Category Archives: Product Management

Supply Management in the Decade Ahead III: The Eight Major Forces – Part II

In Part I of our review of “Succeeding in a Dynamic World: Supply Management in the Decade Ahead”, we overviewed the various external forces that will impact a company’s supply chain as identified by CAPs, AT Kearney, and the survey respondents. We then concluded with the eight major forces that were identified specifically by supply managers who took part in the study. In Part II, we dove into the details of the first four of the eight major forces. Today, we dive into the last four of the eight major forces and explain not only why they are important, but what can be done about them.

Customer & Channel Dynamics

The downstream supply chain will change rapidly due to economics and government policies in some industries. In other industries, supply chain dynamics will be influenced by the poor financial condition of major trading partners in the chain. The impact of private equity firms will also be significant, who will continue to take public companies private, slash costs, raise prices, and change business relationships.

In other words, the only difference between conducting business today and conducting business in the next ten years with respect to channel dynamics is that these changes will continue to come at an accelerating pace and you will have to adapt faster than you do today. This means that the winners will be those companies that have good visibility into their supply chains – the ones that can identify when an impending regulation or buy out will affect them before it happens and have a contingency plan ready to go the instant it happens.

Increased Product Variety & Shorter Life Cycles

Variety will continue to mean more models, brands, and products tailored to different geographies and price points. Consumer tastes in emerging economies will be new and different from traditional markets. Traditional lines of competition will blur as companies try new products and markets.

True, but eventually someone will realize that you don’t want to browse the web on the screen the size of a credit card, you don’t want your fridge to tell your local grocery store that you consumed six litres of rocky road this week, and that you don’t want the ability to cut yourself seven times in a jagged fashion simultaneously while shaving. Amongst the big winners will be the companies that realize sometimes you just want a phone, a fridge, and a straight razor – and not all the garbage hallucinators are trying to shove into these products today. And, oh yeah, there comes a point where it doesn’t matter how many fractions of an ounce less it is than the previous product, how many extra cubic inches you squeezed into the door, or how fast it vibrates (at least in the case of the razor).

Social Responsibilities

Companies in developed economies will continue to be held to high standards wherever they do business in the world. Companies will have to monitor working conditions in their supply chains all the way back to basic extractive and farming practices. Supply management will have to ensure that the supply base meets environment standards. Commitments to a diversified supply-base will become more important in developed economies.

This is true, but it misses the point that it won’t be Green Peace and PETA that you worry about in the years to come – it will be your customers, who, greater informed about your supply chain practices than ever before, will start to boycott your products even before Green Peace and PETA gets their campaigns against you off the ground. Industry self-regulation will require you to exceed government standards, or be barred from cooperative partnerships and organizations that could help you survive in the dynamically changing marketplace to come. And, oh yeah, today’s “social networks” will have nothing to do with the solutions.

Environmental Responsibilities

Continuing the social responsibility theme, customers, consumers, shareholders, non-govermental organizations, and governmental bodies will all increase their scrutiny of corporate environmental practices in all regions of the world and demand that companies take environmentally friendly actions. Companies will be forced to meet the environmental expectations of the general populace. Environmental issues will become brand-related issues and influence how companies are viewed in the marketplace. To meet environmental commitments, companies will put together cross-functional teams with executive leadership to monitor environmental concerns in the extended supply base.

All this is great, but I believe that sometime in the next decade, carbon offsets will start to peak out in the developed nations as consumers smarten up and realize that some of the larger companies with the deepest pockets are using them as an out to avoid every doing anything to decrease their environmental footprint. When their only other options are to make the hard choice of investing hundreds of millions, if not billions, to upgrade your factories or re-invent yourself around less harmful products, most executives are just going to take the easy out and buy the carbon credits. These are the same companies that today are content with buying innovation whenever they need it, as they are pseudo-monopolies due to the high cost of market entrance and / or the time it takes to build up the sizable customer base they’ve acquired. Fortunately, when the impending commoditization is combined with consumer revolt, there’s a good chance that their currently unchallenged position at the top will not remain unchallenged for much longer.

“Demand Shaping” or “Demand Sensing”?

