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  Aug. 31, 2006 - SupplyChainDigest Newsletter
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Featured Event

Webcast: Inventory Management- Tee off Supply Chain Success

The Supply Chain Power Hour

Learn how maintaining a single operational view of future demand helps reduce excess inventories, eliminate inventory shortfalls, lower expediting costs and improve customer service

For more information and to register for this informative event:

Inventory Management Webcast

First Thoughts by Dan Gilmore, Editor

Balancing Supply and Demand – a Long Way to Go

The fundamental issue, in the end, of supply chain management, would seem to be to balance supply and demand in a way that maximizes shareholder value.

We’ll debate the proposition more fully soon, but accepting something along these lines for a moment, at many levels we’ve made tremendous progress both as a profession and within individual companies. On the other hand, most of us still have a long way to go.

This column is triggered by a couple of items. First, the continued (relative) troubles at Dell (see Dell Cites Supply Chain Hiccups in Disappointing Financial Results), which at least in part can be traced to some supply-demand balancing issues. If it can happen to this supply chain icon, it can happen to any one.

More substantively, I just attended a “Demand Management” workshop, sponsored by MIT and hosted by Larry Lapide from the university’s transportation and logistics center. The event, attended by a small but knowledgeable group of practitioners, software vendors, and consultants, featured some preliminary research on the topic from Lapide, and a roundtable discussion, kicking off MIT’s new research project on demand management (see MIT Announces New Project to Help Companies Understand “Demand Management”).


The fundamental problem, Lapide noted, is that in most companies the gulf between sales-marketing and supply chain-operations is still very wide. Despite the strong interest of late in sales and operations planning, which in many companies has closed that gap from a little to a lot, the “demand side” and the “supply side” are still viewed as distinct disciplines that touch but don’t fully intersect.

The notion of “demand management,” requires, however, coordinated decision-making among supply chain, marketing, sales and customer service functions.

It’s not an easy challenge. This balancing and decision-making need to be achieved across long-term, medium term, and short-term (sometimes real-time) horizons. Full realization of the concept implies not just chasing revenue and sales growth, but optimal financial and market decisions considering all factors – a discipline difficult for most companies to pursue.

I’d add one thing to the discussion at the roundtable, which at times was centered around maximizing profitability. I’d argue in the end it’s really about maximizing shareholder value, which at times may be best achieved by some sacrifice to profitability, such as entering strategic new geographic or product markets, or building market share. This is the argument Amazon.com continues to use, rightly or wrongly, to defend it’s profit-draining free shipping programs, for example.

I’ll be able to share some more on the roundtable discussion shortly, but a couple of things caught my attention:

  • There seems to be very little activity by companies in terms of optimizing service policies by any real segmentation strategy.
  • Leading companies are increasingly focused on gathering and processing “qualitative” demand signals, beyond the traditional historical forecast and trend data. But the challenges of doing this well are huge.
  • In many cases we lack, as Lapide noted, the type of information about activity-based costs, and product, customer and channel profitability, needed to make optimal decisions.

Lapide recently wrote about this anecdote, which I love. The CEO of Anheuser-Busch looked primarily at one metric when it came to demand management – the level of interplant transfers. Though at first blush this appeared to indicate a relative lack of focus on the topic, upon further review it was brilliant in its simplicity: if transfers were high, it meant plants were producing too much or too little of a given product, or sales territories or regional promotional plans needed to be revised.

Wish it could be that simple for all of us. I’m out of space, but this exercise has spawned about a half dozen topics for further exploration. I’d love your ideas on the subject, or specifics about what you would like to see us research in SCDigest.

Do you think the rise of sales and operations planning has closed the gaps in demand management, or do most companies still have a long way to go? What are the keys to getting it right? What aspects of demand management would you like to see us explore in more detail?
Let us know your thoughts.

Dan Gilmore


Sourcing in Low-Cost Countries - Free report and a new event announced!

eyeforprocurement & eyefortransport have just released the Sourcing in Low-Cost Countries report which you can now download now.

If you source from low-cost countries such as Mexico, China, India, Eastern Europe etc or if you provide logistics services in those countries then the Sourcing in Low-Cost Countries report and associated conference and expo taking place on 25-27 September in Chicago is an ideal event for you to attend. For more information please go to: http://www.eyeforprocurement.com


Over 130 executives with decision making responsibility for materials and transport/logistics procurement will be attending this event

Featured Event

Upcoming Webcast from Supply Chain Digest!

"Low Cost Country Sourcing Revisited - The Total Cost Impact" 

For more information and to register

Sponsored by Ariba



Aug. 31, 2006

How to Lean, Agile, and “Leagile” Supply Chain Strategies Compare?

Interesting research dissects the trade-offs  among different models

Aug. 31, 2006

“Private Label” Programs Well-Positioned for Growth, New Report Finds

The Hartman Group’s analysis shows “tug-of-war” between branded manufacturers and retailers is likely to increase; Wal-Mart’s efforts gain strength; new supply chain competencies required by retailers

Aug. 31, 2006

The Upside of Constrained Commodity Supplies

For many companies, demand exceeds supply of needed raw materials or components, boosting sell prices; shortages also reduce the incentive to expand capacity, further boosting manufacturers profitability; Terex can’t get enough tires, but that’s OK          

Aug. 24, 2006

Is Accounting a Barrier to Supply Chain Excellence?

