around processes, and the IT people work in lockstep with Photos: Scott Stewart 12 Supply Chain Leader / October 2007
  14. 14. Globalization at GM the process leaders. I believe GM has a history of integrating cost, very quickly. Bo makes purchasing decisions 24/7 technology and business processes very effectively. through buying organizations that are strategically placed around the globe. These organizations buy for all vehicle Is on-time delivery still one of GM’s primary areas platforms around the world. of concern? If we don’t provide 24/7 systems availability for these buyers with near real-time information, we will fail the Today more than ever—with the globalization of the organization. Equally, we need to have supply chain systems company—delivering parts and vehicles on time is critical. in place to support the release and movement of parts We source, build and sell across the globe, and the accuracy from suppliers to plants and of vehicles from plants to and timely delivery within the supply chain of finished dealers—seamlessly. product is critical for our suppliers, plants and dealers. Order-to-delivery (OTD) time is something we watch GM has a history of integrating very closely to meet each market’s specific demands. For technology and processes very example, in California people typically want a car “right effectively. now.” The market pattern is to buy off the lot. People want to see the car, feel the car and drive the car quickly. GM has no boundaries—geographical, structural or Outside the United States and in other parts of the country, organizational. And we want to use our entire supplier the buying pattern may be different: ordering a vehicle and manufacturing base to address global demand. So, might be expected to take 25–30 days. In Germany, for our systems need to follow the same paradigm: global, example, you see a significant amount of build-to-order seamless, cost-effective and scalable. requests. So, while delivering on time is still very important to us throughout the supply chain, build-to-order, or OTD What are your major IT initiatives right now? times, are designed to meet specific market demands by region or country. Our IT initiatives align strategically with GM’s busi- If you think about globalization and what we’re trying ness goals. In GPSC, we’re currently working to standard- to support in the supply chain and our global systems, ize on global systems that are in our “bill of IT,” which we’re looking at a “produce anywhere, source anywhere, is similar to a “bill of material” for vehicles. By reducing build anywhere, sell anywhere, service anywhere” kind of regional-specific systems, we ensure that we will have paradigm. It’s not all about regional build and sell anymore. commonality around the world, that we can release Now the globe is the footprint for all of our processes. upgrades to our systems and that all regions will benefit From a systems perspective, this presents a new set of immediately from these upgrades. This allows us to be in challenges around flexibility, speed and global availability a much stronger position to react to business process of our systems. changes and requirements. Simultaneously, we’re focusing on bringing all of our What is the biggest challenge of globalization for logistics systems in-house––these systems were historically GM, in your view? part of a joint venture––as well as creating new functionality around best total-landed-cost analysis, steel purchasing, GM is handling globalization extremely well. We are resale systems and overall modernization of our legacy currently looking at our emerging-market strategies and systems. working from an IT perspective to ensure that we have cost-effective, scalable global solutions that will support What will be your next areas of focus? the business in these markets. Bo Andersson, our Group VP of Global Purchasing and Supply Chain, is looking to We are going to continue working on our legacy mod- source parts at “best-shore locations, ” so we need to make ernization with an eye toward creating the fastest, lowest certain that we provide systems capability so he can make the best-informed decisions, based on best total landed INTERVIEW CONTINUED on Next Page . . . Supply Chain Leader / October 2007 13
  15. 15. Interview (Continued) cost systems for our emerging markets that align with our As part of our strategy, we are commonizing on a stan- bill of IT. Also, visibility tools are becoming more and more dard suite of supply chain software from i2 as the basis for critical with our expanding supply chain, and we need to most of this new functionality. Our objective is to leverage streamline the number of order management systems. a common backbone and move away from custom code where it makes sense to do so. What did you inherit when you came into your role? We have very solid global systems in the core purchas- ing and supply chain functions. We’re looking to improve I inherited some very robust, solid systems that were these systems while delivering the new functionality that I designed extremely well to serve our current environment. mentioned earlier. Unfortunately, I inherited a lot more of them than we ultimately want! That’s why we’re looking to retire regional applications that have duplicate functionality around the globe as we modernize our legacy environments. We have an excellent materials management system and a world-class purchasing system. These are the cornerstones of our GPSC suite. We are continuing to improve these from an architectural perspective and working to make them “lighter” and less monolithic in some areas. I also inherited multiple order management systems, and this is an area where some strong convergence needs to happen globally. We have a very strong agenda in this space. It involves