The EE Times ran a great article by Romit Dey and Manoj K. Singh last month on “Demand Shaping” and how it aligns customer trends with supply. But I have to ask, is it really “demand shaping” or is it more “demand sensing”. Is not “demand shaping” what marketing and advertising does? It’s true that supply chain has a supporting role, in terms of letting marketing know how much a product can be produced for, how many units can be produced, and how fast the units can be in consumers hands. However, what supply chain really does, in a company that runs like a well-oiled machine, is sense the demand that has been created, and the demand that is in flux, and adapts to the situation.

So what is “demand sensing”? According to the article, which calls it “demand shaping”, it is a demand-driven, supply-constraining customer-centric approach to planning and execution that aligns process with customer demand at strategic and tactical levels and with an organization’s capabilities which helps optimize use of resources, reducing excess inventory and improving inventory turns. More specifically, at the strategic level, the emphasis is on aligning customers’ long-term demand patterns to long-term resource and capacity constraints and at he tactical level, the focus is on understanding demand patterns and then influencing customers’ demand toward available supply, using the levers of price, promotion and products/services bundling.

How do you sense demand? As the article points out, you need three key capabilities:

  • demand pattern recognition
    who is buying what, when, and in what quantity
  • supply supportability analysis
    how much can be made, when, and how fast can it be delivered
  • optimal demand steering
    if demand patterns suddenly change, and you do not have enough of product A, can product B be used as a substitute and can customers be steered to that product instead

The first skill is obvious – you need to manage inventory appropriately so you aren’t holding too much, and generating excessive inventory carrying charges, or holding too little, and selling out before supply can be replenished. The second skill is less obvious, but easily understood – you need to know how much you can make, and how fast it can be made, to appropriately plan your inventory level.

The third skill is what takes “demand sensing” to a whole new level, to the point that it is almost “demand shaping”, but not quite, and hence the source of confusion. It is, as it’s called, “demand steering”. The Dell example the authors use is the best. By maintaining real-time visibility into its supply chains, Dell knows its inventory levels now and in the immediate future on an hourly basis. If a customer configures an order for a 60GB drive on their web-site, and Dell knows they don’t have enough stock to configure the system immediately, then Dell informs the user of a delayed ship date and presents the customer with an opportunity to replace it with an 80GB drive at a discount – steering the customer towards another product that can meet their needs, even if it is more expensive, but Dell takes a discount on margin to make the sale and keep the customer.

The key to success, as the article points out, is to make sure that all three processes are part of a single, integrated loop. A supply supportability analysis is run on a regular, automated, basis; inventory is updated on a near real-time basis; and short-term forecasts are updated at least daily. Each of these numbers is compared on an automated basis, and as soon as forecasts exceed inventory and obtainable supply, an alert is sent to a planner who determines whether there are alternative products that can be used to meet the need or if marketing and sales needs to be informed that they need to take actions to steer demand on their end. Then, customers are steered towards the alternative products through the appropriate channels – in real-time.

The article also does a good job at overviewing what is required for a demand sensing framework. The elements it outlines are:

  • inter and intra organizational connectivity
  • the ability to capture, structure, and comprehend data from customers and channels
  • advanced business intelligence to identify demand patterns
  • optimization
  • common processes
  • a common data model
  • common performance metrics
  • available-to-process capabilities
  • exception management
  • electronic negotiation and collaboration

The best thing about the framework is that these are basic capabilities and processes a good organization should already have in place. It’s just a matter of tying them together and using them wisely!

Strengthen Your Supply Chain

In yesterday’s blogologue I told you that your brand was a terrible thing to waste – and that the strength of your company’s brand ultimately lay in its supply chain, and not the latest fad dreamt up by your company’s marketing mogul. This means that, unfortunately, it’s up to you to protect the brand, and not the apathetic advertisers who lounge around all day being “creative“.

So how do you do that? The Industry article “Strengthen Your Supply Chain” that I referenced yesterday has some good starting points. It tells you to focus on five key elements that cover most of the basis. It’s key elements were:

  • traceability
    you should be able to track all products, components, and raw materials backwards and forwards through the manufacturing process
  • measurement
    basically, testing; identify the components and risk points (start with the hand-off points) and then have internal quality assurance personnel or an independent auditor test each component and at each risk point
  • certification
    certification programs set guidelines and involve an additional process of checks and balances: these usually fall into regulatory, industry self-regulation, and third-party certification
  • efficiency
    be sure to adopt a traceability and testing program that works with day-to-day supply chain operations
  • organizational buy-in
    successful supply chain management depends on the cooperation of employees at each and every level

