Supply chain management executives are tasked with many decisions every day, stemming from operational snafus, unplanned changes in supply or demand, or tactical decisions related to deployment of materials and resources.  This includes the ongoing participation and decision-making involved in the company’s sales and operations planning (S&OP) process.  In the past, decisions related to supply chain software needs and associated IT platforms were often deferred to an IT support team or peer IT executive.  That situation is quickly changing.

With the advent of cloud computing, a supply chain executive must now be able to independently assess the need for process enhancement, appropriate software application and IT platform.  The primary reason is that cloud computing options present opportunities to provide more advanced technology while allocating the cost as a recurring operational expense, sometimes under the functional budget.  Like it or not, this implies that today’s supply chain executives need to understand the differences implied with a cloud offering, and specifically the differences implied in information security or multi-tenancy.

Let me share just one example.  With many of the newer S&OP management and support or control tower like applications, vendors offer a cloud computing platform deployment option.  As one example, SAP’s pending S&OP powered by HANA application will initially only be a hosted, cloud-based offering.  When considering any deemed mission-critical application, one in which highly sensitive data resides such as an S&OP process, functional evaluation teams will need to determine how such data is stored in the cloud, what security measures are being taken to protect that data, and how the software vendor will assure protection of that data.  In this realm, executives will experience terms like public and private clouds, single and multi-tenant, peak-load capacity, etc.

We would like to offer one resource to help in your understanding.  Over on Hewlett Packard sponsored Cloud Source Blog, bloggers Christian Verstraete and Laura Mackey have provided an ongoing series of commentaries directed at helping non-IT teams understand the meaning and tradeoffs of these new cloud computing options.  In their posting, The business aspects of Cloud: Part 5 – Do you need multi-tenancy?  the authors do a great job of explaining the intricacies of these options.   We recommend our readers absorb this series along with other educational commentaries found on the web.

The option of cloud computing can provide a viable alternative for more timely implementation of select advanced supply chain focused technology with a more attractive overall cost.  Functional executives must, however, enhance their knowledge and understanding of the inherent architectural tenets involved in cloud and other platform offerings.

Cloud is a good option when you understand how to appropriately evaluate the options.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog, all rights reserved.

We were catching-up on reading this week and reviewed an article published in CSCMP’s Supply Chain Quarterly printed magazine. (paid subscription or CSCMP professional membership required).  The article was titled, Tap into the power of analytics, and was jointly authored by Thomas H. Davenport, distinguished professor of IT and management at Babson College, and Jerry O’Dwyer, a principle and leader of analytics strategy for the strategy and operations practice at Deloitte Consulting LLP.

I remain a strong fan of professor Davenport’s research in the area of supply chain and business analytics.

The article itself explored new ways of applying supply chain analytics to business performance needs and where to find the best opportunities.  One of the most important insights brought out in this article reflected on the need for improving analytical “literacy” across supply chain teams.  We have heard and read of this same need coming-up more frequently among senior supply chain management teams and wanted to enhance this challenge through this commentary.

In their article, the authors make the observation that several companies have had to considerably upgrade their analytical capabilities of both their IT applications and in the skills of business planning teams.  A quote from one supply chain manager observes that people have to be twice as smart in order to make best leverage of today’s more sophisticated technologies in analytics. Further noted is that individuals need to be either retrained or perhaps moved to other opportunities.  Some companies are providing for in-house sponsored training while outside universities or training organizations are offering new opportunities for deeper analytical skills.

One other concept brought out by the authors to facilitate the understanding of supply chain analytical skills was simpler software applications with narrow functionality. The analogy brought forward is that of a “smartphone-like app” that would support a single decision, and further noted is that some software providers are now beginning to introduce such narrow applications. Examples mentioned are supplier evaluation, inventory performance analysis or transportation analytics.  The authors point out that the way to guarantee the use of analytics in supply chain management is to embed them into supply chain-oriented processes and systems.

Supply Chain Matters would not necessarily agree with the first approach, namely because it places analytics and business intelligence data back into functional stovepipes, rather than into a supply-chain wide information and intelligence repository.  These narrow scope analytics applications may also be the means of some software providers to hang on to customers while not necessarily supporting the broader and more extensive need.  The latter, in our view, reflects the emerging concepts of supply chain control tower like applications or platforms, which we addressed in prediction five of our Supply Chain Matters 2012 Predictions for Global Supply Chains.

