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

Like many of our readers, in my travels and encounters with various people I am often asked about what we do or what role we fulfill for clients.  Since our blog provides us the opportunity to converse beyond a 30 second elevator pitch, and with your indulgence, I would like to briefly describe each of our roles.

Upon founding the Ferrari Consulting and Research Group three years ago, we wanted to address what we viewed as growing gaps that were developing in the area of global supply chain industry research, management consulting and product marketing service needs.  Having previously successfully contributed in traditional roles as a noted industry analyst, product marketing executive, technology consultant and change agent, my belief was that there was a growing need for a hybrid, more cost affordable model for delivering important services to the market.

Our business model was therefore designed to address three broad market needs:

• Independent supply chain industry analyst services leveraging social media mediums
• Supply chain management consulting within global business processes and information technology needs.
• Education, market influence and management education in the important contribution that supply chain fulfills for achieving business strategy goals.

Allow us to briefly share comments regarding each area.

Independent Industry Analyst Services

Specialized industry analyst services directed at supply chain strategies have dramatically changed during these past three years.  Former marquis named firms such as AMR Research have been subsumed through acquisition, and access to talented and insightful analysts diluted by broader business development needs.  Continual analyst turnover leads to a lack of continuity, grounding and industry perspective. The Internet has also brought forth a revolution in information access, the ability to seek out experts in a specific area. This has led to the growing interest in seeking out independent industry analysts, those that have built a personal brand and are unencumbered by  firm internal politics or conflicting business development interests.  It is within this backdrop that the Supply Chain Matters blog was created, providing experienced industry analyst insights without the need for an expensive annual subscription that umbrellas multiple business process or technology areas.

Even though certain technology vendors are paid sponsors of this blog, we maintain our insistence to provide unbiased viewpoint, commentary and insights on developments concerning multiple industry supply chains.  We are not shy in taking a viewpoint on Supply Chain Matters, or in individual consulting with various clients.  Our sponsors support such thought leadership.

By the way, this blog can actually be accessed through three different web addresses.

Supply Chain Focused Consulting

When readers find us through this blog, they have the opportunity to seek out follow-on consulting services in specified supply chain process areas.  Our consulting services address the specific needs for both manufacturing and service provider supply chains, as well as the various technology providers seeking to solve specific supply chain focused process needs. Specific services are outlined on our primary web site ( www.theferrarigroup.com ) . If your organization has such needs, give us a call for a no-cost initial evaluation.

Education and Market Influence

The third and by no means least role is one of providing education to the broader supply chain management community.  We do this through a number of mechanisms including our blog, social media dialogue, speaking within industry or technology vendor conferences or speaking within various corporate venues. Our education is focused on learning, sharing of evolving business and technology needs as well as important developments that teams need to be aware of.  If your organization is in need of such education, give us a call or send us an email.  Our contact information or inquiry forms are located at each of our web sites.

In summary, if your organizational needs call for independent, experienced and insightful analysis, and not expensive, marginal value consulting delivery models, than by all means give us the opportunity to demonstrate our capabilities to solve supply chain related business needs.

Contact us via email: supplychaininfo <at> theferrarigroup <dot> com.

Bob Ferrari, Managing Director

We provide a brief but important update regarding Supply Chain Matters ongoing commentaries addressing significant supply breakdowns of critical life-saving drugs within pharmaceutical and drug supply chains.

Yesterday the U.S. Food and Drug Administration (FDA) approved two additional suppliers for two life-saving cancer drugs that have experienced short supply because of the unplanned shutdown of contract producer Ben Venue Laboratories, a division of Germany based Boehringer Ingelheim GmBH.

To respond to the critical shortage of ovarian cancer treatment drug Doxil, distributed by Johnson and Johnson, the FDA has approved temporary importation of the replacement drug Lipodox as an alternative to Doxil.  The FDA has authorized a limited arrangement specific to Mumbai India based Sun Pharm. Global FZE and its authorized distributor, Caraco Pharmaceutical Laboratories Ltd., based in Detroit. In its press release, the FDA reinforces that temporary importation of unapproved foreign drugs is considered in rare cases when there is a shortage of an approved drug that is critical to patients and the shortage cannot be resolved in a timely fashion with FDA-approved drugs.