com- ponentizing the order management systems into services and taking advantage of service-oriented architecture. GM has no boundaries –– geographical, structural or organizational. What has happened with electronic data interchange (EDI)? Is it still useful? We’re very strong in EDI. Covisint is our strategic partner for EDI, and it supports GM globally. What about the 1990s purchasing portals GM got involved in? Our purchasing portal is our own in-house portal that serves us well. GM SupplyPower is a solid portal that serves as a gateway for suppliers to access GM’s Web- based systems. It’s a common system for GM to meet suppliers’ needs across all process areas. We will continue to use it into the foreseeable future. Andi Karaboutis is sitting in GM’s 2007 Pontiac Solstice. What are some examples of the new functionality and capability GM wanted? Could you elaborate on your use of one platform? In addition to bringing our logistics systems back into GM with our systems integrators, we are working on new While we’re using the i2 Agile Business Process functionality in the areas of supplier capacity planning Platform for functionality within i2 applications, we’re and control, best total-landed-cost analysis tools, vehicle also using other methods for our legacy system modern- visibility tools, and new metrics and reporting capabilities. izations. Essentially, we are determining, system by system, Also, we’re working on a new steel purchasing application. the best approach for moving into the future. 14 Supply Chain Leader / October 2007
  16. 16. The i2 system is a decision-based tool set. You can go If you look at GM as a business, we have one of the into particular solutions and pick the modules that work most complex supply chains of any company in the world. for you. So, my first point of call is i2 for several purchasing We have $86 billion worth of direct materials purchased and supply chain applications. I have found the i2 suite to globally, and 2,000 inbound trucks a day and 2,800 out- be the most robust at this point. But, if there’s another bound. We have more than 175 manufacturing facilities in product that is best for us in a particular area, we certainly 33 countries. The supply chain is daunting. I believe our will go with it. We have a good commercial agreement systems rank among the best in the industry for managing with i2 that allows us the flexibility to engage quickly on this complexity and providing seamless capability with new projects. It has taken all the noise of negotiations out zero disruption to the daily manufacturing process. Our challenge is that we still have too many systems in regional applications. I mentioned the bill of IT earlier. Each process area has a bill of IT, and the bill dictates what systems are designated for every element of the processes. The goal is for these systems to be standardized and deployed globally. In GPSC I have a little more than 300 systems; however, my bill of IT dictates that I should have much less than that number, after I’ve completed global rollout and alignment. Ralph Szygenda, our CIO, runs IT so that each process area has a bill of IT, like a bill of materials. What are the biggest challenges today compared to those of a few years ago? The extended supply chain and globalization of our business dictate that we must have flexible, scalable, low- cost, high-performing systems. Real-time information at people’s fingertips with increased collaboration capability is a must. In order to get there from here, we have to modernize our legacy systems, develop new functionality and work with the business to drive business process alignment globally. I don’t believe we’ve ever had this level of demand from our systems capability at any time in the past. We have a lot of opportunity ahead of us. From an IT perspective, we’re relying on standardized work and our basic focus on bill of IT as the cornerstones for what we do going forward. Each year we set objectives for improvement against this bill and then execute. The IT organization operates as a global matrix organization at GM. We operate an outsourced model and look to our systems integrators to deliver projects with us. What has been critical for us in GPSC is the purchasing and supply chain expertise that our people have. We’ve of the way. As Bo Andersson always advises, “Focus on found that unless you have domain expertise, you’re not getting systems delivered quickly, efficiently and at the going to be successful in commonizing processes or in best cost. Avoid getting caught in redundant planning, establishing supporting systems that hold up those processes. talking, reviewing and contracting cycles that do not add value to the business.” How do you rate GM in its systems sophistication? INTERVIEW CONTINUED on Next Page . . . Supply Chain Leader / October 2007 15
  17. 17. Interview (Continued) What are the core processes you are focusing on now within the supply chain organization? Our key focus is on supplier footprint optimization, or what we call SFO. This refers to sourcing to the best suppliers globally based on performance, quality, piece price and capability to meet GM’s needs. Bo Andersson is very focused on that. We’re trying to provide the best tools to enable quicker decisions with more supporting data. The best total-landed-cost tool, the supplier capacity control tool, the vehicle and part visibility tool, as well as the others I mentioned above are all new capabilities we’re developing to support globalization within the business. Real-time information at people’s fingertips with increased collaboration is a must. What do you think of as innovation in supply chain management? Clearly, the next level of real-time collaboration and seamless support of the global environment is what we need to focus on within the supply chain in support of our emerging-market strategies. Ralph Szygenda has always pushed the information systems and services organization to execute today’s needs while stretching us to innovate, transform and re-engineer our systems landscape for 5–7 years out. 16 Supply Chain Leader / October 2007
