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.

The following posting can also be viewed and commented upon 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 Dispatch One , Dispatch Two and Dispatch Three commentaries.

One of the new twists to this year’s Kinexions conference was an invitation for a broader group of industry analysts / partners / bloggers to not only partake of the conference but also attend a separate afternoon briefing session hosted by Kinaxis senior management and select customers. Seldom have I found software vendors willing to allow this grouping open access, and we complement Kinaxis for this effort.  As COO John Sicard explained to me, the company has reached a point where it requires broader market awareness of its capabilities.

The influencer briefing kicked-off with CEO Doug Colbeth and COO John Sicard jointly providing a history of the company both in its fabric and its technology development. Emphasis was placed on the current demonstrated scalability of RapidResponse and an acknowledgement that the application works best when in coexistence of existing ERP or legacy systems among its customers. Nearly 60 percent of Kinaxis existing customer base operate with an SAP ERP backbone system.  Also explained was that when users interact with RapidResponse they declare their work area responsibility, which the application then utilizes to tailor respective planning views. The application not only manages and processes large amounts of data, but also the business rules that exist regarding that data.  In our view, that characterizes RapidResponse as akin to a business process management (BPM) type of application, which the application accomplishes in its S&OP functionality. We were also briefed on why the new announced re-naming to Kinaxis RapidResponse Supply Chain Control Tower was a natural extension of the company’s current growth plans.  Although there was a on-stage demo, not a lot of information was shared in this session regarding the detailed functionality that is being planned for this extension of RapidResponse capabilities.

The remainder of the influencer briefing session focused on interaction and presentations from invited customers. Elisabeth Kaszas, Director of Supply Chain for Amgen, provided an update on that company’s multi-year transformational efforts towards more responsive supply chain business processes. A benefit mentioned, that was rather difficult to do in the existing ERP backbone system,was the need to provide various product costing structures beyond just standard cost data.

Chalam Kalahasti, Director of Global Planning and Fulfillment for Cisco Systems, described the unique challenges for planning a highly outsourced, globally extended supply chain.  Cisco has a very active S&OP process tied to RapidResponse, and a plan-of-record is created weekly. What is also noteworthy is that Cisco’s direction in more response-oriented planning has been motivated by previous incidents of supply chain disruption, such as earthquakes in Taiwan and China and the tsunami in northern Japan.  Cisco’s supply chain planning process is predicated on the ability to assess a definitive impact from an unplanned event and to provide different options and scenarios for responding to the exception.

Paul Lindblom, a member of the senior IT staff at Qualcomm QCT, provided a detailed perspective of how RapidResponse integrates with various other Qualcomm systems, along with the unique needs for planning in a combination push-pull, semiconductor supply chain.  Semiconductor wafers are long lead-time items subject to fab capacity considerations, and in the case of Qualcomm, multiple fabs are utilized to supply product.  Conversely, wafer packaging and testing are driven by customer buying and lead-time requirement cycles. Semiconductor planning needs which requires the unique ability to be supported for by-product and co-product production are supported in RapidResponse.

Due to time constraints, our final session featured Kerry Zuber of Kinaxis who provided an overview of the latest 10.0 release of RapidResponse, which includes a significant investment in demand management and product forecasting functionality.

Our briefing turned out to be a jam-packed session with a literal fire-hose of information.  Luckily, the customer appreciation event held on a reservation in the hills outside of Phoenix allowed ample opportunity to unwind and have great conversations with fellow attendees.

In a final posting, Supply Chain Matters will provide some final summary comments and observations regarding the Kinexions 2011 conference.

Bob Ferrari

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

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 Dispatch One and Dispatch Two commentaries  which highlight day one activities.

Day two of Kinexions kicked off with an uncensored presentation from former Gartner Vice President and supply chain sage Kevin O’Marah, who now characterizes himself as an independent thinker.  Kevin reflected on the history of business automation and innovation, the important trends that productivity and talent have brought to businesses large and small and his belief that large ERP vendors are not delivering the innovation required to enable the next era of business and supply chain process capabilities. Kevin referenced multiple survey data that reinforces that demand volatility is driving executives and supply chains literally crazy, and that the community needs to get ahead of these new realities of business. Kevin described the new wave as being led by human intelligence but with technology leverage.  Kevin was also kind enough to acknowledge our working relationship in the earlier days of AMR Research and I sincerely thank Kevin for the mention.

Day two customer presentations featured Lalit Pandit, the CIO of D&M Holdings, and Joe McBeth, Vice President of Global Supply Chain at Jabil, and Erwin Hermans, Vice President of Supply Chain Solutions, Celestica.  One of the extraordinary aspects of attending a Kinexions conference is that the audience can get perspectives from the key players located throughout many tiers of today’s global supply chain. The D&M Holdings story is one of a mid-market company that needed to transform its supply chain utilizing a planning and response management application that users could quickly adopt and leverage.  It is also an example of how a cloud offering is an important option for mid-market companies.

While there were many nuggets of information shared by all of today’s presenters, my personal favorite was Jim McBeth, who vividly expressed what supply chain response management really means for companies, and especially contract manufacturers. Jim reflected on the recent March earthquake involving northern Japan, and more recently, the devastating floods impacting Thailand.  Each had supply chain disruption implications, and as Jim best described it, “the guy who was the best information, wins”. In 48 hours, Jabil was able to provide risk assessments and impact analysis for its OEM customers and key suppliers. Jim noted that most organizations, consultants and pundits speak to constantly keeping inventory down, when the reality may be keeping partners in balance and inventory right-sized to buffer identified areas of component risk. Jim also spoke to the reality of planning at the EMS level, the mid-tier of high tech value chains when the bigger fish OEM’s will get the prime priority for available inventory and capacity. The reality turns out to be the ability to plan with predictive data, to proactively collaborate with OEM’s along with the ability to predict what requirements will be before the bigger players do the same.

