This commentary can also be viewed on the Supply Chain Expert Community web site, upon which the author is a featured guest blogger.

One of the cornerstones of the Supply Chain Matters blog is to track the history of specific supply chain related events involving industries and to help our readers connect the dots in term of strategy and results. In May 2009, we featured a commentary regarding Fiat Group and its unfolding strategy of opportunistic supply chain strategy, specifically its planned acquisition of Chrysler in the U.S..  At the time, this author was impressed with Fiat chairmen Sergio Marchionne and his strategy to make both companies global players in the industry.

As we approach the end of 2011, the story of Fiat and Chrysler is much more positive, with an even stronger potential.  We call readers attention to an article published in the December 19 edition of Time, Power Steering- How Chrysler’s Italian boss drives an American auto rival. (paid subscription required) Author Bill Saporito pens a very insightful look at Chrysler, where it was, and what it is becoming, and in particular, the noticeable leadership of its chairmen, Sergio Marchionne. Sergio has a knack for turning around dysfunctional automobile companies along with a keen understanding of operations and value-chain management.

The article points out that Fiat’s small-car prowess, engine technology and superior manufacturing capability was a perfect complement to Chrysler’s needs. Fiat which now owns 53.5 percent of Chrysler, has made its impact. Chrysler revenues were up 23 percent in Q3-2011 and could top $55 billion.  Operating profit could reach $5 billion vs. hemorrhaging $1 billion a month in 2009. In May, Chrysler transferred $5.9 billion to the U.S. treasury, paying off its bailout loan six years ahead of schedule.

The article goes on to expound on the unique leadership style of Mr. Marchionne, specifically his no-nonsense approach to management, his deep analytical abilities, and attention to the details of all aspects of the business, including manufacturing and value-chain.  He has thus far resized the company, flattened management layers, and overhauled the vehicle line-up in record time. Mr. Marchionne is a strong believer in elimination of management layers and practices promoting people buried in the ranks to higher levels of responsibility, giving such people all that they need to succeed and prove their potential. It is referred to as loose-tight management, a concept which many successful companies have practiced.  At the same time, he also holds people accountable for definitive results and is not shy about pulling the plug when results are not forthcoming. The author notes that: “Marchionne has the Steve Jobs gift of absolute focus.” He gets into the details. He also does not choose to have his office within Chrysler’s former executive penthouse, opting instead to locate his office in the engineering department, a visual reinforcement that it is no longer business as usual.

As was noted in 2009, Marchionne has a vision that the surviving global automotive OEM’s will need to have sufficient volumes of production to support each of the major world markets, at least one million for each major product platform in order to drive required global production cost efficiency and sustained profitability.  This translates to a combined goal for producing 6 million vehicles among the Fiat and Chrysler brands, with today’s volumes at 4.2 million vehicles. Fiat has become a global leader in efficient, high-volume, robotized production of small displacement engines and there are plans to have a similar focus for V6 engines.  Fiat also excels in small diesel powered engines, and its production facility in Poland recently exceeded a production target of 4 million 1.3 litre, 16 valve MultiJet technology engines. Technology and world class manufacturing knowledge transfer is underway among both companies with a cultural premise that production workers, not engineers, own the quality control process.  A global manufacturing boss has been appointed to oversee both Chrysler and Fiat, and the article points out that Mr. Marchionne has been known to show up from time-to-time at warranty analysis and quality performance meetings. Chrysler itself has not been known to invest in advanced supply chain software technology for planning and business intelligence but that may perhaps change.

The first totally new vehicle of the combined Fiat-Chrysler collaboration will debut in 2012 with a C-class Dodge branded vehicle. It will be based on the Fiat platform of the Alfa Romeo Giulietta, adapted for U.S. market requirements. There is a further plan to invest $23 billion to develop new vehicles for Chrysler through 2014, a rather aggressive plan by U.S. automotive industry standards, and all vehicle can be adapted by Fiat for other global sales needs.