  18. 18. There’s Power in POS Data–– Not Just for Retailers, but for Suppliers Too By Mohan Balachandran and Jim Morganstern T he old techniques for meeting customer and market demand—forecasting from historical data and holding Improving customer experience at the shelf “Moving consumer product is becoming more like what inventory—are no longer effective for consumer goods happens in the fashion industry,” explains Lora Cecere, manufacturers dealing with increasingly high customer- research director for AMR Research. “The newest reality service expectations. Traditional forecasting processes not for retailer marketing centers on improving consumers’ only tie up capital but are riddled with errors when experience at the heart of the store, where the critical applied to short-term demand and supply issues like shelf encounter with product takes place—at the shelf.” The replenishment. declining consumer impact of traditional marketing media And the increasing retailer/supplier need for timely such as television, newspapers and magazines has refo- visibility into store-level demand drives the development cused retailer attention to the store shelf and rack level, of new technologies—systems that employ point-of-sale wooing customers by enhancing their in-store experience.” (POS) data and intelligent, exception-based scenarios for In the interest of keeping shelves perpetually stocked, tuning retail supply networks to market demand. “retailers want to both sense and shape demand in real Visibility is the issue du jour in this era of rapidly time,” Cecere says. “Although nearly all consumer products moving products, and the ability to understand shelf-level manufacturers have used POS data for monthly category events as they take place is critical to rapid response. management, the new shelf-centric reality requires seeing Historically, POS demand information has not been visible more granular data on a daily basis. to consumer products manufacturers in real time. The data “For instance, account teams need to be able to look at aspects of category management were typically contracted the entire Wal-Mart map daily, see the out-of-stocks as to third-party market-research firms like ACNielsen and well as anticipate them and immediately get down to work IRI. These firms submitted reports including data on brand with their merchandisers on resolving the issues. For retailers performance and issues such as out-of-stocks—usually determined to prevent out-of-stocks and to conduct pro- two to four weeks after the fact, or longer, depending on motions that intimately connect to demand fluctuations, the amount of replenishment inventory on hand. lag times are no longer acceptable,” Cecere explains. “The POS data have played a part in category management ability to use POS data in real time is absolutely key to since the 1980s, when Wal-Mart first put its Retail Link® effective response.” supplier network in place. “Generally, POS data were The execution of effective response, however, increas- somewhat dirty at first, but are a lot better now because ingly devolves to the consumer products manufacturer. retailers are using the data for their own replenishment,” Wal-Mart, for instance, has tasked its suppliers to work says Larry Lapide, director of the recently launched toward higher and higher shelf-rate levels while reducing Demand Management Solutions Group at the MIT excess inventory in the supply chain. Center for Transportation and Logistics. “But even cleaned up, the data are still not very usable as-is for con- sumer products manufacturers who need to harmonize POS DATA CONTINUED on Next Page . . . that data with their own language and systems.” Supply Chain Leader / October 2007 17
  19. 19. The downstream challenge why at the store shelf. It turned out there was an issue The benefits of demand-driven, POS-based business with SKU sizes that weren’t appropriate for Asian women, intelligence do not stop at the shelf. Analysis of down- and consequently the larger-size products only sold by stream demand data also yields long-term demand-sensing markdowns. This is exactly the sort of disconnect that and demand-shaping strategies. These strategies enable would be solved by POS data.” suppliers to use consumer demand signals to quickly take Even with a 98 percent fill rate, the fine print can reveal action as new opportunities arise, improving category costly fluctuations. Wal-Mart shelf fill rates are measured management and increasing brand equity as well as profits. each Friday, revealing a weekly average across all store Leading consumer brands continue to be plagued with locations. Consequently, demand variability by day or by issues like stock-outs in one location while suffering store is invisible. Most consumers shop on weekends, and excess inventory in another. While consumer products if stock levels fall below 98.5 percent on Saturdays or manufacturers have employed a variety of approaches to Sundays, proportionally more sales are lost. more proactively manage fast-moving retail channels, they An analysis i2 performed shows that even with a 98 are still falling far short. All errors—whether due to stock- percent in-stock average over the weekend, 277 stores outs, inventory build-ups or other process breakdowns— owned by one retailer would be out of stock of a particular are costly to retailers and suppliers alike. SKU on Sunday. To take effective action, companies need Compounding consumer products manufacturers’ daily analysis by SKU