February represents the first anniversary of Supply Chain Matters.  Once again, I would like to personally thank all of my readers, especially those of you who regularly bookmark this site.  When attending various conferences and events, I am heartened by the many people who come up to me and state how much they enjoy reading as well as benefit from reading this blog.  In one year, readership has climbed to over 5000 visitors per month, and this blog has become one of the premiere destinations for monitoring today’s burning issues in supply chain management.

One of my personal goals when I initiated Supply Chain Matters was to provide high quality content, content you would pay for from a paid advisory or research service.  Thus you may have noticed that many of my commentaries focus on the implications of events on your business or organization, or what you can do to be proactive in your business and supply chain management strategies.  Being an industry analyst in my former life gives me the experience and skills to provide such commentary.  This past year I have provided commentary on supply chain risk and disruption, the unprecedented global-wide recession impacting supply chains across many industries, and the constant developments in the area of information technology, in many cases before industry analyst advisory services can marshal commentary for clients.

In the next phase of Supply Chain Matters, I am considering launching a reasonably priced newsletter or research advisory format for delivering quality analysis.  My belief is that with the critical business challenges and cutbacks continuing to face supply chain operations, procurement and operations management professionals, there is even more a need to be “in-the-know” regarding business needs and threats.  Recent cutbacks in specialized supply chain industry analysts and media covering these topics has also provided a void in advisory services.

Before embarking on any new service, I need your input.  To that end, I have created a short survey that should take only a few minutes to complete. This survey will help me assess where your needs reside.  I would appreciate if you could both respond to the survey, and/or provide individual feedback.  Here is the link to access this Supply Chain Matters survey.

Bob Ferrari

It seems that the biggest buzz this week is the just released research study titled The Smarter Supply Chain of the Future-Global Chief Supply Chain Officer Study which was sponsored by IBM Global Services.  You can download the executive summary at the following link, and download the full report with your registration. I’ll be providing my own reactions to this survey over a couple of posts.

The survey is somewhat unique in the fact that the authors indicate they spoke at length with 393 executives, located in 25 countries, spanning 29 different industries. Most surveys I’ve reviewed tend to be the shorter quantitative type, involving a limited set of participants, industry and geographic involvement.  Thus, this was a survey that peaked my interest, and should certainly peak yours as well.  Also, the comparison of the responses to 17 defined leading or top supply chains provides readers another interesting perspective in terms of benchmarking.

Not surprisingly, the top five concerns reported as significant for executive level supply chain leaders were noted as:

Supply chain visibility- 70 percent

Risk management- 60 percent

Cost containment- 58 percent

Increasing customer demands- 58 percent

Globalization- 43 percent

My initial reaction is that the five are inter-related.  Continuous cost pressures and need to increase revenues through access to emerging markets, has resulted in increased risks, and the need for more extended visibility.  Senior supply chain executives are, in essence,  starting to connect the dots.

Three survey trends further captured my interest, and should capture yours as well.

1. While supply chain executives rank cost containment as their number one responsibility to the business, executives find themselves reacting to whatever the cost issue of the day happens to be.  The last two years have been tumultuous for industry supply chains. Unprecedented changes in commodity and transportation costs, the suddenness of the impact from the global recession on inventories and cost, and the need to increase revenue and preserve cash challenge many of these executives.  “Shifts in costs and other operational fundamentals are happening so quickly that conventional supply chain strategies and design techniques can’t keep up.  New designs are outdated before executives can implement them” report the authors.  That should be a cause for concern for all of our community, and should be a rally call for more advanced tools.