To this I’d also add, at a minimum:

  • Visibility
    It’s important to not only know what goes into your products, but where each raw material, component, and product is at all times. Could they have been tampered with? And, if you are dealing with consumables, how long did they sit on the truck? Could they have gone bad?
  • Modeling
    In order to be sure you have the right process, including the right checks and balances, you need to be able to model the supply chain as it is, as it should be, identify the differences, identify what could go wrong, and insure an appropriate test is included for each hand-off point, risk, and exception.
  • Supplier Management
    You ned to insure that your suppliers understand the importance of the process, are following the process, and are reporting any and all problems that arise, including those that they are able to detect internally. (If too many problems arise internally, even if they are corrected before defective or contaminated goods are shipped, then they need help with their process as the risk of something slipping through the cracks is too great.)

Finally, I’d like to point out that as important as certification is, checking out the certifications is even more important. In some parts of the world, it’s quite easy to buy a faked certification document. Just because a new supplier sends you a certification document, that doesn’t mean they are actually certified. Be sure to check with the organization that issues the certification that the supplier in question was actually certified AND that the certification is still in effect. But don’t stop there – if the certification is one that is actually done by third parties, check out the reputation of the third party conducting the audits. Are there any complaints against them? If so, how many and how recent. In some places, it’s even easier to buy a successful audit then it is to buy a fake certification.

Design For Recycle

If you work your way through the posts on the automotive sector over on Supply Excellence [WayBackMachine], the top supply tips on topsupplytips.com (setup by Procuri, acquired by Ariba, acquired by SAP), and the virtues of contract management and dive into the Corporate Social Responsibility & Sustainability posts, you’ll find a gem hidden deep in the mine – and that gem is Design for Recycle (also known as Design for Disassembly). As highlighted in his posts “Sony to Turn Sustainability Into Money Maker” and “How Can You Do Good? Take a Page From HP’s Book”, Tim points out how recycling is turning out to be a huge success for HP and Sony, from a financial perspective as well as a corporate social responsibility and sustainability perspective.

Not only is this a gem, but we’re not too far from the point where it will be critical for this to be part of every product manufacturer’s supply chain. Why? First of all, skyrocketing demand for raw materials in the developing nations is causing serious inflation across the board – and you can’t just expect to pass that cost on to your consumers who expect your product to hit a certain price point and, more importantly, may not be able to afford your product if you miss this price point. Secondly, you’re going to start to see a lot more regulation coming into play globally with regards to not only restricted materials and environmental impact, but also on disposal regulations and what YOU are responsible for. Europe led the way with the End of Life Vehicles (ELV) Directive and the Restriction of Hazardous Substances (RoHS) Directives. Starting this year automotive manufacturers must provide free take-back for all vehicles they’ve put on the market and make sure this is a local drop-off center for such vehicle in every market they sell in. Computer and Electronics manufacturers are now banned from using dangerous chemicals, must be 100% transparent with what they do use, and conform to all chemical directives, such as those found in Registration, Evaluation, Authorization and Restriction of Chemical substances (REACH). Parts of Asia are now proposing similar regulations, and with 71% of voting-age Americans believing that corporate America’s reputation as a whole is either “not good” or “terrible”, it’s not going to be able to stay off of the political agenda for much longer. (“Is Your Corporate Reputation a Liability on Your Balance Sheet”, Directors & Boards, p 32)

Then, there’s probably the most pressing gap of all – the forthcoming talent crunch. At first glance, you might think these are two completely unrelated subjects, but that’s just not the case. If you’re hiring today, you’re not only looking for Generation X‘ers (born between 1964 and 1979), but Generation Y‘ers (born between 1980 and 2000) as well, and these generations are very concerned about the environment, sustainability, and the responsibility of the corporation to address these issues. So much so that it may not matter how big of a paycheck you’re offering, because Generations X and Y, although they expect a big paycheck in return for what they can offer you, also value other things and won’t take a job that does not fit in with their lifestyle – which is becoming more socially cognizant by the day. Thus, those corporations who Design for Recycle at the beginning of New Product Development will be much more likely to answer “Yes” when someone asks if they Got Talent? compared to their competitors, which could be fighting much harder to hold their own in the talent war.

