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?

Don´t design based in Processes. Do it based in the Customer Experience.

Last week, I went with my wife to buy her a new car. We planned to pay part of the price with our current SUV. We were attended by a nice salesman, he explained the characteristics of the car, we drove the car in a test drive and executed all the normal steps that should make the experience of buying a new car a pleasant and happy one.

However, near the close of the deal (actually, we gave some money in advance to secure the model we wanted…), we were directed to the "used cars manager” to offer him our used SUV. At this point, because of "their established process" the customer experience started to go south. We were asked to give them our used SUV and the property documentation, and "hopefully" they will pay us the price in a term of "near" 5 days. It meant that:

- We don´t have nor our car neither the property documentation (with all the security issues you may imagine)

- We have to pray (or “trust them because they are a big company” as the manager said…) that they pay us in the expected term

- We don´t have a car until they pay us. So we have to stop doing our normal life because of that.

The excuses were based on "their internal processes and to comply with recent regulations”. We asked to other dealers (just to check...), and they told us that we will give our used car and at the same time, we will receive the new one after we pay the difference. So, this a case were the "process" ruined the "customer experience".

What I learned is that, especially for front-office processes, we have to start with the design of the Customer Experience, then the Services we will provide to our Customers, and then (finally…) the Capabilities required, which imply the Processes, People and Organization required to serve our customers.

We will talk about that in other post, but for now, I will share some links that may help you to start designing starting with the Customer Experience:

- How to map and study Customer Journey? http://klou.tt/i3bbdqcyu8tl

- 5 Tips For Building Great Customer Journey Maps http://klou.tt/1708nirs1zr8i

- Build your Product around your Client http://klou.tt/12tb86trimq12

(More links in my twitter: @abauza)

5 Mind Settings that you must exercise in a Transformation

A company transformation awakes on us different emotions (yes, it is an emotional process…), ranging from fear to excitement. We can face the transformation as a rational step by step process, but still, we are not going to have success if we (the transformation team) don´t have the right mind setting. In my experience, there are at least 5 mind settings you need to have during the process, in addition to having the right leadership in place:

 

 

1)      The Pioneer. Imagine Neil Amstrong and Buzz Aldrin on July 20, 1969. I´m pretty sure they were scared to death, but they had something we traditionally lack of: a pioneer mentality. Being the first men landing on the Moon implied to be prepared to face the unknown with success. The transformation teams have to exercise this mind setting: we are going to confront new and unexpected problems for the first time ever, and we have to solve them successfully.

2)      The Treasure Hunter. The transformation is a quest for value, and value can be found in several forms (money, time, quality, service, etc.) Looking for this value in the transformation is one of the main tasks of the transformation team. They have to communicate that the transformation is worthy due to the big amount of effort that it implies and the stress it produces to the organization.

3)      The Prophet. Like Moses, you need to have a clear vision of the “Promise Land”, in order to lead the team (of course, not in 40 years…) to the new state. The leader of the transformation needs to have this clear and compelling vision and he/she needs to be like a prophet in the enthusiastic communication of such a vision.

4)      The Perseverant. Despite several previous attempts and dangerous weather conditions, Sir Edmund Hillary achieved the top of the Mount Everest in 1953. The transformation team will confront adverse business situations and it may be tempted to abandon the trip. The team has to be perseverant and look for ways to overcome the situations in order to get to the desired state.

5)      The Winning Team player. A transformation is an extremely collective effort. Like in a sports team, we have to support our team mates and to have confidence in their abilities, everyone in his/her role. As Bill Shankly (former Scottish footballer and Liverpool manager) said: “I want to build a team that’s invincible, so that they have to send a team from bloody Mars to beat us.”

8 traits that will make you a better leader

We are in the age of leadership, and it is not easy to be an excellent leader. Leadership doesn't mean to be the boss, it means to achieve goals, initiate and develop a movement and gain transcendence through the effort of a team. Through the years, I have learned from my mistakes and I would like to share some traits that will help you to become a better leader:

1) Be human. Make your team laugh (or cry, depending on the situation...), but don't make them cold and indifferent. I've found that my teams are more creative when we are willing to enjoy and to have fun with the work we are doing.

2) Think always in your client. In business, and I would say in all human endeavors, you have to think like your clients (client in a broader sense can be even your wife!). At the end, you want to create a movement, a change of behavior, a transformation, and thinking only in yourself will not help to achieve that.

3) Recognize the contributions and merits of everyone. Nothing is more pleasant that the praise of someone, and we tend to give us the merit. Remember in such moment of glory, who helped you to achieve it. Give credit, give praise, pamper your team for its big effort. You will feel even better.

4) Lead by the example. Be creative, be bold, behave in the way you want your team should behave. It will be difficult to have a maverick team is you are a turtle. They are eager to replicate you, so make your best effort to transmit your energy clear and loud. Be ethic, be personal, be human and they will be like you.