2. Senior supply chain executives ranked risk management as their second largest challenge, but lack consensus of approach.  The authors point out that this was a subject often relegated to the office of the CFO, but mounting supply chain risks now has leaders on edge.  The fact that supply chain executives must now share in this responsibility is something I and others have been advocating for months.  I’ve been tracking surveys on this issue for over a year, and risk management identification and mitigation has escalated much further in executive level awareness than it was a mere year ago. More of interest, 69 percent of respondents indicated that their organizations monitor risk, but only 31 percent link performance and risk together.  I tend to believe that the 31 percent performance link is really far lower.  Yet, supply chain professionals indicate that they just can’t seem to get the attention of their executives about this subject.  The times are changing rather quickly

3. Despite being a top concern noted by 70 percent of these executives, supply chain visibility and the collaboration required to get information and make decisions is not attracting much attention in terms of activities and programs.  Yet, as I dug into some supporting detail data, a comparison of visibility type programs among the respondents vs. the designated top supply chains established measurable performance gaps. The abilities of the top supply chains to foster programs such as Customer VMI, CPFR, continuous replenishment and joint planning with suppliers is evident and measurable.  Perhaps these same executives are not grasping the overall tenets of these programs, or not willing to invest the overall commitment, time and resources. The technology tools supporting extended visibility and collaboration have been proven, but management practices seem to be lagging.

So what’s your view?  Does your organization track to these concerns? Are these objectives interrelated or stovepipes in your organization?

Bob Ferrari

I had the opportunity to view a very timely Supply Chain Operations Council (SCOR) sponsored webcast titled Managing Risk in Your Organization with the SCOR Methodology.  In full disclosure, I am currently a member of the North America leadership team for SCOR, and have been advocating more attention to this topic.

Here’s some background.  A while back, SCOR member companies reported that less than half of enterprises have established measurement metrics and procedures for assessing and managing supply chain risks. From this need arose a Risk Management Project Team, chaired by Dave Morrow of IBM, comprised of many other member companies. This team’s purpose was to enhance the SCOR model by addition of meaningful metrics related to identifying, tracking, and mitigating risk in the supply chain.  This presentation, now available for downloading on the SCOR web site, and subsequent training provides the outcome of this multi-industry team. I previously provided commentary on the new SCOR metrics for risk management in a posting back in October of 2008.                .

What impressed me the most was the progress the team has made in providing a thoughtful definition and overall perspective of supply chain risk management, as well as a methodology to fit SCRM measures into the SCOR Model. The framework now includes a means for identifying best practices for visibility and quantification of risk, as well as quantification through a Value-At-Risk category of metrics.  Quite frankly, there wasn’t enough time in a one-hour webcast to fully understand and comprehend these new concepts and metrics, but SCOR has provided very reasonably priced one-day training workshops to explain and iterate examples of metric development.  If you are in need of a methodology to identify and mitigate supply chain risk, you may want to schedule yourself for this training.  The next workshop is scheduled March 19^th in Houston, and here is the registration link.

Supply chain risk management has increasingly become a more critical consideration of global supply chain strategy and tactics  The good news is that organizations such as SCOR are making efforts to provide assistance in SCRM metric identification.  As the economy continues to provide a period of business downturn, now made be the time to invest in global supply chain risk assessment.  I for one, will be adopting some of these metrics in my consulting with clients.

It would be helpful for blog readers to review this model and share your perceptions in our comments section on its potential applicability and use within your organization.

Bob Ferrari

Since the inception of this blog nearly a year ago, I have penned over 50 separate commentaries on various incidents involving supply chain disruption and risk management.  Many of these incidents involved external incidents and threats. But supply chain risk can also originate internally, specifically within internal IT applications.

Supply chain systems integrator Bristlecone sponsored a research study titled The Hidden Risk in Your Supply Chain, (download link for PDF file) and I had the opportunity to speak with Anil Gupta, vice-president of marketing regarding the background and conclusions derived from the study.  For those readers not familiar with Bristlecone, they primarily specialize in the implementation of SAP based advanced supply chain applications. I first became aware of this firm’s capabilities in 2002 when I was global director of product marketing for SAP’s SCM applications suite. Since that time, Bristlecone has expanded its focus into the SAP SRM suite of applications to include spend analysis and strategic sourcing.

The study itself involves over 90 companies, with respondents primarily reporting their role as supply chain, procurement, or IT.  Corporate profile was weighted among companies with $1 billion to $10+ billion in sales. The responses to the survey questions reflect that respondents tend to focus on external supply chain threats (supply risk, price volatility, compliance and customer demand changes), while weighting IT system risk lowest.  While over 60% of respondents directly agreed that on the internal risk inherent in their supply chain management systems, the implication is that IT is “covering their back”.

