In our prior Supply Chain Matters posting we called attention to the evolving attraction for leveraging predictive analytics in supply chain decision-making practices which has added to the continued pent-up demand for data scientists. We highlighted a guest contribution indicating that big data and more predictive analytics capabilities can be non-effective if not preceded by a rigorous review in determining if current key performance indicators (KPI’s) and business metrics are actually capturing the true drivers of business outcomes.
During SAP’s recent 2015 Sapphire and ASUG conference, SAP co-founder and Supervisory Board Chairmen Hasso Plattner’s conference keynote touched upon this very aspect, which warrants repeating. He touched upon the notion of the boardroom of the future, not being occupied by reviewing historically based KPI’s but rather “fact-based management.” Hasso described this as a “massive change on how companies manage information” and further, “we cannot hide data anymore”.
That last statement may well resonate with our readers since too often, KPI’s are selected to measure can-do performance areas tied to individual organizational, team and personal bonuses that do not necessarily link to an overall business outcome required for products, processes, margins and/or risks. They are too- often, anchored in past performance coupled to a consensus of what can be comfortably accomplished vs. what should be expected given the industry and business environment. Concerning or bad news can be hidden until it is too late for the business to overcome the effects.
In his keynote, Hasso addressed such a change as “moving from dashboards to active boards.” That is an important and far different metaphor.
It implies continuous and changing analysis grounded in overall outcomes and assumes that business events will indeed be constantly changing and that performance metrics should set both a target and a constant moving analysis of potential outcomes based on various business and product scenarios. Such a moving analysis assumes that organizations and teams can be fluid and flexible, responding to market opportunities, threats or risks in a more proactive and collective manner and in the context of best desired outcomes. It further implies that management is very actively engaged in understanding how the end-to-end supply chain is contributing or detracting from desired and/or expected outcomes. Bonuses and performance are tied to best enterprise outcomes vs. individual outcomes.
Such a change does not occur overnight and will take time to evolve. As noted in a previous commentary, executives need to be granted the broadest end-to-end supply chain leadership and accountability with certain mandates to address existing value-chain challenges and to improve business outcomes. Supporting staff with data science skills, while critical, are not the primary skill need. Knowledge of the business, the end-to-end supply chain, and organizational change management needs to be coupled to data science skills.
In the meantime, we advise supply chain leaders to indeed recruit talent with data science skills, and then rotate these new superstars among various supply chain functional and geographic assignments. Challenge them with local problems and with introducing positive overall change. Insure active mentorship and sponsorship with the end goal being a select group of business analysts that can take on the most difficult challenges while garnering the respect of others.
About a year ago, Supply Chain Matters provided our readers a perspective on specialized SAP focused systems integrator firm Intrigo Systems, and how that firm was helping to accelerate value for existing SAP APO customers. We experienced quite a lot of reader interest and uptake on our commentary. In the specific area of broader SAP APO adoption and business value, Intrigo has been deploying its Optek tool suite for SAP APO planning needs since 2009. The suite consists of modules designed to place the planner more in control of the process while making SAP APO functionally more effective.
At the recent Gartner Supply Chain Executive Conference, we managed to catch-up with Intrigo CEO Padman Ramunkutty, a colorful and well known recognized SAP APO expert. In full disclosure, this Editor has known Padman for many years and I value his perspectives on supply chain planning and software technology trends. In fact, during a networking break at the conference, we managed to simultaneously speak with not only Padman, but also Sanjiv Sidhu, past founder of the former i2 Technologies, and now Chairmen and Co-founder of 09 Solutions. Indeed, two icons of supply chain planning with enormous perspectives of how planning software has progressed.
In our conversation, Padman reminded this Editor that in addition to our Supply Chain Matters recognition of Optek’s value over a year ago, Gartner has recently recognized Intrigo as a “Cool Vendor” in Supply Chain Planning for 2015, specifically citing Optek as an extension for SAP APO as an means for leveraging value for existing investments. In a March 31 Gartner report, key findings included the following: “Supply chain leaders need to find ways of leveraging their existing investments in their quest to improve supply chain performance.”
Thus, we are pleased that Gartner has now also recognized Intrigo Systems as a “Cool Vendor”.
Business media is reporting that SAP is about to undertake this providers second round of headcount restructuring. The current cutbacks are reported to involve upwards of 2200 positions following similar restructuring last year.
A published Bloomberg report cites SAP’s personnel chief as indicating that the total number of jobs affected will amount to about 3 percent of SAP’s worldwide workforce of 74,000. However, SAP spokespersons are quick to point out that the job cuts are more to do with internal business changes rather than cost savings. The Bloomberg report cites Ralf Herzog, the chairman of SAP’s works councils, as indicating: “that groups received information Thursday afternoon about “a very high level” of job cuts. Since the program is “apparently voluntary,” SAP “seems to have learned from its experience” with last year’s job action.”
