Supply Chain Synchronization

SOA transformation in the mobile industry

My partners and I are in the final stages of implementing our Supply Chain Synchronization suite at a global leader in logistics services and distribution for the wireless / mobile industry. Our solution is based on a service-oriented architecture, so this article by Kevin Wei Wang, an associate principal in McKinsey’s Shanghai office, caught my eye because it explains how Shanghai Mobile transformed its IT architecture with SOA “to create a smarter, more efficient system.” That concept is one that resonates with my partners and me.

Here is the introduction to Creating competitive advantage with IT architecture: An interview with Shanghai Mobile’s CIO

“In early 2008, Shanghai Mobile’s general manager of information technology, Xie Qin, knew that his company's "complex legacy architecture presented competitive problems that would create even greater stumbling blocks in the new era. First, the company’s IT systems were largely siloed by customer channels—local branch stores, call centers, and online stores—which had inconsistent business policies for common processes, such as approving a subscriber’s eligibility for new prices or services. That translated into costly duplication for writing and maintaining software applications and increased spending on IT infrastructure. Second, the complex IT systems were very challenging to maintain. Under the existing IT architecture, for example, it was difficult to monitor system performance issues and to diagnose root causes. IT normally took a long time to resolve service breaks.

“By the spring of 2008, Xie launched what would turn out to be a ten-month overhaul of Shanghai Mobile’s IT systems to improve its sales and service capabilities and to make the system easier to maintain. The transformation required Shanghai Mobile to dismantle the existing architecture and to replace it with a new IT blueprint based on service-oriented architecture (SOA), which created a unified business-service layer for different front-end channel systems and allowed the channels to share customer information. The result: improved sales and service capabilities for the channel systems; an optimal use of program developers, data centers, and other resources of the IT infrastructure; and a more maintainable system.

“Although Xie’s goals were straightforward, implementing SOA within a business in flux can be risky. In this interview with McKinsey’s Kevin Wei Wang, Xie explains how he executed the strategy and how it has changed the carrier.”

Following are some of the key insights shared by Xie:

Two main reasons change was required

1. Market was becoming increasingly competitive
2. More and more difficult to differentiate product offering

Three key management lessons involved with process transformation

1. Clearly articulate business value
2. Realign roles to ensure people stick with new approach
3. Implement risk mitigation to minimize disruption to the business

Four results of moving to SOA

1. Reduced time to market by 30%
2. Reduced development effort by at least 50 %
3. Improved customer experience
4. Reduced system performance diagnosis from an average of 2 hours to 2 minutes

Three key IT problems addressed

1. Inconsistent business logic
2. Lack of information sharing across channels
3. Disconnected system monitoring

Most importantly, Xie clearly understood that while the IT benefits of switching to SOA were substantial, a project of this size and importance would only be funded and achieve success if it had the full backing of the entire business. Xie answered the question “An SOA transformation often means change and uncertainty in the business units. How did you convince them to go along?” this way:

Xie Qin: “We had to present the business case in a tangible way. We got the buy-in by addressing the real business issue—inconsistent business logic and lack of information sharing across channel systems—which is a real concern for the customer experience across our channels. While an SOA transformation also reduces IT costs and improves system performance, I don’t think we would have gotten our business team as excited by addressing these two factors alone.”

He is right. For those CIOs and IT execs working to fund and launch projects of similar scale, these are words of wisdom.

The complete article at McKinsey is available here.

Experimentation with customers and partners

Michael Chui, Pär Edin, and James Manyika of McKinsey have posted a new article making the case that "In the 'new normal' successful CIOs will search for value through experimentation with customers and partners."

The restructuring of the economic order now taking place is called by some the "new normal." According to the authors, key characteristics include: "persistent uncertainty, tighter credit, lower consumer spending, and greater government involvement in business."

In this environment, executives running large IT organizations will have to "make the IT function dramatically more productive, use IT more effectively to meet larger company goals, and embrace disruptive technologies that will shape the new economic terrain."

"First and foremost, CIOs will have to overcome hurdles that have limited IT’s performance in recent years:

• They must promote a much closer alignment between IT and the business units by embracing new organizational models that call for joint decision making. IT leaders will need better business skills, not just technical know-how.
• IT productivity efforts must leap beyond cost cutting at the margins. CIOs will have to make fundamental changes in the way IT operates and campaign for technological improvements that will transform cost structures and operating models throughout the enterprise.
• IT leaders must join with their business counterparts to seek out and implement technology-based innovations that will give companies long-term competitive advantages in a tougher economic climate.

In the past, IT performed satisfactorily if it made marginal progress in these areas. In the new normal, it must truly excel in all of them—the performance bar is higher, and the expectation that IT should contribute to corporate success is more insistent."

