If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

I found this article today and thought it deserved comment (we’ve commented on this before here - “Not-so-perfect order performance management metric“).  In it, Justin identifies the idea that “Hero Culture” is no way to approach supply chain risk management.  What’s a hero culture?  It’s relying on someone to save the company from disaster in the nick of time. 

• It’s the buyer sourcing a replacement vendor when your primary supplier is on strike in time to make the quarter revenue targets
• It’s the production engineer that figures out how to leverage another piece of equipment to get the product out the door when the primary equipment has broken down
• It’s the marketing guy that figures out how to increase sales on a failed product release

There’s a number of reasons why given today’s environment this approach won’t work;

• The supply chain is global today.  You can’t call the vendor across town to make parts for you, instead you’ll be dealing with some company in China
• Customers just won’t wait. People expect to get what they want when they want it.  If you don’t have the product, they’ll go to the competition
• Shareholder expectations and fiduciary responsibilities dictate that you continue to grow the value of the business while not taking risks

While having smart, innovative people in your organization is always important, we can’t rely on them to save us from supply chain risks.  Instead every organization needs to have a structured supply chain risk management program in place that;

• Identifies and quantifies supply chain risk
• Develops and simulates mitigation strategies
• Continuously re-evaluates risk as product, market position and supply base changes

In case you didn’t see this…

AMR Research is planning a December feature to provide insight regarding steps to create a demand driven supply chain organization. Several of the questions they want to answer include:

1. How have leading supply chain organizations evolved and developed?
2. What are the key phases of organizational maturity?
3. What opportunities exist that tie demonstrated performance to effective organizational design?
4. Guidance on best practies in the construction, development and implementation of a demand driven supply chain organization

They have launched a 10 minute survey in order to collect survey information.  You can access the survey here if you’d like to complete it.  If you have questions, you can send an email to David Acquino.

Author: Chuck Thomas, Director, Professional Services, Kinaxis

In our new white paper, “Why you need to re-evaluate your approach to supply chain planning,” there’s a discussion about the increasingly complex and distributed supply chain that made me think of how supplier rationalization drives the need for better tools.  This rationalization is driven not only by the continuous improvement initiatives of brand owners that have outsourced their manufacturing but also by contract manufacturers that expand and contract through acquisition and divestiture.  I have seen a growing number of situations recently where brand owner expectations and contract manufacturer objectives evolve to an out-of-sync condition resulting in the shifting of some or all of a brand owner’s business to other manufacturers.  While this rationalization is proving to be a fairly common practice, it adds additional complexity and unpredictability to an already complex equation.

Moving production from one source to another is seldom easy and it puts additional strain on the organization because execution to current plans must continue while making and executing new plans to effect the desired changes in the supply chain.  Large ERP packages were not designed to adequately support the rigors of these simultaneous activities.   What-if analysis and scorecarding are two significant levers that can be used to help with the significant level of change wrought by supplier rationalization just as they can be used with day-to-day execution challenges. 

Once the decision is made, the execution strategy associated with moving production from one source to another is typically one of avoidance – to avoid disruption in supply.  This generally supports the prevailing paradigm that shortages are much worse than too much inventory so it always safer to err on the side of inventory.  Whether you are a brand owner or contract manufacturer, the improved tools the paper describes help provide continuous supply chain visibility to both sides of the shortage-excess challenge so that continuous course corrections can be made throughout the entire sequence of events, rendering a better outcome for the business.

This morning we put out a press release announcing that Pioneer has selected Kinaxis RapidResponse for dynamic demand and supply chain management.  Pioneer is a global brand headquartered in Tokyo.  Like many companies, Pioneer is facing a more challenging supply chain management environment that requires them to better align supply and demand while reducing excess inventory and providing early detection of shortages.

######

Pioneer Corporation Deploys Kinaxis RapidResponse for Dynamic Demand and Supply Chain Management
Leading Electronics Manufacturer Chooses RapidResponse to Maximize Customer Responsiveness and Reduce Inventory Risk

Ottawa, Canada, November 18, 2008 – Kinaxis™ Inc., provider of the on-demand RapidResponse service that empowers multi-enterprise manufacturers with the collaborative and integrated demand-supply planning, monitoring, and response capabilities required in today’s complex and dynamic world, today announced that Pioneer Corporation’s Mobile Entertainment Business Group – the leading electronic manufacturer’s most rapidly growing business unit – will deploy RapidResponse.

