Planning, execution slowly converging, constituencies extend to ends of business, processes the goal, reasons to be cheerful
As defined by the non-profit Supply Chain Council, the supply chain "encompasses every effort involving in producing and delivering a final product or service, from the supplier's supplier to the customer's customer."
It's a lot to consider. At Line56, we published our own Supply and Demand Chain maps years ago to graphically define what are described today as value chains of participants across this continuum. Well before then, the business automation thrust was always toward improved efficiencies and ROI across supply chain functions, and there is reason to be upbeat. Peel back both the negativity and the hype, and history shows that companies have met the challenges pretty well.
"Manufacturing was supposed to die in the 90s, government regulations were bad, everything was being outsourced, the labor pool was bad, interest rates were high," says Michael Schmitt, EVP of strategy at Ariba. "What happened instead is that the 90s spurred an economic miracle in manufacturing productivity."
Instead of "extended," today we could call this the "goal-specific," or "process oriented" supply chain. We can still drop activities into buckets of planning and execution , though these areas are converging. We also can't ignore the encroachment of constituencies at the ends of the organization, in R&D, sales, marketing and finance. Product lifecycle management (PLM) and customer relationship management (CRM) are now a part of the supply chain discussion, as are configuration and control functions like procurement and supplier , spend and contract management.
It's a big picture growing on a platform of past incremental gains, a new supply chain horizon a few years out that should lead to remarkable new efficiencies. Already as organizations seek to "close the loop" of supply chain functions and align with strategy, they are meeting discrete pain points and creating more continuous processes that reach across departments, partners and customers, leveraging new integration and data to fuel new efficiencies.
Convergence
Planning and execution in the supply chain are slowly coming together because no plan is worthwhile that can't be executed. A plan can't help when there's a stockout, though such an event is the reason for having a plan in the first place.
While the execution side saw an extended heyday for vendors like Manhattan and EXE , the processes are joined at the hip.
On the planning side, vendors like i2 and Manugistics, known for their sophisticated demand algorithms, have come around to this point of view. "One of the key things we have found is, where planning was standalone and execution was standalone, it didn't deliver enough benefit because the connection between the two was almost always manual connections and processes," says Pallab Chatterjee, president of solutions operations at i2. A new requirement is that, beyond making plans happen, adjustments need to take place quickly with the ability to tweak the system to respond across a variety of organizations and functions, he says.
Thus, sales and operations planning -- which matches the production plan to the fulfillment plan to the product availability plan -- needs to be a dynamic document, not a set of Excel spreadsheets filed away for later scrutiny of variance to plan. Finally, businesses need to determine the reason for the variance through analytic and other tools for planning revision.
There is progress in that businesses are interested in bridging constituencies as much as they had been in small, targeted solutions. "We went through the phase of delivering point solutions for pain points," says Chatterjee. "Right now people are saying, 'Give me the full workflow for a particular capability.'" Such process gains are seen as competitive advantage to supply chain leaders like Dell or Wal-Mart, meaning they are revenue enhancing, and not just cost measures.
There's not a lot of competitive advantage left in order management or master schedules, says Ariba's Schmitt. Put yourself in the shoes of a CEO, he says, and follow the dollars. Where's the maximum use of your assets? "It's the ability to tie your various groups inside your company together for a process that cuts across divisions," Schmitt says, "but you also need to tie that to the outside world with your customers, your outsource partners, your suppliers."
"If you look at i2's footprint they've gotten off the factory floor and gone into inventory planning and gotten into distributed order management, which in essence pulls together the front and back end of the supply chain," says Tim Minihan, a supply chain analyst with Aberdeen Group. "They're not a niche player, the creeping effect is they optimize the sub-processes and begin to find a correlation with the next process up the line."
But given the array of existing enterprise investments and the need to leverage these, these processes will occur in homogenous infrastructure environments where "coopetition" or coexistence is the new theme. There's more good news there in that integration is progressing to new levels of practicality and cost effectiveness. "It's becoming easier because EAI, Web services, service-oriented architectures , all these capabilities are making it easier for us to overlay whatever the current infrastructure seems to be," Chatterjee says.
Not just integration, but new data streams also hold great promise for the supply chain. One need only look at the value of EDI -- once a transaction mechanism and now a key element of supply chain visibility -- to see where new data will lead us. "I think one of the next big areas of innovation will come when SAP or i2 can start responding to the real physical environment of the supply chain," says Jennifer Chew, an analyst with Forrester Research. "That's still a couple of years away, but as the RFID space begins to mature, we'll start to have validation for planning and execution systems to respond very quickly instead of working with weeks or months-old data."
Demand Side Gathers
We have written about the desire to drive suppliers and sourcing initiatives as far back into the design process as possible to lock in the lowest possible cost, and so PLM has become another ingredient in supply chain strategy. In fact, most traditional supply chain thinking has taken place on the supply side, involving operations planners and factory managers.
