Change the Conversation
Article by Lora Cecere from Supply Chain Shaman; published on October 29th 2013
It is Monday morning. As the sun rises, I find myself on the 6:00 AM train drinking coffee. I am giving thanks that I am able to do what I do.
There is nothing like a cup of coffee at this time of morning. As I hold the warm ceramic mug in my hands, the horizon rolls forward with the rhythmic sounds of the train on the track. I love the sounds of the train. I am lost in thought about the client that I am going to spend the day with. It is the end of a long project, and I am excited to share their data. There is such power in being able to pull together quantitative data with financial benchmarking analysis and qualitative interviews to help them see new insights. It is great to pull back the covers and help companies see the new trends and insights on supply chain excellence through research methods.
In work with clients, I find that they have good intentions and they want to be more outside-in and demand driven, but they get caught in a traps, because they have not changed the conversation. This will be a primary focus of my session today.
Volatility is rising, supply chains are becoming more important and complexity is making resiliency tougher. All are good reasons to have the conversation….
Here are the sticking points that I see:
- Focus Less on Perfect Numbers. Embrace Demand Error. Demand volatility is increasing and the technologies to manage demand are maturing. In this transition, it is more critical to learn to use demand data than to make the demand number perfect. As a result, the discussion needs to be less about the “demand forecast number” and more about the probability of demand. Companies need to try to reduce demand error to the extent possible, but realize that demand error is a reality of managing a supply chain. As a result, leaders need to drive the effort to embrace demand error and design the network to drive the same cost, quality and customer service levels given the level of demand error. This requires using new forms of analytics for inventory optimization and network design and doing less on spreadsheets.
- Help others to Understand the Impact of Complexity. Nine out of ten companies are stuck in their ability to make progress on operating margin and inventory turns. To understand this, a good place to start is the measurement of the forecastability of the products in the demand plan and understand how this is changing. Track the impact of rising complexity on forecastability and the impact on the inventory plan.
- Reduce Bias and Error. If only companies could sell what they forecast. Most companies have a large, and positive bias. To counteract this, actively use Forecast Value Add techniques (FVA) to reduce bias and error.. Communicate progress on a monthly basis. Push to help leaders understand the impact of demand bias on customer service, safety stock and slow and obsolete inventory.
- Help others to see the Options. Actively Design the Network. As you do, focus less on the levels of inventory and more on the trends and right sizing of the forms and function of inventory. (The form of inventory is the state of inventory and includes decisions for raw, semi-finished goods and finished goods. The function of inventory is the role that the inventory plays in driving the right supply chain response. The function of inventory includes cycle stock, in-transit stock, promotional stock, safety stock, seasonal stock, etc.) Actively model and help peers to understand the impact of rising complexity on the form and function of inventory. As you design the network, build push/pull decoupling points and buffers.
- Focus Forward. Finance and accounting use largely backward measurements. Push the executive team to focus forward in the design of measurement systems. Lead teams to focus on forward-looking business flows through the channel. Align the flows to maximize customer service taking ownership for sell through the channel not just sell-into the channel. Don’t stumble and get hung up on only measuring backward-looking measures.