Headquartered in Tokyo, Pioneer provides mobile entertainment products to major automotive customers in Japan, Europe and the United States from its primary manufacturing facility in Asia. Pioneer selected RapidResponse in place of an extension to its legacy supply chain planning solution, because of its ability to:

• provide multi-enterprise supply chain visibility,
• perform detailed analysis based on real-time Materials Resource Planning (MRP) calculations and
• support worldwide Sales & Operations Planning (S&OP) initiatives.

Pioneer was looking for a solution that could allow them to better align supply and demand, while reducing excess inventory and providing early detection of shortages. With deep supply chain visibility into manufacturing operations and real-time “what-if” scenario simulation capabilities, RapidResponse empowers Pioneer to determine the impact of changes within the supply chain and respond quickly and confidently, meeting both customer and corporate objectives. RapidResponse is projected to reduce both inventory and expedited shipment costs.

“As the market for mobile entertainment products continues to prosper, the stakes are high to provide on-time delivery and exemplary service to our global leading automotive customers,” said Hiroshi Tatsuta, General Manager, Production Management Department at Pioneer Corporation. “We chose RapidResponse for its unparalleled ability to enable us to keep up with ever-evolving demand patterns and in turn, better serve our customers.”

“The ability to make informed supply chain related decisions on the fly is integral to maintaining the competitiveness of a company – even more so for those industries that are experiencing rapid change,” said Randy Littleson, vice president of marketing at Kinaxis. “RapidResponse uniquely combines supply chain visibility of demand and supply within a single solution, with real-time analysis and simulation capabilities that will help Pioneer to thrive within this fast-growing industry.”

The deployment, which is expected to be completed by early 2009, is being performed in conjunction with Kinaxis partner, and leading Systems Integrator, EXA Corporation. Upon completion of a successful implementation, RapidResponse is expected to be integrated into other Pioneer divisions.

About Kinaxis
Kinaxis™ RapidResponse is a single on-demand service that empowers multi-enterprise manufacturers with collaborative and integrated demand-supply planning, monitoring, and response capabilities. RapidResponse embraces human judgment to enable planners and front-line responders to handle unpredictable changes. Global leaders such as Casio, Honeywell, Jabil, Qualcomm, and Raytheon use RapidResponse to achieve breakthroughs in sales and operations planning (S&OP), demand management, supply management, and supply chain risk management. The results are superior customer service, improved operations performance, and a competitive market advantage. For more information, visit the Kinaxis web site at www.kinaxis.com or the company’s blog at www.21stcenturysupplychain.com.

In a recent Supply Chain Management Review article, John Fontanella, Noha Tohamy and Wayne McDonnell of AMR Research articulated the reasons why it is a good time to invest in supply chain management technology.  According to the article, AMR feels “there is no better time than now to invest in technologies that yield greater transparency and control within the supply chain.”  AMR provides recommendations on how to use supply chain management (SCM) technologies to protect and enforce your company’s best interests.  The following are a couple of examples:

• Strive for transparency in all your supply chain activities.
• Prepare your company for the unexpected.
• Measure your company’s performance against goals.

As a vendor of supply chain management solutions, of course we agree! :-)  But, I’ll leave the AMR experts to explain their reasons in the article.

What I will add to the discussion, however, is the huge advantages of selecting an on-demand service to solve your supply chain management problems vs. the traditional legacy on-premises solution.  An on-demand service means there are no hardware and services fees to be paid, you subscribe to an on-demand service instead.  This means the ongoing support and maintenance of that service are taken on by the vendor rather than requiring your IT staff to do these tasks.  Things like upgrades are done by the on-demand service provider rather than your IT staff.  These benefits are summarized here and here.

There’s an opportunity in tough economic times to consolidate custom supply chain management solutions (spreadsheets, custom applications, Access databases, etc.) into a single on-demand service capable of solving your supply chain managemnt business challenges.  The right solution can help address one of the burning priorities today - reducing supply chain costs.

I came across the article “Five ‘I’s’ of supply chain visibility” recently and while I agree with the idea,  I don’t think it goes far enough.  According to the author, the five I’s are Interception (listen for events), Interpretation (identify the impact),  Investigation( assess information), Integration (must kick off workflows in other applications), Implementation (must seamlessly layer on top of other applications).  The focus on the article is that visibility is required so that you can know an event has happened.   I completely agree that with the article that visibility is important.   Supply chain visibility is critical in fact.   However, visibility is NOT enough.

Let’s look at an example.  

Let’s say that a large shipment of long lead items is found to be defective.   A visibility system would potentially alert you that this event has happened and might even tell you the next higher assemblies that are impacted by these parts. But typically, a supply chain visibility system would stop there.   It’s kind of like the check engine light on your dashboard.   It tells you something bad has happened – and that you are probably going to be spending some money, but it doesn’t give you enough information to resolve the problem.   To solve the problem you need to go to the shop.  In supply chain, you need to go to the ERP system.