As supply chain rapidly evolve, accounting for the costs uses decades-old models

Aug. 24, 2006

Dell Cites Supply Chain Hiccups in Disappointing Financial Results

Latest financial miss blamed in part on overestimating demand, procurement problems; can even robust S&OP processes overcome the pressure to forecast to goal? Supply-demand matching is tough even for Dell

Aug. 24, 2006

Does Enhanced Supply Chain Security Pay?

New report says risk reduction can be accompanied by real operational benefits


Q. How many laptop/notebook PCs were sold globally last year?

A. Click to find the answer below


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Feedback is coming in at a rate greater than we can publish it - thanks for your response.

We're still behind - be patient if your letter has not yet been published. 

First, a modest correction - in our trivia question last week, we managed to put Mark Holifield at Office Depot twice. The question should have indicated he recently left Office Depot for the top supply chain slot at Home Depot. Mr. Hoilifield once gave us a great letter coming off our piece on "The 50% problem.", one of our favorite columns ever.

We received a number of great letters on our First Thoughts column on "Are You Treating You VARs Fairly," that ranged all over the map. Several offered some detailed thoughts - we print three of them today. That includes our feedback of the week from Greg Chalkley of Texas Instruments, who says the VARs' predicament is not much different than those of other businesses. Another respondent says that VARs shouldn't complain about having to give away their expertise as part of the sales cycle - it's just the way it works. We agree at some level, but also believe there are occasions where companies really just aren't playing fair.

We think you'll enjoy all these letters.     

Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the Week – Giving VARs a Break

I think that VARs are in the same squeeze that both retail and manufacturing sectors feel on a daily basis.  That is continued pressure for price reduction that is caused by ebbs and flows in the balance of supply and demand.  When demand is high, then they need to recognize it and act accordingly.  Conversely, when supply is high, they need to batten down the hatches.


I agree that one of the most important things they can do is to be able to articulate the unique value they can bring to the customer.  It must be focused on the true needs of the customer, not just some "me too" solution.  It can not be the latest hype about some "sky is falling" reason the customer needs to act now; rather, it must truly fill a need.


Analogies can be drawn between trends in RFID VARs and trends in the VAR/Consultants (I use the term loosely) for Y2K, Outsourcing, Collaboration and Quality efforts of the last several years.  Sometimes, I like to think of these as similar to the product life cycle curves for manufactured products.  You must constantly look at the structure and configuration of your product offering and re-tool to bring new value to the customer. 


What is it about your product/service offering that provides differentiated value to the customer?  If there is not any differentiated value, then you will spiral into the same dilemma as a commodity product manufacturer where price is one of the few differentiators left in your tool bag.


Lastly, I think that savvy managers understand that the lowest bid does not mean optimum solution.  Sure there will always be people that are only measured by a narrowly defined goal of lowest cost.  That is where the really good VARs can help demonstrate their overall differentiated value to the customer.  If there really is true differentiated value and the VAR can help articulate it (especially in the language of CEOs), then you are likely to see customer loyalty.



Greg Chalkley      
Director, Business Services, Logistics and Trade Facilitation 
DLP® Products
Texas Instruments Incorporated


More On VARs:

Is it wrong to "take the analysis and run"?  No.


Sharing expertise is a significant part of the price of doing business, like the travel and per diem costs for a sales team.  When a vendor wants to sell a new barcode printer, it's merely part of the selling process to point out the best way to use the printer in the customer's process.  If a sales engineer comes up with a better position for that u-shaped conveyor, that's part of the sales plan.  What a wonderful world for Sales this would be if a sale could be locked in with the presentation of an implementation plan.


Granted, the more complex the system, the greater the percentage of customers that will be willing to pay for these design and analysis efforts, and the more weight given to the vendor's expertise.  But most system projects can be implemented with a reasonable amount of research, or the hiring of a consultant who won't be focusing his/her analysis on one vendor's equipment. 


In the end, a vendor's expertise and input will be a factor in the purchase decision, it won't (and shouldn't) be a commitment.


Russ Moore

Business Analyst


This sounds like one more instance where a "build to order" business has become a commodity business and they are refusing to recognize the change.  Having some experience with this business model, what will ultimately happen is that suppliers will merge or go out of business and once there is only a few competitors left they will exert mark control and the margins will rise. 


All one has to do is look at what is happening to rail freight rates to get a sense of how this will eventually shake out.  Of course when margins increase the companies dependent on the VAR's will feel like some how they are being taken advantage of.


For the VAR's they need to get lean and mean.  The need to focus on profitable business looking at the quality of the relationship not just the size of the customer.  typically smaller customers have higher margins and are more loyal.  They must understand the customer's needs and not give him more than he is looking for and particularly not more than they are willing to pay for.  Another change will be managing scope creep, not letting the techies who are enjoying the intellectual challenge to commit energy to a solution that they are not being compensated for. 


In a past life I had a customer that we provided a full service product to.  When the customer was having some financial challenges and wanted to cut his expense for our service in half, I redesigned our product and offered them a system only solution.  This increased the margin on the business from 27% to 47%.  In round numbers prior to the change the full service solution contributed only about $10K/yr in margin for the clients $250/yr added spend.


Michael McGuckin


Q. How many laptop/notebook PCs were sold globally last year?

A. Approximately 65 million, representing a record 35% of total PC units sold

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