and by store, and also need to production and extended supply chain pressures, retailers’ evaluate how important each store is in terms of SKU new emphasis on inventory management at the shelf level sales. To obtain the data manually, they would have to adds a new level of customer service. Essentially, it is vendor- look at every SKU, at every store, every day. managed inventory (VMI)—though not at the distribution center, where the manufacturer’s retailer teams traditionally Taming the data deluge are required to manage inventory and replenishment. “The biggest stumbling block with POS data is that Instead, it’s at the store level. there’s lots of it,” notes Lapide. “As every shopper knows, Wal-Mart (among other retailers) monitors supplier product proliferation is epidemic on retail shelves. And, performance on an ongoing basis through a weekly score- as every CP manufacturer knows, this SKU proliferation card, grading suppliers on a wide range of metrics, from creates data-tracking headaches of the first order. A typical on-time delivery and in-stock levels to more recent initia- CP manufacturer might sell 500 SKUs through 4,000 Wal- tives, such as the environmental impact of the packaging Mart and Sam’s Club stores, tracking such functions as POS, used. Other big-box retailers, as well as grocery, consumer must-arrive-by dates, fill rate, etc. The aggregation of all drug, home improvement and electronics centers, all the data can amount to 90 million pieces of data per day. contribute to increased velocity and complexity. Sales-reporting tools traditionally used in operational According to Lapide, “Using POS data to support planning are built to analyze trends and changes in large VMI is another permutation of the retailer / consumer amounts of data by storing the data in a repository and products manufacturer, co-managed inventories relation- providing pre-defined reports, drill-down capabilities, and ship at Wal-Mart and elsewhere. Historically, retailers and ad hoc tools for searching and mining the data. The tools consumer products (CP) manufacturers have been peering are designed this way because the user does not know, at into a black hole regarding day-to-day shelf performance. the outset, the relevant data to analyze. During the months-long lag times, any demand fluctua- As a result, replenishment teams still find themselves tions—by day, location, context [weather anomalies, etc.]— drowning in data, spending far too much time trying to are obscured by the bleeding down and building up of in- identify replenishment issues from retroactive information ventories, making it impossible to track potential shelf trends. that isn’t operational. Analyzing demand-driven POS “Also, you tend to get a bullwhip affect in the distribu- data, on the other hand (specifically by identifying and tion channel,” Lapide continues. “Small changes at the determining the root causes of exceptions), provides a new shelf level are exaggerated as they move upstream, so you level of immediacy and accuracy formerly unavailable to have to look at your own shipments much longer to see short- and longer-term planning. through the noise.” “From a forecasting perspective, POS data give advance The pitfalls of shelf blindness are legion. “We just warning to enable response to change sooner,” says researched this problem with an apparel manufacturer of Lapide. “The data have been used on an ad hoc basis in seasonal products,” Lapide adds. “They knew what they operational planning, but that’s beginning to change. i2 shipped—by size, color, style—to a West Coast distribution has been one of the companies more involved in this area center, but they had not collected data on what sold and over the last four or five years.” 18 Supply Chain Leader / October 2007
  20. 20. The ultimate benefit The beauty of new tools for handling POS data is that manufacturers now have the means to preemptively sense i 2 S O LU T I O N S demand at the shelf level—shifting the whole fulfillment paradigm from what has happened to what is happening. The Demand-Sensing Advantage “In redefining processes to better serve shoppers at the shelf, The Platonic ideal for shelf replenishment would manufacturers must focus on demand sensing by key account,” according to Cecere, in her recent AMR Research involve a POS-linked supply network that auto- Report “Shouldn’t You Be Minding the Store?” (May 2007). matically analyzes all store SKU activity from a point- Cecere cites recent manufacturer pilots that illustrate of-purchase prompt in real time. If retailers and the sort of benefits achieved using downstream POS data consumer products manufacturers aren’t there yet, a and focused account teams. A major distributor changed new breed of technology, operating to preempt supply pre-determined routes and fixed delivery frequencies to chain and replenishment issues behind the scenes, has dynamic routing based on daily POS data. The three-month pilot resulted in an 8.2 percent increase in sales. In another brought them significantly closer. pilot, a consumer electronics company took over shelf i2 POS Demand Sensing is designed to enable replenishment for a major electronics retailer, reducing 18 consumer goods companies to reduce stock-outs, weeks of inventory by more than half and improving in- excess inventory, forecast variances and related stock positions by 4.3 percent, with a reduction in mark- problems at the store-shelf level to increase sales downs due to overstocks. and improve customer service. The solution applies Daily demand sensing is most critical to the success of new-product introductions and promotions. Cecere notes business rules to analyze retailer-provided, point-of- that 50 percent of new-product introductions fail because sale data to proactively identify and resolve revenue- of