So what do we REALLY need.  Well, yes, we need a system that provides supply chain visibility across the entire supply chain, and yes, that system needs to alert us when something has happened, so let’s start with that.

We need;

• Visibility- We need to be able to see across the supply chain.   We need to be able to integrate data from multiple disparate systems inside and outside the corporate boundaries.
• Alerting – We need to be able to trigger an alert when some event that we care about has happened. The system, however, should not just dumbly report that some parts are scrapped, but instead should report that event only if it matters.  To do this, we need Analytics – which brings me to my next point.
• Analytics – If you are to truly understand the impact an event will have, you need to be able to replicate the analytics that exist in your ERP system and your demand management system inside the tool.   Why?  Let’s say that the order we scrapped above is pegged to forecasted demand several periods out.   And let’s say that there is enough time to generate an order and replenish the inventory before these scrapped parts are actually needed.  The event is not really important.  It doesn’t impact customer orders, it’s just an inconvenience in that you need to send the bad parts back and get good parts.  Let’s say now that the next order for a different part is pegged to a customer order worth several million dollars that is now going to be late.  This is an event that we need to deal with NOW. 
• Active Spreadsheets – People are used to working in Microsoft Excel.  It’s a natural feeling environment for analyzing information.  Now, imagine if you could enter a change into this spreadsheet and see results appear in seconds – not just a simple calculation, but instead, actually see the results of full ERP analytics.
• Collaboration – Often, the person alerted to a potential problem, is not authorized or able to simulate all possible resolutions.   For example, you wouldn’t expect a buyer to change the master schedule, nor would you expect a master scheduler to change a purchase order.    For this reason, you need a tool that allows you to identify the people impacted by the change and collaborate with them to resolve the problem.
• Simulation – The author  talked about the need for simulation.  In my opinion, this is critical to responding to an event.  We need to try out different alternatives (splitting orders, expediting, finding alternate sources, etc) which can only be effectively done in a simulation environment. We need to be able to share these simulations with others to get their input.  Further,  we need to be able to compare these different simulations side by side.  Something is clearly required that clearly shows which potential solutions  best meets the corporate goals and objectives – this brings us to scorecards
• Scorecards – Let’s say that for my scrapped part example, I have three different solutions that could potentially resolve the problem.  I can see that for each of the solutions, the customer orders that were late are now on-time.  Great!  Except, one solution used a much more expensive replacement part, another solution expedited a shipment that increased transportation cost, and the third solution borrowed parts from other orders.   How do I see the impact of these three choices?  Which should I choose?  A multi-scenario scorecard would take these three solutions and compare them side by side measuring the impact of the potential resolution on key corporate metrics.  In this example, the first two metrics would result in an increase in cost of goods sold and a corresponding decrease in margin.  The third solution would show as a decrease in on-time delivery and potentially a decrease in revenue for the quarter.  These results, compared against a given target and appropriately weighted would provide an overall score for each solution that the analyst could then use to decide which scenario is best to use.

Now, THIS is a tool that could drive the 21st century supply chain. With a tool like this, it’s no longer just about supply chain visibility, it’s about being able to respond to events when they occur. It’s about Response Management.

Can anyone accurately predict demand right now? 

PCWorld has an article entitled “Nintendo Wii shortage turning into a glut for the holidays?“  For the last couple of years all we’ve heard about is the Wii shortages around the holidays due to incredible demand for the product.  I can relate, we tried to find a Wii for months and had to have my parents buy one in another state.  Then we wanted to get the Wii Fit and spent weeks watching the flyers, calling the local stores, etc. to try to find one.  Now, with the the state of the economy and declining consumer demand, there’s talk about a glut of Wiis???

Over at Ben Worthen’s Wall Street Journal Business Technology blog he has a post entitled “Intel junks its forecast earlier than expected.”  In it he talks about Intel changing its forecast within a month of announcing its previous quarter’s results.

So, it brings me back to the question - can anyone accurately predict demand right now?

Many companies rely heavily on the past to predict the future.  Statistical forecasting is used to analyze the past and then try to determine what the future demand will look like.  These methods are never completely accurate, and right now they are really off the mark.  And, what happens when things start to get better at some point in the future (and they will…at some point)?  How accurate will the past be then at predicting how demand will improve when the economy regains its footing?  It won’t be…again.

So, what to do?  The past is a good input, but it can’t be the answer - ever.  Companies need to combine that with a much more collaborative process of demand planning with their key customers and more accurate data reflecting true demand (most companies have a huge lag in sensing true demand).  But, most importantly, the real key for supply chain management professionals is how quickly they can react to changing demand.  And, in supply chain management, reacting means being able to re-balance supply and demand as the demand picture changes - no matter which direction.

