6 top reasons why you should consider Supply Chain Analytics

"In God we trust. All others must bring data."

William Edwards Deming -- renowned American statistician, professor, author, lecturer and consultant.

 Let´s face the truth: for most of us “Supply Chain Analytics” means to do calculations (some complex, some with a lot of data) using spreadsheets. However, it is difficult to tackle the increasingly complex problems in demand planning, inventory, distribution, manufacturing, maintenance, transportation and procurement using spreadsheets. To worsen the situation, in the near future, the amount of data that will be available will surpass easily our ability to make effective analyses using just spreadsheets.

As you may know, Business Analytics is defined as the process of collecting, storing, and analyzing data in a way that enable better business decisions. Applied to Supply Chain, the definition becomes (APICS) “the ability of supply chain professionals to analyze increasingly larger sets of data using proven analytical and mathematical techniques (regression analysis, stochastic modeling, linear and non-linear optimization, etc.) allowing them to spot patterns and correlations, perform comparisons and highlight opportunities”.

Based in our expertise and how the trends are affecting the effectiveness of the supply chains, I share with you the 6 top reasons why Supply Chain Analytics is a capability that companies should develop in the short term to remain competitive:

 

Reason 1. Your supply chain is getting more and more complex.

Just between the manufacturing plant and the client are usually more than 12 stages. The trend is that the number of stages will grow, and we are going to have more incumbents in our supply chains (at this point, I like better the concept of supply networks...). With this complexity increasing, and with more demands from our clients and customers , it will become more and more difficult to manage effectively our supply chains. But, you are not alone (sorry to say...): nowadays only 11% of companies have the capabilities that they need to evaluate a “what-if analysis” and only 24% of companies are able to model profitability impacts of changing conditions in their complex systems.

Additionally, the impact of unexpected events in our supply chain are becoming more frequent. If we add the effects of complexity and risks, Supply Chain Analytics looks like a tool required not just to cope with them, but to manage the operation day-to-day.

Reason 2. You reached to a "performance wall" in your supply chain.

It is said that 9 out of 10 companies are not achieving to improve their supply chain performance. A study considering 310 companies in different sectors shows that there “the use of Business Analytics in critical process areas affect a Supply Chain performance”.

A research by Industry Week and SAS, shows that “manufacturing companies that have a clearer visibility into operations and market activity through supply chain analytics can better foresee challenges and thus respond to them proactively, increasing both efficiency and profitability”. If you think you have done everything, that you have squeezed the value of the supply chain, try Analytics and surely you will find more sources of value.

 

Reason 3. Your capability of generating models is slower than the required time to respond to the market.

I can imagine in a typical company the head of Supply Chain instructing his people to do new analysis in order to decide if they should start producing a new product in another line, to seize the opportunity of a peak in the demand. Some of the questions that may arise will be like: Is it going to be profitable for us? What happens with the other products that were produced at such line? How long should we keep producing it?

The analyses and possible what-if scenarios will normally imply to create and validate a new ad-hoc spreadsheet based model. However, due to variety and volume of data, the answer can take longer than we expected, not seizing the opportunity in a timely manner.  Having a Supply Chain Analytics will create the ability to react more quickly to changes and to have more insights about the future.

 

Reason 4. You already figure out a solution, but you don´t have the information to convince others.

Do you remember the famous phrase “In God we trust. Others must bring data”? Well, intuitively and based on your expertise, you may have an answer to a supply chain situation, and probably, is the right one. However, How you can convince the other areas involved in the process (or your boss) that is the right decision? For most companies, the effective way to gain consensus to a decision is showing evidences, analysis and “what-if” scenarios with possible outcomes. Additionally, you will need a way to create a convincing story using data visualization, in order to convey complex ideas and lead to faster decisions. Supply Chain Analytics can help you to do that in an effective way.

 

Reason 5. You need to get ROI of IT investments in your company.

