Why Don’t We Ever Learn? Partnership Matters

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Measurable performance, partnership, fiduciary responsibility – these are fairly consistent themes within the Demand Foresight blog.  These themes and values were highlighted again through a couple of stories in the news over the past 10 days or so. One was an Oracle Implementation for the Air Force; the other SAP’s announcement that they are raising rates for their maintenance services.

For the Oracle story – and the 80 to 100 million dollar budget that ballooned into 1 Billion dollars spent, a cancelled project and no measurable performance of any type.  Some of you reading will say that is the military or big government for you – that always happens with scope changes etc.   Realizing that this is a professional website, let me adjust my normal wording and say that that type of reasoning is a bunch of malarkey (yes – a real word – I looked it up).  The consulting company involved, the Air Force and Oracle were all willing participants in this very sad story, and it reinforces the very strange fact that software projects are very often not held to the same operating principles that drive normal business operations. Would the Air Force allow a critical supply mission of weapons and provisions to fail – would they just cancel the flights because of some tough conditions on the ground? Of course they would not – they are the U.S. Air Force – operational failure is not an option.  But software – completely different story – why?

And to our way of thinking, Oracle is part of this – they got their license fees, so what if it doesn’t work.  Where was their skin in the game?  Where was their commitment that this critical project was successful?  Until the buyers of software start holding suppliers accountable – and this can and should be done in contracting and even in choosing who the potential bidders can be (if you don’t offer a performance guarantee, you cannot bid)  – these type of results will continue to happen and they absolutely should not.

Similarly, SAP is raising prices for maintenance support.  Mind you, they are not simultaneously offering any improvements or new services within the support programs.  They are not tying the maintenance to improved utilization of the functionality.  It is just an across the board increase.  And as it turns out, a lot of their customers really have no leverage to contest the increase.  Because many of their clients have committed to an integrated IT platform under a single brand name, they are completely at the mercy of their supplier – in this case SAP. So from one perspective – you can’t really blame SAP. They are taking advantage of a situation that they worked very hard to create. More power (and $ to them).  However, what does that say about the fundamentals of their ‘partnering’ with their customers?

And to the companies that bought into and continue to support sole source, single vendor integrated IT strategies – when do you start to think about IT just like any other strategic vendor.  If you are manufacturing or assembling cars, or vacuum cleaners – you would never have just one option for sourcing motors or engines – why is it okay to trust just one supplier of mission critical IT functionality?

Where is the sense of fiduciary responsibility by the company executives to shareholders and private owners to rethink the approach to IT vendors and approach it in the same way that operational initiatives are treated?  And what are IT providers doing to help make that happen?

Until the culture and expectations around IT implementations are radically rethought, these types of stories highlight the risk associated with critical projects like improving S&OP capabilities and taking advantage of profit optimization opportunities – the types of initiatives that really drive bottom line improvements, and that is what is really unfortunate.

Affordable Option for Sales & Operations Planning Software

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“Sales and Operations planning”, “S&OP”, “SOP”: is this just a new branding of what I’m already doing? Probably a little bit of both “yes” and “no”. But there really is something new that anyone that’s involved with these processes should be well aware of. Do you know what I’m referring to?

Companies have to plan for their demand and how they plan to meet that demand with their supply. There are different levels of sophistication in each area that vary from company to company and vertical to vertical. However, the basics have to be done to have any measure of business success. So yes, you’re probably doing some form of sales and operations planning out of necessity. Now it comes down to your level of maturity.

The analysts at Gartner research (primarily Noha Tahomy and Tim Payne) have developed a four stage life cycle model:

■ Stage 1: Operational-focused

■ Stage 2: Planning-focused

■ Stage 3: Profit-focused

■ Stage 4: Value-focused

Stages 1 and 2 can be accomplished by process and some basic tools, most commonly, MS Excel. However, to achieve the key business benefits around a one-number forecast, profit optimization, and value chain optimization, a robust S&OP software suite is a must.