As CIOs adapt to the "new normal", my partners and I believe that supply chain synchronization will continue to gain in strategic importance. Supply chain synchronization goes beyond traditional supply chain management to break down data and process barriers between and across organizations. As this is accomplished, data flows in real time to those who need it and is presented in actionable formats. A key result is that organizations and their trading networks reduce costs while increasing customer service levels.

The transformation of a supply chain -- including both business processes and enabling technologies -- opens doors to support new business models and innovative services that were previously locked behind rigid and disconnected data and processes. When a supply chain has been synchronized, it often creates the best information available in a trading hub and has processes that can rapidly adapt to meet new requirements. As the McKinsey authors point out, disruptive technologies (often from smaller, innovative software firms) can help organizations experiment with customers and partners to achieve these types of results.

Increasing the energy efficiency of supply chains

Today, the transportation of goods consumes 15 million barrels of oil a day—roughly one-fifth of total production. Wow.

This staggering amount reflects the fact that supply chains of many manufacturing sectors went global when oil was cheap. In 2008, when oil hit $150/barrel, this variable in the supply chain equation proved that a supply chain model predicated on cheap oil is no longer viable. It also exposed the opportunities to increase margins and reduce risk by decoupling a supply chain as much as possible from energy.

Tobias A. Meyer, an associate principal in McKinsey’s Frankfurt office, has published a fascinating interactive to illustrate the challenges and show the opportunities to reduce energy costs in supply chains. Meyer has made an important contribution to McKinsey's ongoing study of efficiency in supply chains. McKinsey has "looked at numerous opportunities to reduce the amount of oil used to get goods from a manufacturer’s dock to a retailer’s shelf. These opportunities are available not only to manufacturers but to wholesalers, distributors, carriers, and third-party businesses. [They’ve] grouped these opportunities into six levers to illustrate possible next steps. Of course, the players in a chain operate independently from one another, so achieving all of these gains would require coordinated efforts and investments—a considerable challenge."

The six levers (divided into two groups) are:

        Supply chain set up

1. Increase value density
2. Reduce average transportation distance
3. Change the mix of transportation modes
   
   Transport assets
   
   
4. Address asset technology (e.g. rail, tanker, trucking)
5. Assess usage of individual assets
6. Assess usage of collective assets

Improving energy efficiency has become a top concern for executives, Tobias Meyer's interactive is a helpful tool to begin exploring levers for potential energy-efficiency gains in each stage of the supply chain. The ability to obtain the maximum gains will be contingent on the supply chain participants coordinating activities and sharing better information. The technology tools necessary to do this have been emerging over the past 5 years, and are becoming mature enough to help make a significant difference.

Supply chain is at the heart of the business logic of sustainability

Ray Anderson is one of my heroes.

As a young entrepreneur he founded the carpet company Interface in 1973. In 1994 he read Paul Hawken's book The Ecology of Commerce, and set out to fundamentally transform his business. He took to heart Hawken's message that business and industry must lead the transformation to sustainability. He realized that "with his company's global reach and manufacturing footprint, he was in a position to do something very real, very important, in building a sustainable world."

In the time since, he fundamentally changed his company's supply chain and business processes. He "focused the company's attention on sustainable decisionmaking, taking a hard look at suppliers, manufacturing processes, and the beginning-to-end life cycle of all its products. (For example: If you can't find a place to recycle a worn or damaged Flor tile, Interface invites you to send it back to them and they'll do it for you.) They call this drive Mission Zero: 'our promise to eliminate any negative impact our company may have on the environment by the year 2020.'"

Anderson spoke recently at a TED conference where he shared his inspiring story of fundamental transformation. This transformation not only has resulted in an ecologically-friendly company, but has also increased market share, profitability, and shareholder value. In this 15-minute talk, Anderson explains the business logic of sustainability. It is a message worth sharing again and again to those interested in understanding how sustainability is good business.

How CIOs should think about business value

CIOs are under increasing scrutiny to demonstrate the value that IT can deliver to the enterprise. Those CIOs who are able to successfully use IT to transform siloed business processes into new value-creating business processes that transcend hardened silos will be rewarded with influence on the enterprise far beyond the role traditionally reserved for IT.

There are many lenses through which value can be interpreted. In "How CIOs should think about business value" two consultants at McKinsey have provided a nice framework for thinking about this issue.

"If there’s any issue that routinely frustrates executives in many organizations, it’s how to get a true fix on the value that information technology adds to the businesses it serves. IT is undoubtedly central to creating value and therefore continues to account for a rising share of total investment. But defining, measuring, and maximizing that value remain elusive. To throw light on this crucial issue, McKinsey collaborated with CIGREF* to study the best practices of major French and international companies across various sectors."