Another drug that is in critical short supply in the U.S. drug supply chain is the drug methotrexate, prescribed to treat many forms of cancer and chronic disease. Their have been recent media reports indicating that only two weeks of supply of the drug remained to fulfill patient demand. The FDA has additionally approved a preservative-free generic equivalent manufactured by Illinois based APP Pharmaceuticals, a division of Fresenius Kabi AG based in Germany. Drug maker Hospira additionally expedited release of additional 31,000 vials of methotrexate, described as the equivalent of one month’s demand for this drug. The FDA is also working with other drug producers to free-up additional supplies.

The FDA also issued additional guidance to drug manufacturers regarding more detailed requirements for both mandatory and voluntary notifications to the FDA regarding future drug shortages or potential drug shortages.

Supply Chain Matters applauds these latest actions coming from both the FDA and the industry.  The fact remains however that the potential for stockouts of any critical life-saving drug remains unacceptable, and the industry continues to find itself in a situation of too much sourcing risk, without contingency plans for augmenting supply.  We also strongly suspect that the new FDA directives regarding notification of short supply will only increase the visibility to other drugs in short supply, adding more embarrassment, patient and healthcare provider mistrust concerning the U.S. drug supply chain.  We fear that this will only add to the growing problem of counterfeit and grey market supplies of critical drugs.  We hope that we are proven wrong.

Bob Ferrari

Every now and then we reach a point when it is time to make a statement about the current challenging business environment, especially when it relates to global supply chains, and this is that time.

Catching-up on last week’s reading, in particular two related articles published in the Financial Times, triggered this commentary.  One article noted that the biggest U.S. companies currently have an estimated $2 trillion in cash balances as a result of healthy earnings in 2011.

Reflect on that number for a moment, TWO TRILLION.

What a problem to have!

Where do you think a good majority of this cash is going to be directed?  If you speculate stock buyback and dividend payout programs, you are absolutely correct.  Amid a perceived uncertain economic environment, and not to mention a presidential election year, companies seem very reluctant to either hire or invest in longer-term capabilities. According to FT, analyzing the most recent figures available, last year, from Q4-2010 thru Q3-2011, U.S. companies diverted $336 billion into share buybacks,  That is the highest volume since 2007. Corporations also raised dividend payouts by 11 percent in 2011.  Some large companies actually issued more debt to finance buybacks of more than $2 billion.

That brought us to recall a January 4^th FT Insight Commentary article penned by John Plender (paid subscription or free metered view).  He observes that corporate profit margins are at all time highs because of savage labor shedding or shifting of labor costs to lower cost regions.  The open question raised by Plender relates to where will this cash be routed in 2012.  Pender opines that the obvious outlet again will be share buybacks.  Why? Because the compensation incentives of many of today’s senior executives is pegged to increased earnings per share measures.  He points out that academic evidence shows that a high proportion of CFO’s admit to a willingness to sacrifice economic value to meet short-term earnings target.  These trends are referred to as financial engineering.

Both articles are cause for considerable concern.  Manufacturers should not be faulted for being cautious given the current uncertain economic environment.  There should be some cushion of cash as a contingency.  However, the upcoming challenges in 2012 point to a significant need to reassess supply chain strategies and invest in longer-term capabilities.

Supply chains have been under enormous stress these past few years.  They have had to respond to relentless pressures to cut costs, reduce overhead and increase productivity.  For well over ten years, a flight to low-cost manufacturing regions was fueled by these pressures for cost reduction. However, the year 2011 offered stark evidence that the era of low-cost sourcing of manufacturing comes with significant risk, especially when supply chains are profiled in the leanest dimensions, or the sourcing of key components is too focused and vulnerable to disruption occurring in a single region.

Supply chain professionals had to perform yeomen activities and work countless hours to respond to assess and respond to major supply disruptions. Interestingly enough, the companies who managed the disruptions best were those who had healthy inventory safety stock levels.

We heard one senior supply chain manager express it best- we are perhaps in an era of the one quarter supply chain, configured for short-term measures and financial results.

Thus, the purpose of this commentary is to send a wake-up call to corporate boardrooms.

There is ample and proven evidence that companies who invest for the long-term, whether in people, process or technology, will reap the rewards of long-term industry competiveness.  Even in times of uncertainty, those that invested where far more able to leverage market opportunities when opportunities presented themselves in the market.

We all, as stockholders, whether direct or through our long-term retirement savings, need to send a clear and loud message to CEO’s that while languishing in earnings in cash is great and leads to healthy bonus compensation, the tradeoff can well be more financially damaging to the economy and to the corporation..

How about channeling some of that cash into investments in people, process, and in longer-term supply chain capabilities. Executives need only review our 2012 Predictions for Global Supply Chains to understand that challenges remain and investment in a longer-term window is way overdue.

