Stephen Covey on Trust and How Demand Foresight Sees Its Importance

Posted on March 12, 2013 by Jeff Shaw

We all know that there are many intangibles that influence success, but I’ve found that one of the most important is trust.

Stephen Covey, Jr. just started his nationwide tour this week here in Denver. He’s the son of Stephen Covey of “The Seven Habits of Highly Effective People” fame, and is headed toward the same success. The speaking tour is built around his book “The Speed of Trust”. As I listened to a promotional radio interview this morning, there were some key elements that I was reminded of that are so important in everyday life, and more specifically in how to build successful business relationships. Some of the high points from the interview:

Earning the trust of your client comes from offering value, keeping your word, and being responsive.
Lack of trust is like a ‘tax’ on the business relationship. Speed decreases and cost increases due to the additional justification and due diligence that is required to compensate for the lack of trust.
Everything is easier with trust – this is why testimonials are so important to get your foot in the door.
Long-term clients are created when you build and maintain that trust.

A personal example that I immediately thought of is something that I am still amazed by today. It has to do with a FedEx package and their promise to deliver when they committed. Last Christmas I procrastinated and ordered the perfect gift for my daughter online. Although I was cutting it close, FedEx promised it would be delivered by Christmas Eve. That’s all I needed! Well, the day came, all the other packages were under the tree, and the one key present still had not arrived by noon, 3:00 pm, then 6:00 pm. As you can imagine, I pretty much gave up. We went on with our family’s traditional celebration. But to my complete surprise, the FedEx truck pulled up at 9:00 pm with the package! Now I know the landslide of deliveries that FedEx has during the holidays, so I was willing to cut them some slack. However, I’m now an even bigger fan. This epitomizes how long-term customer loyalty often is won in the save-the-day moments like these, where our trust is rewarded with action.

Now something more relevant. In recent blog posts in both January and February we talked about the importance of choosing the right partner. This of course is closely tied to a foundation of trust. One of our key partners had a big problem in which our trusted partnership successfully enabled us to help them in a big way. On the night of February 7, 2008, an explosion and fire completely destroyed Imperial Sugar’s Savannah packaging facility, taking 14 lives and 60% of Imperial’s production capacity with it. The facility was offline for nearly 18 months.

Imperial needed immediate insight into how many customers it could serve with its available inventory. We worked hand-in-hand with them to ensure that the forecasting software and data were properly configured so that they had an accurate overview by product line. This allowed them to uphold their “availability to promise” because everyone from production to sales could see, in real time, what could be delivered. Speed was required, and an established, trusted partnership was a critical component to their success, as they later stated in CIO Magazine, “Supply Chain Management to the Rescue”.

I can’t finish a post on trust without referencing the person we learned about in grade school who knows a little bit about honesty–Abraham Lincoln. One of my favorite quotes of his is, “The truth is your best friend”. How true and how important it is in successful business relationships.

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

Posted on January 31, 2013 by Gene Tanski

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?

External Data – The Next Frontier

Posted on December 7, 2010 by Gene Tanski

Considering External Data in Demand Planning

When you make business decisions, you are almost always looking forward. You’re thinking about the future. This means you’re thinking about forecasting and planning. And what this really all means, is that you are thinking about demand.

When you make critical decisions around demand, you need information from disparate data sources about your market, your customers, the economy, the weather, your costs, your profit margins, what your competitors are doing, your ability to stimulate demand, your company’s capacity to meet the expected demand, among other things.

When thinking about all these factors, and when looking into the future to make these decisions and achieve the desired outcomes, it seems obvious that we have a problem. The data that has historically fed the forecast (past orders, past shipments, last month’s prices) is going to be less than adequate.

The fact of the matter is that the most important business decisions, and the fundamental practice of forecasting itself, are based primarily on backward-looking, after-the-fact, inward-looking data. This is why it’s no mystery that a majority of companies are dealing with 50% or greater error at the execution level of forecasting measured on an absolute basis. With this in mind, can you think of a better way to control business costs than to reduce forecasting error?

Besides improving the forecast platform, improved information would be the single most important tool for reducing forecasting error. If you could obtain more direct feedback from your customers (what they’re selling, what they have in inventory, how their latest promotion was performing) would that help your forecasting and planning? If your business is seasonal, would more accurate weather information help in your decision-making? If you supplied the residential construction market, would daily updates on housing starts have an impact? Does unemployment impact the consumption of high-end craft beers, and does this vary by region? Does overcapacity in the market among your competitors impact your profit margins? Do more than two or three external factors impact demand for your product at the same time?

Yup – we are going to have to talk more about this one. External data quality and timeliness, and then managing that information to optimize your decisions, will be the next frontier in business management. The good news is that Demand Foresight believes we have the platform, and there is now a great proliferation of more accurate information and competitive data markets available for more industries. Any input, experiences, examples, questions and critiques will be welcome.

What our forecasting and planning software can do.

Put up or shut up: The corporate guarantee

Posted on November 9, 2010 by Gene Tanski

By Gene Tanski, CEO, Demand Foresight

Things were getting heated at the sales meeting. The cause of my anger was an old theme: Industry-wide, client expectations for business software were so low that stories about the failure of big enterprise projects had practically become wallpaper.