Later in the article the authors provide important insight about change management and how HR is a necessary ally to ensure success. This is an area that is often overlooked when deploying sophisticated enterprise solutions that necessitate changed user behavior:

"If the corporate goal [of IT] is operational excellence, HR is more likely to be the CIO’s preferred ally. This is due to the critical role of change management. Take the example of deploying a new enterprise-resource-planning (ERP) system: the critical challenge is ensuring that the target processes are codified correctly in the system, and that when it is implemented, the end users are sufficiently trained to effectively leverage the potential of the new tool. This requires a joint effort from HR and IT to synchronize and coordinate their tasks from the initial design to the rollout and subsequent life of the system."

If this is not managed carefully, an IT project may be considered a failure with the blame being placed on the IT department and the software when the real problem may instead rest with the inability of the enterprise to effectively implement a change management strategy.

The following six points (and their accompanying Exhibits) provide additional insights about how CIOs can effectively engage with the enterprise to facilitate deeply meaningful success:

IT generates value at two complementary levels: the core asset value (eg, hardware and software) and the vitally important value-in-use (Exhibit 2).

In the context of optimizing investments, the value of IT derives from dynamic control over the impact of IT investments on each company’s operating ratios (Exhibit 2).

For CIOs focused on operational improvements, IT’s value is measured mainly by process performance indicators: productivity, on-time delivery, and quality (Exhibit 3).

Developing value-in-use requires a CIO to examine new levers found at points where the IT department and the business units intersect (Exhibit 4).

The CIO builds alliances with peers in areas relevant to supporting the company’s priorities (Exhibit 5).

The best companies at creating value-in-use embed their IT governance within the broader governance practices (Exhibit 6).

Be sure to also read the section "Next steps: Identifying the challenges" for a helpful framework explaining the dynamics of value creation through IT.

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*CIGREF, the “Club Informatique des Grandes Entreprises Françaises,” founded in 1970, strives to “promote the use of information systems as a driver of value creation and a source of innovation.” It includes more than a hundred public and private organizations from every economic sector in France.

About the McKinsey authors: Michael Bloch and Andres Hoyos-Gomex are principals in McKinsey’s Paris office.

Silos and forecasts

In their McKinsey Quarterly article, Building better links in high-tech supply chains, Gautam Grover, Eileen Lau, and Vivek Sharma take a look at how silos negatively impact forecasts. This is a problem that our clients are regularly working to address, and that must be transformed in order to improve forecast accuracy and inventory planning. The solution to this challenge has more to do with the structure of an enterprise than with the enabling technology. Of course, the technology (such as Evavi's Synchronized Supply and Demand solution) must support properly aligned business processes, but the processes themselves must be designed into the structure of the enterprise. 

The McKinsey authors had this to say about silos and forecasts:

"OEMs in many industries organize themselves around functional units. But in high technology (and other assembly industries), units such as manufacturing, sales and marketing, and product development often send conflicting forecasts of demand and production to their partners. Not surprising, supply chain responses are often based on guesswork, and forward planning is difficult. In one variation of this problem, OEM sales reps provide "lowball" estimates of demand rather than a truer picture, so they can more easily beat internal goals. Alternatively, when components are in short supply, forecasts by manufacturing functions often are overly optimistic in a play to maximize the allocation of scarce products from suppliers."

Building better links in high-tech supply chains

Gautam Grover, Eileen Lau, and Vivek Sharma from McKinsey have just published an important article about the need for transformation in high-tech supply chains. In this article they explore how the increasing complexity of high-tech supply chains require enhanced collaboration between OEMs, supplier, and retailers.

The authors examine the following areas that significantly impact the ability to improve high-tech supply chain synchronization:

Roadblocks to better collaboration

1. Partner complexity and churn
2. Silos and forecasts
3. Poor quality of data
4. The mistrust spiral

Building bridges across the supply chain

1. Breaking down silos
2. Improving trust
3. Sharing assets
4. Joint product development and risk sharing

The article starts:

"The supply chains of high-tech companies are globe-spanning marvels. Over the past 20 years, looking for ready sources of components, lower-priced labor, and talented designers and engineers, these companies have ranged throughout the world. In a highly competitive and fast-moving marketplace, they have sought to maximize their strengths and flexibility as products change rapidly and prices continue to fall.

But the sprawl and complexity of such networks have made it harder to manage end-to-end operations smoothly. Many technology companies are grappling with volatility and disruptions across their supply networks, and eliminating waste from duplicative efforts is an ongoing challenge. As product life cycles shrink, we see inventory buildups in the supply chains of some companies, while others cope with rising distribution costs, on-time delivery problems, or delays in getting new products to market.

In fact, high-tech companies have let complexity undermine collaboration in their supply chains: they aren’t working as closely as they could with their supply chain partners—sharing information or streamlining processes—to smooth out volatility and eliminate waste. This failure is surprising. The high-tech industry creates products that promote collaboration, openness, and efficiency. We all know stories about companies in other industries such as retail and consumer-packaged goods that have improved their operations significantly by using technology to collaborate more closely with suppliers—yet high-tech companies have been slow to follow. For a host of reasons rooted in the way they are organized and compete, their executives have been less than enthusiastic about pursuing the benefits of collaboration with their supply chain partners.

