Category Archives: Supply Chain

Best Practices For Your Demand Driven Network from the Economist Intelligence Unit

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Last year, Oracle sponsored the Economist Intelligence Unit to produce a report on “the demand-driven supply chain: a holistic approach” which was released early this year. The report, which noted that businesses must improve the efficiency of their supply chains in order to maintain competitive advantage, that the principles of lean manufacturing and inventory control may no longer (be) enough, and that today’s demand-driven networks must enable companies to be flexible in applying the full array of levers at their disposal didn’t really tell us much that we didn’t already know, primarily thanks to all the research that AMR provided us a few years back, but it did have a good list of best practices in the conclusion that could use repeating.

  • Create solid, base-level demand forecasting tools, fine-tuned to eliminate anomalies and other “noise” before incorporating larger deviations and less predictable variables. You need to understand the base drivers of demand. Promotions, seasons, and unique events only serve to alter this base demand, not create it.
  • Integrate new forecasting and demand management tools with existing supply chain and logistics systems to allow visibility of supply and demand all along the network in real time. The ultimate key is to be able to detect changes in near real-time and make adjustments to adapt to them before they become problems.
  • Develop a collaborative sales and operations planning process that extends from customer-facing sales, marketing and service departments through fulfilment, procurement and logistics all the way into product development, to allow customer insight to inform all aspects of the business. Everyone needs to work off of the same set of numbers.
  • Prepare a comprehensive change management plan to foresee and deal with organisational, cultural and technological obstacles. You don’t have time to trip over your two left feet in the middle of a change.
  • Make profitability the prime objective, above simple cost cutting or revenue enhancement. Effective demand shaping helps companies to target their most profitable customers and promote their most profitable products and services, boosting the bottom line from both sides. It’s not about cost, it’s about value. It’s not how much you pay, it’s how much you make.
  • Maintain real-time demand visibility. Companies can shape demand towards more profitable business only if they have timely and accurate information on customer behaviour. You need to see the trends and adapt to them.

Four Tasks of the CPO

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In a recent edition of the Harvard Business Review, an article on “What Only the CEO Can Do” outlined the four tasks of the CEO who has to link the outside to the inside. They were:

  1. Defining the Meaningful Outside
    Which stakeholders matter most? What results are meaningful?
  2. Deciding What Business You Are In
    Where do you play to win? Only the CEO has the enterprise-wide perspective to make the tough choices involved.
  3. Balancing Present and Future
    The CEO needs to strike the right balance between the short and long term.
  4. Shaping Values and Standards
    Values establish a company’s identity and behaviors. If the company is out to win, the values must be connected to the meaningful outside and be relevant for the present and future.

This prompts the question, what are the four primary tasks of the CPO? Especially given the dozens, and dozens, of issues that the CPO has to manage on a daily basis? Well, they are very similar:

  1. Define the Meaningful Inside
    Most of the supply chain is outside … it’s the CPOs job to figure out what needs to be inside and how it’s going to be managed.
  2. Decide what Business You Are NOT In
    What products are not cost effective for you to make? What processes are you not first class in? What processes are not good candidates for outsourcing?
  3. Balance Present and Future
    It’s not about the lowest cost today, it’s about balancing value today versus value tomorrow.
  4. Focus on Sustainability
    It’s values, standards, ethics, compliance, social responsibility, and long term sustainability.

If you think about all of the things a CPO has to do, you see they fall under the above umbrella:

  • analysis : Business You Are NOT In
  • strategy : the Meaningful Inside
  • team recognition : the Meaningful Inside
  • innovation : Balance Present and Future
  • compliance : Focus on Sustainability
  • risk : Focus on Sustainability
  • technology : Balance Present and Future
  • sustainability : Focus on Sustainability
  • etc.

A Perspective on Global Risk Management and the Supply Chain

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Editor’s Note: This post is from regular contributor Norman Katz, Sourcing Innovation’s resident expert on supply chain fraud and supply chain risk. Catch up on his column in the archives.

Aon has released their 2009 Global Risk Management Survey which lists, in order of priority, the top ten global risks, which are:

  1. Economic slowdown
  2. Regulatory/legislative changes
  3. Business interruption
  4. Increasing competition
  5. Commodity price risk
  6. Damage to reputation
  7. Cash flow/liquidity risk
  8. Distribution or supply chain failure
  9. Third-party liability
  10. Failure to attract or retain top talent

Aon reportedly surveyed 551 companies around the world in a variety of sectors; the respondents included government agencies, private enterprises, and public companies.