Regardless of the systems and technology approach, the reality remains that both supply chain management and planning teams need to consider realistic methods for  deepening individual skills and literacy into leveraging advanced analytics within supply chain business decisions.

We encourage readers to share their own views regarding the growing need for supply chain analytical skills by either adding a Comment to this posting, or responding to our interactive poll question appearing in the right-hand panel. Depending on the volume of responses, we will share the results in an updated commentary.

Bob Ferrari

Supply Chain Matters has previously noted that in these challenging business times, even the best organizational supply chains can experience a snafu.

Procter and Gamble, on just about every influencer’s listing as one of the top rated supply chains, is experiencing an uncharacteristic supply snafu which is gaining wider visibility. The timing is not ideal since P&G recently disappointed Wall Street by reporting a 49 percent drop in quarterly profits (quarter ending Dec. 31), a hefty write-down of previous acquisition costs, and 1600 planned job cuts.  The Wall Street Journal reported that P&G lost market share in a greater portion of its business lines during the past quarter partly because competitors held back on product price increases while P&G raised prices. P&G is now reversing some of these previous price increases.

The supply snafu involves the market introduction of a new branded line of Tide Pods, a capsule blended laundry detergent that was originally planned for market introduction in August of last year.  P&G product management had to push the market entry date to this month, and it now appears that supply constraints may limit how much supply will be available at retail outlets to support a broad product launch.

An article published on the Cincinnati Business Courier web site cites a Deutsche Bank analyst as indicating a second supply delay involving Pods and that P&G is communicating to retailers that constraints will limit supply for shelf displays only, and that off-the-shelf volume promotions should be timed for no sooner than July of this year. Noted was that the “three-chamber unit dose” delivery system for Tide Pods required special manufacturing processes to be developed. A spokesperson for P&G noted: “Unfortunately, we recently experienced unexpected challenges as we ramped-up new manufacturing capacity and processes in mid-November and December. However, we continue to see improvements in the manufacturing processes and are confident we will achieve the manufacturing capacity we expect on Tide Pods.”

An article appearing on AdvertisingAge noted that P&G appeared to have a first-mover advantage in the biggest laundry innovation in 25 years, but these latest supply setbacks provide an opportunity for laundry detergent competitors to launch their own versions of blended product.  That article notes: “A slew of ultra-concentrated detergent “packs” that are slated to hit stores in February are expected to ratchet up marketing outlays in the category by nearly $300 million.” The article also cites an executive at a P&G competitor indicating that “retailers are furious” and that P&G’s sales force is “having to use up chips saying they’re sorry” for changing plans twice in six months.

While competitors will seize on market opportunity, P&G as a leader in global supply chain capability will eventually bounce back and manage this Tide related supply crisis. Articles have also noted that P&G has complete patent protection on this new formulated product. As is often the case, lessons will be learned, especially regarding the alignment of product management, sales, marketing, and global supply planning in new product introduction involving highly complex manufacturing processes. There well may be lessons related to the executive S&OP processes, and in handing competitors an unplanned opportunity to seize on supply constraints.

We suggest that the takeaway for readers is that even the best supply chain teams can stumble, and when it occurs in the public limelight, when disappointing financial news is being communicated the headlines well become magnified.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC, and Supply Chain Matters.  All rights reserved.

This continues our series of commentaries outlining our 2012 Predictions for Global Supply Chains. These predictions are provided in the spirit of advising supply chain organizations in setting management agenda for the year ahead, and in helping our readers and clients to prepare their supply chain management teams in establishing programs, initiatives and educational agendas for the New Year.

Readers are welcomed to review our previous series of postings.  These include:

The full listing of 2012 predictions

Predictions One and Two.

Prediction Three

Prediction Four

Prediction Five: The concept of “supply chain control tower” will come to the forefront, but in 2012, there will be a need for vendors and consultants to focus on further market education and early adoption support.

In our discussions, presentations and attendance at 2011 supply chain forums and events, we have discussed and heard from manufacturers on the need for a “supply chain control tower” technology enablement.  The term itself is not one that was primarily conceived by technology vendors, but rather industry visionaries who now acutely understand that there is need to have complete visibility and decision control of all that is occurring across the extended global supply chain.  The clock speeds of business change have increased dramatically, along with their subsequent impact on supply and demand planning and fulfillment execution needs. Sequential planning cycles predicated on historic data views and incorporation of the impacts of the latest real-time events are the new challenges for managing highly dynamic supply chains.

