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.

5 points for a successful S&OP implementation

During the implementation of one of the most famous cross-functional process in different companies, we have learned from the experience several aspects that will make the transition easier for the company. Such 5 points are:

1) Start with the "S".
Tipically, a S&OP project is initiated by the Supply Chain function in the company and it makes it to be interpreted as another "supply chain project". However, the initiative will not success unless we start designing the Sales part of the planning, from the Commercial Planning to the Demand Planning. This part tends to be overlooked by the project, and indeed, it is the most important part: to achieve that Sales buys the project and be accountable for its contribution and responsibilities in it.

2) Start simple, then build up maturity.
We tend to push the whole capability (process, technology, organization) from the start. However, I have found that, in most of the cases, there is a problem of business readiness that we have to solve. So, better start simple, exercise the process, build the organization and then put technology in place. When ready, build up maturity with more advanced process and technologies and training the talent accordingly.

3) Design your S&OP with a 20-20-60 view.
What does it mean? Design the S&OP meetings and other S&OP interactions in order to cover in time: 20% past (lagging KPIs and results), 20% present (solve current issues) and 60% future (leading KPIs and what-if scenarios). The S&OP is a great process to start exercising views of "what will happen" instead of explaining "what happened". There are other meetings in the company with that objective.

4) Don´t try to boil the ocean.
It is difficult to solve all demand and supply issues in one meeting. The S&OP is not a meeting, is a process that has specific activities and deliverables every single day of the month. Try to bring to the meeting only the issues that need to be solved, and do not try to revise all SKUs in every single point of your network. Focus in KPIs and expected results, new product introductions, and the most important aspect, in how to serve better the clients at the right cost to serve, delivering or exceeding the expected profitability.

5) Connect intimately planning with execution.
A plan without the right execution is useless. Guarantee that the execution process (sales execution, manufacturing, distribution, transportation, etc) are aligned to deliver the plan. Also, that any variation between plan and execution is recorded, analyzed and fedback to the planning process. If not, the plan accuraccy will not improve, and the expected benefits for the process will not come.

The Future of the Value Chain (I) - Consumer Futures

The consumer is changing and will continue changing. In a study by "Forum of the Future" (http://www.forumforthefuture.org/project/consumer-futures-2020/overview) shows that we expect major changes in the consumer behavior by 2020. It implies that both producer and retailers have to adapt dramatically their value chains to fulfill their expectations.

The study shows four scenarios, based on different possible trends on the economy, demography, resources, etc.. The four scenarios as shown below:

 Let summarize each scenario:

"My Way" is a high tech world, with a prosperous and entrepreneurial economy dominated by community-based trade. Smart products promote patterns of consumption that use less energy and water and generate less CO2. Many fresh products come in smart packaging that keeps them refrigerated and changes color when they pass the use-by date. Some of the characteristics of this scenario are:

• Consumers buying patterns are unpredictable and volatile
• Their relationships with brands are short lived
• Supermarkets loyalty cards are thing of the past

"From my to you" is a world where communities, collaboration and innovative business models facilitate low-carbon lifestyles. The economy is subdued and uncertain and consumers feel business is falling to deliver on the challenges faced by society. Some of the characteristics of this scenario are: 

• Loyalty brand is low
• Popularity of processed flow has declined
• More people are asking for ingredients and components rather that the finished article
• Consumers seek to obtain their goods as locally as possible

"Sell it to me" is a personalized consumer world in a flourishing global economy which is dominated by brands. Innovative products provide personal health solutions, for example, clothes impregnated by vitamins, or shampoo lather that changes color to indicate mineral deficiencies. Some of the characteristics of this scenario are:

• Consumers are confident about trusted brands, and expect a lot with them.
• They are demanding, expecting the "very best" on every score
• Consumers expects highly personalized products, services and entertainment from the retail experience.

"I´m in your hands" is a tightly regulated world in which consumers trust brands to provide what´s best for them and for the environment. The economy is recovering from recession but growth is low and credit is tight. Consumers might be fitting their homes with entirely brand-sponsored bathrooms that provide with personalized supplies of branded toiletries on demand. Some of the characteristics of this scenario are:

• Consumers want to be looked after, they want to trust businesses and governments to provide what is best for them.
• Less interested in shopping as a leisure activity.
• They want the products they do buy to be effective and durable.

As you may perceive, such consumer scenarios are demanding and expect different and innovative things from producers and retailers. In my opinion, the near future will be more a combination of these different scenarios and they will appear depending on what part of the world, what city, or even what neighborhood are you referring to.

The Power of the Words in Business.

“Words are, of course, the most powerful drug used by mankind.” 
― Rudyard Kipling

I have seen a common problem in different businesses, and that problem is the lack of a common understanding of the terms used for the business strategy and execution, and in other cases, terms used in a wrong way. Although is not necessary that all employees have a thesaurus in their heads, it is important to select and have a common understanding of the key words for the business.