poor execution. “Out-of-stocks double or sometimes impacting business exceptions—exceptions that today even quadruple in heavily promoted categories at peak are causing an untold number of disruptions, including shopping,” she says. “The synchronization of getting order fill-rate errors, insufficient or erroneous supply product to shelves is absolutely critical.” For Lapide, a big issue is early indicators. “When you to stores, late receipts or misaligned Retail Link® first put the product out in the channel, it typically doesn’t (in the case of Wal-Mart) parameters. sell immediately at the shelf. You need real-time informa- Until recently, the large volume of daily POS data tion from the retailer to know the point at which it takes made it extremely difficult to identify and “sense” off in order to keep product in the pipeline. POS data individual SKU performance, or “see” the store-shelf become the leading real-time indicator for introductions level with any precision. Following retailer and supplier as well as promotions, allowing retailers and others in the supply chain to react to changes daily.” rules, the software first determines whether an issue Finally, well-planned and coordinated shelf-level has an internal supply chain cause, such as a missed execution based on real-time downstream demand data is must-arrive-by date or low fill rate. If no internal cause only the beginning in realizing the full potential of cus- is found, the software will then look for store-related tomer-centered merchandizing. POS data represent one demand causes, such as incorrect replenishment settings, stream of a number of possible cross-channel interactions forecast variances or on-hand adjustments. with assortment, allocation, space, pricing and promotional data that, when integrated together, can bring unprecedented Root-cause analysis is key to accurate demand granularity, timeliness and responsiveness to category- sensing and rapid exception resolution. i2 POS management decision making. Demand Sensing drills down into the relevant data surrounding exceptions by SKU, store and related Mohan Balachandran is a vice president in i2’s Retail warehouse, and provides response options and resolution and Consumer Industries sector, and Jim Morganstern guidance—whatever is necessary for the decision- is a senior director for solutions strategy in that sector. maker to understand and resolve the issue before it Freelance business writer Deborah Navas also contributed impacts the customer. to this article. Supply Chain Leader / October 2007 19
  21. 21. Order Fulfillment by Rajat Bhargav Bhargav Using Order Management to Get Closer to Your Customers To compete and win in today’s competitive market- Executives can see the symptoms every business day. place, aggressive companies have opened a number of The most serious of these symptoms is poor service quality, promising and profitable new distribution channels. In which can be measured by declining satisfaction ratings, addition to traditional brick-and-mortar stores, electronic increased customer churn and the failure to meet agreed- data interchange, catalogs and mail order sources, a growing upon service-level commitments. number of sellers now also take orders from Web-based That’s why many forward-looking organizations now customers and mobile buyers, as well as build-to-order recognize a pressing need to refocus their energies on and engineered-to-order customers. The proliferation of their customers. Executives increasingly realize the need distribution channels has allowed many companies to for better supply chain visibility, improved analytics and penetrate new market segments and to create and grow faster, more responsive customer service. lucrative new revenue streams. Yet those exciting new sales and distribution channels Fulfill expectations have also created significant challenges. The newer Web The bottom line for customers: they expect to receive and mobile channels are faster and more dynamic, and what they ordered, when it was promised. Despite that are therefore riskier and less predictable than traditional fact, most companies don’t have processes and systems in channels. While that dynamic nature can add considerable place that enable them to achieve differentiated fulfillment agility to an organization, the technologies needed to operations. According to Aberdeen Group, leading enter- establish and manage those channels are new and unfa- prises use order fulfillment to continually raise the service miliar to many firms. performance bar versus the competition. However, only 15 percent of the companies Aberdeen surveyed reported An integrated approach links every having an order fulfillment process that extends across element of order fulfillment, from the value chain. And only 21 percent of respondents capture to invoice and final settlement. described their customer service strategy as proactive and focused on continuous improvement. (Aberdeen Group: Just as many companies were exploring these innova- “Next-Generation Order Fulfillment: Paving the Road to tive new distribution opportunities, many were also expe- Success,” March 2005.) riencing successive waves of mergers and acquisitions. How does a company recognize a poorly functioning Those changes opened even more opportunities, but the order management system? Here are a few of the trouble most common approach of creating separate channel signs: processes and systems also tended to create a proliferation • Pricing or brand messages across products, services of enterprise resource planning systems and other infor- or distribution channels are inconsistent. mation technology (IT) systems that were complex, siloed • ERP and IT bandwidth constraints limit the ability and difficult to manage. Those calcified back-end structures to fulfill