This afternoon’s closing event was an interactive influencer’s panel discussion moderated by Trevor Miles of Kinaxis, which I was honored to be invited to participate.  Fellow panelists were Andy Coldrick, one of the original thought leaders in S&OP, Russell Goodman, editor-in-chief, SupplyChainBrain, and Predrang (PJ) Jakovljevic of Technology Evaluation Center.  Our goal was to wrap-up the conference by summarizing what we heard from customers and influencers, how we viewed the current state of  supply chain business process and technology innovation, and the notion of what is the state of collaboration in supply chains. A eureka moment came from an interchange of what comes next for S&OP?  Andy provided the perspective that as the originators of S&OP discussed what would be the next iterations, they also could not agree to terminology.  Andy’s charge to the audience, it doesn’t matter how you term the next iteration, what matters more is the objective your organization is seeking. Wise words from an original thought leader.

Supply Chain Matters will feature two additional Kinexions commentaries, one reflecting on this year’s briefing of key market influencers, and our conference summary impressions.

Bob Ferrari

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

The following commentary can also be viewed and commented on the Supply Chain Expert Community web site where Bob Ferrari, the author is a featured guest blogger.

Over these past few weeks, Supply Chain Matters and others in social and print media have been providing insights and commentary as to how quickly global supply chain dynamics are changing in value-chain networks involving high tech and consumer electronics.  In particular, we point to the PC and smartphone segment. Changing economic forces and sudden events are precipitating change, and these forces may not be to the  liking of certain existing players.  The implications for the supply chain community is heightened awareness to strategic trends and product sourcing strategies, since high tech and consumer electronics supply networks may well have different landscapes of key players in the months to come. It is now crucially important to keep senior management educated as to the implications of these developments.

Our particular commentary began in June, noting key highlights from Hon Hai’s annual meeting and  some of the signposts for a changed contract manufacturing landscape. The eroding margins and competitive dynamics of contract manufacturing point to the strategic need to move further up in the value-chain and into the turf of some existing suppliers.  In August, the two bombshell announcements of Steve Jobs resignation at Apple and HP’s intent to spin-off its PSG division and abandon its efforts in  tablet  computing with the leveraging of the Palm WebOS operating system, created a value-chain network of turmoil and uncertainty, which continues.  Supply chain community members residing in these networks can well relate to current conference, hallway and break room speculation as to what may be coming.

Financial media is also honing in on these developments and changing forces and the Financial Times, Bloomberg BusinessWeek and the Wall Street Journal among others have published supply chain impact articles. In late August, announcement came that Japan’s Sony , Toshiba, and Hitachi Ltd. will together merge their money-losing small liquid-crystal display operations to form a single company to be named Japan Display.  In mid-September, FT published an article indicating that Samsung needs to hit the reset button and focus more on the core software that is crucial to its increased focus on high-end consumer electronics. The perceived motivation for HP’s prior decision to investigate strategic options was to concentrate more on the valued software and services element.

This week the WSJ published an article, Nokia’s Troubles Hit Suppliers (paid subscription or metered free view may be  required) that correlates the market struggles at Nokia Corp. and Research In Motion to the consequent ripple effects among major suppliers. Noted was that as semiconductor chip suppliers try to find additional business beyond Nokia’s dwindling volumes, they are discovering that the two biggest smartphone players, Apple and Samsung have locked them out of the market by virtue of designing and manufacturing their own devices. A market researcher cited that Texas Instruments shipped 85 percent of its application processor output to Nokia last year, and has now TI has had to reset Wall Street earnings guidance. The HP decision to abandon WebOS also impacted TI, to the benefit of Qualcomm in the applications processor supply landscape of suppliers. What technologies and capabilities suppliers adopt and who they select as strategic business partners has major business implications. What the major OEM’s elect as continuing strategy, particularly Apple, Samsung and of course, HP, will also precipitate accelerated change.

All of these developments point to continuing turbulence among and across high tech and consumer electronics value-chains, and now more than ever, firms in these segments need to continually re-visit their strategic sourcing and supply plans for long-term implications.   The top tier OEM’s and tier one suppliers want to participate in broader swaths of the value-chain. Suppliers seek more diversity and cushioning to industry developments. Software, operating systems and after-market services are the new high margin areas while hardware seems to be becoming the orphan or the cost of entry to more profitable segments.

In July, we highlighted the dialogue of ‘closed’ vs. ‘open’ supply chains, specifically that closed supply chains are a highly integrated set of networks where product technologies are owned by the company orchestrating the vale-chain.  Apple and Samsung are the high visibility examples today. Add the implication of service offerings and the discussions can tend to get quite interesting.

Supply Chain Matters believes that the current accelerating dynamics occurring in high tech value chains make it imperative that senior management is continually educated to developments and that strategic strategy sessions and interchange be more than just a periodic occurrence.  Sourcing, product management and procurement need to broaden the lenses of visibility to industry developments, while increasing their two-way communications with the broader supply chain management team as to what is being heard and what can be expected. Supply chain management needs to speak as one voice.

We further recommend that high tech and consumer electronics teams allocate specific time in the executive level S&OP process to an industry development and strategy discussion.

Now is the time for supply chain management to be the eyes and ears to industry movement and long-term implications.

Bob Ferrari

©2011 The Ferrari Consulting and Research Group LLC

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