Supply Chain Matters has often pointed out increasing occurrences where the impacts of supply chain strategy and initiatives contribute to either positive or not-so-positive financial media news stories influencing a company’s value to shareholders. The significance of efforts to simplify a supply chain supporting unusually large assortment of products with a corresponding complex global supply chain is indeed newsworthy.

Last Thursday, The Wall Street Journal headlined a rather positive story related to industrial manufacturer 3M Company, and its efforts to untangle “hairballs” across its global product supply chains (paid subscription or free metered view).  The 3M supply chain has responsibility to plan, produce and distribute over 65,000 products ranging from tape, solar energy panels, dental braces and dog chews.  The company has 214 plants located in 41 countries with nearly two-thirds of current sales originating outside of the U.S… With a continued challenged global economic climate and overall sales growth at just over 2.4 percent, 3M had no choice but to focus on cost control and efficiency as a continued source of profitability.

In the article the 3M corporate culture is described as risk-averse, leading to a philosophy of “make a little, sell a little”, meaning do not make hard commitments to capital and capacity until a product has proved itself to be a market winner. That philosophy drove product developers to seek out any available supplier expertise and capacity, regardless of ultimate product distribution strategy, even if certain sub-component suppliers were hundreds of miles distant from other upstream value-chain suppliers.  The result was what 3M ex-CEO described as “hairballs”, value-chains that extended across multiple suppliers in multiple geographic areas, all adding to transportation and logistics costs.

Sound familiar?

3M has now embarked on a three-pronged supply chain strategy addressing simplification.  The first is to have production located closer to customers.  With two-thirds of revenue outside of the U.S. the implication is for a more international based production capability.

Second is the need for fewer, larger, more efficient “super-hubs”, plants capable of making large numbers of products. These hubs can also customize products to the needs of local markets. Ten of these hubs have been implemented with six additional planned.  Ten of the total sixteen “super hubs’ will be outside of the U.S.

The third area of focus is overall efficiency which includes reduction in cycle times from order of raw materials to delivery of finished goods.  As an example, the production of 3M brand Command Hooks was reported to be reduced from 100 days to 35, which is a considerable impact. Similarly, the cycle time for 3M’s Littmann stethoscopes will be reduced to 50 days from 165.

Between the lines, readers can discern that 3M shifted its supply chain strategy from one of total focus on efficiency and cost to that of time-to-market balanced with an overall supply chain flexibility and efficiency.

In the Gartner 2011 last listing of Top Twenty Five supply chains, 3M was listed at number 24.  Perhaps at this week’s unveiling of the 2012 listing, 3M will advance.  In any case, 3M provides another example of supply chain strategy and response that has a positive impact on business outcomes and performance.  Perhaps the next emphasis will be on a reduction of overall product portfolio.

Bob Ferrari

In October of last year, Supply Chain Matters advised senior supply chain executives to initiate scenario plans and contingencies in three potential areas of global supply chain impact. One of these areas directly involved emerging developments reflected in the Eurozone financial crisis with the potential impact on financing of inventory and working capital.  Similar to what immediately occurred during the 2008-2009 financial meltdown, some European manufacturers, especially those residing in financially weakened banking sectors such as Greece, Ireland, Italy, Portugal or Spain would experience difficulty in acquiring affordable access to credit and loans.  Our belief was that a worsening of bank fragility or more outright bank failures would cause an additional credit crisis for these companies, and this would impact supply chain working capital, production and inventory deployment strategies.

This week, the Wall Street Journal reported (paid subscription or free metered view) a significant reminder to this impact, one that is impacting multiple aircraft manufacturers.  Spanish based manufacturer Alestis Aerospace SL, an airframe supplier to Airbus, Boeing and Embraer, has been forced to slow production because of a lack of access to working capital. This Seville based manufacturer was placed under court administration, the Spanish equivalent of bankruptcy protection, earlier this month.  Alestis was formed in 2009 from the merger of several smaller aeronautic manufacturers within Spain. The company produces composite aircraft ribs, panels and skins for the Airbus A320 and A380 aircraft, among other supply contracts. The WSJ also notes that the company has gained valuable capabilities in the building of parts from composite carbon materials, supporting today’s new wave of lighter, more fuel efficient aircraft models. Alestis has gained at least one long-term supply contract from Airbus.

The financial crisis impacting Alestis was ultimately prompted last week, when the government of Spain ordered all banks to raise provisions against potential losses tied to real estate loans. That dried up available capital to companies such as Alestis. The other twist to this situation is that the company resides in an economic area that is primarily driven by credit requirements stemming from tourism, services and real estate vs. high-tech manufacturing. Because aerospace projects tend to have longer time windows, the local banks, struggling to survive themselves, can no longer afford or unable to finance loans tied up for multiple years.

