Supply Chain Synchronization

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.

Google's chief economist, Hal Varian, on how the web challenges managers

Google's chief economist, Hal Varian, "compares the current period to previous times of industrialization when new technologies combined to create ever more complex and valuable systems—and thus reshaped the economy." In a recent interview with McKinsey, he shares some of his insights.

Varian's ideas are organized in six main groups:

1. Flexible innovation
2. Corporations and work
3. Free goods and value
4. Workers and managers
5. Computer monitoring and risks
6. Reshaping industries

Varian discusses how networked digital technology should improve the way we work and increase productivity. In addition to personalization of data and better user interfaces, Varian emphasizes the importance of making sure that the data gets to all of the necessary players so that they can make timely and well-informed decisions. He also notes that since computers can monitor transactions, companies can make sure that transactions are carried out in the way intended.

At Evavi, we take this one step further with what we call "intelligent transactions." Rather than simply monitoring transactions and then correcting them, we seemlessly combine planning/decision support with execution/transactions so that supply chains operate optimally with transactions that are intelligently planned before they are executed. By eliminating the disconnect between planning and execution, the focus shifts from monitoring transactions to compressing the cadence of the supply chain with perfect orders.

You can view the interview here or read the transcript here.

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."

Google's view on the future of business: An interview with CEO Eric Schmidt

Eric Schmidt, CEO of Google, has one of the best vantage points on the planet of the changing technological landscape. He was recently interviewed by McKinsey director James Manyika. "Schmidt sees more powerful digital assistants arising from cloud computing, markets morphing at an ever faster pace, and plenty of space for human creativity if organizations are willing to carve out a place for it."

Supply chain professionals will agree with Schmidt when he states: "The harsh message is that everything will happen much faster. Every product cycle, every information cycle, every bubble, will happen faster, because of network effects, where everybody is connected and talking to each other."

While some leading companies have recognized this essential fact and have made transformation of their supply chain a key strategy, others are still only paying lipservice to this fundamental change. The future belongs to those who are moving -- and moving quickly -- to transform their supply chains so that they can create value rather than be a huge risk exposure.

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.

Getting supply chain software right

With global markets charting uncertain territory and the economy shrouded in uncertainty, the conditions are ripe for companies to closely examine their supply chains to find areas for improvement. “Getting supply chain software right,” from The McKinsey Quarterly, offers some useful insight for those wanting a solid introduction to key supply chain concepts and to how software can help in this domain. Here are some excerpts:

“An urgent need to improve supply chain management can arise when product margins shrink, demand drops, customers ask vendors to manage inventory for them, or new products are introduced. … Because the costs of managing the supply chain — inventory, the warehouse and distribution center, and freight — can represent 10 to 15 percent of sales in most industries, the savings that effective supply chains bring have a genuine impact.

“…A supply chain, simply stated, comprises the flow of a company’s products, information about them, and the money that changes hands between the company and its suppliers and customers. When a company manages the processes that support these flows well, it can fill orders from customers quickly yet keep its inventory to a bare minimum. When it doesn’t, the supply chain breaks down. Customers place orders but hear that the products are out of stock, even when they might be available somewhere in the company. Raw materials fail to show up on loading docks, and shipments to customers arrive late. Factories run below capacity because customers cancel their orders. The result can be a quick drop in sales, lost margins, and inventory write-offs.

“…Managers often focus on automating transactions, something that might be important but typically fails to extract the greatest value from supply-chain-management software. The greatest value tends to come from harnessing its ability to improve decisions — how much of what product should be shipped to which warehouse, for example — by making forecasts more precise. Since decision support affects inventory turns and customer-service levels (avoiding stock-outs, for example), improving it has more impact than, say, migrating an order process from telephones or fax machines to computer systems, a change that at best reduces head counts.

“…The promise of real benefits rests on the potential for seamlessly integrating data flows and work processes across entire enterprises and even industries.  The primary benefits will come from their ability to speed up the flow of information and to make it available more widely — which alone can produce gains large enough to justify big investments.

“…When supply-chain-management software works, it can help cut inventory levels, improve delivery schedules, and ensure that supply meets demand—all of which should make customers more satisfied.