The control tower concept stems from OEM’s primarily in the high tech and consumer electronics industry that are deeply involved in supply chain planning and fulfillment execution in a highly extended and complex network.  They have come to understand that constant volatility in product demand, supply, and other unplanned events are exposing the vulnerabilities of cadence or process driven planning, execution or S&OP processes.

Supply chain teams require more-timely, and more forward looking decision making vs. just visibility to what has occurred. A control tower can become a single utility view for tracking information related to supply chain wide events, decisions and information flow. In essence, it can provide an information hub that supports two-way decision-making, interaction and extended collaboration for what is occurring and what needs to occur. Consultants and systems integrators have also honed-in on this new requirement, and some pilot process implementations will continue in 2012.

Technology vendors have greatly overhyped the terms “supply chain wide visibility” and we believe that users demand much more supply chain business process control specifics and capabilities with this new concept.  Our prediction is that in 2012, the supply chain control tower will come to the forefront of discussion, but this is still an early phase period of market adoption and early adoption. The notion of a supply chain control tower will benefit from more discussion among both functional and IT support teams and will require more market education of the various technology elements that can enable this concept. The payoff in industry competitiveness and financial benefits can be huge.

We anticipate that the technology vendors themselves will converge on this area from four separate perspectives: supply chain execution, supply chain planning and business process management (BPM)/ business intelligence (BI), and B2B trading network perspectives. This will place the burden on consultants, system integrators and end-user teams to sort out the best approach for specific needs.  Vendors and consultants will also need to provide more hand-holding support to early adopters in their deployments.

Prediction Six: Cloud computing and broader managed services options directed at enabling selective supply chain business processes will continue to gain more traction.

The momentum for cloud computing technology adoption continued during 2011 as manufacturers, retailers and service enterprises filled-in tactical holes within supply chain problem areas such as procurement efficiency, overall spend reduction, broader supply network collaboration and deeper insights into demand and supply patterns.

The prospective of a much more challenged global economy and added pressures to reduce cost and improve service levels directed at maintaining or acquiring key customers is a given in the coming year.  External clouds can provide more flexible options for supply chain networks to exchange information with key customers and partners and collaborate more effectively on planning and execution needs. We therefore believe that more organizations will turn to broader cloud computing adoption or managed outsourced service options for selective supply chain process areas during 2012.  Cloud deployments will continue to include both private and public cloud options, with private clouds continuing to be favored within supply chain mission critical management process areas.

The cloud computing option provides enterprises with a further means to limit large up-front costs for the acquisition of key technology, and further provides the flexibility for offsetting the traditionally high annual software maintenance fees associated with enterprise level behind the firewall software use. Cloud-based technology further provides a role in helping supply chain networks to foster “plug and play”  process support capabilities. A key sign of acknowledgement of cloud computing market adoption occurred in late 2011 as dominant ERP providers made acquisitions to shore-up their cloud computing options for customers.  In late October, Oracle agreed to acquire cloud customer service provider RightNow Technologies, and in early December SAP agreed to acquire HCM cloud provider SuccessFactors. The ERP providers will have to mask their desire to sell more “seat-based” revenue opportunities with the need for customers to have meaningful cloud options that do not require major upgrades of the existing ERP technology stack.

Smaller, specialized cloud oriented supply chain technology vendors will continue to gain more market visibility.  Selection however should consider that some vendors may be targets of acquisition from bigger players in 2012 (see Prediction Seven).  Insure that your service-level agreements include provisions for carryover, in the case of acquisition or merger.

Managed Services

We also continue to hear reports from vendors and consultants that more managed services options directed at select supply chain process areas are gaining interest.  A big help in this area has been a broader understanding and education of the concepts of Vested Outsourcing, as advocated by the University of Tennessee. Vested Outsourcing calls for a outcome-based partnership among the outsourcer and the managed service provider for establishing goals for defined outcomes, joint oversight, and win-win incentives.

Look for more uptake in 3PL / 4PL partnerships in logistics and order fulfillment process needs, procurement of indirect services, and some areas of supply chain planning related to steady-state product offerings. In the U.S., 3PL’s are mindful of the likllihood of a truck capacity shortage if overall manufacturing activity increases, and are continuing to take advantage of cloud delivered technology, intermodal modes, optimized shipment structures and a heightened focus on collaborative capacity utilization.

Managed service options will continue to provide an attractive option for small and mid-sized businesses, but cost competitive, develop or buy factors will remain a part of the process.

