Carbon is challenging business in many ways and companies will continue to be pressured to better  manage their carbon emissions.  Companies that get ahead of the curve will be rewarded by  investors and consumers alike.  Companies that lag the curve run the risk of losing investor  confidence, consumer trust, and falling behind in product development.

It is estimated that between 40 and 60 percent of manufacturers’ carbon emissions reside in their supply chains. As such, new supply chain visibility and planning tools need to be adopted in order to be able to consider carbon emissions as an additional factor in the decision making process.

This paper provides a brief exploration of the current carbon landscape and will outline the attributes of an ideal supply chain carbon management application.

During my tenure implementing the true ERP suite vision (everything included; HCM, Financials, SCM, Mfg, CRM, etc.) for a company, the company would always struggle  during the SCM and manufacturing part of the project.  This was generally because every manufacturer runs their company differently in order to maintain a competitive advantage and trying to fit a one size fits all product into a company doesn’t work.  In addition, the ERP vendors would sell the company on a single platform for integration, and many times some of the SCM products were really acquired products that are more like bolt ons and the integration doesn’t necessarily exist.  So, not only is there generally more work to integrate the product, but the functionality may not exist that the customer requires for their business.  These were difficult customer situations to manage.

I believe that customers should really do a thorough vendor selection when looking to procure SCM or manufacturing software, and I don’t think I am alone in this belief.  In an ErpPandit.com article entitled “Basic ERP Features” the author gives a primer on comparing mid-market ERP providers and when discussing SCM module states “Of all the ERP modules, SCM has the greatest variability between vendors: It is vast and varied, yet often adapted to the needs of specific industries.”  If that is true (which I believe) then how can a company not do their due diligence when selecting software?  Certainly you don’t want to be a food and beverage manufacturer and implement a product which is designed for the high tech industry.

This of course doesn’t mean that the SCM software from your ERP vendor won’t work for you, all I am suggesting is that it is worth the time to look at alternatives.  Companies should not fall into the trap in assuming that just because the SCM software was part of an ERP solution that fits your company that the SCM software either works for your unique business or is tightly integrated into the back office ERP functions. 

There is another post on the Adexa blog entitled “Cost of ERP vs. Best-of-Breed Supply Chain Planning Systems” which also does a nice job educating the reader as to what to consider when performing a software evaluation data integration, planning analytics and configuration cost.  There is now a lot of evidence out there of failed SCM implementations and I personally don’t want to have to be on the hook to deliver an SCM software implementation for a company where the software doesn’t match the requirements.

In this particular article, it quotes the Chief Executive of Nokia as saying “We would have sold more phones in the third quarter without the capacity constraints.”    Because production was lowered dramatically during the recession, some companies - in consumer electronics in particular – are now seeing spot shortages due to unexpected demand increases.  As the article points out, “ The coming months could be tricky…Manufactures must gauge demand accurately among economic uncertainty.”  Therein lies the rub: How to balance the opportunities to capture all demand while mitigating against the risks of excess and/or obsolete inventories.

Demand planning is going to be key without a doubt, but equally important will be demand responsiveness – acting quickly to the unexpected - and overall supply chain agility.  Even before the recession, companies struggled with demand volatility because of increased competition, decreasing customer loyalty, constant new product introductions etc.  But in today’s grave economic climate with major demand swings and declining spending overall, planning for future demand based on historical data is now virtually impossible.  With inventories at an all time low, retailers and suppliers will need to respond rapidly to actual demand.   Companies need the ability to detect demand trends early so that they can ramp up production accordingly in order to avoid the situation Nokia described in the article.

Solving the rapid response challenge will require:

• accurate and timely demand sensing to quickly understand demand shifts
• collaboration: both with customers to gain consensus on true demand, and with internal colleagues and supply partners to develop and analyze resolution alternatives; and
• decision support that drives profitable responses through shaping demand and allocating finished goods supply as appropriate

I believe achieving excellence in responding to changing customer demands has become the number one challenge facing enterprises today and can represent the largest opportunity for companies to increase customer service, enhance margins and attain more predictable revenue across the entire value chain.

Selling suites of software is great for software vendors, but is bad (at best) for the customer. Take a look around and see how many software modules are focused on fixing “symptoms” of much larger business challenges. It is my belief the vendors should be forced to offer customers affordable on-demand services which address significant underlying business challenges like Revenue at Risk. These services should not require tens of millions of IT dollars or never ending implementation cycles.

What have been your experiences?

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Great article, Dan.

I liked your identification of the drivers, and wished that there had been more prediction of what the consequences would be.  For example, how will companies reconfigure their supply chain?  In this particular case, I think we only have to look at Apple and Cisco to see some direction.  Both of them outsource virtually all their production. And of course Apple, as you state in your article, is at the forefront of the “digitization” of the supply chain.

