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October 16, 2008 - Supply Chain Digest Newsletter


Making SCM Change Happen

For the first time in five years, SCDigest editor Dan Gilmore is taking the week off from First Thoughts. This week, the First Thoughts column is provided by Rich Sherman, president of research firm Gold & Domas and a well-known supply chain industry thought leader.

By Rich Sherman

I maintain that when it comes to supply chain transformation, after all is said and done, much more is usually said than done!

Don’t you just love all of the industry buzzwords and acronyms? Conference after conference, initiative after initiative, case study upon case study; and, in the annual State of Logistics report released by CSCMP each year, total costs are at an all time high, and total inventories are at an all time high.

There is a slide I like to use that my friends at PRTM’s Performance Management Group shared with me when we were developing the first SCOR model ten years ago. It is a benchmark slide that shows across industries that the leaders have a 50% cost advantage over their median competitors. I get an update from them every year; but, no matter what new buzzwords come out over that year, the gap between the leaders and their competitors stay the same.

Think of how many $billions have been invested in ERP and other systems in the past ten years? Is anyone really trying to close the gap? Are leaders the leaders and laggards the laggards? Why is change so difficult?  And, despite all of the investment in systems and transformations, how many million operating decisions do you think are made each day based on a custom Excel spreadsheet that the planner developed five or ten years ago?

Are you tired of fighting fires every day? Are you tired of exceptions being more the rule? It’s time for a change and it doesn’t have to be hard. But, it does take time; and, it does take a commitment. So, below I offer a game plan that can take you to the Super Bowl of Supply Chain Management. It doesn’t matter whether the scope is company wide, or how to improve some specific area, such as its distribution, inventory planning, etc.

Step 1: Ask your team: Why Should We Change?

Start by assessing current operations and setting objectives. This can be easier than you think. There are any number of publications with tools and techniques on how to map business processes. In my mind though, the Supply Chain Council has spent ten years developing a process model and benchmarks (the SCOR model). Since it’s developed primarily by practitioners, it includes all of the popular tools and techniques. It will surprise you how far you can go with a couple of weeks of “lunch and learn” sessions with your team mapping your business processes to get it done without major work disruption.

Next, determine market benchmarks and review key environmental trends and challenges. If you were smart enough to use the SCOR model as the basis of your operations assessment, you can also use the SCORMark tool to benchmark your operations in your industry or cross industries by business process. It’s maintained by AQPC and there is a similar service offered to CSCMP members on their site. Benchmarking doesn’t have to cost a lot of money or require lots and lots of time; but it has to be done.

Sherman Says:  
" Think of how many $billions have been invested in ERP and other systems in the past ten years? Is anyone really trying to close the gap? Are leaders the leaders and laggards the laggards? Why is change so difficult? "

What do you say?
Send us your Feedback here

Step 2: Develop a Platform for Change

Start by creating a strategy and vision for the future. Another surprise you may get out of the process mapping session is how intuitively obvious process improvements can be when you actually draw them out and follow the steps. Another few brainstorming “lunch and learns” and you will be amazed at how quickly your staff will design your supply chain of the future.

You will also see why the leaders continue to make aggressive investments in technology tools. The math associated with many of the trade-off decisions that need to be made isn’t easy. Software has come a long way and keeps getting less expensive; leverage it to your advantage.

Of course, you will need to map “As Is” and “To Be” business processes and systems. But it’s important to formalize your process design maps and benchmarks and begin sharing them across the company and function. You should particularly note the cross functional inputs and outputs with other departments. You will also be amazed at how few of your peers in other departments have any idea how what they’re doing is messing up your world – or how little you know about what you are doing is messing up their world. Now is the time for dialog. You will also be amazed at how willing others will usually be to help you improve the situation, and you should reciprocate the favor.

