"Rethinking the Supply Chain: Meeting the Complexity Challenge"

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"Demand Solutions Forecast Management opens up a whole new world for supply chain management - better demand planning, improved inventory planning and, ultimately, increased efficiency and profits."
Source : Demand Solutions

Resources Related to Rethinking the Supply Chain: Meeting the Complexity Challenge:

• Supply Chain (Wikipedia)

Rethinking the Supply Chain: Meeting the Complexity Challenge

Introduction: Fixing the Complexity Double Bind

Manufacturers and distributors in both discrete and process industries increasingly find themselves caught in a complexity double bind: The requirements of operating in a global, just-in-time market have made supply chains infinitely more complex than they were even ten years ago. In addition, much of the software that is supposed to assist in managing this complexity has itself become too complex to use and too expensive to cost-justify.

This double bind attacks a point of extreme vulnerability for many companies. Supply chains are longer, involve more stakeholders, and at the same time are less forgiving of error and waste. Meanwhile, customer loyalty is fleeting, competition is growing, and margins are shrinking in many industries.

In this climate of complexity and uncertainty, overall business success is more and more a matter of optimizing the supply chain: Many times the blame for product failure lies not in engineering, marketing, or sales, but in the inability of the supply chain to deliver both the raw materials needed to meet production plans and the finished goods needed to meet real customer demand.

For the most part, the enterprise software market has risen to the challenge of complexity in the supply chain by making its supply chain management solutions more and more complex, often to the detriment of the very efficiency and cost-effectiveness that supply chain users need. The feature bloat of supply chain management software is wel ldocumented, and the price and total cost of ownership for mainstream supply chain software is legendary: multi-year implementations averaging many million of dollars are common. Needless to say, manufacturers have trouble finding the return on investment for these massive supply chain software projects.

This complexity challenge is further engaged by the "black box" approach to supply chain management that most software solutions deploy today. This "black box" approach often disengages a company's internal supply chain experts — people with deep historical knowledge of a company's specific supply chain needs — from the overall supply chain management process, thus ensuring that a forecast or plan that is otherwise statistically valid will be inadequate or incomplete.

The result of these problems is a supply chain customer base that is ill-served by many of the solutions on the market today. Enterprise Applications Consulting (EAC) believes that, for many manufacturers and distributors, more complexity in supply chain management software is not the solution to more complexity in the supply chain. Rather, there is an increasingly important opportunity for less complex — and still highly robust — supply chain solutions that forego complexity in favor of usability, offer an affordable total cost of ownership, and can better support a collaborative effort that engages knowledgeable stakeholders inside the manufacturer.

EAC was asked by Demand Management, Inc., a supply chain management software vendor based in St. Louis, MO, to evaluate its supply chain forecasting and replenishment offerings with respect to the company's ability to improve supply chain management, while releasing manufacturers and distributors from this supply chain double bind. EAC's review of Demand Management's products, sold under the brand name Demand Solutions, as well as extensive interviews with the company's customers, reveals a solution set that offers relief from the twin evils of complex supply chains coupled with complex supply chain software. The fact that Demand Solutions pricing and implementation costs are significantly below the industry average adds to its position as a welcome alternative to high-cost, highly complex solutions.

This report contains four parts. The first is a discussion of the complexity double bind in light of the dynamics of global trade, just-in-time manufacturing, and other business factors faced by manufacturers across most discrete and process industries. The second section discusses how Demand Management's offerings help overcome the problems of complexity, and the third section discusses how Demand Solutions customers have used the company's software to improve forecasts and better manage demand, all while achieving improved customer satisfaction and a measurable return on investment. The report concludes with a discussion of the cost of Demand Solutions in light of customer satisfaction and industry best practices.

The Supply Chain Double Bind: Complexity in Action

The double bind that manufacturers and distributors find themselves in with respect to supply chain complexity starts with the demands of a dynamic business environment that is becoming simultaneously more competitive on a global basis, and more dependent on rapid time-to-market for new products and services.