What really fascinates me is the rise of the brand owners in China and India.  I saw an article today in McKinsey Quarterly that China’s economy grew 8.9% in Q3 this year.  Even in the boom period before 2000, growth rates in the US fell short of this number.  Of course, this is even more startling when comparing the growth rate in China over a similar period.

I think we are missing the effect this will have on the Western brand owners such as Apple.  It might seem counter-intuitive given Apple’s record quarter and I have no idea of the product strategy, but I wonder how much they are designing products for the Western world and how much they are assuming the Eastern consumer needs are the same. 

As you correctly point out, there will be huge impacts on “product design, pricing, logistics and much more.” I am fascinated by the growth of Eastern brand owners such as Acer, Lenovo, and Huawei.  We have weathered the storm of the Japanese companies in the 1980’s – Sony, Toshiba, Toyota, Matsushita, … but those were different economic times when those companies were designing products for a western market. 

I am not yet convinced that Western brand owners are paying sufficient attention to the needs of Eastern markets.  These have been very Western focused, but I suspect as the pride in their countries economic performance grows, so will their confidence and demand for products to meet their specific needs.

We have a number of customers who are the forefront of the blurring of operational supply chain planning and execution.  Of the 10 things you identify, I think this is a consequence of many of the others. And you are correct, this blurring is reaching up into tactical planning too with more and more companies running S&OP on an as-needed basis.

The factors you identify, specifically reduced inventory levels and pervasive visibility, are driving this blurring.  We all know that inventory has been used as a buffer between the demand and supply chains.  Reduced inventory levels require a much more agile supply chain that is very responsive to change.  And of course the supply chains need to be reconfigured to be more responsive. 

Dashboards are of course a necessary precursor to understanding whether or not one is on-track to meet future objectives and any deviations need to be addressed before they become “actuals” and appear in a scorecard.

Once again, thanks you for a great article.

So why why aren’t more companies adopting this? I was first introduced to the S&OP process over 15 years ago at a former employer. It was the heart beat of our company. It was a commitment on the part of Finance, Sales, Operations and Engineering. Metrics included Revenue, Margin, Inventory turns, Customer Delivery. However, we did have challenges. Everything was done in Excel and this is still the case with many companies today. The tools to enable S&OP have not been available.

Companies tend to identify the ‘process’ as their biggest challenge. Tools are given a last consideration. Do you know how many companies that do have an S&OP processes are still doing everything in Excel?? Think about that…their most mission critical business process driving all decisions in their business using a personal productivity tool. There are always reasons for this. The IT department will blame the users, saying that they should be using ERP. The users resort to Excel because it is their only option for creating versions and sharing copies. However the data becomes very inaccurate, it is very difficult to merge, and when they make a change to demand how does Excel know how to change the supply plan?

If you have adopted an S&OP process or are embarking on one, give consideration to the tools required. Ensure that your user community has the ability to easily create versions of your data, easily recalculate demand and supply considering all of your constraints, easily calculate the impact on metrics and consider the tradeoff metrics. (revenue versus cost for example). Every needs one version of the truth from where ever they sit in any part of the world. 

Something else to consider is the dynamic nature of a Sales and Operations Plan. This is the biggest change I have seen over the past 15 years. My first introduction was a monthly process. This would NOT work today. In today’s world, your S&OP plan will be outdated the next day. The creation of the plan may be on a scheduled cadence, but course correction needs to happen every day. How many of you have waited in anticipation for the month end reports, only to ask yourself…’what happened??’ Painful root cause analysis can be avoided with daily course correction.

Has your company adopted Sales and Operations Planning or is taking this on as a new initiative? What do you see as your challenges?

I just read the whitepaper: Five Ways Your Procurement Could Be Leaving Money On The Table.  The procurement items left on the table  are well defined. In fact, with the definitions provided no one could argue. Though most of us after reading the article would feel within themselves, 'I knew that'; how many could list these before reading?

Within the spirit of the article, and in the example, is the theme that knowledge is power.  This has been true throughout history.  At Waterloo, Duke Wellington had a better knowledge of the lay of the land than Napoleon. Duke Wellington’s intel on condition, location, and plan of the Prussians was better, and Duke Wellington prevailed.

Today,  as we take on the supply chain battles, the need for accurate up to date info on the correct type of data is more important than ever. Now living in the information age, the information intellect is the difference. Within the white paper an example was given in which there was a clear winner based on who  had the best information. The loser was the supplier that had close to a monopoly on the market they supplied. This supplier  wanted to raise prices 50%. The winner was the consuming company. The consuming company had strong strategic information intelligence. They were armed with the accurate holistic information and strategies outlined in the white paper. As result, they made concession on items that did not matter in exchange for better terms on critical items.

In the spirit of political correctness, the win win concept is promoted. This was not a win win, but it is real world. A real world, where those who have adapted, those who have prepared, those who look beyond the immediate, prevail. 