Key words are those that we have to guarantee that employees understand in the same way. These key words are important in the business strategy definition and in its implementation. Also, I have found that when a business uses properly a term and the variations of such term, tends to have a better framing of the opportunities they have.

I work mostly in Supply Chain and BPM projects, so we guarantee that everybody understand quite well what "inventory" and "process" mean, as an example. If we look for the definition of "inventory" we may find that is:

"The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale."(1)

However, if we look at the APICS dictionary, we may find 137 terms related to the word: safety stock, base stock, make-to-stock, pipeline stock, etc. We can get lost in this amount of terms, so in an initial stage, we need to have a selection of key words for the business.

We can face this problem in different ways. Some of the recommendations are:

- Use clear and unambiguos words in the Vision and Mission declaration statements. Make them short and easy to remember.

- Select the key words for your business. Link them to the business strategy and the key operations outcomes you want to achieve.

- When initiating a project, execute a training on basics and key concepts before starting the core work. Make sure everybody in the project understand the same. Use certification or exams to calibrate the understanding of the concepts.

- Use training as a tool to gain maturity. For example, Accenture has a set of on-line academies used extensively and massively to gain momentum in business concepts and practices.

- Measure maturity growth periodically.

More information:

http://www.accenture.com/us-en/Pages/service-accenture-academy.aspx
http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture_Supply_Chain_Academy_height.pdf
http://newsroom.accenture.com/article_display.cfm?article_id=4182


Sources:(1) http://www.investopedia.com/terms/i/inventory.asp

Cross-functional Capabilities: Sales & Operations Planning (II).

The One-Plan objective.

The Sales and Operations Planning (S&OP) more than looking for one-plan, is aiming to have several consistents plans, or, in other words, one plan with different views. The secret is that the same numbers and decisions are managed by all functions involved.

How do you get this result? The answer is not easy. First of all, you have to have clear what is the Business Plan for the year. This Business Plan should have clear the monthly (or any other period) requirements in terms of sales and profitability. The Business Plan, after one year of exercise, should be mainly obtained from the S&OP created before the year ends. The Business Plan will be the "north Star" for the whole S&OP process.

Starting with the left side: the Demand Planning process.

Your S&OP planning must start always with the client (customer, consumer, user, etc.) in mind. So, the first step is to create a Demand Plan. We can summarize the Demand Planning components as shown in the following figure:

This diagram does not pretend to be exhaustive, however we can illustrate several aspects of the demand planning process:

- The outcome IS NOT the forecast. The forecast is an input for the whole process. It is located outside the boxes of Sales and Marketing, because it can be generated by them (or not), even it can be generated in another function or organization.
- Both Sales and Marketing should contribute to the Demand Plan. We have to consider at least the building blocks shown in the figure.
- The sales force should collaborate in the final Demand Plan. They should add any local or regional initiative, their own knowledge of the local market, any localized promotion, market sensibility, etc.

At the end of the process, we should have a Demand Plan agreed by both Sales and Marketing, as an input for the Supply Planning process. We should discuss the elements of this process in the next blog...

Cross-functional Capabilities: Sales & Operations Planning (I).

Sales and Operations Planning (known as "S&OP") is one of the key cross-functional capabilities that really make a difference in the market. However, the S&OP capability is like going to the gym: everybody has the membership but few really do exercises frequently. It means, when you ask if you do S&OP, almost invariable everybody responds: "we have a S&OP in place". The reality is that they may have some meetings, but not really a S&OP capability.

The S&OP is the capability (i.e. the right combination of process, people and technology to create a competitive advantage) that transform the Business Plan to the execution, through the balancing of the demand and supply in a profitable way. It involves several functions of the company. In the demand side: sales, marketing, new product development, key account managers, i.e. the part of the company that plan and execute the "generate demand" part of the business. In the supply side: manufacturing, supply chain, logistics, procurement, i.e. the part of the company that plan and execute the "satisfy demand" part of the company. Another key actor is the financial part of the company: they are the ones who will help to decide, based on the numbers: revenues, costs and profitability expected from a S&OP decision.

Based on an Abeerden Group research ("Sales and Operations Planning. Key Enabler for the Supply Chain Officer" August 2011) the top business pressures that leads the company to design and implement this capability are:

- Reduce supply chain costs - 54%
- Improve top line revenue - 46%
- Managament of increasing volatility - 43%
- Customer mandates for faster, more accurate and more unique fulfillment - 37%
- Need for better tighter integration between planning and execution - 34%


The paradigm of the S&OP is to generate "one plan" in the sense described in my previous blog (see http://bauzanotebook.blogspot.mx/2013/05/blog-post.html). The benefits that this capability will bring to the company are very important and tangible, and are tipically in:

- Improvements in on-time in-full delivery to the customers
- Rationalized inventory levels
- Less manufacturing downtime
- Better plant efficiency
- Lower transportation costs

In the soft side, the benefits are:

- Enhanced teamwork
- Better decisions
- Better financial plans
- Greater control
- Better visibility of what can happen in the future

In the following blog, I will explain in more detail how is the S&OP process and how to get these benefits.