This concludes Part Five of our Supply Chain Matters 2012 Predictions.  In Part Six, we will explore our Prediction Seven, reflecting on added M&A And strategic partnership activities among technology providers, and Prediction Eight, a move toward stepped-up standards and mitigation efforts on the part of industry and governments to combat the growing problem of counterfeit parts and supply chain theft.

In the meantime, readers are encouraged to share observations and added predictions from your industry and functional lenses.

Bob Ferrari

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

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

The ongoing devastating monsoon floods that continue to impact Thailand will once again demonstrate the response management capabilities among high tech electronics and automotive supply chain teams.  The word “agility” is often an overused term in the context of supply chain processes, but in the case of the unfolding supply chain disruption, it will have significant meaning.

First and foremost, our hearts go out to people of Thailand.  The floods have now claimed over 500 lives, most from drowning, and countless thousands continue to endure the ongoing effects.  Weather forecasts indicate that the heavy rains, which began in July, will continue through the end of the year and we hope that the rains end sooner than that.

As with the March massive earthquake and tsunami that struck northern Japan, the cascading global-wide effects are still unfolding across multiple tiers of supply chains.  Flooding in the country has forced the closure of more than 1000 factories.  Thailand itself represents a significant vulnerability for hard disk drive (HDD) and Japanese automotive component production sourcing.  Estimates are that the region represents 70 percent of global HDD production. Western Digital, the global leader in HDD obtains 60 percent of its inventory from its factories in Thailand and the company has already indicated that it will ship less than half of planned supply for the remainder of 2011. Japan’s Nidec Corp., a major supplier of precision disk drive motors had the majority of its production capacity impacted, and news reports point to production workers ferrying available undamaged inventory on boats in an attempt to move the motors out of flood prone areas.  Industry observers warn of an outright severe shortage by Q1 of 2012, if alternative production is not found. Unlike what occurred in Japan, HDD and component producers had minimal safety stocks to buffer a major disruption of supply.

A posting in Eweek cites industry participants noting that once the rain stops and access to flooded factories can be garnered, it would take 2-4 weeks to pump out flooded buildings and upwards of 60 days thereafter before production levels could resume. Some observers point to a 20 million unit shortfall in supply per month before normal supply levels recover, while more conservative estimates point to a 50 million HDD shortfall over the next two quarters.  Some have stated that the ongoing Thailand floods will have a greater impact on high tech and consumer electronics supply chains than that which occurred in Japan earlier in the year. That impact will surely cascade to global storage and PC manufacturers.The PC industry has already been in turmoil and this incident adds more business challenges.  A New York Times article (paid subscription or free metered view) further points to a pending impact for cloud computing and infrastructure providers further up the stream, who rely on continued acquisition of HDD hardware to support the explosion of cloud and data storage needs.

For automotive supply chains, particularly those of certain Japan based manufacturers, Thailand based factories represented considerable sourcing of electronic components, plastic and rubber parts.  Honda and Toyota are the most impacted thus far, and pending parts shortages have already led to production cutbacks at multiple final assembly production plants including Japan, North America, and other geographic regions.  According to a Bloomberg BusinessWeek article, Honda has been especially hard hit with its two Thailand final assembly plants being totally submerged since October 6. Toyota estimates that since October 10, the floods have already reduced its Thailand based auto output by 69,000 vehicles. Jim Fulcher has provided a Supply Chain Expert Community posting that elaborates further on the cascading impacts for automotive supply chains.

Business and industry media this week has rightfully raised questions as to how these recent “black swan” or unprecedented natural disaster events have exposed vulnerabilities among industry supply chains. Has the quest for lowest cost production and hyper lean supply chains overridden and exposed vulnerability to significant business risk?

While many in the community can weigh in on that discussion, the immediate crisis at hand is once again, the testing of supply chain response management capabilities among those high tech and automotive companies currently impacted, and those that will be impacted.  After all, would an executive S&OP process ever consider the reality of mid double digit interruptions in critical supply or extraordinary supply price hikes caused from that shortage?  The answer is no!

However, during the Japan crisis, some companies such as Nissan, Cisco and Jabil demonstrated that once the disruption occurred, they had the ability to quickly assess overall supply and revenue impacts from multiple layers of their value-chains, and had the response scenario capabilities defined to either re-route supply from alternative sources, allocate limited production to key customers and distributors, specify and qualify alternative parts, or call on existing suppliers to help buffer impacts.  Even the supply chain teams of Honda and Toyota, that were the most impacted, eventually found ways to analyze impact areas and overcome disruption beyond original expectations.

