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.

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...