Step 3: Determine Critical Success Factors and Your “Window of Opportunity”

Okay, so now you have this assessment of your current operations, a map of the “to be” state of your operations, a set of benchmarks to gauge the performance of the current and a set of objectives for the future. Ask yourself, why aren’t we there already? What are the obstacles or hurdles that are preventing you from just doing it? Answering those questions will give you the Critical Success Factors relative to achieving your plan and the time frame necessary to so. Use both to guide the rest of the process.

Step 4: Determine the Value of Change

A good place to start to understand the value of supply chain improvement is to find a copy of the DuPont financial measures model. It correlates income statement and balance sheet improvements to shareholder value. Take the expected results from closing the gap between “as is” metrics and “to be” metrics and map them to improvements in the financial statement. At the end of the exercise, you will be able to show the improvement in Return on Invested Capital from your plan. In my experience, a 30-40% increase is not unusual.

Step 5: Getting Management Buy-In and Funding for the Improvement Program

You’ll obviously need to present a “Solution” plan to management. Call your Boss and tell him/her you have a plan that will provide a return on investment of 30-40% or more and make important contributions to the company's return on invested capital. Tell them you can liberate working capital from inventory reductions of 30-35%. Share with him or her how improvements in order fulfillment will increase top line revenue by 5-6%. Tell him/her not to worry about increasing transportation costs and fuel surcharges, because you have a plan to offset them with process improvements. Getting management buy-in can be a lot easier when you speak with the numbers they lose sleep over.

But make sure you know it and mean it, because CEOs will tell you they back people more so than projects.

Step 6: Getting Operations Buy-In and Commitment

Once you get approval, pick a pilot implementation or “Proof of Concept” that you know will provide rapid results working with your team. Once you achieve the results, publish them and celebrate them. Ideally, your plan will include incentives. But, if it’s tough to change the comp plans, you can usually work with HR on some form of rewards program, such as, dinners, trips, points toward merchandise, etc. Once your team starts seeing improvements rewarded and celebrated, Step 7 is pretty easy.

Step 7: Everyone Jumps on the Band Wagon

Deploy the transformation plan across the enterprise. Divvy up the credit, but bask in some well deserved glory. Look to tell the world about your success in Supply Chain Digest.

Remember change is inevitable, but growth is optional!

It doesn’t have to be hard, it just has to be done.

What's your take on Sherman's model for supply chain improvement. Is it just a matter of "getting it done," or are there more complexities than that? What would you add to the model? Let us know your thoughts at the Feedback button below.

Let us know your thoughts.

Web Page/Printable Version of Column

*** Upcoming Videocasts ***

The Agile Supply Chain:
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An Integrated Approach to
Materials and Inventory Management

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This Week's Supply Chain News Bites Only from SCDigest

Supply Chain Graphic of the Week - The Six Keys to Mastering Supply Chain Management

Supply Chain by the Numbers: October 16, 2008


Just when you think things can’t get any worse – things get “worser.”  So it went with the Wall Street stock market last week. Our Supply Chain and Logistics stock index, like the broader market, was in a state of free fall.

In the software group, only i2 emerged with single-digit losses; Descartes took the biggest hit (down 26.4%), followed closely by SAP (down 25.8%).  In the hardware group, both Intermec and Zebra were down substantially (19.1% and 22.8%, respectively).  In the transportation and logistics group, Burlington Northern and J.B. Hunt were the big winners, only falling 3.8% and 3.9%, respectively. However, on the “worser” side of the equation, Prologis fell 19.2% and is now down 61.9% for the year.  Still, that astounding figure doesn’t top Yellow Roadway’s plummet for the year – an even 75%. 

See stock report.

Each Week:

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-Distribution/Material Handling
-Trends and Issues

Weekly On-Target Newsletter
October 14, 2008 Edition

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Supply Chain Comment: The 50 Percent Problem Shows Up Again

Majority of Respondents to Annual Trends and Logistics and Transportation Believe They are above Average in Customer Service, and that Cannot Be

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Session 2: Perfect Order Achievement: Think outside of the box for
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What is the largest European port by container volume?

