Category Archives: Product Management

“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.

A Kick-Ass Direct Sourcing Solution for Manufacturers: Part II

In yesterday’s post, I indicated that I would introduce you to a solution for direct sourcing that was distinct from your standard sourcing suite and which was designed to manage your PLM-based sourcing needs from day one – and that is what I am going to do.

Believe it or not, the solution I’m referring to is the new solution being offered by Co-exprise (rebranded DirectWorks, acquired by Ivalua), a company that has been around since 1995, managed over 175B in customer spend since their inception, and which is probably still best known for its Co-exprise MarketPlace.

For the past few years, Co-exprise has been working hard to create what they hope will be an entirely new type of PLM-based direct sourcing solution for complex manufacturers – be they aerospace, automotive, defense, heavy machinery, high-tech, medical device, or diversified manufacturing – that directly attacks the trials and tribulations faced daily by the sourcing team who have to source assemblies of ever-increasing complexity while being crunched by continually decreasing product life-cycles. And the solution they have devised is un-like any I have ever seen.

In the situation where you have a lot of complexity to deal with, where you are sourcing complex assemblies of thousands of parts, where you have hundreds (or thousands) of design specification documents in dozens (or hundreds) of formats to deal with, and where you need to collaborate in real time with your engineering team and your supplier’s engineering team, it’s the best solution I’ve seen for the type of direct-sourcing problem they are solving.

The solution, which integrates RFx, auctions, project management, collaboration, PIM, PLM integration, dashboards, and tree-based navigation, also includes enhanced security, contextual-awareness, supplier qualification, and enhanced meta-data capabilities. The application understands over 1500 disparate file formats produced by CAD, CAM, and PLM software solutions and can automatically extract relevant meta-data and apply custom compression techniques (based on wavelet theory and fast fourier transforms) that achieve 50% to 99% compression ratios and allow for faster document transmission, which is very secure as the files are encrypted using 512 bit AE2 compression and access can be restricted at a very fine grained level – and to a specific individual or IP if needed.

The solution is project-based, and everything in the system is an object. This might not sound important, but this allows everything to be cloned, which means that any project, or portion thereof, can be copied and used as a template for a future project. Furthermore, collaboration works on any object in the system – a context can be created on any file, item, sub-assembly, assembly, or project – and a focussed discussion, logged and accessible at any time, can take place. These discussions are then integrated with the task management functionality and can be tracked accordingly. The RFx solution is more than adequate, the auction capability allows for real-time bidding at a latency of only 50 ms, and basic contract management capability is being built as you read this.

It doesn’t have spend analysis yet (though they have stated that they are working on a new type of spend analysis solution more appropriate to direct sourcing then your standard spend analysis solution, which intrigues me even though they are not yet ready to release details – especially since I want to know how they plan to one-up BIQ [acquired by Opera Solutions, rebranded ElectrifAI]), there’s no optimization, and no (third-party) e-procurement integration, but as discussed in yesterday’s post, spend analysis is usually a separate project in these types of direct sourcing projects, complex decision optimization is usually not required (or viable where you usually need a strategic relationship), and since everything in the system can be exported, it wouldn’t be hard to do a batch-based XML or CVS linkage to your current e-Procurement or e-Payment system, so it’s weaknesses are not significant for the problem it is addressing.

As I noted yesterday, there are other solutions out there, like the UGS solution, and you should look at any solution that appears to be relevant before making your selection, but, even though you probably haven’t heard of it, if you’re a manufacturer sourcing complex assemblies, I would not leave the new co-exprise solution off of the short-list when doing your evaluations.

I will be continuing discussions with the co-exprise leadership team (who have 200 years of combined experience in manufacturing and supply chain) and should have more to say in the future, but would like to note that they do plan to update their web-site and materials in the near future and this will help to shed some light on the uniqueness of their product. But in the meantime, if you’re a manufacturer in the market for a direct sourcing solution, give them a call or drop them an e-mail and they’ll be more than happy to give you a demo.