Category Archives: Services

Now That Your Demand Planning Strategy Is In Play, Improve It!

In our last post on the topic, we reviewed the story of how Linksys improved forecast accuracy at the SKU level by 350% with better demand planning, as told by Robert Bowman in Free The Enterprise! This emphasized the need to put a good demand plan in place and illustrated the importance of good demand planning strategies.

One key component of a demand planning strategy is a demand sensing strategy that will let you know when market conditions are varying from forecasted predictions in (near) real time, allowing you to update the forecast before you stock-out or, even worse, get stuck with thousands of units of obsolete inventory. The recent edition of the The VCF Report had a great article by Lora Cecere of AMR on Forecasting Recovery Strategies and “Seven Ways to Sense Demand and Predict the Upturn” that you should read to give you insight into how to tweak your demand sensing, and associated demand planning, strategies for best results.

Lora offered the following seven tips to help your company sense demand, and even predict the upturn, so that you can make timely decisions and reap the profits that will be yours for the taking, if you are ready.

  1. Make Better Use of Downstream Data from Retailers
    POS (Point-of-Sale) and inventory movement data can be used to shorten replenishment times.
  2. Implement VMI For Your Customers
    This will help you to better sense true demand and avoid stock-outs as you will have immediate access to channel wide data.
  3. Use Downstream Data from Distributors
    This will give you visibility into the reseller market and a better picture of overall demand.
  4. Move to Active Forecasting
    And update your forecasts weekly instead of monthly for short-life products and monthly instead of quarterly for longer-life products.
  5. Tap into Sales Contract Data
    This is critical for effective planning of make-to-order and configure-to-order supply chains.
  6. Actively Use Market Data
    Channel data and third-party data can be used to sense channel trends and predict when a certain product or service category is about to take off in the marketplace.
  7. Sense Service Requirements
    Link your demand-sensing activities with your strategic service management planning for better results.

For more details, see the article.

Looking for Savings? Don’t Overlook Your Insurance Premiums!

A recent article in Industry week noted that when it comes to “insurance renewal, a 1-2-3 strategy can pay off”. Many decision makers may be tempted to compare corporate insurance renewal with personal insurance … where you get the bill and send a cheque, because you don’t really have much choice as changing (life, disability, health, illness, etc.) plans will undoubtably result in a cost increase and benefit reduction, as costs go up (while benefits go down) with age. But this is a bad comparison because corporate insurance plans don’t work like personal life / disability / health plans, rates change with demand and business conditions, and business conditions change all the time.

Business change may not only introduce the need for more insurance (such as when a company begins exporting its products overseas), but may also reduce the need for current coverage (when asset values decline). As the article points out, failing to recognize the impact of new business approaches, whether new strategies that increase risks or downsized operations that alter exposure levels, can cause a manufacturer to make the wrong decision on insurance coverage. And for a large company, this can cost it tens (or hundreds) of thousands of dollars annually (and millions if we’re talking employee group benefit plans). (There’s a reason there are consulting companies which specialize in insurance plan selection and negotiation.)

So what should you do? The article recommends the following 1-2-3 agenda:

  1. Coverage Type
    Examine company operations, compare them to what they were in the past, and accurately assess what needs to be covered. Where are the risks, and what will the recovery cost if they materialize?
  2. Coverage Limits
    How much is at risk and how much insurance is needed to cover it? If you have doubled the size of your shipments, then you might need double the transit insurance. But if you’ve moved to JIT inventory, you might be able to cut your warehouse insurance in half.
  3. Risk Management Services
    Examine a potential insurance provider’s capacity to deliver training, information about industry best practices and expert advice when an emergency makes quick action imperative before you enter into negotiations.

The only thing I’d add is a step 4: hire an expert. The few thousand a day it will cost for an external expert to evaluate your needs and negotiate a better deal could not only save you many times her fee, but prevent financial disaster should an emergency arise.