It starts with the most accurate forecast you can achieve. This can only be accomplished by simultaneously taking into account not only typical historical information, but also your customer information such as POS, leading indicator information, and not-so-intuitive causal factors. From this most excellent forecast J, the results can be achieved only if the forecast is properly utilized. This encompasses the supply side processes such as distribution requirements planning, inventory management, and purchase planning to name a few. Again, nothing new here. S&OP Stage 1 and 2 are a description of what most companies do now. The new piece are the integrated dashboards and reports layered on top that truly are a big addition to the enterprise-wide visibility of the demand side and supply side that allow decision making for bottom line impacts

Gartner research shows that 67% of implemented S&OP processes are in Stage 2 maturity.

The newer exciting areas are in Stage 3 and 4. This is where you take your S&OP process and make it a true corporate asset. Imagine having the ability to make decisions on maximizing your profits instead of just having product on the shelves. Which customers, with which promotions, with which products should we service first in order to increase OUR gross margins, all while not impacting overall customer satisfaction? The time is now and this is just one example. This does require companies to have more data available to the S&OP process than they have had in the past. But it’s not data they don’t have somewhere.

Our Demand Commander S&OP suite provides the capabilities to achieve these innovative levels of Stage 3 and 4. We offer them in a modular fashion so that you can add the various modules as you need them. Our platform enables a crawl, walk, run approach that supports an organization’s process as it evolves through various levels of maturity. Other vendors make it sound like black magic and charge accordingly. Our approach is transparent and allows you to understand its outcomes. The ROI is very compelling.

Are you looking for an affordable way to make your S&OP process a strategic asset?

Groundhog Day Results – Forecasting Accuracy Needs Innovation

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Groundhog Day 2013: The results are in. Punxsutawney Phil, the pesky rodent with 15 minutes of fame every February 2 since 1886, did not see his shadow this year, and so we are looking for spring right around the corner…  Maybe.  Groundhog Day festivities have their roots in European weather lore, where a badger played the part of the modern day

Groundhog Day Forecasting

Source: rantzz.wordpress.com

groundhog.  My personal tie to Groundhog Day is much closer to the 1993 comedy starring Bill Murray.  But behind the fun and festivities lie some somber statistics.  According to the StormFax Weather Almanac and records kept since 1887, Punxsutawney Phil’s weather predictions have been correct only 39% of the time.

Industry hopes to do much better with forecast accuracy than 39%.  Statistical models are invaluable in building confidence and success for companies struggling to compete in the global marketplace and vie for the dollars of a customer in a recession squeeze.  So many factors are out-of-control for the executive today, who deals not only with weather disruptions from the statistical norm, but many other outside factors:  loss of revenue channels, bad relationships and impacts from other links in the supply chain, and a lack of supply chain talent in their own organizations.  Executives then look inward to best practice technologies to attain the best possible supply chain results possible and thereby to weather the storm.

As supply chain technology evolves, the better tools move beyond statistics, and with neural networking can learn as they go, drawing from sources like their customers’  POS data, current market share, and unemployment figures.  They take the team to the next level of maturity, still accepting the input of the professionals, but not leaving any available external information on the table.

Superstition, if you want to call it that, can block progress when management does not want to relinquish control of the data to the powerful new methodology, and defeats the purpose of investment and training in the tools that were there to help in the first place.  The best S&OP software will have the transparency and ease-of-use to allow the whole organization to overcome those fears.  It will be backed with dedicated education and training to make it quickly become a part of the company culture.

Superstition can also divert selection of best-of-breed software to large enterprise software, with a feeling of safety that the larger and more all-encompassing the software, the better.  It may feel like a safer, easier, and less controversial choice.  It may have a weaker forecasting engine than other best-of-breed software.  It is less work in the short run of the procurement process, but also offers far less gains in the long run of the lifetime of the supply chain.

Without powerful forecasting, businesses can still rely on operational improvements to guard against supply chain losses:  adding supplier diversity, forming alliances with like businesses to fill holes when inventory predictions come up short, using local supply chains for local demand, and consolidating distribution centers.  But imagine the power of combining all of these far more costly operational improvements with the software that provides the best forecasting accuracy available on the market.

Source: www.mnn.com

Another relative of Punxsutawney Phil’s is Gnocchi the Squirrel, who by virtue of eating more peanuts out of a Romney bowl than an Obama bowl, predicted a win for Romney last November.  More superstition.  Demand Foresight uses innovative technology that is unlike any on the market, and partners with your company to take your forecasting accuracy out of the shadows!