Bob Ferrari

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

Predictions Five and Six

Prediction Seven: Expect additional M&A and strategic partnership activity among supply chain technology, consulting services and ERP providers as vendors shore-up application areas with the best prospects for sustained future growth.

This is the natural follow-on to predictions five and six.  As concepts of supply chain control tower, more leveraged deployment of predictive analytics, multi-channel supply chain operations management and cloud computing options gain more traction and interest among technology buyers, the vendor community will make additional market moves either in acquisition or strategic partnerships to shore-up overall product offerings for buyers.

While we predicted high activity in 2011 which do not come to pass, we believe that 2012 will provide more motivation, namely because overall spending on software is predicted to decrease in 2012. This makes any path to growth dependent on a keen focus on near-term customer buying needs, quickly filling gaps in technology offerings or gaining market growth by outright acquisition.

Supply Chain Matters believes that two smaller vendors in the planning area, and perhaps one or two vendors in the B2B procurement area are likely targets in 2012 from multiple larger acquirers and we will anticipate, as our readers, on what actually transpires.

We expect more acquisition efforts by the major ERP, B2B cloud services and procurement technology providers, and do not be surprised if some leading vendors in these new adoption areas get acquired by larger players. Some targets will be acquired with high multiples to prevent competitors from scooping them up.

B2B commerce and collaborative planning and execution networks will most likely be the hottest area for deals and shifting of players and anticipate more announcements as big players IBM, Salesforce, Amazon, Google and  possibly Microsoft square-off and bankroll for control of online commerce infrastructure and business process control.  Similarly, SAP and Oracle will continue to fill-in advanced supply chain technology software gaps, particularly in cloud and control tower areas.

Prediction Eight: The challenges related to higher incidents of counterfeit products, cargo theft and other unscrupulous activities within and across global supply chains will finally motivate government and industry to step-up process standards and corrective mitigation efforts.

This collective area has been percolating for many years and we anticipate that 2012 will be the year when government and industry finally become motivated to take action to address the growing incidents of non-conforming materials that have penetrated multi-industry global supply chains.

In the U.S., legislative leaders and industry groups have become much more alarmed with the existence of counterfeit electronic parts penetrating defense and industry oriented supply chains, much of which is alleged to be originating from China and other countries.   The U.S. government has already discovered 1800 cases of suspect counterfeit electronics being sold to the U.S. Defense Department from commercial and military suppliers.  The Semiconductor Industry Association testified that U.S. semiconductor companies face more than $7.5 billion in costs related to counterfeit parts each year as non-conforming electronic microelectronics are being embedded in automotive, aerospace, communications, medical device, and other industry supply chains.

In our industry-related prediction pertaining to Pharmaceutical and Healthcare, we noted that increased shortages of drugs has led to more unscrupulous and criminal behavior relative to grey market supply, cargo theft and prescription drug abuse.  Increased outsourcing of production to global contract manufacturers and API providers adds to the problem.

Regarding cargo theft, brazen criminals have stepped up their sophistication of methods in stealing whole cargo shipments, by utilizing active surveillance of driving patterns, GPS global tracking and other means to circumvent existing security measures.   A challenged economic environment often leads to increased criminal behavior, and in 2012, the criminals can leverage more sophisticated means and methods. Stolen cargo adds to the problem of non-conforming products.

Look for governments to increase the pressure on industry players to accelerate initiatives in authentication, tracking and genealogy of components, parts and raw materials. In the U.S., state wide initiatives and efforts were enacted to overcome lack of any concerted action by the federal government. In Pharmaceutical and healthcare, the looming deadline is the California anti-counterfeiting and diversion legislation which requires pedigree tracking.  After numerous industry lobbying efforts to postpone the implementation, the program remains target for implementation in 2015.  Serialization and authentication program mandates continue to evolve across the Eurozone countries and Brazil has called for implementation of serialization and track and trace requirements in 2012.

As the deadlines come closer, and the costs in terms of revenue, liability and implementation costs loom ever larger, we believe that industry teams will become much more actively involved in influencing some forms of global-wide process standards and inter-industry cooperation in sharing product movement information across global supply chains. We may finally have the opportunity to observe industry teams stepup efforts to actively influence global standards and enhanced mitigation initiatives in prevention as well the tracking and interception.

This concludes Part Six of our Supply Chain Matters 2012 Predictions.  In Part Seven, we will explore our Prediction Nine, our continued belief in wider-scale adoption of and leverage of in-memory computing technologies harnessed into predictive analytics and decision-making process needs.

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.