This complexity is increasing the physical length and complexity of supply chains worldwide. Where many companies even ten years ago manufactured the majority of their final product in their headquarters' country, the majority now outsource at least part of their manufacturing operations, with many having shifted production to off-shore companies that themselves are supplied by their own local outsourcing manufacturers and service providers. These business practices have lead to highly attenuated supply chains that are complicated enough when they work well, and extremely complicated to manage when problems occur on either the supply side, or the demand side.

These extended supply chains, when combined with a shift to shorter product lifecycles and greater dependence on new products, have placed enormous burdens on manufacturers and distributors (see Figure 1). A simultaneous drop in profit margins on older products has placed even more emphasis on supply chain efficiency in order to maintain profitability. The result is that companies in the majority of industries across the globe are seeing increasing demands on their supply chains to run more efficiently.

Further exacerbating the growing complexity of supply chains, the increasing reliance on new product introductions, and the shrinking time to market, is the collapse of margin contributions that new products can offer most companies. In many dynamic industries, such as high-tech and consumer electronics, the lion's share of profitability occurs in the first six months of new product introduction, which makes maintaining an efficient supply chain from day one essential in order to capitalize on this limited window of high-profit opportunity. Even less dynamic industries, however, face the same pressures: maximizing profitability "early and often" is a key mandate for all companies, regardless of industry.

To meet these requirements, manufacturing and distribution companies have spent enormous sums on supply chain management software, with total industry spend at over $6 billion in 2006, and climbing to over $10 billion in 2010, according to industry estimates. With total spend this large, it's not surprising that average deal size has grown as well, with one top tier vendor's average deal size estimated at $7 million, and its average implementation time window estimated at 18 months.

Despite this enormous investment, key supply chain management issues are far from being resolved. Indeed, one of the most basic issues — what is the best possible demand signal that can be used to plan for materials procurement and production — remains much more elusive than many supply chain managers and vendors many would care to admit. A research study conducted in 2007 by Enterprise Applications Consulting of leading high-tech manufacturing companies in Silicon Valley showed extreme dissatisfaction with the availability of a reliable demand forecast, and most managers interviewed revealed that an accurate demand signal was the weakest link in their supply chain management efforts, despite supply chain software investments in the millions of dollars.

EAC's findings are confirmed by the results of a global survey of manufacturing companies conducted by Deloitte Research (see Figure 2). In this survey, only four percent of respondents were highly satisfied with their forecast and demand plan. Other key supply chain factors, like costs, and return on assets, scored significantly higher. But the all important question of demand plan quality was among the biggest problems facing supply chain managers in the survey.

The Complexity Factor

EAC believes that one of the reasons for this disconnect between billions of dollars in supply chain management spending, and the largely unsolved problem of demand forecast uncertainty is due in part to the complexity of most supply chain management solutions, a complexity that simultaneously renders demand planning overly complicated while forcing companies into "black box" solutions that fail to take into account company-specific data and circumstances.

The "scope creep" of supply chain management software is easy to see: not only is the individual domain of SCM now seen to include a vast array of feature and functions (see Figure 3), but "modern" SCM best practices seek to link functionality in customer relationship management, product lifecycle management, and financial management directly to the supply chain system. While there is some merit to synchronizing enterprise processes in this way, the complexity of an undertaking of this magnitude — which includes synchronizing processes and data from highly disparate systems — is a major contributor to the enormous cost and time-to-value for many supply chain management system implementations, and their users' frustration with the results. Indeed, much of the problem of establishing an ROI for these complex SCM systems lies in their very complexity: large, "big bang" implementations are notorious for uncontrollable costs and un-measurable ROI.

Indeed, this vast disparity between SCM software spend and value, in light of the growing complexity of manufacturing operations worldwide, highlights the almost desperate need for a new look at how companies manage their supply chains. EAC believes that this new look involves a rethinking of the supply chain management problem in terms of delivering less complex tools that can solve fundamental problems without requiring the investment of millions of dollars in a multi-year implementation. As we shall see in the next section, Demand Management has a suite of supply chain management solutions designed specifically to support highly effective supply chains without the need to implement highly complex solutions.