Causal Factors in the Recent News – Using Them for Your Forecast?

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Great information in the news this week – I am sure everyone reads the news with a specific focus on how to improve forecasting and S&OP, right?  Anyway – to the point.

Yields on 10 year treasuries rose 11 basis points.  Claims for jobless benefits fell to a 5 year low. US home sales for the month of Dec. fell 7.3%, with a 1.3% increase in average sales price, but for year over year sales actually increased 8.8%, with a 14% rise in average sales price.

From an S&OP and demand planning/forecasting point of view, this information raises some interesting questions about causal impact and associated lead times.

What does all of this information imply for demand for your products 3 months from now, 6 months from now?  For future pricing of your raw materials?  Do the implications change per geography? Per season?  Per product line or per customer class?

Does the fact that banks are accelerating repayment of bailout funds mean anything regarding interest rates? And do interest rates impact your procurement policies or demand for your products?

And what is the lead time associated with all of these potentially causal and leading indicators?

Most importantly, does your current process and technology platform allow you to study the impacts, understand the causality, plan for the impact with correct lead time? Are you having these conversations?

Our clients are talking about the implications of increased housing values on consumer spending and in what time frame. They are creating scenarios around different inflation trajectories, different employment rate scenarios and doing this within the context of different weather projections by geographic region. Are you equipped to have similar conversations on a weekly, monthly quarterly basis?

CPG and B2B manufacturing companies use leading indicators / causal factors like weather (temp. and precip. indexes), unemployment, birth rates, housing starts, and Nymex commodity spot prices to improve their forecasting and do so for cascading time frames. They are included in as additional inputs into forecasting process and used concurrently with the traditional historical inputs.

We recently had a good conversation with Amber Sally from Gartner. Among the topics discussed were her views on competitive differentiators in demand planning and forecasting – one was the ability to employ causal factors into your process.

Are you going to figure out how to corral the power of this competitive differentiator, or are you going to passively let your competition outflank you just as you are passively allowing external forces to impact your business without understanding the details of the how, why, where, and how much?

S&OP Success: As Much the Partner as the Technology

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Here’s an all too familiar reminder of someone that had their holidays ruined by broken promises….

Small? Details?  Why are we writing about this? S&OP initiatives are based on business cases that typically highlight bottom line improvements that carry with them a lot of focus and attention.  And yet, many of these projects fail to ultimately deliver the promised improvements, Why?  There are many variables involved and not all the variables are equal.  There is one specific variable that we have seen that can invalidate the entire ROI and often is the least vetted variable of all.

Evaluating all the features of your future S&OP platform – including the company – that supports your business case is a big job. There are many factors to consider: business process perspectives to the skill sets of your team to the underlying capabilities that are most important to the competitive advantages you have in your market. A great deal of effort goes into initial vendor evaluations, product demos, and on-site demonstrations of the platform with your data. All this is absolutely necessary to make the proper selection of a platform that can and should have a bottom line impact on your business imperatives. However, is it enough?  Does this following scenario sound at all familiar?

After all of this due diligence, you’re feeling pretty good about the platform you’ve selected and are excited about getting the project started. Once the contract is signed, your vendor begins to talk about a slight start delay since they’re got to slot your project in with other projects with other clients. Once you have your kickoff meeting there is some murmuring of a “new understanding” of scope from the product vendor. As you discuss integration design, the vendor “discovers” new data feeds that were not accounted for during the proposal process. As your team gets a better understanding of the product and asks for some tailoring, they’re told that it will require a change request.  The schedule slips and costs go up….

All the due diligence on the platform, its match to your business, and the ROI business case is undermined by a vendor that can’t deliver on its promises. Finding a reputable partner that will stand by their commitments, even when things don’t turn out exactly as planned, is often one of the most important selection factors in separating successful projects from the 70%+ that fail.

The team at Demand Foresight is a group of S&OP SME’s, enterprise architects, and large enterprise company developers that have been in your shoes. We started a company that wanted to take a novel approach to avoid these all too “normal” software failures.  That’s why we came up with a one price, two-part guarantee to demonstrate our “skin in the game” in the spirit of an equally incented partner in your success. Our clients keep telling us how unique this approach is, but from our standpoint, there’s no other way!