In other words, if you don’t adopt Design for Recycle, or at least Design for Dissembly soon, in addition to plunging sales in markets where environmental impact and sustainability are on the minds of every consumer, you also stand to face skyrocketing material costs and a lack of fresh talent to bring those products to market. A grim future, especially since those companies who have already adopted it are not only increasing market share, controlling raw material costs, and attracting the best and brightest – but making money off the deal. How can you beat that?

As far as I’m concerned, we’re already paying too much!

The Benefits and Risks of Global Product Development

A few weeks ago, AMR published a thought-provoking piece by Jeffrey Hojlo, Michael Burkett, and Nigel Montgomery titled “Driving Global Product Development Excellence: A Guide To Balancing Benefits and Risks” in their free research section. (It will likely be locked to members only by the time this post goes up, so I will try to capture the most significant highlights.) In the article, the authors note that although it’s no surprise that the offshoring of Global Product Development (GPD) has become a $13B market, it is surprising that companies that consider New Product Development and Launch (NPDL) core to their businesses still outsource in developing regions despite the inherent risks, which include security, supplier qualification, low compliance standards, product quality, slow time to market, geopolitical unrest, and lack of regulation.

In a recent AMR survey, they found that 30% of organizations are outsourcing some aspect of their New Product Development and Launch (NPDL) processes, 40% plan to outsource some aspect of their NPDL processes over the next 12-24 months, and another 27% have captive development centers in place. The primary reason given is the shortage of affordable engineering talent in developed markets and, thus, despite the risks, the business demands it.

Most of these companies still keep the actual product design process within the four walls of the corporation, but are increasingly looking to outside partners and captive development centers to help with the front end (ideation) and back end (product launch). This can be good news for vendors in developing economies with the skill sets to assist in these processes.

The research brief points out that many of the risks – including product quality, supplier qualification, security, brand equity, slow time to market, disparate data, the right people, compliance, and geopolitical – can be mitigated, or at least managed, by way of appropriate strategies. To this end, it recommends starting with the following six strategies:

  • Product Road-Mapping and Portfolio Management
  • Iterative Product Development and Validation
  • Product Architecture and System Design across the Value Chain
  • Knowledge Management on the Front End of Innovation;
    Content Management, Product Data Management, and Search
  • Intellectual Property (IP) Security & Management, Authentication, and Authorization
  • Talent Management

And I would add the following:

  • The right Product Lifecycle Management – Sourcing Platform
    Since the goal is to lower costs while lowering risks and increasing quality and value. The right, integrated, platform will go a long way towards helping you implement the strategies above.

The brief concludes with an overview of the GPD opportunity, based on three technology gaps in GPD environments cited by end-users in the AMR study:

  • Concept Testing
  • Design Engineering and Prototyping
  • Needs Assessment / Idea Generation

It goes on to note that these are all areas that require robust decision support and notes some typical questions in a GPD scenario that developers and managers need to answer:

  • What are the risks I need to be aware of?
  • Open innovation: how open should I be with offshore partners?
  • Will my ideas resonate with my target audience in this particular market?
  • What are the operational cost tradeoffs to expanding the design performance or increasing the number of SKUs when offering additional product features?
  • How do the results of alpha-beta tests or recent market data affect a new product launch?
  • Do I have the right people working on the right projects?
  • How do local regulations and requirements affect the materials I need to source and the proof of compliance I need to provide to local officials?
  • What learning experience from past experimentation or failures (such as product or supplier quality issues) can be reused in future product development efforts?

It then concludes with some wrap-up recommendations for vendors of NPD(L) and Product Lifecycle Management (PLM) solutions and technologies.

  • Expand Your Services Practice
    There is a huge need for business process engineering, risk mitigation consulting, and training in developing countries.
  • Enable Postponement Strategies
    Extend postponement strategies from simply delaying the final assembly from sourced components to include sales configuration and design for supply.
  • PLM and Sourcing Unite
    One of the major risks with global sourcing is the variability due to inconsistent lead times and product quality. Tight integration between PLM technologies for Product Development and Sourcing technologies will help minimize the variability.
  • Don’t Forget About the People Component of GPD
    People Management is not a strong focus of PLM vendors. But why not incorporate more in-depth skill requirement, training, and talent management functionality in PLM technology for quick decision making on the right resources for a project?
  • Extend PLM to be a Risk Decision Support Platform
    There’s currently no platform to manage the various types of risk in GPD.