5) Listen more than talking. As an old saying states, "we have two ears and one mouth, so we should be more able to listen than to speak". But we love to listen to ourselves, we are so in love with our voice that we tend to speak and speak. Take time to listen, take time to comprehend what your team is sharing, and what your client wants. It will help you a lot!

6) Learn everyday, and share your lessons learned. If you think you know everything that is needed, may be you are already dead. Search for new things and new ways of doing your work. Share such new knowledge with your troops. They will appreciate it and they will know better what you want to achieve. And a plus: sharing will let you to reinforce what you have just learnt.

7) Take time to think and strategize. Your time is all crowded with meetings and work, but you need some time alone to think and strategize. I like to do that first thing in the morning sipping a cup of coffee at Starbucks. Find your way to look for that time alone, and take a notepad (or iPad, iPhone, napkin, something!) to capture your ideas. Don't let them fly into the air even if they look crazy at a first sight.

8) Take time to mentor people. Your team loves feedback and they want to hear directly from the source: you. Take time to mentor people. I like to do that in a different environment (may be at lunch time, in a quiet restaurant). Share the good and the bad, share anecdotes, be vulnerable and share your mistakes and how you recovered from them. He/she will work better because you both understand better each other at a human level.

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 Value Chain (II) - Emerging Markets

Did you know that:

• in 2009, the Emerging Markets achieved to be 50% of the Global Economy?
• by 2020 some 900 million people in Asia will enter the middle class (defined as US$5,000 per capita in purchasing parity (PPP) terms) - enough to have significant disposable income to activate a host of new non-life sustaining consumption?
• the number of companies of Emerging Markets in the Fortune Global 500 grew more that four times in 15 years?
• companies are experiencing declining growth in America and Europe (Developed Markets)?

Newly industrialized countries (Photo credit: Wikipedia)

In the future, the world will look more balanced mix of affluent consumers in emerging markets and developed markets. Companies are adapting their value chain footprint and features in order to seize the opportunities to increase market share. These two big types of markets will require differentiated strategies to conquer them. Some companies have failed miserably trying to use proven strategies in developed markets in the emerging markets.

 

A study from Accenture called "The Future of Consumer Goods: Moving from Analog to Digital" (http://goo.gl/EfGqde) explains that the business and operating model evolves in this world domined by globalization, as shown in the following figure:

Photocredit Accenture

 

The different business and operating models reflect the strategy of the companies to conquer the global market. Let´s describe briefly each one:

• Local: A loose federation of autonomous local operating companies. The customers are serviced by country, the supply chain is locally focused and local brands with a strong national appeal.
• Regional: Regional customers, hubs and brands. Consumers segments addressed regionally - gender, age, ethnicity, income, etc. -, manufacturing and supply chains assets consolidated regionally, logistic regionalized.
• Global: Growing global priority brands. Creation of global brands and global supply chain organizations with regional hubs.
• Super Global-Super Local: Enfranchising new consumers. Develop consumer archetypes to shape product development and engagement. Reconfiguration of supply chain assets and network to ensuring emerging market reach.
• Digital Disintermediation: Disintermediating the industry model and critical capabilities and implies the rise of new industry models and economics. Digital only retail channels, mega-segmentation, consumers begin to drive innovation and supply chain moves from a push to a pull model.

For example, Unilever can be considered in the Super Global-Super Local type of operating model. As described in its site (http://goo.gl/VUwwmi), Unilever has a very clear strategy in order to leverage the trends in emerging and developed markets:

• "We aim to be ‘first and fast’, not only in new markets, but also in new channels so 2013 saw a continued expansion into white spaces, with 32 of our global brands launched in new markets, including eight brands launched throughout Africa, where we continued to see growth opportunities even as other emerging markets showed some dampening effects from the global economic downturn."
• "Our ability to innovate, deliver quality products and roll out repeatable working models across countries more quickly is critical to our success in the market."
• "We have more than 100,000 suppliers and we deliver to more than 8 million stores. By working with these and other partners we can reach more consumers, develop new products, build new capacity, increase margins, and nurture sustainability."

The Unilever 2013 Annual Report states that "emerging markets now account for 57% of our business and have the potential to provide far greater growth in the future". Unilever has developed specific products to operationalize their value proposition for these markets:

• In Africa, margarines are fortified with several vitamins including Vitamin A. Africa contains 33% of the world´s Vitamin A-deficient children.
• Knorr´s Baking Bag has gained market share especially in Latin America.
• Cornetto saw strong top and bottom line growth in China in 2013, making China the biggest Cornetto market for the first time.
• Unilever makes its soaps and shampoos in China foamier that their Western equivalents because foamier is perceived as better.

As other examples, LG produces refrigerators and micro-waves tailored to the regional differences across India. In such a way, LG takes in account the prevailing local food culture. Also, Nike produces and all-enveloping athletic uniform to protect the modesty of Muslim women athletes.