Category Archives: Supply Chain

It’s Time for a Digital Strategy Audit

And it should be part of your annual planning process. Why do you need a digital strategy audit? Here are five compelling reasons from a recent Chief Executive article that presented what it thought were 11 Reasons Why It’s Time for a Digital Strategy Audit.

  • Digital Mistakes are for the World to See
    Most companies’ topline digital strategies are transparent to an experienced analyst, and readily available for analysis and scrutiny. As a result, mistakes are impossible to conceal and any attempt to do so will cause a media pile-on that makes the torch-bearning lynch mobs of old look like a Sunday picnic.
  • Digital is Cross-Function
    Even a simple e-mail marketing campaign involves sales, marketing, operations, and IT. Only supply chain is as far reaching, and if the digital supply chain strategy doesn’t complement the physical supply chain strategy, you have a disaster waiting to happen.
  • Numbers Tell a Story
    An organization’s spending on R&D tells a lot about its viability in the long term. Plus, digital strategy performance benchmarks can identify competitor strategies and threats and allow a company to make a proactive, rather than a reactive, response.
  • Digital Investments are Probably Higher Than You Think
    And probably generating less of a return than you think. In some enterprises, digital investments account for 5% of operating costs and 20% of marketing spend, and run in the eight digits in Fortunate 1000 companies. But without a coherent strategy, the returns in digital investments are often dismal to none. Consider the emerging mobile market with average click through rates on ads of 0.1%, for example.
  • Digital Affects Everything
    As the article says, no industry is unaffected by digital trends. But, few companies have formal, well-defined digital strategies that articulate the vision and govern investments and behavior. Typically, it’s an afterthought and pushed down to IT to figure out. But if IT is only a support organization in the company …

And, more importantly, unless you do a digital audit:

  • You Still Don’t Know How Unprepared You Are for the Digital Age
    Unless you are an IT company, chances are your infrastructure doesn’t have the scalablity, reliability, falut-tolerance, and, more importantly, the security to go all-out with a digital strategy. If even the Sony Playstation Network can be hacked and taken down for a week, and Sony has a very strong IT division operating a very large on-line service, how long do you think it would take a hacker or organized underground hacking group to your network down if you got in their cross-hairs. Assuming you could even scale up to support a superbowl size response. Online service leaders have experienced network overloads for years. AOL in its heyday had scalability problems and had to offer customers refunds to keep them in late 1996, Toys “R” Us was hit with a class action lawsuit in 2000 for taking orders for Christmas it could not deliver, Nintendo could not keep up with Wii orders in 2006 and Sony could not keep up with Playstation 3 orders in 2006, and the Playstation Network has hacked earlier this year.

Before you launch a digital initiative, you need to make sure that IT is ready to support it, and if you are selling something, that the supply chain is ready to supply any expected spikes in demand. Forget the meaningful opportunities for cost-savings, new revenue channels, and/or competitor vulnerabilities the Chief Executive author promotes. Chances are that you’re not even ready for that.

The Advantages of Multi-Tier Supply Chains Come at a Price

A recent article over on Supply Chain Digest on The Next Big Thing: Multi-Tier Supply Chain Management did a great job of summarizing some of the major benefits of multi-tier supply chains. In brief, these are:

  • More Seamless Product Launches
    as coordination across multiple tiers helps to ensure that rapid production ramp-up is smooth and controlled
  • Ongoing Streamlined Operations
    as the ability to exchange information across multiple supplier tiers enables the rapid communication of demand (and changes) across the supply base which in turn reduces risks of shortages, lowers lead times, and improves forecast consensus
  • Reduced Planning Cycles
    as the accelerated velocity of information flow improves the quality of information used in planning processes
  • Improved Supplier Performance
    as the buyer can measure ongoing performance metrics and step in as soon as a hiccup is detected
  • Less Supply Chain Risk
    as the visibility into the extended value chain allows a buyer to see operational disruptions many tiers down as soon as they occur and take necessary mitigating actions before a minor hiccup becomes a major disruption

What it did not do a good job of was explaining the amount of effort to go from a single tier supply chain to a multi-tier supply chain. It requires more than executive commitment and a significant amount of resources. It requires time and considerable technical and educational prowess. Chances are that the further down you go, the less technically capable the suppliers will be. If a raw materials supplier still does business by fax and telephone, it doesn’t matter how good your new real-time portal is as there will be no real time system to link into at the supplier’s head office. A considerable effort will need to be made to train the suppliers on the benefits of a multi-tier system. Then a considerable effort will need to be made to help them implement modern supply management systems that can be integrated into a multi-tier visibility application. Then the integration will have to take place. Typically, the exercise will be worth the effort for a Global 3000, but the effort will be longer, harder, and more costly than the organization will expect.

