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.

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.

The Future of Enterprise Software

Wharton management professor Saikat Chaudhuri recently interviewed president and CEO of SAP Americas Bill McDermott for his views on where enterprise software is heading.

One clear theme emerged: that while legacy enterprise solutions were often helpful executing transactions, amassing lots of information, and then providing basic access to it, the future belongs to solutions that enable users to use the information effectively by synchronizing the execution of transactions with decision support (at Evavi we call this intelligent transactions, and is why our common platform embeds exception and alert management and performance measurement natively into every solution). The enablement of this capability helps companies to close the gap between planning and execution.

McDermott, obviously, believes that SAP will be the winner in this space. He states that "the number-one competitive advantage for SAP over a company like Oracle is integration. Companies like Oracle have to interface things and deal with very complex implementations because none of that has been engineered by design, and there may be different pieces of different acquisitions all in the same solution, and customers really have to navigate through that. It's very costly to do that for the customer. It's very risky to do that for the customer... Oracle, as an example, has acquired all their growth. Unfortunately for the customer, none of that has been integrated on a common platform."

While the importance of a common platform should not be underestimated, even more important is that enterprise solutions must also have common data models in order to achieve the fullest level of business process synchronization. This is one of the areas that all of the legacy software vendors will have difficulty matching the capabilities of the new enterprise software companies that are innovating in this area. The cost to deploy, run, and maintain these new solutions is much, much less than the legacy solutions.

'You Can't Manage What You Can't Measure': Maximizing Supply Chain Value

'You Can't Manage What You Can't Measure': Maximizing Supply Chain Value is an article by supply chain experts from Wharton and The Boston Consulting Group. It is a part of their special Creating the Optimal Supply Chain report.

'You Can't Manage What You Can't Measure': Maximizing Supply Chain Value makes the case that supply chain management is a mission-critical element of business, and that it must be a priority of the CEO in order to be successful. The article also mentions fragmenting customer needs, increased cost pressures, and increasingly complex business models are three major factors diving the importance of supply chains.

The introduction states: “In the face of increasing complexity in global supply chains, more companies are realizing that supply chain management (SCM) is a mission-critical element, and no longer simply the domain of the warehouse manager or logistics director. But even as companies adopt SCM strategies in an effort to keep up, experts from Wharton and Boston Consulting Group (BCG) report that many still lag when it comes to measuring how well they are doing, and balancing the trade-offs involved in keeping service levels high and costs low.

“'The major trends in business right now -- low-cost country sourcing, outsourcing, customization, globalization and more -- all create tremendous complexities in a supply chain,’ says Steve Matthesen, vice president and global leader for supply chain at BCG. ‘In most cases, however, companies have not changed how they manage this critical part of the business.’

“According to Matthesen, that's largely because most company executives don't have a supply chain background, and they tend to view the supply chain function as "a black box" that they don't understand or have limited visibility into. 'CEOs feel that their supply chain costs too much and doesn't work very well. They're quick to ask, 'How hard can it be to get the products to the right place at the right time?' Well, it can be pretty hard,' he says, citing three major factors that have dramatically increased the stress on supply chains:

1. Fragmenting customer needs, resulting in a broader selection of SKUs (stock keeping units) aimed at specific consumer segments, different price points, shorter product life-cycles, and less predictable demand patterns;

2. Increased cost pressures based on global competition and shareholder demands to reduce working capital;

3. A new level of complexity brought on by more complicated distribution models, increased outsourcing, and ‘new technologies that promise efficiency but can increase complexity.’

“While supply chains are getting more difficult to manage, the competitive environment means that most companies need to further reduce costs.  In such an environment, successful SCM 'means getting better results with the same, or fewer, resources,' according to Gerald P. Cachon, Wharton associate professor of operations and information management.”

The article continues with sections on “Knowing What to Measure”, “The Trade-offs Between Service and Costs”, and “Companies on the Frontier.”

Companies on the Frontier

Steve Matthesen, vice president and global leader for supply chain at BCG is right on when he talks about “the bulk of the benefit [in supply chains] comes when you break down the functional silos and better coordinate across the entire business, and your suppliers and customers." This is what Supply Chain Synchronization is all about.

In the article, 'You Can't Manage What You Can't Measure': Maximizing Supply Chain Value, Matthesen lists the key priorities to transform a supply chain as:

1) aligning the supply chain with company strategy
2) aligning incentives across functions and with external parties
3) arming people with the right data ‘so they can make holistic decisions’
4) building flexibility to quickly respond to demand, rather than relying on forecasts.

"CEOs need to engage with their management teams to understand how their supply chain works today -- how it supports the business and how it prevents success.  Together, they need to evolve the strategy and supply chain to move the business to a position where the supply chain supports and enables a winning strategy. This cannot be accomplished by the head of supply chain alone," Matthesen says.

The pay-off is substantial. "A fully aligned supply chain and strategy delivers a superior business model," Matthesen adds. "Given the difficulties of achieving this, the benefits are often sustainable and create real advantage. Your competitors are likely to want to copy pieces of your strategy without realizing how the entire strategy and supply chain work together -- and they will not be able to match your performance."

Getting the right supply chain alignment, and enabling and supporting this alignment with the right technology, can be a challenging task. It requires the leadership and support of the CEO and other senior executives. It is not a task that can be accomplished by only the supply chain team or the technology team. The supply chain touches every element of a business, and supply chain transformation requires the sustained support of a broad coalition of senior executives in order to succeed. When it does succeed, it unlocks hidden value and helps to propel the company forward.

The Trade-offs Between Service and Costs

A concept called the "efficient frontier" is a useful way to gage the capability of a supply chain to provide the right products in the right amounts to the right place at the right time at the right cost.