Most companies struggle with this.  For years, companies have had one team produce a demand plan and another create a supply plan.  These separate departments rely on separate planning tools.  The demand planning team uses tools that try to predict what demand will be (often relying heavily on the past) and then send a demand plan over the wall to the supply planning team.  This team takes the demand plan as input and produces a supply plan trying to match the demand plan.  The reality is that the actual demand never really matches the demand plan and the supply plan was never really to deliver to the demand plan in the first place.  So, the company is left to deal with a bunch of misalignment issues that are exacerbated by the fact that both demand and supply continue to change on a daily basis.

Now imagine what this is like in today’s economy.  Predictability has gone out the window and there’s mounting pressure on supply chain management professionals to reduce costs in the midst of all this change.  It’s not easy.

The key to surviving, in fact thriving (meaning distancing yourself from the competition) in this environment is to have responsiveness and agility be core competencies of your company.  When misalignments occur, it comes down to quickly sensing them, understanding their impact, developing a set of action alternatives (course corrections) and picking the right one - the one that best supports your business objectives.  And, this needs to be done by your supply chain staff since they have the insights to make the right judgment calls.

To do this quickly and effectively, they need to have the right tools to enable quick and decisive actions.  There are ways to accomplish this, but the key is to build a culture, metrics and tools to support this philosophy at the grassroots level of the organization.

Dan Gilmore poses some excellent questions in an article entitled “Recession and supply chain transformation ” over at Supply Chain Digest.  He talks about the current state of the economy and asks whether or not you should be thining about supply chain transformation right now.

I sent my comments to Dan and have included them here as well.  What do you think, is now the time to be thinking about supply chain transformation?

## My Comment ##

Dan – I agree with your thoughts overall.  These are tough times to say the least.  And, that’s going to bring more pressure on supply chain professionals to come up with even more cost reductions to help dampen the blow from dwindling demand.  I think the last several years had actually seen a renewed awakening that the supply chain was able to contribute to the top line growth of a company and not just the bottom line, which has long been the view.  Unfortunately, the events of the last several of months will set that movement back as the focus shifts fully back to cost reductions.

As you said, this does open a new window for supply chain transformation initiatives, but I don’t think large, wholesale change oriented projects will get funded in these times.  I think supply chain professionals would be better served by having a bold vision for supply chain transformation initiatives but to gain approval for and implement them in a more incremental fashion.  And, each initiative needs to be tied squarely back to a tangible impact on the financial bottom line of the company to gain support.

I also think companies would be best served by thinking beyond this period to when growth returns.  I know, that’s easier said than done right now, but the reality is that when a downturn reverses, the companies that come out strong are the ones that use the downturn to position themselves for the next growth period.  These companies use this time to transform themselves into stronger players.  The companies that will struggle when things turn around are the ones that act very tactically only during this downturn and fail to take the steps to enable growth on the other side.

As bad as things look right now, they will improve at some point – they always do.  Nobody can predict with accuracy when that will happen, but now is not the time to solely think short-term and tactically.

The price of oil over the last year has had a dramatic impact on supply chains around the globe.  In this video, we spoke to Larry Lapide, MIT demand management research director, about the implications of oil prices on the supply chain and on supply chain management processes.  Larry describes how superior supply and demand matching can provide a more energy efficient and green supply chain.

If you are unable to view the video above, please try this link: Larry Lapide, MIT - Greening the supply chain.

You can see more in our series of discussions with Larry here:

• The future of supply chain management
• The effect of oil prices on the supply chain

This would go into the category of a public service announcement…

In case you weren’t aware, you can actually subscribe to The 21st Century Supply Chain blog and have updates automatically sent to you…for free!  You can subscribe via email (top right here) or via RSS.

Increasingly, web sites that publish new content on a regular basis provide a list of news headline links to their latest content. In addition to displaying these headlines on their own web sites, many publishers make them available for syndication using RSS (a dialect of XML) or “Really Simple Syndication.” That way, these syndicated headlines can be included in other web sites and newsreaders, however, they won’t include the full text of articles. By clicking on the RSS feed headline, you will be taken to the original site to read the full article.

RSS news feeds can be read by a variety of feed aggregators. Your first step is to choose a newsreader. Then look for the  logo on our site. Clicking on it will take you to the news feed for that particular page. Then you can add the URL into your RSS newsreader.  (FYI - there’s another good explanation of how to subscribe RSS here).

If you have any questions or need help, drop me a note.