Demand Solutions: An Alternative to the Supply Chain Double Bind

Demand Management approaches the above issues of supply chain complexity by providing a suite of tools that is intended to allow companies to optimize their supply chain in a manner that combines comprehensive supply chain management capabilities with the ability to leverage expert knowledge and experience in a collaborative environment. A further goal is to provide this functionality in a very cost-effective manner, and do so in a way that is also relatively easy to deploy and use.

EAC's review of the company's solutions, and EAC's interviews with Demand Solutions customers, show that the company has an established track record — 20 years in business with over 2000 customers in 72 countries — of delivering on these goals. EAC's conversations with Demand Solutions customers shows that the Demand Solutions suite allows significant improvements in forecast accuracy, replenishment, inventory management, and other key performance indicators, while supporting a high degree of collaboration with non-traditional supply chain stakeholders.

Equally as important, the relative simplicity with which Demand Management delivers robust supply chain functionality has allowed its customers to overcome this supply chain double bind, according to the customers interviewed by EAC. "It's a very complex world around us," says Greg Langevin, senior manager for inventory planning at Ricoh USA, the US subsidiary of the Japanese printer and copier giant. "This tool [makes forecasting] as simple as possible."

This combination of simplicity and robustness is evident in all six modules in the Demand Solutions portfolio, although this report is focused primarily on the two most widely used modules: Demand Solutions Forecasting Management (DS-FM), and Demand Solutions Requirements Planning (DS-RP). (The remaining modules include Sales and Operation Planning, Collaboration, Retail Planning, and Manufacturing Planning.)

Demand Solutions Forecasting Management (DS-FM): Functional Robustness In terms of functional robustness, DS-FM can manage over three years of historical data, and forecast three years out into the future. The forecast engine can iterate through 20 different statistical forecasting methods, and provides a broad range of reports and filters that let users drill down into complexities or anomalies in the forecast and supporting data.

There is support for a wide variety of forecast streams, and DS-FM can produce sales, marketing, and budgeting forecasts. Forecasts can be produced at multiple levels of granularity, including SKU, item, channel, and country, among others. The product also includes a Service Level Optimizer that allows manufacturers to set inventory and safety stock levels according to specific customer requirements.

DS-FM: FUNCTIONAL ROBUSTNESS

• Multiple Statistical Forecasting Methods
• Comprehensive Forecast History
• Multiple Forecast Streams
• Strong Reporting and What-if Scenario Support

DS-FM: FUNCTIONAL SIMPLICITY

• Non-IT Driven ERP Integration and Day-to-Day Operations ?
• Support for Non-traditional Supply Chain Stakeholders
• Excel and Access Integration
• Ability for Experts to Override "Black Box" Forecasts
• Ease of Implementation and Deployment

DS-FM: Functional Simplicity

On the simplicity side, DS-FM can support "off-line" work using an Excel spreadsheet or Access database, allowing users more comfortable with those formats to do their supply chain analysis outside of DS-FM and then load the results back into the system. This capability is particularly useful in soliciting input and modifications from expert users, who otherwise would be shut out of more complex, "professionals-only" supply chain management solutions. DS-FM also supports an extremely easy data integration process that can move data in and out of ERP and other back office systems without IT intervention.

Simplicity in implementation and overall use is a major feature of all the Demand Solutions modules, including DS-FM: Customers interviewed by EAC reported that their IT department was only minimally involved in the overall implementation of the products, and that day-to-day functioning of DS-FM and the other modules required no IT involvement. That lack of IT involvement extended successfully to the otherwise onerous task of moving data between ERP systems and the Demand Solutions modules, which is designed in the Demand Solutions system to be done by the users themselves, not IT. The limited IT requirements of Demand Solutions can provide welcome relief to IT departments that are looking for ways to directly assist the business side without having to allocate resources to deal with unnecessarily complex solutions.

These ease of use features, combined with comprehensive reporting capabilities, provide an important advantage with regard to the overall value of the Demand Solutions products: the company's customers report that they are able to present complex forecast data in a format that is easily understood by a wide range of stakeholders.