The Time article concludes with a very characteristic Marchionne quote: “People need to trust you that you’re going to pull them out and that they will follow you when you pull them out.  If they don’t get that comfort, they’re going to drop you. This is true of organizations.  It’s true of countries.”

We would add that this quote represents a philosophy that is rather important for senior and team focused supply chain management in the coming year and beyond, namely the ability to lead, get into the details, provide people with the means and tools to accomplish their goals, and to foster consistent accountability.

In our 2009 commentary, we closed with the statement that whether the combined force of Fiat and Chrysler was totally successful, we have the opportunity to observe a visionary company with a leader that truly understands the importance of a leveraged global value-chain and integrated supply chain execution.  Two years later, this case study continues to play out with positive potentials.

Time will tell if this will become a definitive case study in vision and consistent execution in supply chain management but the scorecard thus far is rather positive.

Bob Ferrari

© 2011, The Ferrari Consulting and Research Group LLC and Supply Chain Matters.  All rights reserved.

The following posting can also be viewed and commented on the Supply Chain Expert Community web site.

This posting continues highlights of the Kinexions 2011 conference being held this week in Scottsdale Arizona.  Readers can also reference our prior Day One dispatch which highlighted remarks from Kinaxis President/CEO Doug Colbeth.

Day one featured a full agenda of customer and partner presentations along with the first ever briefing session for industry analysts, partners and key market influencers.  Customer presentations included Barnes and Noble, specifically the Nook Division, who’s implementation pioneers a an entirely new area of support for Kinaxis RapidResponse, namely the incorporation of actual point-of-sales demand data into overall supply chain planning and visibility.  When implemented, this effort has the potential to be the largest deployment in terms of scope and user count of RapidResponse to date.  Matthew Red, Vice President, Supply and Demand Planning, took leave of the upcoming planned go-live to share his organization’s goal to have product demand visibility among 13,000 point-of-sales outlets implemented to support the upcoming 2011 holiday buying season. The clear focus for B&N is to focus on “sell-through”, namely where customers are buying and how the supply chain should best respond to outlet level demand.  Even though the go-live will occur in the coming weeks, Matthew was able to share lessons learned, which identified access to data as the biggest challenge along with the need to scale-back on original project scope because of implementation timing needs.

Another customer presentation included one by Lockheed Martin on managing its supply chain performance-based logistics need by utilization of RapidResponse.  The morning concluded with a presentation and demonstration of the new RapidResponse Control Tower from Kinaxis’s new vice-president of marketing, Kirk Munroe.  One of the highlights of this presentation was the articulation of the three design pillars for control tower functionality:

• Supply and demand balancing to responsive and predictable customer fulfillment.
• Planning, monitoring and responding only works if they are performed from one platform.
• Business problems are complex, but IT systems need not be as complex.

The pillars are simply stated but the meanings are all important.  We would hasten to add that business rule context is another very important consideration for any decision platform.

For Supply Chain Matters, and for others, one of the most talked about presentations during day one was delivered by McKinsey partner Paul Carbonneau. Readers should note that McKinsey’s reputation lies in consulting on C-level corporate strategy, direction and problem-solving, and to have a McKinsey partner talk to the importance of supply chain capabilities is a significant affirmation of how important global supply chain capabilities have become in C-level perspectives and concerns.  In that light, Paul communicated that the most expensive problems for McKinsey clients often are reflected in supply chain capabilities. Another significant reinforcement came from Paul’s comments relative to the March earthquake that occurred in Japan and the high-level awareness of the impacts of supply chain disruption and risk that has occurred across the C-suite right now.  My hallway conversations reinforced the fact that many manufacturers are re-visiting or initiating supply chain risk identification and mitigation.  An added takeaway shared by Paul was that McKinsey is advising clients to re-visit previous thinking and specifically three myths surrounding business process and technology implementation efforts. These include:

• Rather than linear rollouts of functional initiatives, pilot initiatives with the required cross-functional behaviors needed to sustain the new process.
• Rather than people first, process next, and technology last, with the implication of multi-year technology implementation calendars, frame the initiative with a defined narrower scope but with all three components required in the new or changed business process.
• Rather than getting the CEO on-board first, and risking a perceived colossal waste of time by that executive, bring C-level sponsorship on-board when definite pilot steps indicate meaningful benefits.