Global aircraft manufacturers have accumulated customer orders that have provided years of capacity and production backlog for this industry.  Supplier failure, especially related to competency in new technologies is not something that the industry needs right now.  The WSJ reports that Airbus procurement teams are paying special attention to prompt payment and are monitoring Alestis’s key supplier network as well. Supply Chain Matters is of the point of view that alternative financing solutions will also have to explored, including the option of acquisition.

This is yet another reminder that in this era of global value-chains, an economic crisis in one geography will often spillover to other regions. We once again advise senior supply chain executives to insure that risk contingency planning is actively practiced, especially concerning ongoing developments in Europe.

Bob Ferrari

This commentary continues our series of Supply Chain Matters impressions from this week’s Oracle Industry Analyst World Spring event held at the company’s corporate campus in Redwood Shores California.

In our previous Dispatch One commentary we focused on general impressions of Oracle’s current direction in technology and support for customer IT solution needs. Our Dispatch Two commentary provided impressions and an information update related to Oracle SCM applications support.

In this Supply Chain Matters dispatch, we focus on some highlights of Oracle’s transition to Fusion powered SCM, the ability to provide core SCM applications in a cloud or SaaS environment.

Fusion SCM is being designed and incrementally deployed to leverage five underlying core frameworks:

• Data model and services
• Business process support
• Analytics and calculation
• Integration services
• Data model extensibility

The applications that will be deployed on the outlined technology stack in a phased rollout strategy over the next 12-18 months.  Some applications are already in co-existence mode while others will be re-architected or introduced in a cloud offering. Oracle executives are quick to note that customers are not asking for a “big-bang” rollout, but rather an evolution over time which IT and functional organizations can absorb. The deployment strategy is also industry targeted, with high tech and consumer electronics as the initial objective, followed by other manufacturing and service focused industries.

Highlighted applications currently in phased rollout include:

• Distributed Order Orchestration (DOO) being designed to support B2B and B2C commerce fulfillment needs involving multiple backend systems.  This application has strong interest for Cross-Channel commerce fulfillment needs that are evident in current Retailer business support environments.
• Product Master Data Management Hub to support regulatory compliance, product catalog or product portfolio analysis needs.
• Inventory and Cost Management to support multiple channel fulfillment needs.

Down the road, Oracle SCM customers can anticipate additional Fusion elements related to Value Chain Planning and supply chain orchestration support functionality.

We also had the opportunity to have some conversation with Oracle executive David Hope Ross regarding Oracle strategies in supporting procurement process needs.  There are interesting opportunities at play related to leveraging Oracle’s engineered systems components to procurement business process needs. These include continued leveraging Endeca information discovery tools in supplier management and analysis, and areas of P2P process and electronic invoicing support.  Business analytics will also have increased potential for analyzing procurement spend trending in direct and indirect services.

The most interesting takeaway for Supply Chain Matters was the summation of certain Oracle customer feedback forums that indicate the readiness to consider some deployment of SCM support applications in a cloud or hosted environment if certain service and uptime conditions are assured. This reinforces a new and different deployment phase that can well manifest itself in the one, two or possibly three year time horizon. This is a significant threshold for supply chain technology and Oracle and possibly a couple other enterprise class vendors will lead in this space.

In a later posting, we will provide some other takeaways and summary impressions after we have had the opportunity to absorb our over 40 pages of briefing notes.  There was no shortage of interesting content in these two days of briefings.

Bob Ferrari

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

Disclosure: Oracle has no current financial or sponsorship interests in this blog or our consulting services business

In our previous dispatch commentary we provided general impressions from this week’s Oracle Industry Analyst World Spring event being held at the company’s corporate campus in Redwood Shores California.  In this Supply Chain Matters dispatch, we focus on briefing highlight elements of Oracle’s supply chain management support strategies.

Rick Jewell, Oracle’s senior vice president of supply chain applications development delivered an update on supply chain applications strategy, some of which we can share, and some we cannot because of non-disclosure agreements.

The core attributes of Oracle SCM remain, namely:

• Providing a complete suite of supply chain management support.
• Being ERP agnostic, including the support of other major ERP backbones via open applications integration architecture.
• Providing modular applications that can be matched or mixed to customer needs.

The core Value Chain Planning (VCP) grouping of applications has undergone 8 point releases in the last 3 years. Four new planning applications have been added including service parts planning.  The Oracle Rapid Planning application has been augmented with integration to S&OP support, inventory optimization and collaborative planning needs.

Oracle Value Chain Execution has also undergone its share of enhancements including 95 new releases to Oracle Transportation Management (OTM) since the acquisition of G-Log.  By the end of the year, OTM is planned to include mobility support for information and business function access across smartphone and mobile platforms. Oracle Warehouse Management has added 42 new features including 2 industry specific solutions. Oracle Global Trade Management is a recent addition to this grouping.

Oracle Supply Chain Management’s 12.2 Release was described as imminent and includes some rather interesting new functionality including an expanded Advanced Planning Control Center, an equivalent to support for an executive-level S&OP process.  It is designed to bring together the product hierarchy dimensions of Demantra S&OP with supply and distribution planning capabilities.  The new release will also feature some long overdue simulation capabilities for Oracle Rapid Planning to support intra-day simulations of supply and demand plans.  The 12.2 release was also positioned for Oracle enhancements related to support of asset intensive industry SCM needs.