Supply chain teams need to address two looming and significant cross-functional challenges in the days to come.  The first is re-visiting business and supply chain planning capabilities in light of the reality that major disruption, either internal or external related, is a given.  The ability to have scenario plans in-place along with the abilities to quickly assess and proactively respond to disruption are new table stakes. The second and longer-term challenge is a complete re-visit of component and finished-goods sourcing strategies in the light of what both the Japan, and now Thailand disasters have uncovered.  There can be no significant vulnerability to required supply streams, and every major geographic region requires an identified and well-understood business and supply continuity plan.

Bob Ferrari

From our lens, certain technology vendors and bloggers have been confusing manufacturers and supply chain teams by communicating alarming messages on the growth of so-termed, “big-data” supply chains.  Some messages relate to organizations drowning in data while others offer a panacea of remedies to get data under control.

Supply Chain Matters recommends that our readers take the opportunity to review a recently published McKinsey Quarterly article, Are you ready for the era of ‘big-data’?  This advisory article is insightful and well written and provides a proactive context as to how organizations can leverage the harvesting of data for competitive advantage. While McKinsey acknowledges that these are still early days for big data, the authors state that their research indicates that organizations that leverage data and business analytics to guide decision making can gain an edge in strategically engaging customers and suppliers. We would add that the recent major supply chain disruptions precipitated by the tragedies in northern Japan and now Thailand, have also provided real-time reminders on the importance of having the right information.

The article also makes a very important conclusion. Some industries will realize benefits sooner, namely because they have strong incentives to do so, along with their overall readiness to capitalize on data management strategies.

The report features five well posed questions that senior executives should be asking themselves.

One question reflects on breaking down the barriers of accessibility to industry and supply chain wide data when organizations feel threatened or gain strategic benefit from sharing their perceived proprietary or confidential data.  These barriers exist externally as well as internally. As an example, some big retailers continue to harvest financial gains from selling point-of-sales data. Industry data aggregators or intermediaries benefit by selling such data to industry suppliers.  The good news however as that supply chain organizations are finding innovative and collaborative means to gain broader access to data.  At a recent industry conference, we heard one presenter representing a consumer goods company state that a revolution is underway in opening up access to direct sales data, even among industry competitors.

Another insightful question posed was the following: “If you could test all of your decisions, how would that change the way you compete?”   The notion here is that access and leverage of key information and insights facilitates a fundamentally different type of decision- making process, one based on reducing the variability of outcomes by testing or predicting possible decision scenarios ahead of time. A supply chain specific example of this analytical or predictive decision making context has been the popular adoption of multi-echelon inventory optimization technology.  This software leverages key data related to supply chain footprint, products, inventory cost, transportation and cycle time to analyze various inventory tradeoffs and deployment strategies that can achieve a specific customer service level. Thus, a decision related to servicing a key customer, can be analyzed ahead of time for quantification of impacts in overall costs and service levels. Other and more recent examples are the Kinaxis and Progress Software announcements of the availability supply chain control tower applications that leverage either scenario management or business process management outcome features.

Other questions posed relate to how the business would change, if big data were channeled, how these methods would augment management decision-making, and the opportunities for certain companies to create entirely new information-driven business models .

A final McKinsey observation concerns a pending shortage of skilled resources, one that this author has communicated in prior talks on predictive analytics.  McKinsey research quantifies that in the U.S. alone, “demand for skilled analytical people can outstrip supply by 50 to 60 percent.”  McKinsey notes: ”By 2018, as many as 140,000 to 190,000 additional specialists many be required.”  This message is rather important to dwell upon.  Supply chain professionals at all levels need to proactively upgrade their skills to include these new areas of leveraging analytical data and predictive decision-making.  Companies need to provide more incentives and opportunities for training in these areas, and universities and training organizations need to broaden their curriculum to embrace advanced analytical and predictive decision-making methods.

A final note reflects on the current landscape of supply chain focused professional certification programs, such as those offered by APICS, CSCMP and ISM.  By our point-of-view, there needs to be more exam content devoted to candidate understanding of these evolving data-driven and predictive decision-making processes vs. those that sufficed in the prior times of sequential based planning such as MPS and MRP.

The times are changing along with the potential and  means for more predictive supply chain decision-making.  And so are the skills and readiness qualifications.

Bob Ferrari

© 2011, The Ferrari Consulting and Research Group LLC and Supply Chain Matters, All Rights Reserved