If your company has invested heavy money in an ERP system (like SAP, Oracle, Microsoft Dynamics, etc.) and the manufacturing and logistics functions are enabled, it is easy to amass large amount of data about the operation. Additionally, supply chain issues are normally interrelated with other sources of data like: other functions in the company (i.e. sales, marketing, procurement and finance), collaboration (i.e. client data, supplier’s data, and joint forecasts), the environment (i.e. macroeconomic data, GDP growth, inflation, exchange rate, and price elasticity), the market, your competitors and so forth. Is your duty to exploit effectively such investment, improving the supply chain through the analysis of the data in order to improve forecast, demand planning, sourcing, production and distribution decisions.

 

Reason 6. The Internet of Everything (IoE) will generate a big amount of data to be processed.

There will be in the near future (before 2020) a huge amount of data generated by the IoE. A Cisco´s whitepaper urge the companies to “embrace the Internet of Everything to capture your share of $ 14.4 Trillion”. Of the $14.4 Trillion, $2.7 Trillion will come from Supply Chain and Logistics. Are you prepared to capture your share?

To manage and leverage this wave of data using spreadsheets will be no longer possible. Supply Chain Analytics will become a must to remain competitive in this sea of data.

How to Get Started

We have to start with something. Some recommendations to create this capability in your company are:

• Start with an external capability before building your own. Try it and see the results, then start building your own capability.
• Hire talent with a mix of deep analytical skills and business and industry knowledge.
• Create quality questions and sound hypotheses. The model will be as good as the questions we want to answer.
• Keep an eye on the ROI. Share with the management, crisp and clearly, the benefits of the Supply Chain analytics initiative, tracking the results of the decisions taken.

The similarities between Colonialism and a Post-merger Integration

I know you don´t like this title, especially if you have been through an acquisition or joint venture recently, but in several ways a Post-Merger Integration (PMI) resembles the Colonialism. In both cases we find:

- A clash of two or more different cultures

- A dominant and a dominated culture

- A effort to integrate (or not!) the different cultures

- The creation of a new nation with (hopefully!) the best of the mix of cultures

We can use the history of the Latin-American colonies (being from around here, it is the best I know…) with a PMI. I´ll try to illustrate it:

- There is a person in the organization that is convinced that we should explore and acquire another company, because it will bring us a lot of benefits. His or her work is to try to convince the board that the company should pursue such opportunity (like Christopher Columbus did with the Spanish Queen pursuing another way to go to India).

- We arrive to our target company, explore and show to the management the richness of the new territory (at this point, our Christopher Columbus showcases the opportunties of the discovered territory, in other words, what he found using the data room).

- We decide to conquer (or buy, in other words) and we approach the new territory. Normally, little effort is done at this stage to understand the culture of the acquired company (our Hernán Cortés or Francisco Pizarro decides to conquer the new territory and to get the most out of it).

- We do the integration, and expect to extract the treasures of the new territory (sinergies). At this stage, we can approach the PMI in several ways (as a comparison, I will use part of the glossary shown in the paper “A Definition of Colonialism” by Ronald J. Horvath):

·         Domination: is the control by individuals or groups over the territory and/or the behavior of other individuals or groups. It means, which is the dominant and dominated side of the merger equation.

·         Intergroup domination: is the domination process in a culturally heterogeneous society, intragroup domination that in a culturally homogeneous society. Typically, it is an intergroup domination.

·         Colonialism: is that form of intergroup domination in which few, if any, permanent settlers in significant number migrate permanently to the colony from the colonizing power. In the comparison, we send a big group of C-level and workers to dominate the new company with the culture and way of doing things of the acquiring company.

·         Imperialism: is a form of intergroup domination in which few, if any, permanent settlers from the imperial homeland migrate to the colony. I.e. we send some C-levels to control the new company.

·         Administrative Imperialism: refers to that form of intergroup domination in which formal (direct) controls over the affairs of the colony exist through a resident imperial administrative apparatus. We send a CEO and its C-level from our ranks, in order to control the operation.

·         Informal Imperialism: is a type of intergroup domination in which formal administrative controls are absent and power is channeled through a local elite. We convince the current leadership, or a new one, to manage the company in the way we defined.

We expect that at some point, the different cultures merge in a new one, the colony gains its freedom and become a prosperous and independent country that may be part of our administrative Empire... In what type of PMI have you have been through?