Now, much of the demand side supply planning is done completely within sales and marketing. Merchandise planners decide which promotions and assortments to run, and gauge different effects on demand. From the pull side, customers need to know when orders will arrive to meet their own business needs.
Demantra is a vendor with roots in the complex demand planning supply chain space with an emphasis on CPG, food and beverage, and fashion apparel. It continues in this space with clients like Welch's and Wendy's, but Demantra's latest push bets on the front end of the space and a trade promotions management product aimed at the edges of the organization.
The sales cycle there is different. "The buying center is not the CTO or ops guy, it's the marketing and sales and finance people," says Meira Primes, director of global marketing at Demantra. "It's different jargon, different terminology, different pain points." It also involves change management, since new buyers are uncertain and unfamiliar with products tuned to their roles.
At this end of the organization, Demantra sells integrated point solutions and less of a convergence message. "We truly believe that [convergence] is the right message and down the road companies will agree, but given the economy, time-to-market constraints, companies can't buy thought leadership," Primes says. "That is too forward-thinking."
The message today is trade promotions management, marketing planning and analytics, but tied back into the company's supply chain experience on the back end, where Demantra is comfortable with the coexistence message of the other vendors. If Demantra has a poster child for the convergence message, it's Welch's, where a director of customer marketing sits above sales, marketing, trade promotions as well as finance. "They restructured around a new process for integrating the front end to the back end and really fulfill that vision," Primes says.
It has been an interesting shift in decision-making and ownership, agrees i2's Chatterjee. "Last year when the economy was down and everybody was just trying to figure out how to get more orders, the sales cycle went to the demand-side people," he says. "Now the factories are filling and the operations guy has woken up." Whether on the sales or operations side though, finance has weighed in. "The finance guy is the one trying to figure out where the ROI is," Chatterjee says. "He and the IT guy are common wherever we go."
Monitor and Manage
In the middle of this buy and sell side entanglement rest the configuration and control mechanisms being gathered into the new supply chain context. "What you're seeing now is a lot of outsourcing of services, be they call centers, procurement, HR, IT etc., how do I look at growing revenue with demand management capability, how do I improve my assets with better PLM, and how do I control my cost with better spend management capabilities?" says Schmitt. "I don't have a buzzword, but what appears hot on the outer edges of the enterprise is a closed-loop process that cuts across plants and different systems a company has."
Visibility across suppliers and spending categories is a proof point of supply chain efficiency but the processes within drive tremendous efficiencies. The average Ariba customer receives between one and 10 million invoices per year for temp labor, consulting or IT services. That means the best practice for handling an $800 bill for Java consulting is to stamp it and pay it. But if the contract is digitized, contains suppliers and rates, can be electronically sent and matched with a contractor, reviewed at a higher level for terms and conditions that might reveal negotiated benefits -- the potential is staggering when considered across various processes. In 2004, the number of manual processes that exist is truly shocking, Schmitt says.
Companies are trying to develop an information or knowledge management backbone with which to support all the areas of procurement and sourcing, says Anurag Dixit, product marketing manager at spend analysis specialist Zycus. While spend analysis is mostly about cost-cutting, it is evolving. "When people talk about category management it's not only about cost cutting, you want faster time to market, you want to manage your suppliers for quality, you get better products, you can collaborate with them easier," Dixit says. "A lot of that is happening and will continue down the line, though it will take time to migrate this to a single system or platform."
As companies outsource many functions from inside the company, setting up correct suppliers, products and customers are happening at a slower pace, Chatterjee says. At the same time, a decision as to whether a company needs 10 warehouses or 11 is similar to the decision as to whether a company needs 12 suppliers or 10. "So we look at sourcing and master data management as part of the strategic network design and configuration of the supply chain," he says.
Feet on the Ground
Along with changing executive ownership, and outsourcing, IT consolidation is yet another wild card that has cut application spending, hurt the vendors and led to still more outsourcing. It's interesting to note that all of the vendors in this article were publicly considered survival-challenged last year, yet have weathered what is hopefully the worst period for the dotcoms.
Dixit isn't sure whether a niche market can be sustained, but only because spend management is new and an issue companies are only starting to get granular with. "Beyond spend analysis, companies can distill sourcing opportunities and track their plans, but they are just getting around to this," he says.
Schmitt arrived at Ariba just in time for the crash, and says it wasn't just the economy that made things tough in the interim. "I think the kidney stone that passed the industry in the 80s and 90s was that software companies were tied very closely with their customers. When Wall Street got involved, and senior management started making decisions based on market cap, you had companies chasing the dollar and forgetting what got them there."
What kept Ariba around was a management team that got back to its knitting, paid attention to customers and consolidated employees around a single vision instead of 10, Schmitt says. "Your best marketing is customer references. Through the ups and downs of i2, Ariba and all the others, we wouldn't be here if customers were not getting substantial value."
(Jim Ericson is editorial director and senior news editor at Line56.) |
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