Around the supply chain and demand planning blogosphere

Posted on March 15, 2010 by Gene Tanski

Combing through my RSS feeds, I found some SCM and demand planning-related blog posts from the last few months that got my wheels turning…

HP Supply Chain Management Blog: “Closing the Loop: Optimizing the Supply Chain”

In his “Closing the Loop” series on an HP Community blog, Christian Verstraete cites a resigned attitude toward forecasting error that drives me crazy and costs companies a lot of money:

Yesterday I was at a conference titled “Achieving Excellence in Capacity Planning”, and pointed out one of my favourites. “Forecasts are always wrong” and that is what we are starting from to manage our Supply Chain with the hope to have neither stock-outs nor excess stock.

He discusses how we can be sensitive to changes in the supply chain, all of which is just purely reactive if you’ve resigned yourself to getting the forecast wrong every time.

In all fairness, Mr. Verstraete penned a subsequent post in the same series that touches on proactive thinking. Yet his example showed that his conference presenter — and a lot of people in the space — begins by assuming that nobody should be on the hook for getting a forecast right. Whence comes this assumption? Why take that capability off the table at the outset? What would happen if you could reduce error by 25%?

Forecasting software has become way too good. Don’t handicap your company — and force you and everybody in your value chain into a reactive position — by not looking at new approaches to your forecast.

21st Century Supply Chain: “Three SCM table stake capabilities for the twenty-tens”
Luc Vezina of Kinaxis takes a poke at three big capabilities that will be critical for supply chain performance, and how ERP SCM has missed the mark. I don’t disagree, but this gave me some pause:

1. SPEED. When a customer calls you with a potential order, how long does it take you to get back to them with a promise date? Increasingly, customers will want feedback in a matter of minutes – not hours or days. If you’re saying to yourself “That’s impossible.” Well, it is possible.

I would say that it needs to be a matter of seconds, not minutes. I would also offer the perspective that Mr. Vezina’s three capabilities — speed, accountability and view — are not ERP modules. They’re the very definition of the things that drive good demand planning. A company that’s serious about demand planning will have groups that focus on it intensely, and be fanatical about supporting them. We just happen to know of a wonderful solution that supports the discrete and vital functions of demand planning, demand forecasting, and demand management.

CIO: “Can SAP get its supply chain mojo back?”
This headline implies that they had some to begin with. I kid, kind of. Thomas Wailgum of CIO writes about how SCM capability has suffered over at SAP. The Tohamy being quoted below is Noha Tohamy, vice president of supply chain research over at AMR:

Yet SAP has long relegated SCM to the status of RHSC (red-haired step-child), and the company has stumbled articulating its SCM and supply chain planning roadmaps, according to Tohamy.

“Overall,” she writes, “the software giant has been sluggish in bringing to market an SCM offering that makes SAP not just the largest SCM vendor in revenue, but an innovator and leader in meeting increasingly complex supply chain needs.”

To me, the true thrust of Mr. Wailgum’s piece is that the software business model is essentially broken: it’s OK to put junk out there; over-promise and under-deliver on functionality and ROI; and tie people to big contracts that make them commit to an under-performing supply chain.

In pursuit of a one-vendor, one-platform world, corporate officers are abrogating the responsibility to make sure that every one of their teams has the best possible tools they need to compete. I covered the competitive dangers of IT standardization in my open letter to the C-suite.

Head in the Cloud? Keep your feet on the ground.

Posted on March 9, 2010 by Gene Tanski

Cloud computing/SaaS ascendancy — used as interchangeable terms in some conversations — picked up lots of media steam last year and continues to be the hot topic of 2010. While this entry is not intended to be an exhaustive dissertation, there are couple of points that resonate with me – what do you think?

BI in the cloud could be the next killer application. That word — “next” — is important. Because we must look at the cloud not only for its current limitations and capabilities, but through the filter of what technology means to your business strategy, your identity, and those capabilities that make your company different and special and competitive. Because cloud or no, ultimately you need technological solutions that enable your business success. Altering your business model to fit the platform might fundamentally damage your ability to compete.

Can the cloud do heavy lifting?
I have no doubt that magnificent things are possible in the cloud, but many of the current advances seem more suitable to CRM and the like: collaborative applications like Salesforce let companies offload the cost of ownership of hosting the app, and everybody knows who talked to which customer, about what, and when.

But what happens when a company needs to know what a 10% reduction in their product price during Christmas would mean in terms of increased demand, impact on other products, and their industry as a whole? Heavy demand planning and forecasting/modelling functions like this can’t be easily or reliably done in the cloud right now.

Could all this change in the next few years? Absolutely. But computationally demanding, mission-critical practices that require rapid response on massive amounts of data are on the other side of the wall, as it currently stands. So as we rhapsodize over the cloud, it’s important to remember that the cloud can’t solve everything, at least not yet.