McKinsey further advocates starting with small ecosystem initiatives that include all required capabilities. Rather than spending enormous amounts of time getting organizational-wide consensus on a theoretical future end-state, launch “live-fire” exercises and iterative pilots that emulate what end-state could be. Accept the notion and provide support mechanisms that anticipate frequent failures, with constant learning and forward movement.  Finally, once pilots have provided valid benefits, scale quickly with serious investments in talent, disciplines, and required tools.

A final message reflected on future supply chain challenges that lie ahead and the need for, what Paul described as,  ‘maestros’ of supply chain planning and decision-making.  These are people who can think cross-functionally and cross-organizationalyl, who know where the right information resides, and how to leverage that information into various predictive options and scenarios to which  that the supply chain needs to respond.

It was a rather thought-provoking presentation and well slotted to kickoff a supply chain response management oriented conference. Supply Chain Matters will provide additional context and commentary in our summary impressions of this year’s Kinexions.

In our subsequent dispatches, we will provide highlights of day two of Kinexions 2011, along with summary impressions, so stay tuned.

Bob Ferrari

Added Note: Kinaxis is one of other named sponsors of the the Supply Chain Matters blog and the author provides services to this vendor.

Today, Supply Chain Matters attended the two-day Sales and Operations(S&OP) Summit meeting sponsored by IE Group. This was the second year that we attended this particular conference and hence we had a baseline of comparison.  As was the case last year, the conference was again filled to capacity, with a far larger meeting room.  Our unofficial estimate was a range of 150-175 attendees. In this Part One posting, we will highlight some observations and key takeaways from day one of the conference.

First, it remains striking to observe the continued wide-scale adoption of S&OP across multiple industry, production, and service industry sectors. Many of today’s presentations were insightful and helpful in understanding current process maturity levels. This is a process that continues to deliver value for many companies. Wide scale adoption brings continuous learning, and many speakers shared more of their learning.  To cite some examples, John Hellriegel, Global Director of Sales, Inventory and Operations Planning at Honeywell provided a key takeaway that to be successful; the S&OP process needs to:

•  Support each and every function for achieving individual goals
• Assess the business honestly
• Offer a realistic picture with options and solutions
• Be the one and only process to plan the business.

Cathy Budd, Supply Chain Director for Dow Chemical Company has had 18 years of experience implementing individual S&OP processes across the various business divisions at Dow. Budd shared her key learning:

Do not assume the process design is always easy. You sometimes have to take a step back to ascertain the overall strategic goals of the process.

• Keep it simple, even when the environment seems complex.
• Think broader than just demand, supply, and inventory.  For Dow’s insulation business, a key determinant to the planning process was freight cost optimization.  In other businesses, it can be profitability or customer service level.
• Stay focused on the questions you are trying to answer and the decisions that need to get made by the process.

Sean Willems, Chief Scientist, Inventory Optimization Solutions at Logility, and faculty member at Boston University made an outstanding argument for jointly optimizing production and inventory planning with S&OP.  Professor Willems was quick to note that inventory is often an outcome of the efforts of various planners yet most companies do not have an inventory planner. His key message is that all inventory is not equal, and consideration of all classes of inventory, along with where they are positioned in the value-chain, are required to jointly optimize supply, inventory and service level needs.  Incorporating multi-echelon inventory optimization in an S&OP process can enhance service levels and inventory mix.