This lack of enthusiasm is fast becoming more costly for OEMs. ..."

You can read the complete article here.

From internal service provider to strategic partner

Large corporations can obtain significant cost reductions by leveraging their economies of scale to eliminate duplication. A poster child for this in the area of support services is P&G. Over the past ten years they have made a remarkable transformation that has saved over $600 million by consolidating all back-office functions. One notable characteristic of this transformation is that the support services are designed to flow across a complete business process even if part of that process is managed in-house and other elements are outsourced. The result is that all of the people managing the process work as one collaborative team.

My partners and I are consulting with a client to accomplish some of these same economies of scale on global supply chain processes that span forecasting, planning, procurement, and product information management.

The McKinsey Quarterly had an interview with the head of Global Business Services (GBS) at P&G. The following is an excerpt of that interview:

"It's all about innovation—at the operating level in the way GBS is structured and in the design of our work processes, as well as upstream, in the IT-driven solutions that we can offer to support P&G's brands." So says Filippo Passerini, president of GBS and P&G's CIO, when describing the transformation of support services into an important contributor to the company's growth.

The Quarterly: How did you go about changing the culture?

Filippo Passerini: It was a big cultural change. However, when we talk of cultural changes, we must keep in mind that we can't commandeer culture. It is the product of organizational design, of building skills and competencies, and of rewarding people when they do well. My own leadership philosophy is about launching breakthrough ideas and setting goals. It's about starting with the end in mind and forcing a pace to deliver on the goals. It is about creating support systems that enable the organization to perform, to feel motivated and good about itself. It's about raising the energy level.

The Quarterly: What's ahead for GBS?

Filippo Passerini: We are now moving into the third phase, which is about agility, flexibility, and being able to anticipate what will happen, so that we can respond more quickly. The background is the way the world is accelerating dramatically not just in our consumer-packaged-goods industry but in most other industries too. It is very important to stay flexible in this new world.

The article can be accessed here.

The importance of supply chain agility and transformation

In an interview with Wharton@Knowledge, information and technology professor Hau L. Lee of Stanford University's Graduate School of Business shared ideas about supply chain agility and transformation. His comments about agility are especially relevant today because, as he points out, agile supply chains are the ones that win when "there is an external disturbance and companies respond accordingly -- when their competitors cannot do so...." Today we are in just such an economic environment, and tomorrows winners are locking in market share today.

Lee also points out the need to move beyond pure agility to offer transformed solutions that substantially change the nature of your supply chain value proposition with your trading partners. For those companies operating throughout Asia, Lee believes that the importance of transformed solutions "is even more important because the needs for customisation and solutions are even higher due to the diversity in needs and capabilities."

Here is an excerpt from this insightful interview:

"The first thing companies should do is to ensure that the supply chain is done well. That means eliminating waste, removing inefficiencies, and not having any value-added activities. However, all this is purely a margin improvement exercise. Often times, what we have found is that once a good process is in place, it will enable companies to respond to the different needs of their customers. And these are where the opportunities lie. Any time there is an external disturbance and companies respond accordingly -- when their competitors cannot do so -- they will be able to grab that market share. Once they gain market share, it is very hard for competitors to grab it back. Essentially, companies should try and be responsive, through using the supply chain process, to take advantage of unexpected events. This is what agility is about.

"It is not just a question of unexpected events, however. In being agile, companies which have many customers with different needs and geographies, will realise they can serve more customers with more customised solutions. Those solutions will allow them to reach out to markets that they have not been able to reach out to before. The next stage is to think about what the customer needs. Is it just the product or is there a way that they want certain things done? For instance, let’s say I am a cement company and my customers buy cement from me. The customers need cement not because they want to store it at home but because they are constructing something. So, can I do something that would make their construction easier? Can I help them buy other things and put these together for them? That is what 'transformed solutions' are about.

"I think the more mature companies will go down the path of providing more complete solutions. As start-ups, most companies have a single product and they will want to make that well and efficiently. But mature companies must evolve for that is the way to create intimacy and stickiness with the customer, making it harder for them to switch loyalties. Once companies provide complete solutions, for example by helping customers design and manage projects, it is harder for customers to make that switch."

The complete interview can be read here.

Business flexibility constrained by legacy software

A client of mine sent the following video to me thinking that this was Evavi's. As companies work to free themselves from rigid, inflexible legacy systems, solutions such as Evavi's Supply Chain Synchronization offer new levels of flexibility and extensibility. If this video represents some of the challenges you are facing with your supply chain, we'd be glad to talk about how we are delivering the enterprise software of the future -- today.