The paper goes beyond just emphasizing the use of strategic procurement intellect for bargaining.  It speaks of Mastery as opposed to bargaining. Bargaining is conflict focused. Procurement information intellect, when understood and applied, will keep a company a step ahead with a flexible, quick reacting supply chain that is structurally sound without the need for adversarial conflicts, but true progress instead.

In a recent Wall Street Journal article, “September Sales May Foreshadow Holidays,”  it is stated that stores are slashing inventories to avoid price cutting. Inventories are at an all time low. How will retailers and suppliers respond when demand changes?

Per the article “Retailers and analysts will be closely watching September sales reports due Thursday from key store chains for any sign they may need to adjust their already-gloomy holiday forecasts. ”

There is always a fine balance between meeting profitability targets and revenue. In the retail business, competition is fierce and retailers need to have the product ready to ship. With the current economic uncertainty, retailers are choosing to stock less with an expectation that they will be able to respond to the market demand when it improves. However they are faced with global supply chains, long lead times and there will be a capacity constraint on suppliers when the demand increases.

There are a number of approaches that retailers need to consider:

• Get closer to customer demand. Analyze point of sale data
• Analyze demand trends (units and $) by product, by region, by time
• Apply supply risk management strategies (minimize single sourcing, establish VMI hubs, standardize on components or materials across products, identify product configuration alternates)
• Have the ability to make the appropriate decisions regarding allocation (by region, customer segmentation)
• Perform contingency planning scenarios – adding capacity, alternate shipping methods
• Have the tools in place to remove the latency from the change in consumer demand through the supply chain to the individual manufacturer. Ensure that any change is communicated throughout your supply chain in minutes to hours, versus days or weeks.

History will not predict the future in consumer spending. Crystal balls won’t work either. Retailers will need to watch consumer demand patterns very closely and be ready to engage their supply chain at a moment’s notice. Collaboration will be required between the trading partners. In today’s economic climate, speed wins.

Over the last several decades, there seems to have been a few bright moments spotting a gloomy trend. I make no claim that this is a scientifically sound statement, just a personal observation of the last 33 year of working, whereby the biggest concern for very many of those years was being laid off. I don’t remember anyone saying “these are the good ole days!” A lot of effort was put into limiting supply chain risk and downsizing. No one wanted to be caught holding the excess inventory hot potato! We have all developed means of cutting back when sales soften. Last year; however, the bad times very quickly became the worst times. Products and services were not needed. Supply lines were shut down or cut off. Man power was cut back. To stop the bleeding many actions had to be taken.

Now the question that has to be asked is what is to be done when the economy gets better? Can businesses upsize? Losing a growth opportunity is just as bad as not recognizing a down turn.

Though this article starts with the words of “…the recovery cycle is the biggest risk in 2010”, the survey showed that many are still concerned that the recovery will not happen soon. That is a real concern, but it has to be balanced with what needs to be done when the recovery does happens. You do not want to be left behind! The listed risks are traditional and very real items such as quality, prices, supply disruption, etc. In addition to risk mitigation there is risk in not recognizing opportunity. Most companies have reduced their manpower. When the orders start to come in will your company have the capacity? Will your suppliers? Can you keep a lid on the prices now, before demand driven price increases hit.

Beyond these obvious concerns, the human equation might be the trickiest. Successful companies have never been made of many individuals working independently under one roof. Individuals who form a team and work together is what accelerates the goals and success of the company. Simply bringing in a bunch of people to fill newly required positions will not hit full stride until the teams are formed.

Recognition of a problem is the 1st step of a solution. Glad we are at least at the 1st step. These are not easy times. It is a fine line walking between being in position to take advantage of a recovery and making sure not to sink if the recovery is delayed.

As economies in low cost regions improve, labor costs will increase and work may have to shift elsewhere. Whether the latest trend will lead companies to continue outsourcing their operations to foreign countries or bring them back home, these decisions seem to be cyclical (almost like in fashion, these trends come and go). The truth of the matter is that independent of where your suppliers (and customers) are, no company is self-sufficient, but rather they depend on a complex chain of value added operations that need to be well synchronized to optimize the flow of products and services.

With the recent discussions involving global warming and the need for ‘green’ operations, we’ve been forced to learn and think more about total systemic cost. With that, there is more interest about what happens in the operation before or after ours in the chain. I think that the new way of doing business to satisfy green requirements will help approximate companies and enhance relationships.

This is because in order to improve efficiencies and supply chain coordination, companies will have to start seeing themselves as part of a complex chain of value added activities, and spend time studying the appropriate management of complicated networks of companies and markets. The fact is that leading companies don’t act as standalone firms.

Flexibility and agility don’t come solely from well designed and implemented supply chains - as the paper mentions, they are highly influenced by the quality of the collaboration process. The technology to collaborate and manage information and transactions is available. What needs improvement is the ‘soft’ side of the relationship: built based on trust and integrity so that companies can follow those leading enterprises which strive to ‘define mutually beneficial strategy and cross-enterprise processes’.