Category Archives: Supply Chain

Aberdeen’s Top 10 Technology-Enabled Best Practices for Accelerating Sales and Operations Planning Business Results

When I reach the bottom of my virtual stack of white papers and research briefs on sourcing, procurement, and supply chain, I often troll for related best-practices articles on related and overlapping business processes. Scouring the Aberdeen site, I came across a recent Perspective entitled “New Strategies for Sales and Operations Planning: How Technology-Enabled Best Practices Accelerate Business Results” (AberdeenAccess) about, oddly enough, sales and operations best practices that can be enabled by technology.

While most of Aberdeen’s top ten technology enabled best practices were as expected and contained no surprises, I was delighted to see that not only was the need for role-based functionality and data manipulation recognized, but that demand shaping was fourth on the list.

The report notes that in addition to the enterprise security needs dealing with planning authority domain and roles, there is a need for user role specific functionality. A requirement of this function is the ability to show data in different ways based on the role, for example, unit level for the manufacturing users, margins for the finance users and revenue for the sales and marketing users. The reality is that everyone in your organization needs a different view of the data to do their jobs effectively and productively – and any product that tries to force a one-view fits all solution is not a true enterprise solution for your sales and operation planning needs.

More importantly, the report also notes that once the unconstrained forecast has been generated as part of the demand forecasting process, the forecast needs to be refined based on events such as promotions, downturns, and new product introductions. The system should predict and shape consumer response by building a business strategy that incorporates forecasting and promotional impacts into the demand plan. These solutions also should determine when and how to price and promote products – throughout a product’s lifecycle – to achieve revenue and profit objectives. A product has a non-linear dynamic lifecycle and the only way to truly maximize your return on production is to take this into account.

In order, Aberdeen’s top ten technology-enabled best practices are:

  • Collection of external Sales and Market Data
  • Demand Collaboration
  • Demand Forecasting
  • Demand Shaping
  • Supply Constrained Plan
  • Profit based S&OP
  • What if Analysis
  • S&OP Plan Quality & Metrics
  • Master Data Management
  • Role-based Functionality and Data Manipulation

For full details, I would encourage you to read the full perspective.

A Synchronized Extended Retail Industry Optimizes the Supply Chain

Recently, TIBCO Software Inc. released a whitepaper entitled “Synchronizing the Extended Retail Ecosystem” (RetailSystems, registration required) discussing how retailers are being challenged by the consumer to provide solutions quickly and efficiently (“Time”) by offering the right combination of products and service and 100 percent “trip assurance” (“Value”) and making actionable information available at the point of decision (“Information”). How retailers are challenged to be a “brand” unto themselves”. And how in the Extended Retail Industry (ERI), retailers are part of an ecosystem of participants including manufacturers, wholesalers, logistics companies, and other service providers that [need to] work together to create solutions for the consumer.

However, the key takeaway is in the overview of traditional retail value chain and the potential value of ecosystem synchronization. Traditionally, product availability is guaranteed by excess physical inventory. This causes a distributor to over-inventory which, in turn, causes a manufacturer to over-produce. This produces a net effect of slower inventory turns, the need to sell-off excess inventory, and a negative financial impact. However, a synchronized retail ecosystem where a retailer is linked into its distributors which are in turn linked into their manufacturers, allows the retailer to share updated demand data in real time, allows the distributors to meet the retailers demand without significant overstocking, and this in turn allows the manufacturers to produce the right quantity. In addition to significantly reducing excess inventory, it allows for faster inventory turns. Furthermore, the distributors will see patterns across the retailers they support for different product lines and can push normal usage data back to the retailers to help them produce better forecasts.

In addition to optimizing the supply chain, an extended retail ecosystem, once implemented can reduce systems friction, technical complexity, and improve the cross-channel consumer experience. Integrated systems reduce erroneous, redundant, and unsynchronized data that lead to “garbage-in garbage-out demand forecasts. Web-services based integrated systems also reduce the complexity of the supply network for each participant who can now receive a cohesive picture instead of a collage of fragmented snapshots. Finally, the reduced occurrences of out-of-stock situations that will result will provide a better experience for the consumer who will not be leaving the store empty-handed.

Can Supply Chain Performance Really Induce a CFO to do Backflips?