In its reporting, The Wall Street Journal pointed to SAP’s ongoing transition to being more of a cloud services provider as prompting workforce changes, namely less emphasis on installation and update of software. That article indicates that SAP staff deemed redundant will either be trained in new responsibilities and those unwilling or unable to make the change being asked to leave or in the case of European based employees, offered early retirement or other compensation.
As Supply Chain Matters and others continue to point out, the effects of cloud computing adoption and rapidly changing market realities are indeed real for existing enterprise software providers and they are attempting to adjust their business models to deal with such realities. We have heard undertones of similar job cuts emanating from other enterprise software providers as well.
In early January, Supply Chain Matters shared our impressions of independent blogger Vinnie Mirchandani’s new book, SAP Nation-a runaway software economy. The book provides a ten year perspective on SAP, summarizing conversations, observations and case studies among the ecosystem that makes up the “SAP Nation”, including customers, partners, market observers and others. The book quantifies an astounding $1 trillion ecosystem beholden to SAP’s success. The book further describes why other cloud-based competitors have been able to gain attraction among the existing SAP customer base because of the building business pressures and frustrations over elongated development timelines, burdensome software and ongoing support costs. The consequence is described as a ring fence of applications that more and more, are surrounding SAP applications. Since its publication, this author has recommended this book to many of our clients.
After the book’s publishing, Vinnie’s Deal Architect blog has featured added content and responses that have been generated from the book, particularly the described “ring fence” strategy that customers have undertaken. One of the most recent postings features highlights of an interview with E2open’s Chief Marketing Officer, Michael Schmitt. The commentary describes current E2open customers such as Avnet, Avon, Hewlett Packard, L’Oreal and Shell, specifically how they are exercising various ring fence strategies.
This author has likewise observed such strategies and has spoken to some of these companies and other regarding their technology augmentation strategies.
Vinnie’s summary observation: “Individually, you could dismiss them (SAP backbone customers) as small cracks in the frozen tundra, but there are many such cracks if you use a wide angle lens.”
Disclosure: E2open, Inc. is one of other current sponsors of the Supply Chain Matters blog.
In previous Supply Chain Matters commentaries addressing supply chain teams utilizing SAP as their technology backbone, we have observed that utilization of SAP’s supply chain focused applications can serve as both a blessing and a curse. The blessing comes from the structural rigor for integrating enterprise-wide transactional, operational execution and master data with supply and demand planning. This rigor is sometimes cited as a curse; since today’s highly dynamic business processes are expected to respond to ever increasing levels of network-wide complexity and changing business models.
In June 2014, we called reader attention to SAP’s strategic intent to transition its supply chain technology, specifically the need for businesses to transform their supply chains to demand networks – which implies deeper, more agile support capabilities for integrated business planning (IBP). With this shift, SAP is acknowledging that many industries must transform to be more product demand-centric and that demand drives supply chain response. In essence, SAP’s intends to enhance and deploy a broader next-generation supply chain platform, described as a “many to many” supply chain control tower platform, underpinned by IBP and response orchestration. The implication of this strategy change is perhaps the obvious admission that SAP APO, as it was originally designed and modified these past 15 years, will need to be significantly augmented by other technologies.
The conundrum implied with this strategy shift is that the sheer scope of this transition will take many more years, a journey involving incremental phase-ins. The reality is that while SAP transforms its supply chain support, business requirements are constantly changing and require a more immediate timetable.
That is why there are increasing signs that the SAP community has begun to evaluate other alternatives for surrounding SAP APO with augmented, cloud-based and other planning and decision-making capabilities that can enable business needs in a much shorter timetable. Two of these needs are augmenting demand sensing capabilities and enhancing supply chain planner productivity. In this commentary, we briefly explore each of these needs.
There is little question that the new era of online, omni-channel or multi-channel customer fulfillment has driven far more product options, shorter product lifecycles, added SKU’s and demand streams. With the clock speed of business far more volatile, traditional methods of historical based forecasting lack the ability to sense continual changes in product demand. Quarterly or monthly planning cycles can no longer keep-up. SAP APO was originally developed to support a top-down approach to planning and forecasting, often implemented at high-level, aggregated product family level planning. When such high level SAP APO forecasts are subsequently split to item-location levels for inventory resource requirements, crucial item-level product demand information can often be masked. This problem takes on even more significance for supply chains with complex channels, large-scale distribution, or more frequent new product introduction cycles. Today’s business needs further require supply chain segmentation strategies where supply chains key-in on customer product demand and service needs, allowing the supply chain to respond to individual SKU or point-of-sale demand shifts.
All of this implies a more predictive, stochastic based product demand modeling approach that senses individual item-level demand changes at the item, location or channel level. Also, continued pressure on cost control and overall inventory increasingly requires seamless integration with multi-echelon inventory optimization methods to optimize inventory in various demand trends and/or scenarios.