As explained in 'You Can't Manage What You Can't Measure': Maximizing Supply Chain Value, “For any business function, an efficient frontier can be found by plotting points along a trade-off curve between two or more performance metrics. Applied to supply chain performance, ‘the efficient frontier is a two-dimensional space, with service level and costs along the two axes,’ says Mark D. Lubkeman, a senior vice president in BCG's Los Angeles office. ‘At one end, you have terrific, wonderful service at a huge cost. Or you could have lower costs and slow delivery times. The question is, where do you want to fall on the graph?’"

The goal is to maintain a position on the efficient frontier that protects a company’s own interests and acknowledges the interests and needs of its customers. "It's dangerous for any company to say, 'We have one frontier,'" Lubkeman advises. "That doesn't make sense in any business, so why should it in a supply chain?"

Morris A. Cohen, Wharton professor and Co-Director Fishman-Davidson Center for Service and Operations Management adds that it is difficult to provide different levels of customization in a supply chain. “How do you ration your resources and prioritize when facing streams of demand from different customers for the same item, customers who have paid a different price and to whom you have made different promises? ‘It is inefficient to chop up the supply chain for different customers, but exploiting those things keeps you on the efficient frontier,’ he counsels. ‘Keeping the supply chain flexible is key.’"

Getting to the efficient frontier can be challenging. As BCG's Steve Matthesen points out, “most companies are not getting the full value from their supply chain investments. ‘Your infrastructure investments will have been made based on a trade-off between service level and cost, but in many cases, companies are actually off the efficient frontier -- meaning they are getting lower performance and higher costs -- because of how they operate.’” This means that before pursuing the efficient frontier companies need to transform business processes so that they properly align operations with the needs of the client. Cohen adds, "You may not be managing processes correctly, not using the right technology; there are a variety of reasons to explain why some companies are not on it and others are."

Gerald P. Cachon, Wharton associate professor of operations and information management, says, "Making it to the efficient frontier involves the application of optimization techniques which require careful data collection and generally customization to the firm's particular environment. … As supply chains become more complex, they have more participants, more locations, and are geographically more dispersed. The amount of information needed to find the efficient frontier appears to grow exponentially.”

Knowing what to measure

Everyone is familiar with the dictum: “you can manage what you can’t measure.” As the article 'You Can't Manage What You Can't Measure': Maximizing Supply Chain Value makes clear, this is particularly applicable to building and managing supply chains.

In this article from Wharton and The Boston Consulting Group, Steve Matthesen, vice president and global leader for supply chain at BCG, makes the point that the difficulty is in measuring the right things. “Most operations groups track a ton of metrics. The issue is whether they are tracking the metrics that will identify how they are meeting the strategic needs of the company and what is relevant to their customers.”

Morris A. Cohen, Wharton professor and Co-Director Fishman-Davidson Center for Service and Operations Management, notes that more companies are beginning to realize that they need end-to-end visibility in their supply chain management efforts. "SCM is about more than just sensing and responding," he explains. "Companies need to anticipate demand, since it takes time to respond to demand-side changes. They're learning, but there's still plenty of room for improvement."

Matthesen further comments that “there is an inherent trade-off in meeting that demand: ‘How much service level can I give my customers before everyone screams about what it costs?’ But cost is only one lens, Matthesen argues. ‘The goal is to maximize overall value.  You want to have low costs, but first you need to have a strategy that will let you win in the marketplace.  Sometimes that strategy requires spending more cost to get a much higher margin.’

“To determine this, Matthesen says companies need to make sure they have a ‘crystal-clear view’ of what their customer really wants -- what minimum service level is required to meet their needs, and what they will be willing to pay for superior service. Service level here includes all attributes of the supply chain as experienced by customers: in-stock rates, delivery time, product assortment, etc. … Companies have two gaps, he says: a true understanding of their current performance, and a deep understanding of what their customers need -- and are prepared to pay for.

"’Every company has metrics that track performance,’ he says. ‘The key question is whether these metrics really provide visibility to performance as viewed by the customer.’”

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.

Evavi End-User Innovations

Personalization
Every end-user can personalize their workspace to meet their distinct work habits without requiring additional software.

Exception and Alert Management
Every user has the ability to publish, subscribe, and manage exceptions and alerts as an integrated capability of their personalized workspace.

Performance Measurement
Every user is presented with actionable information and meaningful reports in their personalized workspace without requiring bolt-on business intelligence software.

Role-based Workflows
Every user has workflows that are designed for their specific role rather than one-size-fits-all workflows.

Usability
All users, not just those with deep experience operating back office applications, can readily leverage the system.

Evavi Innovation

Overview
We set out with an audacious vision – to reinvent enterprise supply chain management. We have built from scratch a synchronized enterprise supply chain suite that uses only the best internet-native technologies and leverages the knowledge gained from the evolution of supply chain management since the late ‘80s.

The solutions we are delivering are based on more than six years of development by some of the most creative minds in the supply chain business. Members of this team helped define the supply chain software industry in the late ‘80s and early ’90s with their pioneering work in the areas of in-memory optimization and planning. The supply chain software they architected during that time generated over $800 million in sales, generated billions in supply chain value, and launched the industry.

Supply Chain Software Reinvented
Evavi’s Supply Chain Synchronization solutions are the first to be entirely developed and delivered with Internet-native technologies. Built into the entire solution suite from the core are a planning and execution platform, flexible models, rapid extensibility, open integration, performance measurement, exception and alert management, role-based workflows, and consumer-Web usability with personalization at the fingertips of each end-user.