Oracle PLM and Product Value Chain comes under the umbrella of Oracle’s SCM and includes PLM/PDM support utilizing Agile PLM and Agile PLM for Process. Since the original acquisition of Agile, Oracle indicates that there have been over 500 customer-driven enhancements added.  A neat new feature is the ability to analyze the product development pipeline or simulate product demand scenarios from PLM within an overall S&OP process framework. One other highlight of Product Value Chain is the addition of enterprise quality management functionality, soon to be enhanced with the addition of some Endeca powered information discovery capabilities. Jewell was not shy in naming recent Oracle customer acquisitions in competing with SAP.

Another important highlight to share with our readers is the current direction concerning Oracle’s Fusion or cloud-based SCM offerings. Fusion is the Oracle strategy to allow applications to run in a public/private cloud as well as on-premise.

Dispatch three will address this element of Oracle’s direction.

Bob Ferrari

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

Disclosure: Oracle has no current financial or sponsorship interests in this blog or our consulting services business.

The following is a guest commentary that is published on the Supply Chain Expert Community website.

This author just returned from the Supply Chain World North America 2012 conference, sponsored by the Supply Chain Council, which was held this week in Miami. The theme for this year’s gathering was Taking Supply Chains to the Next Level, and as was the case last year, the speakers were extraordinary and the messages fairly consistent.

I had the distinct opportunity to moderate a panel consisting of various well noted supply chain thought leaders and influencers. The panelists included:

Steven A. Melnyk, Professor of Operations and Supply Chain Management, Michigan State University

Roddy Martin, Senior Vice President, Global Supply Chain Practice, Competitive Capabilities International (Former Vice President at AMR Research/Gartner)

Matthew Davis, Research Director, Supply Chain, Gartner Inc.

Bob Parker, Group Vice President, IDC Manufacturing Insights and IDC Retail Insights

One particular question that I posed to the panel was on the topic of S&OP and included the following:

Many companies are now embracing sales and operations planning (S&OP) processes as a key mechanism to align anticipated product demand with supply and operations requirements.

What do you believe are the logical next steps for organizations in their S&OP journey?

Do you believe that the benefits of S&OP are being overhyped?

In the spirit of education and continual learning, I wanted to highlight with this broader supply chain community some insightful responses from our panelists regarding this important topic. Too often, as a community, we tend to get wrapped up in project management thinking, viewing an existing process in the lens of sequential steps.  Sometimes it helps to take pause and instead reflect on the overall business and supply chain outcomes required from an important process such as S&OP.

All the panelists were in agreement that S&OP is not a short-lived, vendor-hyped process and is not going away anytime soon. They characterized S&OP as a journey toward multiple outcomes and benefits. What is most important is knowing what the current and required maturity level should be.

Matthew Davis observed that S&OP can be positioned as a means to determine where decisions and what decisions need to be made regarding the need to represent the one face of the firm to customers.  It brings together teams that directly touch and/or influence product demand and supply, along with those responsible for influencing resources or making decisions as to options. The activities incorporated are generally focused on demand shaping or the ability to influence and respond to changing customer needs.  In terms of future needs, with more and more manufacturing and service firms positioning product offerings as “solutions-centric”, the process will need to synchronize a combination of product, technology and coordinated services needs. As an example, in the high tech industry, a product could involve a combination of hardware, software and services coordination.  All of this implies that the planning process changes from that of materials and physical needs to further include a broader context of project management based synchronization.

Technology’s role in the process is to help overcome time latency and aide in the ability to integrate information with the capabilities needed to influence and respond to customers. A broader scope of product solutions adds a project management dimension to the process.

Bob Parker added the need to incorporate portfolio, situational and scenario based analysis to manage products, tradeoff decisions, as well as to mitigate risk, with an overall goal of continuous planning. He cited as an example, Procter and Gamble’s circles of cadence, involving strategic, tactical and operational decisions that need to be coordinated.  The S&OP process never ends, it is continuous.

Professor Melnyk added the need to focus the process on required business outcomes, not so much in the sense of hard metrics, but on the required outcomes needed to satisfy customer and business needs.

Roddy Martin added that the future of S&OP is framing the process differently, as a journey toward integrative decision-making. Too often, S&OP teams rush to include senior executives in the process without the process maturity, and the right level of information that can context business impact or business options. Having arguments as to the accuracy of information or the meaning and implications of information, chases senior executives away and can derail efforts. That is perhaps, the worst mistake. Executive S&OP is the summarization of all business planning and execution across various time horizons, along with the business decision implications related to resource plans.

What I took away from these combined insights is that we as a community may be framing the question of the future of S&OP in an improper context.  The future is a given, the opportunities are enormous, but our context and lens needs to broaden.

Bob Ferrari