These advanced demand sensing and modeling techniques are now offered by certain best-of-breed supply chain planning providers. The good news for the SAP APO community is that many providers, as well as specialized systems integrator firms, recognize the need for a co-existence strategy, where planning applications with more advanced demand sensing and predictive capabilities augment existing planning processes. Rather than rip and replace, these providers support a surround and augment strategy. For added perspectives on the above, The Innovator’s Solution blog features two commentaries, Supply Chain Innovation: Living with SAP APO and Improving Demand Forecasting and Planning with Machine Learning. Both provide added perspectives and specific examples.
The second challenge is increasing supply chain planner productivity. With the product complexities and rapid clock speed of business noted above, planners need to allocate more time to managing true demand and supply exceptions vs. constantly chasing planning errors and false positives. This problem has added significance for the SAP APO community, since experienced planners remain in high demand because of their system and business knowledge, and attract higher compensation. Planners need augmented tools and capabilities to not only provide more responsive planning and predictability, but to provide greater levels of supply chain business intelligence to sales and operations and overall business planning processes. Thus, augmented planning technology that can provide capabilities such as machine learning, rules-based business modeling, and advanced monitoring and exceptions dashboards predicated on a singular data model.
Supply chain management teams with SAP as their backbone have added options in their journey toward more demand-driven, integrated business planning. These options include both SAP as well as best-of-breed augmentation, depending on line-of-business and supply chain business outcome needs.
Disclosure: ToolsGroup is a current client of Supply Chain Matters parent, the Ferrari Consulting and Research Group LLC.
© 2015 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.
Breaking Tech News- Kinaxis Reports Significant Deal as Part of Fiscal Q4 and Full Year 2014 Results
Supply chain planning and response management technology provider Kinaxis today formally reported fiscal Q4 and full year 2014 financial results. Beyond the rather positive growth and financial performance results, the most significant news was the landing of a $20 million five-year supply chain planning deal.
On the financial side, full fiscal year 2014 revenues were reported as $70.1 million, up 15 percent from the year earlier. Gross profit was $49.3 million, also up 15 percent and adjusted earnings before interest and taxes (EBITDA) totaled $16.1 million, up 7 percent. Kinaxis reported nearly $57 million in its end of December cash balance, mainly from the proceeds of its recent IPO activity.
For its fiscal fourth quarter, Kinaxis reported total revenues of $18.8 million including $13.9 million of subscription revenues. Gross profit was $13.4 million while adjusted EBITDA totaled $3.8 million.
However on the Kinaxis earnings briefing call, many equity analysts wanted to hone-in on the reported $20 million “mega-deal” booked in Q4.
Kinaxis executives were very careful to respect customer confidentiality and hence had measured responses to analyst queries. However, Supply Chain Matters was able to garner from the Q&A back and forth that this was a five-year, cloud-based deal involving a new customer described as a large global enterprise. The customer elected to pre-pay the $20 million up-front, and that number will be reflected in Kinaxis fiscal Q1-2015 performance. The deal was brought to Kinaxis from an unnamed large systems integrator. We suspect the deal involves one of the existing vertical industries that Kinaxis currently supports.
Upon further probing, it was disclosed that the customer had an existing backbone systems footprint involving a combination of Oracle and SAP systems, and apparently elected to pursue a Kinaxis strategy for various supply chain planning technology needs. Kinaxis executives hinted that the customer had “given-up” on both the timetable and future promises of the incumbent vendors.
Supply Chain Matters highlights the reporting of this “mega-deal” because, by this author’s recollection, it represents one of the largest deals involving supply chain planning, and further, it appears to be totally cloud-based.
A trend that we continue to pick-up from other supply chain planning vendors is that their pipelines increasingly include both large and emerging enterprises that are becoming more and more impatient with the overall commitment of larger ERP and enterprise vendors to support today’s line-of-business and supply chain needs for added predictability, responsiveness and more informed decision-making. Time-to-benefit, quicker implementation and industry track record have become very important criteria. With the option of cloud applications, such enterprises are exploring methods to surround existing ERP based supply chain systems with more advanced, outside-in facing technology. From our lens, such a deal is an endorsement for needs and desires for fusing supply chain planning, execution and customer fulfillment processes as much as possible toward a single data model approach.
While it is not likely that the broader market will garner more specifics regarding this significant deal until later within its implementation phases, it will serve as an important milestone of continued market shifting favoring more nimble, cloud-based technology approaches.
In full disclosure, we share with readers that Kinaxis has been a prior sponsor of this blog, and we are in the final stages for having Kinaxis as a Named sponsor for 2015. That aside, this is a significant watershed development for the supply chain planning market, and should be referenced as such.
Congratulations to all involved.