orders quickly and efficiently. add cost, risk and inefficiency to any distribution network. • Order fulfillment costs are growing as a percentage They prevent companies from planning and executing the of revenue. accelerated product life cycles demanded by today’s markets. • Excessive inventory-holding costs have a negative Companies in a number of industrial sectors have effect on cash flow and profitability. spent the past few years addressing the shortcomings of • Material delays affect fulfillment, service-level their legacy infrastructures, working diligently to drive agreements and customer satisfaction. greater speed and efficiency throughout their supply • Buyers, sales reps, logistics staff and call centers chains. Those efforts have yielded many positive results, cannot easily share information. from accelerated inventory turnover to reduced waste and • Making or meeting promise dates for unanticipated improved bottom-line profits. But for too many companies, customer orders is difficult. those inward-looking efforts have also led to a loss of • It is difficult or impossible to monitor and manage focus on the single most-important asset any company key suppliers. has—its customers. • Customer-service representatives must access multiple 20 Supply Chain Leader / October 2007
  22. 22. Evolving Capabilities in Order Fulfillment Record Keeping Order Fulfillment Collaborative Replenishment • Revenue accounts • Inventory visibility • Customer collaboration • Customer base • Sourcing and availability • Auto replenishment • Price lists • Shipment execution • Liability management • Service history • Exception management systems to provide information on the status of an Fortunately, the software industry has learned from order or shipment. those earlier setbacks. i2 has deep experience with three • Customers, sales and opportunities have been lost. full generations of order management and fulfillment technology across virtually every business sector. From Ask the tough questions that wealth of knowledge, we have identified the follow- When evaluating an order-management system, cus- ing key steps that determine the success or failure of an tomer service and supply chain managers should consider order management initiative: the solution’s ability to rationalize numerous complex 1. Begin with a clear, enterprise-wide understanding activities. Can it provide real-time order promising, of all strategic, technology and company-specific aspects allocation management and re-balancing? Does it perform of order fulfillment in a multi-channel environment. change management, credit modeling and order validation 2. Leverage a flexible architecture capable of preserving and brokering? Can the solution handle integrated pricing, the company’s investment in legacy infrastructure. shipping, invoicing, returns and the myriad of other 3. Adopt a phased, incremental approach that gains an variables that constitute a successful fulfillment system? early win (for example, in a selected channel or business An integrated approach links every element of order unit), and then expand the initiative to other channels, fulfillment, from capture to invoice and final settlement. units or locations in a carefully planned rollout. Modern order fulfillment is ideally suited to the needs of 4. Then, leverage the benefits. companies that sell through multiple, complex channels A streamlined order management and fulfillment system and systems. The best of this new generation of technolo- begins by introducing standardization and consolidation. gies can efficiently capture, process and fulfill orders from Those basic changes drive down costs while helping stores, telephony, electronic, Web and other sources—all companies accelerate inventory turn, optimize the use while presenting customers with a single, consistent and of assets and boost the productivity of service associates. positive buying experience. More efficient fulfillment shortens the product develop- When enacted as part of a larger collaborative effort ment and introduction cycle, reducing risk and making across the value chain (which may include collaborative companies more responsive and competitive. Product- replenishment, demand management and transportation oriented companies are also using improved order manage- bidding), a true end-to-end approach to order fulfillment ment to make their supply chains more visible, to improve can help present a single and more responsive face to partner performance and to make better business decisions. customers across various processes, locations, business Most importantly, better order management helps lines and IT infrastructures. organizations get closer to their customers. When orders are fulfilled quickly and reliably, customers notice. Recognize the hurdles Companies reap the benefits of greater customer satis- Of course, executives who are responsible for complex faction through higher rates of retention. Those crucial supply chains also understand that there are costs and customer-facing improvements translate naturally into risks associated with any significant IT initiative. In the increased sales and market share, new revenues and past, the rigid nature of legacy systems often prevented improved profits. the optimum use and re-use of legacy infrastructures. Companies have attempted to modernize and update Rajat Bhargav is a director of solutions strategy at i2. their order processing systems, only to have sometimes Jim Caudill also contributed to this article. overly ambitious efforts stall due to inadequate planning, the tremendous complexity of multi-channel fulfillment For more information, contact supply_chain_leader@i2.com. and simple organizational inertia. Supply Chain Leader / October 2007 21

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