Beyond these and other insights relative to the state of S&OP maturity, other speakers today spoke to thinking more about what teams should be considering in their evolution plans for S&OP.  This can sometimes be a topic with controversy, since many labels are affixed to the next iteration. Industry analysts and we in the blogosphere are sometimes just as guilty in arguing semantics and labels vs. objectives and needs. There are terms like integrated business planning (IBP), SIOP, RBM, IPP, and others.  Similar to our observation from last year’s event, a consensus of today’s speakers advised to avoid arguing the labels but rather focus on what the process needs to iterate to.  Listening to speakers such as Joe Boszarek of Jonova, Andy Coldrick of Ling-Coldrick, Don Wood of Cott Beverages, Rob Borrows of One-Point Group caused me to ponder that perhaps some of the classical process tenets of S&OP may need to be revisited in this new era of business.

As Rob Burrows astutely noted, S&OP thinking was incubated in a supply rich environment when excess production and inventory was far more tolerated. Today supply chains exist in an on-demand and pull-driven business environment where factors of market share, customer service and utilization of capital can outweigh operations driven planning.  One of the sacrosanct tenets of S&OP thinking is the “one-plan, one-number” perspective that drives the process. As Burrows noted, a ‘market-savvy’ S&OP that has a market-in and management by analytics perspective may call for scenario-based planning.  What’s the best-case plan for meeting required service levels?  What is the most profit optimized plan?  What is the worst case plan if demand falls short of budget or an unplanned supply shortage occurs?   Predictive analytics applied to S&OP introduce scenario and continuous planning, and in our particular view, an era where true business intelligence becomes the enabler of integrated business planning.

This is an exciting but least understood facet of next generation S&OP and Supply Chain Matters will feature additional commentary and insights in the coming weeks.

We look forward to day two of the conference.

Bob Ferrari

Just about every year at this time, supply chain teams can look forward to AMR Research’s (now Gartner) designation of the Top 25 Supply Chains. Similar to entertainers and recording artists having their Oscars, Emmy Awards and Grammy’s, there is the Top 25 supply chain designation that can be instrumental in a career journey.  Just as awards can provide recognition of the obvious, as well as surprises, so also is this year’s line-up.

First, Supply Chain Matters extends its congratulations to all of the 25 designees, as well as the finalists in the 2011 competition.  Quantitative and qualitative recognition for hard work, long hours, commitment and determination is always important.

In the spirit of the many entertainment shows, we will now share our Supply Chain Matters post award reactions of this year’s Top 25 designees.

Overall Listing

The overall list itself has many familiar names and global brands. It would be nice for one year to have a small or mid-market company make the listing.  Outsourcing the major portions of your supply chain provides a high ROA, and that can get your company a good shot for making it on the list. Speaking of effects outsourcing, once again, there is no presence from major process manufacturers (BASF, Dupont, Dow Chemical) and that remains a disappointment.  A lack of recognition of any major global contract manufacturer, those that own the majority of production and in some cases process design assets (Foxconn, Fextronics, Jabil) also remains disappointing.  While the overall list has some non-U.S. names such as Samsung and Inditex, it should include other capable names as well.

Perhaps there should be some added categories like:

Best effort in undergoing supply chain transformation or

Best supplier supporting role in bailing out a global OEM during a supply chain crisis such as the Japan earthquake.

The Coveted Number One Designation

Number one designee Apple had to be the obvious choice, as demonstrated by its very high composite score.  No other designee came close.  We are not alone in commenting on all the superior aspects of Apple’s broad supply chain capabilities and accomplishments.  The only comment to add is that being a repeat number one comes with continued responsibilities to lead and set the benchmarks in areas such as social responsibility, sustainability efforts, and openness.

Sound bites for the top-tier designees:

#2 Dell: Up three slots from last year, but not by much.  P&G merits this slot.

#3 P&G:  The obvious choice, always consistent performer and benchmark.

#4 Research-In Motion: Up 5 slots and in a very competitive field.