When I hear CFO, I think of an aging C-level executive with grey hair in a grey suit and when I hear cheerleader I think of college student with brightly colored pom-poms doing backflips. So when I stumbled upon the Aberdeen Group Perspective entitled “Turning your CFO into a Supply Chain Cheerleader” (now for Aberdeen Access members only), I had a good chuckle, but then dived in to see what their take was.

The hard truth is that most C-level executives traditionally could care less about how the supply chain operates – they just care about results and they don’t want service excuses. However the trend of globalization, especially sourcing from low-cost countries such as China, is opening the door for the supply chain organization to gain a new C-level champion: the chief financial officer.

The reality is that CFO’s are now facing increasing pressures across the board and good supply chain practices are the key to reducing some of these pressures. The perspective overviewed four of the top pressures facing CFOs and their corresponding supply chain solutions.

CFOs are stressed with making the best use of corporate cash.
CFOs want to actively manage cash but uncertain international lead times make it increasingly difficult for finance organizations to make proactive use of the balance sheets. Supply chain organizations can help by implementing improvements that result in less errors, proof of delivery to trigger automatic invoice reconciliation, and e-procurement systems that result in full order visibility.

CFOs are charged with corporate budget oversight in a time when regulatory oversight requirements are constantly increasing.
Supply chain uncertainties contribute to budget overruns and erosion of expected gross margins. For overseas LCC shipments, Aberdeen benchmarks show that inadequate transportation cost forecasting is the top reason for discrepancies. Improved supply chain costing can be used to help companies protect gross margins.

CFOs are challenged to reduce working capital requirements.
Supply chain managers can impact working capital by reducing inventory investment and obsolescence by having strategic suppliers manage inventory positions, investigating inventory optimization technology, and connecting supply chain visibility initiatives to Six Sigma programs.

CFOs are concerned with cross-functional global trade disconnects that drain financial performance.
Aberdeen research identified that companies that decreased their total landed costs and cycle times the most were nearly seven times more likely than their peers to measure global trade management performance on a corporate-wide basis and invest in cross-functional processes. Supply chain organizations are in the best position to lead the development of these cross-functional processes and assist finance in the development of these metrics. And even though I really doubt that the significantly improved financial performance that will result will have your CFO doing backflips, there is a very good chance the CFO could be your supply chain organization’s biggest supporter once profits start skyrocketing from the significantly reduced costs and increased savings capture rates that result from your compliance initiatives.

In other words, CFOs are concerned with their primary responsibility: the corporate treasury, and making sure that the money is well managed, collected on time, and not lost on projected savings leakage. By implementing best practices, automated systems, and monitoring processes, supply chain organizations can make sure orders are placed on time, negotiated savings are maintained, invoices received, and payments made, on time.

Strategic Supply Management at Japanese Companies

Yesterday in What can we learn from Keiretsu? we outlined methods in which correctly applied Keiretsu teachings could rejuvenate your supply chain, referencing a report released by the CAPS Center for Strategic Supply Research Supply Management Research Group last year titled “Japan’s Keiretsu as a Strategic Relationship with Suppliers”. However, the teachings do not end there. This year, the CAPS Center for Strategic Supply Research Supply Management Research Group released “Strategic Supply Management at Japanese Companies”.

This report, which starts off by chronicling the impact of Nissan CEO Carlos Ghosen, the shift to strategic purchasing and the rise of the concept of supply management (primarily in the US and Europe), the enhancement of business competitiveness through strategic purchasing, and the evolution of the purchasing function in Japanese companies describes the challenging issues in the shift to strategic purchasing, offers a perspective on strategic purchasing from the Japanese perspective, and ends with a case study that demonstrates the beginning of strategic purchasing in proactive companies that are seriously considering moving forward the status quo that is the result of traditional Keiretsu practices focused on strong ties with traditional partners and not necessarily the best partners.

It points out that in recent years, the goal of Japanese manufacturing corporations has been to build an efficient supply chain that decreases lead time, improves quality, and reduces inventories and costs associated with the logistics process. After all, improving the logistics supply process reduces lead time and improves inventories, even if actual transportation costs are not decreased. Furthermore, whereas purchasing has always played an important role in cost reduction, there is also a new, and increased, emphasis on quality control, supply management, and accurate, quick deliveries from suppliers.