"Demand Solutions Replenishment (DS-RP) and Forecasting Management (DS-FM) are easily understood by non-supply chain people, particularly sales people," says Ricoh's Langevin. "It's easy to communicate throughout the supply chain." "Demand Solutions Replenishment (DS-RP) and Forecasting Management (DS-FM) are easily understood by non-supply chain people, particularly sales people," says Ricoh's Langevin. "It's easy to communicate throughout the supply chain."

Demand Solutions Requirements Planning (DS-RP)

The ease with which a comprehensive forecast can be developed within DS-FM is matched by the relative ease by which DS-RP can use the DS-FM forecast to model and establish optimal inventory levels. Most customers EAC interviewed use the two products in tandem. Once the forecast has been established, DS-RP is able to create inventory plans down to the item level, and then manage inventory levels as demand fluctuates and parts availability changes.

DS-RP also contains a number of features that make it a robust solution, despite the ease of use reported by Demand Solutions Customers. DS-RP includes the capability to model different forecast scenarios and create different inventory plans for specific customers or distribution centers. The product also allows managers to override automated inventory and safety stock levels based on customer requirements, seasonal factors, or other factors that can't necessarily be accounted for in a software-only solution.

All Demand Solutions products are developed on a technology platform that makes use of Microsoft technology, and is intended to be easy to implement, easy to manage, and relatively inexpensive in terms of hardware requirements. This Microsoft technology focus contributes to the overall high value and low TCO of Demand Solutions.

All these factors combine to create a significantly different take on solving the supply chain problems facing manufacturers today: The combination of robustness and simplicity, low-cost and ease of implementation and use are a welcome change from the scope creep, high costs, and long implementation cycles offered by many supply chain solutions today. As we shall see in the final section, this position is fully supported by EAC's interviews with customers.

Demand Solutions and the Customer Experience: Making Complex Supply Chains Simple and Cost-Effective

Demand Management customers interviewed by EAC characterized their use of Demand Solutions software along five main parameters: ease of implementation, functional robustness, ease of use, breadth of support for multiple stakeholders, and demonstrable return on investment. Each of these parameters shows a major strength of the Demand Solutions suite, and taken together, they present a well-constructed alternative to overly complex supply chain management solutions.

DEMAND SOLUTIONS CUSTOMER INTERVIEWS: QUANTIFIABLE MEASURES OF VALUE AND ROI

• Reported Implementation Times: 30 to 90 days
• Reduced Planning Cycle: From Several Days to Four Hours
• Increased Inventory Turns: From 1.5 to 6
• Lower Carrying Costs: $900, 000 in Savings
• Increased Forecast Accuracy: from 50 or 60 percent to 80 or 90 percent

DEMAND SOLUTIONS CUSTOMER INTERVIEWS: "SOFT" MEASURES OF VALUE AND ROI

• Minimal IT Involvement
• Improved Stakeholder Input
• Improved Order Backlogs
• Increased Customer Service
• Increased Customer Satisfaction

Ease of Implementation and Low TCO

Demand Solutions customers reported extraordinarily rapid, low-cost implementations. While the company claims an average implementation time of under three months, one customer interviewed by EAC, Ricoh, was able to implement the Demand Solutions system in 30 days. Demand Management reports that many of its customers' implementation times are measured in weeks, not months.

With these rapid implementation times come low overall implementation costs. At the high end of the scale, Zotos International, a beauty products manufacturer based in Darien, CT, estimates that its total project cost for implementing a solution that manages Zotos' global supply chain across the US, Europe, South America, and the Asia/Pacific region was less than $300,000. At the lower end of the scale, many customers are able to implement Demand Solutions for less than $100,000, with some customers paying as little as $20,000 for their solutions.

The customers EAC interviewed not only reported relatively rapid implementation times, but they also emphasized the relatively low-level of IT involvement in the implementation process. "There's not a lot of IT resources required," says Michael Floros, vice president of supply chain at Zotos. "We're pretty much self-sufficient."