#5 Amazon: Up 5 slots and well deserved.  A demonstration that one can make the list with lower ROA.

In the category of rising stars:

#13 Colgate-Palmolive: Up 4 slots with better quantitative results than industry peer P&G.

#15 Unilever: Up a whopping 6 slots, also with better quantitative results with P&G.

In the category of new entrants:

#18 Nestle: It’s about time.

#24 3M: Significant achievement considering the diversity of products and supply chain needs.

#25 Kraft: Well-deserved and overdue for recognition

In the category of surprises:

#6 Cisco: Dropped 3 slots from last year.  Major re-organization underway to reduce management layers and speed decision-making.  Will Cisco’s supply chain be impacted?

#21 Johnson & Johnson: Dropped 7 slots and is still in the midst of non-stop product recalls brought about by lapses in quality.  Does being under watch by the FDA qualify as a Top 25 criteria?  Since J&J was the only life sciences company to be in the top 25, we have to categorize this one as a disappointment.  Perhaps there needs to be a category of “on-probation”.

#22 Starbucks: New entrant in the Top 25 with a rather low Gartner opinion vote.  Retail coffee distribution was outsourced to #25 Kraft before this year’s brew ha-ha and termination.  Next year will be the retention test.

There you go, our Supply Chain Matters post award musings for theTop 25.

What about your reactions and opinions on the selections?

Bob Ferrari

Last week I had the opportunity to be the master of ceremonies for the 2011 OpsInsight Leadership Forum, which was produced by Halcyon Business Advisors.  The conference provided a great line-up of speakers including AT&T, Aberdeen Group, Accenture, Cardinal Logistics, CCI, IBM, The Shingo Prize, McDonalds’s Corporation, Vecco International and Wal-Mart.  The executive level attendees represented a diverse group of industries with many different challenges.

In my conference opening, I observed that the continual challenges facing productions and operations management, namely more demanding customers, complex, globally stretched supply chains, rising labor costs and dramatic increases in disruption and risk events can each significantly impact the ability of any organization to compete.  My challenge to the attendees was to reflect on the fact that now more than ever before, capabilities for flexibility, agility and transformation are no longer optional for operations management, yet each brings its own unique challenges.

Many of the conference speakers reflected on these challenges and what was really interesting was that many speakers reinforced that technology and tools are not the real challenge but rather changing business and organizational culture tend to be most difficult for many operational focused teams.  The reasons are many.  Operations teams sometimes do not get the visibility or sensitivity that other business functions may garner.  Leadership and business structure also plays an important factor.

Some takeaways I noted from our speakers were:

• Operational excellence must be baked into the fabric of corporate culture and that begins with the leadership of top management.
• Supply chain and operational leaders need to be able to balance many different aspects of business process capability that include being adept at operational results linked to business strategy, standardization, consistency and tools.
• Little things can make a big difference.
• Leaders must see and acknowledge reality.

I attended one think tank session that brought home many if not all of these concepts.  The session was facilitated by Thomas M. Feeney, the President and CEO of SafeliteGroup with headquarters in Columbus Ohio.  For readers unfamiliar, Safelite Auto Glass is one of the leading providers of automobile glass repair and replacement in the U.S. with over 4 million customers.

It is not often that this author encounters what I would describe as a dynamic and inspirational CEO, and Mr. Feeney certainly filled those requirements in his beliefs, communication and articulation of leadership principles. How many CEO’s are you aware of who can sit down with a total group of strangers, without a script, and completely articulate the fabric and culture of the company, and field all questions related to that culture?

First and foremost, Feeney reinforced that changing culture starts at the top, and that any organization needs to motivate change from the basis of how people are hired and rewarded in their day-to-day jobs.  Safelite’s philosophy is to hire for social skills first, by seeking out people who are empathetic and helpful by nature.  Safelite’s people are measured on how they go the extra mile to resolve customer needs and Mr. Feeney personally contacts and praises employees when they go to extraordinary means to satisfy customers.  Safelite further believes that customers want to speak to real people, and thus all customer center calls are automated but rather answered by a live person in an average response time of 11 seconds. How refreshing is that! An Executive Services group, an elite team of 40 employees was also formed to proactively resolve more challenging service issues.