A. Click to find the answer below

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A couple more great letters on our First Thoughts piece on “The End of a Supply Chain Era,which commented on the acquisition of i2 by JDA. They are both long, so we are just publishing two comments this week (we had a large number on this topic), both are worth reading.

First, David Schneider, in our Feedback of the Week, says one era may be ending, but another is coming, especially with regards to on-demand supply chain software. Jon Kirkegaard agrees, but with a different perspective, and says we are only scratching the surface of what supply chain software can do for companies. Both articles make great points – please take a look.

Feedback of the Week - On End of a Software Era:

The passing of an era, but as one goes out the door another is coming in the room form the other side.

The impact that i2, Manu, and all of the other 'big' supply chain management systems made was huge. But the huge traditional systems were tagged for assimilation as they assimilated the smaller players in the field. Eventually the big systems had nothing to feed on except for each other. In the end it came down to who had the most cash and / or negotiable equity would win.

These application did not blaze the trail, but really cut the initial grade through the rough terrain of poor business practice. Only the huge supply chain players, like P&G, Best Buy, Unilever, and the rest of the companies that made the massive investments in the applications AND the supporting infrastructure could afford to make these systems work. There was a ROI that the vision leaders could point to for the short term to please the financial leaders of their respective companies, but the vision leaders understood that the applications were only enablers that helped take advent guard management strategy and tactics that would really deliver lasting ROI far beyond the memory of what the systems cost.

I think of the process much like the way that some of the Midwestern states build the highway system. First there is the very small two lane road that follows the terrain, makes some engineering cuts and fills for the very high and low points in the line, but only to accomplish the simple connection of the points.

Stage two is when the road is upgraded, relined, and new right of ways planned and built that use much greater engineering cuts and fills to create a line that is straight in long sections, and abandons the old road for the local traffic. The second phase road is still a two lane road, but it has reduced the grades and improved the throughput capacity and speed of the road.

The final step is when the road is widened, the right of way is expanded, and a second set of lanes added to where the throughput capacity is doubled, the safe speed of the road is raised, and the velocity of transit is doubled because all of the bottlenecks have been engineered out of the lane.

The initial legacy supply chain systems of the 70s through the early 90s are like the first phase of two land roads that followed the 'nap of the earth.' These systems were built internally, with help from large consulting and computer companies. They were built to follow the business conditions of the 'host' company, and addressed internal processes with interfaces with the outside world, and sometimes with other internal systems, through paper documents and manual data entry. They connected the points of the process, but with the hills, steep grades and stop lights of internal and external lack of discipline and communication.

I2, Manu, and the rest of the SCM applications were the second phase. The application engineered a new right of way by understanding the goals and processes developed before, and building better lines for the route to follow. Intersections with other systems were designed and automated, but there were still many stoplight intersections in the process. These systems helped spread the logic and the promise of greater integration and control, but were still when first introduced not really based in reality, both in cost and the return on the promise.

These systems still cost a pile of cash, required a pile of cash for the hardware to support, required an everlasting pile of cash for the support from consultants for the implementation and integration with other internal and external systems, and exposed the need for even more cash. These systems highlighted that the delivery of the vision would require almost all trading partners in the supply chain to be on a platform of some kind, and that the platforms had to be able to exchange data.

There was still a key missing ingredient, these systems did a great job of providing a planning template, but did little to address clean execution management. The 3rd phase is the SaaS model. Now multiple trading partners can work together in the same system environment, jointly supporting the cost for the applications and hardware. The information exchange is now real time, and the cost of entry is now much lower. Transplace, Lean Logistics, Log-Net, Shippers Commonwealth, eWMS, SmartTurn, and the rest of the new players in the market have cut away at the underpinnings of the older SCM platforms.

What is next? Well, with the multilane state highways they change from being open access to limited access roads, eliminating grade level intersections with interchanges that use ramps, allowing for even greater flow. Those roads get converted into 'interstate' specifications. On the software front at some point of time SAP and Oracle will look at the combined entities left standing, Like Manhattan, INFOR, or JDA and say 'I think I will buy their solution' to either incorporate the solution into their offering to improve, or to remove the technology off the table so that it no longer competes.

