Executive Briefings

Making the Supply Chain More Responsive Requires Organizational and Process Change

Most companies understand that today's market environment requires them to become more agile and responsive, but few comprehend the supply-chain changes required to make the leap from simple efficiency to true responsiveness, says Michelle Meyer, director of supply chain solutions at Hitachi Consulting. In a survey of 164 companies in eight manufacturing sectors, done in conjunction with AMR Research, Hitachi sought to better understand the supply chain processes, practices and technologies that are necessary for companies to make this shift.

"One of the core things we find among companies that truly are customer responsive is a very, very good demand planning or sales and operations planning (S&OP) capability, which includes the ability to collaborate with customers to get reliable demand signals," Meyer says. "Our insights show that companies have to be very good in this space in order to be responsive, regardless of the industry or customer base they serve."

Having the right metrics in place is another key capability. In the consumer packaged goods sector the Perfect Order is a valid and widely accepted measurement, but it is less prevalent in other industries, Meyer notes. "One predominant way to assess how well your supply chain is doing is to measure actual demand against the demand signal you are using and to do that on a very fast cycle," she says. "This is different from forecast accuracy, which a lot of people get fixated on, and it drives very different behavior. It puts more emphasis on the variation of actual to planned demand."

The other metric that Hitachi is working on with clients is the percentage of the demand signal that is either actual demand or a collaboratively generated forecast, as opposed to a historical or statistically based forecast. "You might start with historical information but then you arrive at a collaborative set of data that you execute against and measure against," she says. Companies whose forecasts are based on actual or collaborative data are more customer responsive, she adds.

Becoming truly responsive to the market often requires organizational changes as well, Meyer says. "One of the most interesting findings that came out of our research with AMR was in what companies perceive as the single biggest inhibitor to having a responsive supply chain. By a very, very large margin, the number one factor was culture, particularly the culture around collaborating and sharing data and having a structure that enables that."

Organizations that are distributed or that have a lot of reporting channels and a lot of different people making decisions find it more difficult to be aligned and to collaborate on processes and technology for sharing information, she says. "We were surprised by the overwhelming nature of this response."

Essentially this means that companies need to "plan centrally and execute locally," she says. This doesn't necessarily require that supply chain managers all be in one location, but the supply chain organization needs to own the processes and resources across all locations and make the decisions about how to commit those to meet customer service requirements, Meyer says. "This is often the first or biggest change that companies are facing in terms of how to make the shift to being more responsive."

Most companies understand that today's market environment requires them to become more agile and responsive, but few comprehend the supply-chain changes required to make the leap from simple efficiency to true responsiveness, says Michelle Meyer, director of supply chain solutions at Hitachi Consulting. In a survey of 164 companies in eight manufacturing sectors, done in conjunction with AMR Research, Hitachi sought to better understand the supply chain processes, practices and technologies that are necessary for companies to make this shift.

"One of the core things we find among companies that truly are customer responsive is a very, very good demand planning or sales and operations planning (S&OP) capability, which includes the ability to collaborate with customers to get reliable demand signals," Meyer says. "Our insights show that companies have to be very good in this space in order to be responsive, regardless of the industry or customer base they serve."

Having the right metrics in place is another key capability. In the consumer packaged goods sector the Perfect Order is a valid and widely accepted measurement, but it is less prevalent in other industries, Meyer notes. "One predominant way to assess how well your supply chain is doing is to measure actual demand against the demand signal you are using and to do that on a very fast cycle," she says. "This is different from forecast accuracy, which a lot of people get fixated on, and it drives very different behavior. It puts more emphasis on the variation of actual to planned demand."

The other metric that Hitachi is working on with clients is the percentage of the demand signal that is either actual demand or a collaboratively generated forecast, as opposed to a historical or statistically based forecast. "You might start with historical information but then you arrive at a collaborative set of data that you execute against and measure against," she says. Companies whose forecasts are based on actual or collaborative data are more customer responsive, she adds.

Becoming truly responsive to the market often requires organizational changes as well, Meyer says. "One of the most interesting findings that came out of our research with AMR was in what companies perceive as the single biggest inhibitor to having a responsive supply chain. By a very, very large margin, the number one factor was culture, particularly the culture around collaborating and sharing data and having a structure that enables that."

Organizations that are distributed or that have a lot of reporting channels and a lot of different people making decisions find it more difficult to be aligned and to collaborate on processes and technology for sharing information, she says. "We were surprised by the overwhelming nature of this response."

Essentially this means that companies need to "plan centrally and execute locally," she says. This doesn't necessarily require that supply chain managers all be in one location, but the supply chain organization needs to own the processes and resources across all locations and make the decisions about how to commit those to meet customer service requirements, Meyer says. "This is often the first or biggest change that companies are facing in terms of how to make the shift to being more responsive."