The “Cloud” is Not a Magic Mirror Nor is it Omniscient

Quotes like this one:

Organizations need the visibility of their supply chains because they never know when they might be required to make a change to respond to world and market events. They have been actually talking about this kind of visibility for the past two decades, but now with new Cloud capabilities they are advancing into that environment

from a recent article in World Trade that purported to describe “a smarter supply chain” really bug me. Not only can one argue that the speaker is implying that the Cloud is necessary for good supply chain visibility, which it’s not, but that the writer, who notes that there has been greater company acceptance of the Cloud because the Cloud … can provide answers to new and existing problems, also appears to be arguing that the Cloud is necessary for greater visibility as well as smarter supply chains. Nothing could be further from the truth.

The Cloud is Not a Fluffy Magic Box (and there are more reasons and yet more reasons that this is the case) and simply throwing an application into the Cloud does not make it better. The nebulous Cloud does not enable applications that cannot be delivered over the traditional internet from a traditional data center. For most providers, the Cloud just happens to be whatever they have — multi-tenant SaaS in a redundant data center if you’re lucky, single-tenant ASP if you’re not. There’s nothing special or magic about it. And there’s no visibility inherent in it. The visibility is in the applications it is hosting (whatever it is).

Similarly, there is no “smart” in Cloud. Any “smart” is again in the application that is being hosted. And there is no magic data connector in the Cloud either. It’s not Cloud-based solutions that provide more affordable ways for suppliers to link to a common database — it’s more efficient providers that use economies of scale to offer good ETL solutions at fair prices to a large customer base.

Finally, the “Cloud” is NOT a Supply Chain Solution. e-Sourcing. e-Procurement. Inventory Management. Demand Management. Spend Analysis. Optimization. Those are Supply Chain Solutions. The Cloud? It’s just a delivery mechanism. Nothing more.

Why Finance Needs to Work With Supply Management

A recent survey by KPMG that was highlighted in a Supply & Demand Chain Executive article on how “finance executives [are] at odds with dated, ineffective technology” made it abundantly clear why finance needs to work with Supply Management. The global study found that the number one weakness in finance processes, as reported by almost one-third of respondents, was planning, budgeting, and forecasting.

It’s hard to plan without a budget, and its hard to budget without a forecast. To get a forecast, Finance could work with Marketing, but that’s not meaningful from a Finance perspective. What’s meaningful is how many units are actually bought and used / sold. And how much is actually paid. Who does the buying? Supply Management. And who is most likely to have a price locked in, or at least reasonably estimated? Supply Management. If Finance works with Supply Management, they can get meaningful acquisition/production forecasts (distilled from input from Marketing and Manufacturing), generate meaningful sales forecasts (using historical fill rates), calculate a realistic budget (once target sale prices are factored into account), and then construct an actionable plan. But if Finance doesn’t work with Supply Management, then everything is a crap-shoot estimate based on unrealistic interpolation curves.

Is Supply Management the Economic Cure Everyone is Looking For?

In a recent article over on the ISM site that asks “[if] your supply chain [is] ready for stagflation”, the authors state that the current economic outlook for the long-term is stagflation, which they also state is practically unavoidable because the drivers are difficult to reverse. However, they also state that it may be shortened if the right actions are taken.

What are the right actions? According to the authors, the period of stagflation may be shortened if investments are geared toward revamping and improving supply chains, a task which falls under the purview of Supply Management. Why will this help?

Consider the situation, as summarized by the authors:

  • we’re in a recession that is the deepest since WWII,
  • the NIA thinks we are headed toward hyperinflation, but the US Federal Reserve believes otherwise; regardless
  • a long recession builds pent-up demand for consumer goods, at a time when
  • interest rates are at a historical low,
  • unemployment is still high, and
  • the Federal Reserve Bank has pumped significant capital into the economy.
  • Historically, increased consumer spending pulls the economy out of recession, but
  • consumer confidence, and spending, usually improves with expectations of (near) future improvements in the economy. When this occurs
  • if companies cannot meet demand, we’ll see “demand-pull” inflation and
  • if inflation occurs, the Federal Reserve will likely increase interest rates.
  • Right now, inventories are too low and
  • manufacturing is experiencing significant cost pressures. Thus,
  • the outlook is low profitability for manufacturers and
  • low profitability and inflation will result in slow, or no, economic growth — stagflation!

Now consider what will happen if Supply Management is allowed to invest considerable dollars in revamping supply chains.

  • Increased efficiency and optimally balanced inventories will prevent the “demand-pull” inflation that is predicted to occur and
  • as a result, interest rates will likely stay reasonable.
  • Cost pressures will decrease as a result of re-balancing of production to minimize logistics costs, increase efficiency, and use more affordable materials which will result in
  • profitability for manufacturers increasing.
  • A resurgence of corporate faith in the economy will lead to more hiring,
  • which will renew consumer confidence, and since they will have more dollars to spend as a result of decreased unemployment levels,
  • spending will increase, releasing the pent-up demand for consumer goods, and then the
  • economy will rebound.

No stagflation. I think the authors of the piece over on the ISM site that asks “[if] your supply chain [is] ready for stagflation” are brilliant. Because, with a careful analysis, it really does look like better Supply Management, with investments in supply chain improvements across the board (which result in more job creation immediately), can pull the economy out of the funk it is in.