I don’t want to quibble about what should or should not be on the list, but I think I take a little issue with the order of things, namely that supply chain failure is ranked so low when the report recognizes that supply chain failure is linked to higher-ranked risks. Granted, I’m quite partial to supply chain issues, but that’s because I also recognize that the holistic (internal/external) supply chain touches so very much of an enterprise’s operations, and I often wonder if executives and other professionals consider the internal nature of their supply chains when they look at their operations, whether local or global.

So, what are the impacts to supply chain failures in regards to other higher-ranked risks?

  • Any supply chain failure will result in a business interruption at any point in the supply chain. The severity of the interruption will depend on the seriousness of the failure.
  • Supply chain failures can enable competitors to gain footholds with your customers. The failure to deliver first-quality products on-time in the needed quantity to the right destination can have your customers looking elsewhere to supply them the goods you’re selling.
  • Buyers may not have as much control over the prices of the goods they are buying, but through better forecasting and planning, contracts that lock in commodity prices can be secured and create a hedge against price fluctuations. This requires detailed knowledge of the supply chain from sales back through purchasing, and must balance sales forecasts with manufacturing & distribution throughput, and inventory storage capabilities and carrying costs.
  • The failure to perform quality checks through the supply chain can result in injury or death to those who consume or otherwise use your products, causing reputation damage and possibly allowing a competitor to gain a foothold against you with a customer. Why would a company pay for substandard raw material or components, and why would a company want to distribute similarly other-than-first-quality goods?
  • Cash flow can be severely constrained by holding too much raw material or finished goods inventories, especially when they go obsolete. Here again, detailed knowledge of the supply chain, from sales forecasting back through purchasing, can prevent excessive purchases and wasteful assembly or manufacturing efforts.

The supply chain is not just a homogeneous area of an enterprise, separate and distinct from the others. Whether looking at risk, fraud, or efficiencies, start with the supply chain and examine it in detail for what it is: a holistic overview of an enterprise comprised of interconnected links, where interruptions can travel and manifest themselves into something far worse than what they started out to be.

Norman Katz, Katzscan

The Upside of the Recession for Supply Chain Risk Management?

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A recent article in CFO noted that, in 2008, “as supply outpaced demand, insurance costs slid”. Even as financial markets churned, and the annual tally of natural disasters reached the second-highest level on record, the total cost of risk fell by nearly 10% last year, according to the latest Benchmark Survey released by the Risk and Insurance Management Society (RIMS).

More specifically, insurance premiums fell to an average of $10.68 per $1,000 of revenue in 2008 from $11.78 per 1,000 of revenue in 2007. Why? A number of reasons. Corporations have been reluctant to undertake any (new) activities that contain the slightest amount of risk and the demand for insurance has been shrinking because of the recession as risk managers explore (less costly) alternatives to traditional insurance to keep costs down.

Is this a good thing? I don’t think so. First of all, since some of the “alternatives” to risk management include reducing the size of the risk management staff, you know this is only going to result in more disasters down the line. Secondly, innovation and profit always require some risk. Without a few chances here and there, your supply chain will stagnate and you’ll eventually be overtaken by a competitor who tried something new, succeeded beyond their wildest imagination, and stole the market out from under you. So while you need to be cautious and insure you don’t bite of more than you can chew in the risk department, you can’t stop taking the odd risk. That’s ultimately how progress happens.

High Tech = High Value = High Performance

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A recent article in i2’s Supply Chain Leader by Kevin O’Marah of AMR on “how [do] you design a supply chain organization to achieve maximum value” did a great job recounting dozens of statistics that we already know about how great supply chains make great companies, but unlike many of the AMR write-ups, it included one key point that often gets overlooked.

Ownership of technology solutions really does empower the entire supply chain organization, taking it to the next level of performance.

While only 41% of overall participants saw technology enablement as a supply chain organization responsibility, 56% of the AMR Research Top 25 saw the importance of technological responsibility in the supply chain organization. Considering that this is a select group that, in 2007, delivered a total return of 17.89% compared to the Dow Jones Industrial Average of 6.43% and the Standford & Poor’s 500 Average of 3.53%, I’m glad to see that these leaders are stepping up and acknowledging the value of good supply chain technology.

What other technology can identify millions of dollars of savings? Streamline payment processing costs by 90% AND insure you are paying against contracted rates? Enable visibility across your organization? None. In your average organization, no other information technology can deliver returns that come close to the returns supply chain information technology can deliver. So if you don’t have an end-to-end supply chain information technology solution, go out and get one!