The Value of AfterMarket Service in a Down Economy

MCA Solutions recently released a white-paper entitled “The Value of AfterMarket Service in a Down Economy” by Morris A. Cohen, the Panasonic Professor of Manufacturing and Logistics at The Wharton School of the University of Pennsylvania. In it, the author puts forward initiatives for your service business that he, and MCA, believes will generate revenue and profit for your business in 2009.

Aftermarket service presents some unique opportunities that make it a prime candidate for delivering value in the current financial climate. When you consider that many companies have slashed their budgets for new product and service acquisitions, it should be obvious that many companies will be looking to get more life out of their current products and services and looking to aftermarket service providers to help them.

According to the white-paper, increasing your market share of aftermarket parts and services will allow your company to generate a more predictable, high-margin revenue stream that will also increase customer satisfaction and retention. In addition, leading enterprises such as Cisco Systems, KLA-Tencor, Boeing and Tellabs have proactively undertaken strategic service management initiatives and have seen ROI benefits (in as little as two months) that include:

  • Cash flow improvements of 10%
  • Inventory reductions of 15% to 50%
  • Service level improvements of 5% to 20%
  • Customer retention through new and differentiated service offerings
  • Dramatically increased service revenues
  • Higher levels of global coordination

So what are some of the areas of opportunity?

  1. Reconfigure the Service Supply Chain to Respond to Changing Costs and Customer Requirements
    Best-in-class companies view inventory as a competitive weapon
    and typically employ multi-echelon inventory optimization and other resource deployment strategies to achieve superior product and service availability.     However, these days, service
    providers must also look to optimize the design and configuration of their service support network (locations, repair capacities, customer assignments, etc.) as a key strategy for achieving the lowest total cost and maximized customer service solution    .
  2. Reduce Overhead and Increase Time-to-Value Through Outsourcing and SaaS
    Service providers can expand their capability with a lower cost structure by outsourcing non-core capabilities to their suppliers. Logistics, warehousing, IT services, etc. can all be outsourced to low-cost, high-quality providers — freeing you up to focus on what you do best.
  3. Reduce Cost Through Optimization of Service Value Chain Resources
    Companies who use traditional planning tools developed for finished goods supply chains often hold far too much inventory with the wrong mix of parts. Getting the right mix of parts in the right places can lower overhead costs, improve service, and increase overall service profitability.
  4. Increase Revenue Generation with Customer-Focussed Service Offerings
    In a downturn, customers demand higher levels of performance from aftermarket service providers. This can be achieved through appropriately designed differentiated service offerings on a pay-per-performance model that will set you apart from the competition.

These are all great suggestions and each of them will help you save money while increasing the value you can bring to your customers. For more suggestions, as well as insight into how to approach each of these areas of opportunity, I recommend checking out the full white-paper that dives into these opportunities in detail. It’s worth a read.

The Strategic Sourceror’s (Supply Chain) Anti-Trends

The Strategic Sourceror was first to the plate with a trio of home-run anti-trends for 2009.

  • Strategic Sourcing Outsourcing Finally Gets a Good Rap
    The Sourceror notes that even though the list of anti-outsourced strategic sourcing excuses (just like the list of excuses for why we don’t need no consultants) goes on and on and on, this is the year that people who just made a big investment in (e-)sourcing software realize that software alone is not enough and you need to balance the tools with the human expert techniques.
  • Networking Costs You That Job
    Every time the economy takes a bath in the crapper, every person and his dog comes out of the woodwork with a list of techniques for landing that next job, and networking is always at the top of the list. And this time, the media has outdone themselves and convinced people that “networking” means getting in touch with every single person you have ever heard of in your life and bombarding them with your resume and story … every single day. Now, while you should contact everyone who you honestly think could, and would try to, help you, and while you should be persistent in your job hunt … there’s persistence, and then there’s good old fashioned harassment. Go overboard, and you might just find that you’re the first person blackballed next time something opens up.
  • Hasta la Vista to the Fat Cats
    This post is just too good to every try to summarize.

We Don’t Need No Consultants

Today’s guest post is from Patrick J. Horgan of Paladin Associates.