The SaaS model players will continue to be attractive to the smaller players in the market place, and will help elevate the level of execution excellence with an offering of both software and a proven process platform. The huge players will compete, offering their SaaS platforms, but the market place of the small users is huge, and diverse, and will not accept the one size fits all format of the huge providers.

The land of innovative Supply Chain Management is not in the huge companies, but in the small companies, where they need to figure out how to take the theory and convert it to reality.

David K. Schneider
David K Schneider& Company, LLC

More on End of a Software Era:

Great article-- and as such I feel compelled have to make a brief comment that endorses your hypothesis and analysis of i2.

I was recruited to i2 as one of the first 70 or so employees mostly because while at Booz Allen my work had been to deliver competitive advantage to customers using supply chain solutions. While at Booz Allen I specialized in early work weaving supply chain competitive advantage concepts into operations, IT and industry strategy projects.

Some of those projects involved major distribution intensive clients where I worked with Manugistics. I got to know many of the Manugistics team including Bill Gibson and Tom Skelton and was very impressed with the culture and change management Manu had stumbled into providing their clients. I was even was one of their references with Alex Brown for their IPO and had a late night chat while working with Frito-Lay on a project (involving Manugistics software) with Bill Gibson who shared with me why he founded Manu: the desire to help clients cut inventory costs because GAAP financial systems DID NOT.

I never thought I would be in the software biz-- but got recruited to i2 and i2 being in Dallas and me living in Dallas but never being there (projects spread all over the place) I thought what the heck and after after a few months joined Greg Brady and team. It was great fun!

i2 had quite a run for the first three years as the i2 culture led by Ken Sharma, Greg Brady, Sanjiv and to a lesser extent by execs at my level was ONLY customer results driven. I still remember an early salesman Dennie Maloy's comment in the first year of our efforts to outflank Manugistics. Denny said 'Manugistics is the world’s tallest midget' (no disrespect meant) but I think in retrospect illustrates the then market state and still wide open field of finding business competitive advantage through leveraging what we now call the use of a firm's supply chain.

But in reality Manu had a great distribution solution and i2 a great Manufacturing solution but there was a grand canyon on missing solutions left to fill.Another way to quantitatively measure the size of the opportunity that I think worked then and now is that probably less than 10% of the potential for reducing global inventory, manufacturing and logistics waste has been touched.

Last time I gave a speech and did the arithmetic and conservative calculated this slack / buffer or waste at minimum of 30% of global GDP -- a very large number. $400 Billion or so!

So what is next ? My bet is the majority of customers are going to get smarter at realizing the bottom line $$$ to being just a bit better then their competitors at achieving this supply chain business advantage. The top 5% of customers already know this and have embedded supply chain improvement into their culture and their measurement systems and is why they drive huge business advantage from supply chain operations.

I think this customer buying smarts get manifested because the average customer will know the value only becomes real through solutions that drive real culture change (that contain software but are not software alone-- maybe sparked by software?) and the advantage is as a on-going chess game / mixed martial arts game of competition.

There is no advantage buying a box of software that gives you best practice from someone else's biz, just a conclusion / prediction is that providers that deliver a SOLUTION (such as S&OP) that take the lead in sparking a mass market understanding of the supply chain business advantage potential and it is remarkably achievable with leadership and some excitement and pizazz of the early i2 and Manu years will again surprise us all-- but more importantly help us all!

Conversely, software providers who circle the wagons around an artificial 'software' segment created by a Wall Street analyst looking only at license sales or software analysts segmentation will continue to fade.

Jon Kirkegaard


Q. What is the largest European port by container volume?

A. Rotterdam, in The Netherlands. Rotterdam is still the largest port in Europe and was the largest in the world from 1962 to 2004, until it was overtaken by Singapore.

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