“…The performance of supply chain software depends not just on its features and quality but also on the way people use it. This is particularly true of forecasting and inventory planning solutions. Four guiding principles to consider when implementing supply chain software:

        1) fix only important broken processes
        2) promise only what you can deliver
        3) improve training
        4) make people accountable                     

“…The greatest improvements in supply chain management occurred when companies both improved their processes and correctly installed and used the software.”

Read the complete article here

ABC: An Introduction to Supply Chain Management - What are the roadblocks to installing supply chain software?

Ben Worthen, at CIO Magazine, has compiled ABC: An Introduction to Supply Chain Management. This compilation provides a good starting place for those wanting to learn about the basics of supply chain management.

One of the questions he looks into is: What are the roadblocks to installing supply chain software? His answer looks at three typical roadblocks that can be anticipated and should be preempted:

1) Gaining trust from your suppliers and partners.

“Supply chain automation is uniquely difficult because its complexity extends beyond your company's walls. Your people will need to change the way they work and so will the people from each supplier that you add to your network. … To get your supply chain partners to agree to collaborate with you, you have to be willing to compromise and help them achieve their own goals.”

The degree to which your people will need to change the way they work will be dictated by what business processes you are changing, and how flexible the software is to accommodate the elements that are unique to your business. Ideally you will transform business processes because they will improve your business, and not because the software dictates that you do things in a circuitous way. Supply chain solutions should only be considered that are flexible enough to model what is unique about your business, rather than forcing you to change those things that your customers already value. You should be able to tailor role-based workflows that perfectly fit the needs of the business, and that support adoption by end-users. This is a foundational concept of Supply Chain Synchronization that distinguishes it from simple Supply Chain Management.

2) Internal resistance to change.

“If selling supply chain systems is difficult on the outside, it isn't much easier inside. Operations people are accustomed to dealing with phone calls, faxes and hunches scrawled on paper, and will most likely want to keep it that way. If you can't convince people that using the software will be worth their time, they will easily find ways to work around it. You cannot disconnect the telephones and fax machines just because you have supply chain software in place.”

Without successful change management, most supply chain initiatives will flounder and may ultimately fail. Some clients I have worked with have forced supply chain solutions in without gaining the necessary consensus from the end-users. This normally results in additional time and money to cycle back after the implementation to train, cajole, and encourage the end-users to get on board -- much more effective to get this done at the beginning of the project.

3) Many mistakes at first.

“There is a diabolical twist to the quest for supply chain software acceptance among your employees. New supply chain systems process data as they are programmed to do, but the technology cannot absorb a company's history and processes in the first few months after an implementation. Forecasters and planners need to understand that the first bits of information they get from a system might need some tweaking. If they are not warned about the system's initial naiveté, they will think it is useless. … Once employees [understand] that they [are] merging their expertise with the system's increasing accuracy, they [will begin] to accept and use the new technology.”

The best supply chain software has the ability to be programmed in advance with as much of a company’s historical data as can be obtained. However, even when this is done, the system will take a while to reach equilibrium. Supply chain solutions are designed to be intelligent – they learn as they go. At the same time, most supply chain functions (such as forecasting and inventory planning) are not designed to run on autopilot. These solutions require regular monitoring and adjusting (though the best ones will automatically direct the end-user to the places that need the most attention). End-users need to understand that they are indeed merging their expertise with the system’s intelligence. Working in concert, the results can be spectacular.

ABC: An Introduction to Supply Chain Management - What does supply chain management software do?

ABC: An Introduction to Supply Chain Management is a compilation by Ben Worthen at CIO Magazine. It provides a good starting place for those wanting to learn about the basics of supply chain management.

One of the questions he provides insights to is: What does supply chain management software do?  In answer to that question, Worthen points out that “Supply chain management software is possibly the most fractured group of software applications on the planet. Each of the five major supply chain steps … composes dozens of specific tasks, many of which have their own specific software. Some vendors have assembled many of these different chunks of software together under a single roof, but no one has a complete package that is right for every company. For example, most companies need to track demand, supply, manufacturing status, logistics (i.e. where things are in the supply chain), and distribution. They also need to share data with supply chain partners at an ever increasing rate.”