Where were the repercussions for the business performance that never materialized? The big systems failed to deliver what they were supposed to over 70 percent of the time and the big checks just kept getting cut with no accountability. The whole dynamic needed to be nuked.

In the heat of our discussion about the institutionalized negligence of our gigantic competitors and how we could exploit it, a 25-year-old, Xbox-playing member of our team, said: “Dude, if we’re that bitchin’, why don’t we guarantee it?”

“What?” I asked him. “Are you nuts? Do you have any idea how software works?”

“No, not really. But I hear you guys constantly complaining about how everyone else over-promises and under-delivers. Why not do something about it?”

That simple dare became our biggest differentiator – and, more surprisingly, revolutionized the way we run our company.

During the dot-com boom, new businesses were founded on completely new thinking by young professionals, unencumbered by any notion of what was or wasn’t possible. Most of that potential was never realized, though – at least not in the first wave, since the young visionaries had no grounding in the disciplines that would sustain their visions over time.

However, we wondered, could our team fuse the experience of the old hands with the “anything is possible” optimism of our young teammate?

Once we got our minds around the concept, the experienced guys on the team were able to adjust some long-held assumptions and work through how to handle the risk, build the pricing and generally operationalize the concept.

It was a little bit like learning how to fly, as characterized by Douglas Adams in his “Hitchhiker’s Guide to the Galaxy” books: the key to flying was to throw yourself at the ground really hard, and miss.

It was exhilarating. I felt like we had just missed the ground by a huge margin, and instead were flying straight to a business model that embodied the exact opposite of everything we hated about the IT and consulting world.

The guarantee was an explicit one – with no wiggle room. Clients would measurably improve their business performance — in our instance, a 25 percent minimum reduction in absolute forecast error — or we wouldn’t get paid. Not a dime.

It could have been a disaster, but taking this leap of faith actually did incredible things for our organizational focus – and ultimately helped cement our culture and internally align all divisions of the company.

The developers know that the software has to work and be relevant to specific job responsibilities or they don’t get paid. Implementation and technical support? They better get it right or they don’t get paid. Sales people? They had better understand the client problem and know exactly how to solve it, or … well, you know…

Another benefit of this ‘put up or shut up’ philosophy was the elimination of the need to micromanage. Once everybody understood that the promise would not bend, I found I could trust everyone to solve problems the way they thought best.

Vacation policy? Didn’t need it. Our team was entrusted to take the time off that they knew they could afford to take. Office? Wherever they could open a laptop and do their best work. This culture tells us a lot about the kind of people we should hire — can they stay motivated and productive in our unique environment?

So an energetic, passionate clash of skilled professionals turned out to be lightning in a bottle. It let us fuse the brashness of youth with organizational know-how.

We still argue in meetings, of course. But these days I enjoy it. You never know what sorts of benefits it can produce.

This post first appeared on Venture Beat: Entrepreneur Corner on October 26, 2010

Industry Trends – Beer Distribution and Improving Profit Performance

Posted on August 31, 2010 by Gene Tanski

Beer Distribution is an interesting business: High margin, protected by regulation that has traditionally limited most forms of competition, which leads to an overall lack of incentive to innovate technologically.

Nevertheless, despite the lack of innovation incentives there are some activities occurring that signal the status quo may be changing a little bit; for example, the recent foray of Berkshire tossed into the mix through the purchase of a couple of distributors.

If the current dynamic were to change, for whatever reason, forecasting would be one area that would allow distributors to rapidly improve – even advance – their bottom line performance outcomes. Currently, on average, there is not a lot of focus on forecasting. Basic practices involve sales people “working” their on- and off-premise customers, while the inventory people make sure they keep enough stock on hand to ensure customer order fulfillment is met. Inventory managers look for opportunities to take advantage of strategically ordering from suppliers that game prices increases, etc.

A heightened focus on improving forecasting and ordering would allow distributors to lower working capital invested in inventory, while maintaining and/or improving customer service.

Customer service could improve in a number of ways; better order fulfillment being the most basic upgrade. On the more advanced side of the equation; distributors could work together with bars and liquor stores to make sure the products stocked, or on offer, respond and adapt to seasonal changes, trends, pricing, promotions, and holidays – making the distributor a value-added supplier.

In turn, the end merchant will become an even more valued customer by providing a more accurate forecast to their suppliers. This helps distributors and their supply chains become more efficient. Ultimately, this virtuous cycle helps set the distributor apart as a better supply partner – making it one that beer manufacturers will want to work with and which has the capacity to make a product successful in a new market. This allows the distributor to negotiate more favorable terms with suppliers, thereby increasing margin performance. Everyone benefits.

Improving the forecast model will require improvements in technology and process systems – something that owners will have to support. Since distribution sales people are singularly focused on driving volume and taking care of their customers, they do not take kindly to activities such as supply chain forecasting. But their input is critical in order to achieve a “big picture” point of view that will help the entire company. When forecasting is tied directly to how it will help sales people earn more money (working for a higher margin distributor), a critical component of improving forecasting will be realized.