Purchasing is also taking on more of a research role, as its close contact with external resources puts it in a strategic position. In some engineering companies, purchasing is responsible for:

  • giving advice on potential new contracts
  • exchanging engineering information with suppliers
  • participating in design review, facilitating supplier decisions, and leading cost reduction and value analysis efforts
  • cost research for marketing requests

It also outlines the major competencies that are required for strategic purchasing:

  • intelligence and the ability to identify what information is needed and how it will help them attain their goals
  • IT literacy and competence
  • supply chain knowledge

and how Japanese companies are embracing these competencies.

So what does all that mean? In addition to holding on to the best practices of the east, Japanese companies are embracing the best practices of the west. Maybe we should latch on to their best practices as well.

What can we learn from Keiretsu? (Strategic Supply Management)

Keiretsu, which can be briefly described as a long continual business relationship, in one way or another has been a significant force in the Japanese economy for over sixty years and despite its long and varied history, criticisms, the Structural Impediments Initiative, and economic downturns, is still a strong foundation for many supply chain relationships in Japan.

“Japan’s Keiretsu as a Strategic Relationship with Suppliers”Therefore, even though some economists would argue that it contradicts the basic principles of the free trade of capital, there must be something to it. Therefore, I think the issue is worth exploring, with the goal of taking away lessons that can be used to improve our supply relationships, especially considering that current markets and supply chains are now filled with volatility and risk. And a great starting point is , a study released by the CAPS Center for Strategic Supply Research Supply Management Research Group last year.

The report indicates that a Keiretsu relationship can be defined as a series of repetitive transactions that occur long term between two or more entities in an asymmetrical relationship where one entity uses its position to govern the relationship. A Keiretsu relationship is based on a close and stable business collaboration between affiliated entities. There are different forms of the relationship, and the term is difficult to narrowly define, but all forms center on a long continual business relationship.

This report, which points out that Keiretsu has a long and varied history starting in world war two, covers the major evolutions over the last six decades and notes that changes in the competitive corporate environment leads to diversity in the Keiretsu system. Sometimes external circumstances force a company to end or restrict some of their Keiretsu subordinates if the relationship did not meet the demands of the increased competition and other times a company could use the circumstances to its advantage to work within the confines of its Keiretsu relationships to increase its competitive edge.

Keiretsu relationships in Japan generally display a number of common features:

  • long-term trade relationships that often prevent third parties from participating freely in the market;
    although this can stifle free-trade relationships that depend on competition, this can also create excellent economic efficiencies and make sense among companies that specialize in a particular product
  • companies often hold significant amounts of each other’s stock to prevent other companies from acquiring shares;
    although this seems to contradict the basic principles of the free trade of capital, this can create stability in the stock market and provides protection against hostile takeovers
  • fixed non-symmetrical trade between companies
  • “dispatching” executives into the Keiretsu
    it is such a common practice, once a parent company’s executive or chief executive retires, to dispatch that person to another company in the Keiretsu that it is a defining characteristic of Japanese Keiretsu
  • supplementation and replacement through business sharing;
    a parent company, with cooperation of the subcompany, establishes guidance systems governing production technology and quality control methodology

Furthermore, Keiretsu is often established to

  • move low-value-add production to subsidiaries
  • ensure continuous high quality production capability to avoid excess production and consumer problems
  • improve risk management, especially with regards to variable or uncertain demand
  • ensure that increased sales mean a corresponding increase for subsidiaries
  • prevent technological information from being disclosed to competitors through close continuous relationships

A close examination of each of the above points is based on an underlying idea that can improve your supply chain. Specifically:

  • strategic long-term trade relationships with key partners with a long-term focus on process improvement can generate excellent efficiencies
  • a minor position in your key partners demonstrates commitment, and it can help provide financial stability in unstable times
  • non-symmetrical trade stabilizes the relationship
  • seasoned executives have a lot to offer, and should consider consulting beyond retirement from full time positions
  • companies with more resources and established processes should transfer those capabilities to their strategic suppliers to improve processes and reduce costs
  • a company should be focused on high-value-add production, and since value-add production is relative, low-value-add production for one company might be high-value-add production for its supplier
  • the best way to maintain quality is to maintain relationships with suppliers who consistently produce quality
  • risk can be shared among partners and reduced
  • strategic relationships can insure that your key suppliers succeed and remain stable
  • forming key relationships with key suppliers that can adapt to changing demand minimizes the spread of trade secrets

Thus, even though over-applied Keiretsu can lead to closed markets, correctly applied Keiretsu teachings can rejuvenate your supply chain.