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Good planning and forecasting lie at the heart of effective global supply chains. Executives have long struggled with the challenge of matching supply with demand. Expect that task to grow even more difficult in the future, thanks to the dominance of the omnichannel and an increasingly fickle customer base. Following are excerpts from conversations between SupplyChainBrain editors and industry experts about how they're adjusting to change, whether collaboration both internally and externally is really achievable, and whether supply-chain partners and functions are finally managing to agree on “one source of the truth.”
How has supply-chain planning technology changed over the years?
Greg White, chief executive officer, Blue Ridge: I think it’s as good as it can be, relative to technological limitations. Companies continue to reach for more — they’re trying to reach outside the bounds of their own enterprises, and utilize internal processes. Sales and operations planning [S&OP] is a good example. These are processes that help them to plan, assess demand and respond better, to fulfill demand efficiently.
Jane Kaiser, director of supply chain planning for North America, Monsanto: Everything starts with demand, and with the customer. Demand is so important because it drives everything we do. So why are we failing to understand it? We just don’t have the data from everyone that gives us one source of truth. It’s a question of [better] data mining, being truthful with each other, talking to one another. And the price for our ignorance is the waste that we create. I don’t know if it’s 10 or 20 percent of every company’s total cost, but it’s not a little number. Sometimes we overcomplicate things, make them harder than they need to be. We’ve met the enemy and it’s us. At the end of the day, just ask the person. It’s collaborative forecasting.
Luc Schepens, director, OM Partners: Most companies are willing to invest in [demand planning], but one of the challenges is that central supply-chain management wants to get a view of what’s happening in operational planning. Often these silos are protecting themselves, like a manufacturing environment protecting itself from central planning. It also happens in distribution centers, and other parts of the supply chain.
What are the big challenges out there right now in planning and forecasting in today’s markets?
John Lash, vice president of product marketing, E2open: Two of the challenges are complexity and innovation. A lot of companies are using growth through innovation as an important strategy, but unfortunately what we’re finding is that it’s driving complexity instead of sales. Every year we run a forecasting benchmark study, which encompasses approximately $250bn worth of sales from multinational CPG [consumer packaged goods] manufacturers. What we’re finding through that study is that the number of active items that are for sale has increased by 31 percent since 2010. At the same time, sales have only increased by around five percent. It’s driving a lot more complexity than it is sales. One of the root causes of this, when you start peeling back the data and looking at it closely, is innovation. With a lot of the new products being introduced, everyone likes to think that theirs is a winner. In reality, 95 percent of them end up in the tail. It’s a huge amount. And once they start in the tail, they stay in the tail.
So only one in a hundred products becomes a winner. And when you have one, you want to support it effectively. You need to be able to put in the resources to make sure the winner is going to take off, and that you’re getting the appropriate sales, so that you can get a good return on investment for those dollars.
Schepens: In the supply-chain planning domain, companies struggle a lot with collaboration among different functions, silos and areas of activity. People should collaborate more, look at a one-version-of-the-truth solution. If somebody changes something, or if an event occurs that changes it, everybody should have the same end-to-end visibility of the data. That’s what customers struggle with.
Terrie O’Hanlon, chief managing officer, Steelwedge: Traditionally, supply-chain planning has been looked at from a unit and service-level perspective. That’s because supply chains are looked at as just distribution mechanisms. We view them as a revenue-capture mechanism. We look at revenue, unconstrained — all the revenue that you can capture. We say, let’s set our plan that way, and then layer in the constraints of margin and service-level impacts, so that you can make the wisest decisions.
Chris Gordon, vice president for North America, AIMMS: There’s not as much sharing out there as you would hope. Some of the more interesting areas are where organizations are building network optimization models, using both internal and customer data. Companies that build prescriptive applications can take into account competitive market data, shifts in taste, consumer trends, and the like.
Kaiser: One thing within organizations that hurts all of us is that we’re incentivized differently. I believe we need a balanced scorecard, because we do what we’re incentivized to do. At the end of the day, we’re humans, and we ask, “What am I going to get paid off of?” Until we all win by doing the same things, until we work together to accomplish common goals, we will continue to struggle internally.
O’Hanlon: I think it’s a matter of helping people understand the strategic importance of their jobs, and how a decision made at this level has a ripple effect across the supply chain to outside the organization, to your suppliers and customers, as well as to the CEO and CFO levels. Once people understand the context of their decisions, how it’s necessary to have technology that helps them optimize those decisions, then you can get buy-in.
How is technology impacting the supply-chain planning and execution landscape?
Lash: Two of the core things that are happening are algorithms and automation. There’s so much information in supply chain. We need to take all that information and make sense of it. The technology behind it is very complex, but it makes the process very easy. It frees up planners to focus on the things that really provide value to the organization.
White: The breadth and depth of functionality has expanded pretty substantially over the years. Equally relevant as what’s changed is what hasn’t. Foundationally, a lot of these solutions still use technology and methodologies from decades ago. They have not been able to capitalize on the wealth of customer data and precision that’s available and required with today’s commerce.
Adrian Grigg, director of business development, Flexe: I see software being the dependent factor on supply-chain planning and execution today. It can either be a constraint to your business, or it can be a competitive advantage. In today’s day and age, with consumer expectations becoming more and more dynamic, with more intense requirements, software is just inherently part of any customer or shipper’s ability to react to those consumer demands.
Schepens: If you can achieve collaboration in the outside world, you can better connect with customers and suppliers. But if it doesn’t work internally, then maybe you’re not mature enough to take the next step.
Amber Salley, principal research analyst, Gartner: In order to leverage demand and supply-management tools to a large degree, there needs to be a foundational technology platform, called the supply-chain planning system of record. It’s used to house the transactional data in a supply-chain planning process. We tend to see a demand-sensing tool that sits on top of a system-of-record solution. It collects data coming in from demand-sensing tools, and uses it to refine short-term demand forecasts. Then it sends that data into a supply-planning tool, where it translates the demand forecast into a short-term supply response.
Kaiser: We’ve seen improvements in working with our downstream partners. There are a lot more collaborative conversations going on. People are realizing that if you work together, it can be a win-win, and we can cut a lot of costs out. I think companies are less afraid now that “if my supplier, distributor or customer knows this about me, it’s going to hurt me.” We’re further along there than we were five years ago.
White: Companies need to understand their tiers of the supply chain, much like they do their customer. We’re trying to predict what the consumer will do, as well as how the stores will respond. Then we need to predict on up through the chain — the distribution and manufacturing layers.
O’Hanlon: Everybody says they want transparency. But operationally, when you start delivering it among finance, sales, supply chain and planners, you start to uncover cultural issues that need to be addressed, so that people will participate in a new way of planning. First and foremost, people have to understand “what’s in it for me” — not just unit and deliverability issues, but also the revenue and margin impacts that my decisions will have on the whole company. Once you do that, people have to agree to be more accountable.
Schepens: There’s a lot to be done, and a lot to be changed. Companies are really struggling, because people from central supply-chain management often don’t get into operations. I call it the ivory tower.
Salley: I do have optimism that this capability is going to become adopted by more companies. In the research that we did, we asked companies throughout different industries to what extent they are using demand-signal management capabilities. We found that within the chemical, high-tech and healthcare/life science industries, there’s a growing number of companies that are leveraging demand-signal management. As more use cases are developed, I expect to see more adoption in this space.
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