When you are evaluating supply chain solutions, be sure to understand how Supply Chain Synchronization differs from the fractured environment of traditional Supply Chain Management software. One of the main areas of differentiation is that Supply Chain Synchronization uses a common platform and common data models to enable business processes across the enterprise. This, combined with native personalization, exception and alert management, performance measurement, and role-based workflows enables companies to let their strategy drive their supply chain solution, instead of being constrained by it.

Worthen goes on to note a hugely important point for those working on supply chain strategies. He writes: “It’s worth mentioning that the old adage about systems only being as good as the information that they contain applies doubly to SCM. If the information entered into a demand forecasting application is not accurate then you will get an inaccurate forecast. Similarly, if employees bypass the supply chain systems and try to manage things manually, then even the most expensive systems will provide an incomplete picture of what is happening in a company’s supply chain.”

So, as you work on your supply chain strategy, be sure to spend time working on the change management that will be needed to successfully deploy, run, and maintain your supply chain solution. My experience has been that in their eagerness to get started, this is the area that most companies are prone to overlook.

Don’t let complexity stop you

A few months ago Bill Gates gave the commencement address at Harvard. At the time it received critical acclaim for putting a focus on addressing the world's deepest inequities. Gates said, in part, "I want to  exhort each of the graduates here to take on an issue – a complex problem, a deep inequity, and become a specialist on it. ... Don’t let complexity stop you."

I reread the speech the other day and was again drawn to this issue of how complexity has a tendency to stop necessary transformation. While Gates was primarily focusing on the dangers of complexity in relation to solving problems overlooked by the free market, the dangers of complexity are equally real in every business.

The following excerpts from his commencement address highlight key points that are equally applicable to most businesses and are helpful in thinking through how to cut through the complexity to find and implement solutions.

"The barrier to change is not too little caring; it is too much complexity. To turn caring into action, we need to see a problem, see a solution, and see the impact. But complexity blocks all three steps. ...

"If we can really see a problem, which is the first step, we come to the second step: cutting through the complexity to find a solution. ...

"Cutting through complexity to find a solution runs through four predictable stages: determine a goal, find the highest-leverage approach, discover the ideal technology for that approach, and in the meantime, make the smartest application of the technology that you already have — whether it’s something sophisticated, like a drug, or something simpler, like a bednet. ... Pursuing that goal starts the four-step cycle again. This is the pattern. The crucial thing is to never stop thinking and working...

"The final step – after seeing the problem and finding an approach – is to measure the impact of your work and share your successes and failures so that others learn from your efforts."

When I am consulting with executives, the challenge to getting things done is rarely because their employees don't care, its because they get bogged down in the complexity that is constructed around them.

Information Technology shouldn't be as complex as it is

My friends at ZOOM Marketing wrapped up a big ZOOMing (their proprietary process for driving value with clients) for Dell last spring. "After dozens of interviews and meetings, and focus groups on three continents, 'IT Simplification' emerged as The Point That Matters for Dell. Shortly after ZOOM presented their findings, Michael Dell put himself on the record, saying Dell's strategic intent is to 'simplify information technology for our customer...empowering them to implement simpler and smarter IT solutions. Also getting much press was a memo released by Dell, naming IT Simplification as Dell's new focus."

The memo from Michael Dell was released this past spring. In this memo he articulated that Dell is "embarking on a bold, long term initiative to radically simplify IT for our commercial customers. Simply put, the philosophy comes down to a set of core beliefs:

• Information Technology shouldn't be as complex as it is.

• You should spend less on maintaining I/T and more on innovation.

• Every IT project should not require an army of consultants.

• Computing should have minimal environmental impact.

• Superior information drives efficiency in your IT environment."

While Dell has a big ship to turn around, the core beliefs articulated are right on track. Complexity is the enemy of progress, and the trend towards technologies that are less complex to deploy, run, and maintain will ultimately enable corporations to operate more efficiently and effectively. These changes will unleash value that is currently locked up in legacy systems and transform business processes. Supply Chain Synchronization -- which aligns business processes across the extended supply chain -- is one example of how business processes are being transformed throughout the enterprise to get rid of complexity.