Getting your feet off the ground: the leap of trust required to get over the cultural barrier
One of the biggest pros for the cloud is the power of intra-enterprise collaboration — bring enterprises and professionals together to help improve all participants of the value chain. But what we face here is a cultural obstacle rather than a technological one: companies have the technology right now to collaborate across company boundaries. But can we come to grips with security issues and not owning our data? Can we trust our informational lifeblood to other companies, even our customers?

In order for the cloud to reach its potential, these are the cultural questions that every company will have to solve. We have to trust that the information is secure, and that customers or channel partners won’t take advantage of the information. The real power of SaaS is almost beside the point: the real issues are culture, trust and acceptance.

When Marco Polo and the Italians began opening up new trade routes, cultural differences had to be overcome, new relationships built. Now companies and the professionals who give them voice are standing in front of another huge opportunity, with only mistrust and fear of the unknown in between them and the new possibilities. Seems like the world’s repeating itself all over again.

The dangers of fitting your company to a platform
There are subtle but profound dangers in trying to apply the cloud correctly for your company. Human nature leans towards the comforts of standardization, and it’s no less true in the technology strategy of most companies. Having uniform processes and knowing what to expect every time eases our minds. But there’s an ironic downside to this: the more you standardize, the easier it is for your tech department to be outsourced. And the more you standardize, the less you focus on competitive advantage. Too many companies fit themselves to the tool, and not vice versa.

You want the power of the Cloud for when it’s appropriate, but be sure not to limit your enterprise in how you can compete and build on your strengths. The ones who stand out over time are the ones who agree their vision and ensure that everything in the enterprise, including technology,focuses on achieving that vision. At this particular point in time, with the advent of the Cloud, SaaS 1.0 and the legacy of ERP, what your company needs more than ever is a clear vision of what your competitive advantage is: decide what makes your company better, and find the right mix of technology (and ongoing adaptation/evolution) that’s going to preserve and enhance that advantage.

Youthful inspiration + experienced implementation = competitive advantage

Posted on December 22, 2009 by Gene Tanski

One recent morning as I was dropping off my kids at
their regular 4:45 a.m. swim practice, I was really struck by it: here
were a bunch of kids, none older than 16, who were choosing to
physically abuse themselves and were actually looking forward to it.
By the time they were done with practice, they were joking with each
other, playing around, talking about the weekend, what was going on at
school — real energy and optimism and “Hey, what are we going to
achieve today?”

It reminded me of how a 25-year-old teammate issued us a challenge that led to a transformational moment for the company. This is kind of a left turn from my usual post, but the topic has been rattling insistently around in my head like so many anchovy-stuffed olives (my favorite in a martini).

It’s a prevalent theme in our discussions with potential customers: the corporate leaders with whom I regularly speak are tired of the uncertainty in the current regulatory environment, are concerned about growing their business, and want to nurture enterprises that are win/win for employees, shareholders and their communities. But how? And how to do it better, faster, more efficiently than other well-run competitors, where smart people are asking the exact same questions that you are?

Given that my blog is about demand forecasting software and value chain management, maybe you were expecting an answer pertaining to improved forecast accuracy and everything that entails — closer relationship with customers, expanded uses of external information to more clearly delineate demand signals, better inter-company collaboration — and you would be partly right.

But it is not the only answer. In fact, true to the very basic tenets of capitalism, it struck me this morning that there is no one right answer. The key is finding creative, individual answers and then executing properly and with conviction. I realize this seems obvious, but I talk with a lot of companies for whom the reality of “getting it right” remains elusive. How do you generate a constant stream of creative, fantastic, bizarre, untethered ideas and distill those ideas into actionable, executable building blocks for competitive advantage?

I think this is one of the forgotten lessons of the dot-com boom and bust. Against a backdrop of new technologies, a large majority of new business were founded on completely new thinking by young professionals. They were founded on great ideas that were unencumbered by fear or reality or personal perspectives of what is or is not possible. Pundits labeled the era the new Industrial Revolution, and the superlatives didn’t stop there.

However, given the end result at least of the first wave, the potential was never realized because the youthful visionaries had no fear, no sense of reality, nor a grounding in the necessary disciplines that would sustain their vision over time. I’m convinced that the companies that succeed are the ones who find a
way to fuse the experience of the “old hands” with the starry-eyed,
“anything is possible” optimism of younger employees and business
partners.

At Demand Foresight, we got this lightning-in-a-bottle process right in what became a watershed moment for the company.

We offer a guarantee — both for overall performance of the software and a specific reduction of execution level forecast error by 25% both over what a client currently produces and against anything the competition can offer. No other software company offers anything even remotely similar. Why? Well, one reason is that they probably can’t back it up, but more importantly, no one every really considers it a possibility. I know for a fact that we didn’t until a 25-year-old Xbox fanatic, snowboarder, and dating Lothario named Coleman Hutchins looked up at me during a fairly heated sales meeting and 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?”

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.

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 a concept that has become our competitive differentiator.

I was forced to face the power of this unvarnished, un-cynical, everything-is-possible type of thinking again when our company got the opportunity to work with Charlie Besecker from Summit Outsourcing. We had been working with lead generation, cold calling groups for a number of years with limited success and a lot of frustration — with groups led by experienced salespeople.