Why Some Companies Don’t Seek Needed Cost-Reduction Help

Cost-reduction is essential in today’s economy, but unfortunately many managers have little experience in these activities. Mistakes in cost-reduction can damage morale, productivity, and can even precipitate a corporate death-spiral. Experts recommend independent cost-reduction consultants, but most companies don’t seek external help. Their reasons sometimes make sense, but they are often emotional and thought through poorly. Here are some common rationalizations which prevent many companies from seeking the help and getting the results they really need:

“We don’t need help.”
“We can do cost-reduction ourselves”. Or, “we should be able to do it ourselves.” “We already have cost-reduction initiatives.” “We will soon have cost-reduction initiatives underway.” “External consultants will probably try to take credit for things we have already identified.”

“We don’t want help.”
“Consultants may find things that are embarrassing or that we probably should have found. We may be blamed for these things.” “We will not be able to personally control what they find or communicate.” “We are currently too disorganized to undertake such an initiative.” “We don’t want a lot of change and turmoil.”

“We can’t afford help.”
“Consultants charge a lot, usually up front.” “We have no budget for this.” “We can do it for less.”

“We don’t believe consultants can actually help.”
“Consultants just feed back what we already know. They don’t actually produce results.” “Consultants won’t understand our business.” “How would we know if we actually saved anything?” “We’ve had bad experiences with consultants and cost-reduction projects in the past.” “External consultants are against company policy, or require high-level approval.”

“We are not the decision makers.”
“We don’t really know who decides this, and we don’t want to ask.” “Someone else is in charge of this; it’s not our job.” “IT/Telecom has sourcing responsibility; not Sourcing.” “IT and Telecom are under different organizations, yet buy off of the same contract.”

“It is not in my personal political interest to support this.”
“Cost-reduction can be risky… might result in reorganization, reassignment, budget cuts, layoffs, new priorities, loss of power, change — could be bad for me personally.” “Our boss doesn’t want to do this.” Or, “Our boss might want to do this, but we don’t.” “If this doesn’t work out, we might be blamed.” (But maybe we should pretend to be interested and slow-roll this.)

“We don’t have or control the resources to support such an effort.”
“We have other priorities.” “We don’t have good data on costs and spending.” “We don’t have the staff for this.” “We have lots of contract leakage as internal components are organizationally fragmented.” “To capitalize on many initiatives may require cross-functional cooperation and coordination which we don’t control, and priorities which we don’t have.”

“We don’t want to disrupt our vendor relationships.”
“We already have great prices.” “We depend on our vendors for things other than price.” “The supplier has a personal relationship with the CXO.” “We really enjoy the annual Vendor Golf Weekend at Pebble Beach.”

The Real Facts
Sometimes these rationales are valid, but most often they are not. Companies may have excellent relationships with their suppliers, but it’s inescapable that continuous competition improves the breed and reduces cost. Cost-reduction falls directly to the bottom line, and should be pursued aggressively despite fuzzy reasons to the contrary.

Even though companies “ought” to be able to run effective cost-reduction programs themselves, in reality they frequently do not. For many reasons — budgets, staffing, expertise, priorities, timing, politics, whatever — the opportunities go unmined… and the potential savings go unrealized. Or they are done in an amateur fashion, often with unintended consequences. Most companies don’t and probably can’t have enough qualified resources to do this thoroughly.

Cost-reduction consultants do this for a living, not just during the occasional recession… they are experts and know all the tricks. External consultants can often help cut through internal politics and conflicts of interest. They can catalyze stalled activities and get them rolling.

Independent consultants can help analyze spending patterns, and specifically focus on and drive results… particularly if they are paid on a percentage of savings realized. This approach eliminates upfront fees, reduces risk, and insures an excellent ROI. The money saved can pay for fees many times over. External resources can accelerate cost-reduction savings. Additional bandwidth leverages employees, and gets more done, faster. Time is money.

External cost-reduction experts jump-start and insure execution of cost-reduction programs that can preserve a business in times like these. Cost-reduction programs should be win-win initiatives, structured and empowered to encourage cross-functional cooperation. They should be supported and regularly reviewed by high-level executives, not just lower-level employees who may fear blame or loss of status.

Thanks, Pat.