Often, after an advanced APS application successfully goes live, the parameters of the application tend to remain static or placed on “auto-pilot”, even as the business experiences significant change.  There are many legitimate reasons. Users sometimes do not have the skills or expertise to understand the statistical modeling, optimization algorithms, or technical parameters of an application like SAP APO. They will tend to view it as a “black-box”, relying on either internal IT or a consultant to help when change needs to happen, or planning output tends to look abnormal. IT groups want to insure that users do not “mess” with the configuration and data structures, thus locking-out configuration parameters to specific IT support persons, or contracted consultants.  The problem may also not be solely limited to SAP shops.  Those companies who previously installed an i2 Technologies or Manugistics supply chain planning application are most likely not in any position to switch-out, and thus need to continue to configure and optimize these systems to support changes.

Putting biases aside regarding the fact that this study was sponsored by a systems integrator with business development intentions, this study does provide us a wake-up call for two specific reasons.  First, the current unprecedented downturn in the global economy has caused many larger companies to have to dramatically cut-back in headcounts, sometimes involving either experienced supply chain planners or IT support.  Second, the same forces of the economy are triggering dramatic shifts on either the product demand or supply sides of the supply chain.  Thus, those original configuration parameters may well need attention and modification. Of more concern, if these systems lose relevance, they become supplanted by those mischievous individual spreadsheets, negating all the previous effort and cost to implement an APS.

What about your advanced supply chain systems- has your company have a focus on fine-tuning?  Have certain facilities closed or been idled? Are you experiencing periods of lumpy or no demand?  Are support resources identified, or budgets identified to be able to address these needs?

Food for thought and action.

Bob Ferrari

Unprecedented declines in our current global economy have provided endless stories as to how manufacturers have had to initiate drastic cutbacks in people and resources, and if you are like me, you tend to just want to stop reading much of this endless negative news.  However, when a world class provider such as Toyota is affected, we all have to take notice.

The latest news regarding Toyota reflects that the drastic downturn being experienced in the automotive industry is deteriorating at a rapid clip.  Toyota is on-track to post an operating loss of nearly $5 billion for the year ending March 31.  Sales have dropped 24 percent overall, including 31 percent in North America, 14 percent in Europe, and 8 percent in Asia.  The latest estimates of operating losses reflect a magnitude to be three times as much than the company forecasted just three months ago.  Since its founding in 1937, Toyota had never reported a full-year operational loss, that is until the downturn of 2008-2009.

More challenges lie ahead for Toyota, particularly in the areas involving supply chain management.  As the Herald Tribune story points out, Toyota had implemented aggressive global capacity expansion in the midst of insatiable demand for its products, but now finds itself with a glut in overall production capacity. Inventory remains a problem since Toyota was not immune to the steep drop in consumer confidence and financing options.

Toyota continues to press forward, guided by an Emergency Profit Improvement Committee, which is, no doubt, a super Kaizen team.  What’s important to note is that Toyota will attack the problem from multiple perspectives: cost reduction, supplier and dealer collaboration, and as a revenue enhancing opportunity.  The global product line-up is under review to tag products that will be beneficial, as well as attractive, to consumers within the current economy.  Investments in hybrid technology will reportedly continue, perhaps at a declined rate. A recent article in Automotive News  (sign-up required) provides readers the perspective from Toyota’s U.S. automotive dealers, who feel very confident of Toyota’s ability to listen and foster teamwork. Another news report penned by Jim Forsyth in Reuters outlines measures that the company will apply to U.S. assembly plants and parts operations, including cutting salaried employee bonuses, slashing executive pay as much as 30 percent, and cutting back on factory hours.

It may be painful, and there may be more bumps along the road, but I remain convinced that Toyota will prevail and be a predominant global player when recovery finally comes.  Just like every other problem or opportunity in the past, Toyota has the where-with-all to analyze root cause, attack with speed, and seize opportunity. Perhaps along the way we will all learn some new lessons in supplier collaboration, lean methods and adaptive supply chain management, and I look forward to purchasing another new Toyota product sometime in the next few years.

What’s your view? How much will Toyota be impacted by the current worldwide economic downturn?

Bob Ferrari