Enterasys designs wired and wireless network infrastructure and security solutions to help enterprises stay in front of changing connectivity and security needs, but recognized in 2004 that it wasn't as good at responding to constantly evolving global business change and the impacts on its supply chain. That year, the company embarked on a CEO-driven mission to transform itself into a lean, responsive and much more demand-driven business.
"We struggled at predicting demand, which resulted in significant excess and obsolete inventory," said Jack Lyon, vice president of operations a Enterasys, who lead the charge for change. "In high-tech, there is no quick or effective outlet to offload excess inventory; you own it, reserve for it and deal with the financial consequences." His baseline assessment of the company's supply chain challenges also included: order delays, sluggish market response, short product life cycles and organization silos of information. Exacerbating the problem was a completely outsourced supply chain with contract manufacturers building all of its products.
S&OP: Year One Anticipating the Market
Within a year of Lyon's assessment, the company improved its bottom line by applying new techniques and cloud-based technology to a proven process -sales and operations planning (S&OP). Technology-enabled S&OP helped Enterasys connect its people and process to better understand operational tradeoffs, when changes in the business environment did not align with its business plan.
In 2005 the Enterasys S&OP process brought together a cross-functional group of leaders from sales, marketing, product management, operations, finance and supply chain. At the same time, its provider, Steelwedge, integrated and normalized the data from each of those groups that resided in their respective systems such as SAP and Salesforce.com - and eventually added in Big Machines as well. From there, Enterasys drove pretty significant and immediate changes in its business starting with better demand predictability, which in turn, directly affected its ability to respond to change.
For example, within a year, the company could determine in near real-time when a product was not selling as well as expected and drive demand-shaping activities to stimulate sales. Alternatively, if products were selling better than forecast, Enterasys could look first at sales data to determine if the growth was sustainable, then reach out to its contract manufacturers to determine their capacity to boost production short- and mid-term.
The bottom line was clear as well: decreased excess and obsolescence accounted for a whopping $3m to $4m in savings per quarter initially.
As an early adopter of technology to power better global supply chain process, Enterasys captured the attention of other businesses with complex global supply chains. Its success story was featured in the Harvard Business Review that year and showcased how a business could move from reacting to the market, to a position of better anticipating the market: a position that Gartner, the IT research and advisory firm, calls Stage 2 S&OP Maturity.
But better demand planning was just the beginning of the ongoing transformation that Enterasys continues to drive from technology-enabled S&OP. Armed with cross-company data and insights, the S&OP team moved its discussions from having enough supply to fill a particular order, to strategizing on improving gross margins. It regularly uses S&OP to power "what if" scenario planning across many facets of its business to understand the impacts of potential changes on customer satisfaction, revenue, sales and production.
Seven Years Later: Collaborating and Orchestrating
Enterasys has taken a purposeful, incremental "win" approach to driving advancement and ROI from its S&OP. Seven years later, the company has a global, collaborative and integrated S&OP process and methodology, powered with the Steelwedge S&OP Platform. Its demand and supply plans are aligned internally and externally with suppliers and customers. In turn, better balance is delivering better predictability, better cash spend and better customer success.
Among the returns that Enterasys counts from its mature use of S&OP, says Lyon:
- Timely and accurate information through automation
- Cross-functional alignment through a collaborative planning approach
- Higher customer satisfaction through better fulfillment
- Sustained high global customer satisfaction: 95%
- Customer fulfillment: over 97%
- Reduced inventory 21% year over year
- Forecast error (MAPE): averaging 24%
- Revenue impact less than 5% (of material overhead/excess inventory)
Perhaps most telling of its accomplishments, in 2012, Enterasys marked its third consecutive period of year-over-year growth. Critical to that business stability is Enterasys's S&OP foundation.
Under Lyon's leadership, S&OP has become a key strategic lever for the company's continued market growth and competitive advantage.
But Lyon says the company isn't stopping there. He says that the ever shifting marketplace requires constant vigilance on agile business planning to maintain great customer success.
"We traded up our problems, by transforming from a manually intensive supply chain into a lean and responsive organization," says Lyon. "For us, success is all about strengthening the collaboration with customers, delivering on our promises and meeting their expectations. Therefore, our optimization work is never done."
Optimizing Business in a Volatile World
"We've been successful with S&OP because we've taken an iterative "˜crawl, walk, run, sprint' approach to implementation, testing, measurement and advancement," says Lyon. "It's a non-stop journey. The only constant in business is change, whether its market disruptions, economic volatility, a natural disaster"¦or you name it: they all have varying degrees of impact on the process. Achieving a "˜sprint' may only happen for a matter of seconds before continuous improvement kicks in and you re-evaluate. But we have an agile foundation in place to help us deliver better, more consistently"”regardless of the circumstance.
"Our robust process along with integrated operational data in the Steelwedge S&OP platform, allows us to synchronize supply and demand. It's the power behind the process; it impacts our revenue, our cost, but most importantly our ability to service our customers."
Keywords: supply chain management, supply chain solutions, demand planning, integrated business planning, supply chain management IT
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