Safelite teams also embrace business social media techniques as a means for further reach out with customers, including the leveraged use of Facebook and Twitter, with proactive two-way communication with potential dis-satisfied customers. Feeney noted that he himself has contacted disgruntled or praising customers by use of his own social media accounts, and has fostered a culture that embraces these tools while including appropriate safeguards. He characterized social media as another means of customer reach and opportunity to effect a more positive customer engagement, even with a potential non-conforming service experience.

The results for Safelite have been extraordinary with customer loyalty metrics that outpace many well-known brands.  The company constantly measures its Net Promoter Score (NPS) and how that score impacts increased revenue and customer referrals.  Employees are constantly made aware of the NPS score and how their individual contributions affect the score.  As a result, in the last two years, Safelite’s revenues have increased 27 percent along with corresponding profits.

Safelite provided a great story and a superior demonstration of how corporate culture can impact operations excellence and how a CEO can be proud to speak and celebrate this excellence.

Today’s business world moves at a much higher cadence of change, with higher stakes.  It is often operations management that provides the means to delight customers, respond to ever changing product demand or overcome extraordinary events.  Now more than ever, operations has a broader role to play, beyond any four walls of a production or service facility.  Operations is the business, and must have the capabilities of agility, flexibility and transformation.

What is your view?

Are operational teams valued for the contribution they provide?

Are metrics and performance criteria designed to reinforce the traits described?

Bob Ferrari

We continue with Supply Chain Matters commentary relative to the current announcements of Q1 related revenues and earnings by reflecting on the page one headline article in last Thursday’s published Wall Street Journal, World Revs Up U.S. Profits. (paid subscription required) It again reinforces how the sustaining growth in the emerging economies has fueled a new boom in U.S. manufacturing output, and consequent revenues and profits. In the article, the chief U.S. economist for Deutsche Bank noted: “Manufacturing has been growing gangbusters.”

This new boom is being fueled by stronger sales related to the building of new infrastructure in emerging markets, which includes heavy duty trucks, building, farming and mining equipment. Also noted is a quote from an economist at PNC Financial Services Inc. stating: “The economy would be limping along, at best, without the strong manufacturing sector…”   Large global manufacturers such as Caterpillar, Eaton Corp., Honeywell International and United Technologies are each cited as example companies that are benefitting from booming sales outside of the U.S.

However, as in all aspects of this ‘new-normal’ of business recovery, there are many caution signs that could derail the current boom. Growing unrest in the Middle East, the rapid rise in energy and other key commodity products, the growing threat of inflation will all test the resiliency of this U.S. manufacturing boom. The recent earthquake that occurred in Japan has driven home the critical aspects of product sourcing risks. The crisis itself could provide either positive or negative consequences for U.S. manufacturers.

On Thursday and Friday of this week, this author is pleased to be designated as the master of ceremonies for the 2011 OpsInsight Leadership Forum being held at the Hyatt Harborside in Boston.  The conference program features a great line-up of speakers including eight different keynote speakers addressing many operations leadership topics.  Fourteen other speakers will address various topics related to product innovation, lean methods, business process best practices, management and operational leadership.

In the conference opening address, I will be touching upon where we are as operations  and supply chain executives in this ‘new normal’ of ups and downs and how important a role operations management will play in innovation and future growth for manufacturers.

I’m looking forward to the program and hope to run into some of our readers.

If you desire more information on the conference, you can click on the conference icon located on the right-hand panel of this blog.

U.S. manufacturing is on the rise but uncertainty and risk remain for the coming months.

Is your organization prepared?

Bob Ferrari