Charlie and his team had no real sales experience — heck, no real experience running a company. But they had a couple of really intriguing ideas about how to improve the effectiveness of cold calling and an idea on how to prove them. Combined with the necessary experience from the Demand Foresight side (and a bit of cash), we gave it a go. I cannot give away Summit’s secret sauce, but the effectiveness of our lead generation programs increased by over 500%. Once again, we had thrown ourselves at the ground and missed. Feel free to call Charlie at 720.874.9757, and tell him Gene sent you. Just be prepared for something different.

You shouldn’t be afraid to take advantage of the multi-generational strengths under your company’s roof — youthful exuberance side by side with experienced implementation. Bring all of them together. If managed and lead correctly, it could be something special — something that didn’t quite see fruition during the dot-com era or subsequently, but did generate enough signs of success to prove that this needs approach should be considered by all leaders within established businesses (constant force of rejuventation) and those starting new enterprises (competitive differentiation).

How improved execution-level forecasting delivers layers of value

Posted on November 30, 2009 by Gene Tanski

Business cases, ROI, improved performance – all are nifty catch phrases used to justify investments in people, equipment and software. In our Nov. 18 post, we highlighted the importance of defining what “execution-level” means in your business’ particular case. But what is the value? Where does the measurable improvement come from?

The obvious answer is: in inventory and/or inventory turns and their associated impact on working capital. I think everyone will agree that an improvement in forecasting will improve the amount of inventory carried.

But this doesn’t begin to fully describe the size of the opportunity. Improved execution-level forecasting is the gift that keeps on giving.

More stuff that customers want
An improvement in execution-level forecasting empowers you to improve the makeup of that inventory, thereby increasing customer satisfaction. In addition, it creates the chance to address issues such as perishability, which has significant performance implications in the food and beverage industry; and old or slow-moving inventory, which can greatly impact the cost line of industries like high-tech and fashion. Issues like these almost bankrupted Cisco back in the early 2000s.

Greater production efficiency
Taken further, improvements in execution-level forecasting also allow companies to address production efficiencies by optimizing the mix and duration of each run for manufacturers, as well as purchase orders for distributors. Reduced changeovers, lead times and overtime are other ways that improved forecasting pays off.

Optimize shelf space for revenue
You can also drill down another level to the management of your bill of materials (BOM) and work in progress (WIP). A perfect production plan is useless if the materials or subassemblies are not where they’re needed, when they’re needed.

If your company deals with big-box retailers and their service level agreements, improved execution-level forecasting gives you the best chance to generate the most revenue possible from available shelf space without running the risk of a large end-of-season return or write-off.

And this does not even begin to explore the opportunities for improving the forecasting and demand planning process and the associated efficiency improvements, or the improvement potential in the area of effective marketing spend.

These results are based on a history of obtaining 1, 2 or maybe 5 percent improvement in forecasting — often at levels higher than execution level, such as brand family or category. Imagine the opportunities if the execution level improved by 25 percent or more.

Why Sarbanes-Oxley made forecasting more important than ever (Pt. 2)

Posted on November 6, 2009 by Gene Tanski

In my last post, I discussed the critical reporting and accountability burden that the Sarbanes-Oxley Act of 2002 places on companies. SOX reporting affects forecasting and financial projections, including revenue, margin and market share based on volume. How much confidence shareholders have in the management team’s control and understanding of the business can make all the difference in how they react to these quarterly “surprises.” Herein lays the opportunity for supply chain managers to play a critical role in meeting SOX requirements.

Historically, one of forecasting’s major problems has been huge inaccuracies at the execution level. Put a different way, we’re good at making general forecasts, but lousy when it comes to predicting buying patterns at the SKU level, which is right where we can have the greatest impact on the supply chain. For example, while it is important to know that we will sell 10 cars, it’s more valuable to know that five will be blue and five will be black, four will have automatic transmissions and six will have manual, etc. These are the specific details from which raw material ordering takes place, production runs are scheduled, inventory is managed and customer service levels are set and managed. Hence the term “execution-level forecast” and its importance to supply chain efficiency.

In most companies, this level of forecasting does not occur because they don’t have a system or process capable of making it work, and those that do often operate with a level of error that exceeds 50 percent when measured on an absolute basis. The frustration for operations is that they will plan production runs and inventory rates to four decimal points and then have to scratch it all because the forecast from sales and/or marketing contains more than 50 percent error at the execution level. The operations team’s response is to disregard the sales forecast and create their own; at least that way, they know where the numbers are coming from.

What does this have to do with SOX? It highlights the historical reason for the separation of data. The same phenomenon that creates a disconnect between sales and operations also occurs within the finance side of the house. Since finance doesn’t trust the forecast either, they create their own. It is not unusual for companies to create, maintain and use three different forecasts that have little, if anything, to do with one another. So, when the finance team is surprised by poor sales performance and then has to report a deviation to the Street and alter the forecast, their credibility is hurt. And squandered credibility is hard to earn back.