Functional Robustness

While many Demand Solutions customers are classified as small and medium-sized manufacturers, the complexities of their supply chain management problems rival those of much larger companies. Indeed, customers are using Demand Solutions as a means to effectively compete with much larger companies. As such, Demand Solutions customers report that they are able to resolve relatively complex supply chain management issues using Demand Solutions software without sacrificing functionality.

Day-Timers, Inc., a manufacturers of planners and personal organizers based in East Texas, PA, is using Demand Solutions to manage forecasting and replenishment for the hundreds of thousands of items it sells. For one retail customer alone, Day-Timers is managing inventory on site, covering 160,000 individual SKUs sold through one thousand individual stores. This involves "pumping 500,000 records through the system every week," says Steve Blasek, manager of demand planning at Day-Timers. "We've not encountered any issues regarding this level of complexity."

Ease of Use

Demand Solutions users give the products high ratings for ease of use across a number of different functions. For Day-Timers, ease of use can be seen not only in the ability to manage its complex vendor-managed inventory requirements, but also in the ability to do so using a combination of DS-FM, an Access database, and data from order management, point of sales systems, and other inputs. "When I first started doing these processes it took several days," reports Day-Timers' Blasek. "Now I'm doing it in four hours."

At Zotos, the ease by which planners are able to "take action and specify what inventory is needed on an item by item basis is where we see our biggest benefit," says Floros. "Demand Solutions has allowed us to standardize our business rules and put some rational thought behind what we want to do."

Breadth of Support for Multiple Stakeholders

The ability of Demand Solutions to support multiple stakeholders is particularly relevant to the double bind issue. Customers report that Demand Solutions facilitates discussions and decision making between all stakeholders that greatly reduce the complexity of the relationships inside the supply chain, and significantly improve supply chain throughput and efficiency. "I use the system to communicate to sales, executive management, and all my suppliers," says Langevin at Ricoh. "We've developed a process of communicating using the tool. I can't overstate how important it is to have Demand Solutions serve as a catalyst for marketing, sales, and planning to be in the same room talking about the business."

This ability to bring multiple stakeholders into the process also includes the ability to use their expert knowledge to modify the forecast or plan in order to reflect the impact of anomalies or other non-standard issues that would be missed in a purely "black box" supply chain operation. "Demand Solutions allows individual managers to customize how they do their daily jobs, maximize what they are doing, and share those thought processes with the rest of the group," says Zotos' Floros.

Demonstrable Return on Investment

The ROI for Demand Solutions can be found by looking at most of the classic supply chain key performance indicators, such as forecast accuracy, inventory turns, and carrying costs. For each of these traditional measures, Demand Solutions customers reported significant results.

"I can't overstate how important it is to haveDemand Solutions serve as a catalyst for marketing, sales, and planning to be in the same room talking about the business," Greg Langevin, Ricoh-USA

At Ricoh, inventory turns went from 1.5 to six turns in three years, with a savings in carrying costs measured in the hundreds of thousands of dollars, according to Langevin. Zotos, which only went live in Q2 of 2007, closed the year with inventory turns running at four per year and is targeting inventory turns to reach six in 2008. As a result, Zotos was able to reduce finished goods inventories by $6 million in the first year, with an additional $2 million in reductions slated for 2008. This translates, the company estimates, to a direct savings of $900,000 in inventory carrying costs.

At Day-Timers, one of the principal returns came from the ability to reduce the time it took for Blasek's demand-planning team to create a plan from several days to four hours. The ability to closely manage inventory at the store level, however, has proven to be even more valuable with same store sales increasing in one case by 26 percent, once Day-Timers started using Demand Solutions.

Customer service has also improved at Day-Timers, from a 70 percent satisfaction rating before the use of Demand Solutions, to over 90 percent today. And at Zotos, an order backlog reduction of 80 percent, and an increase in fill rates to over 97 percent helped contribute to a sales increase of more than $20 million, hard evidence that customers were showing their appreciation by increasing their purchasing of Zotos products.

Forecast accuracy was another major source of improvement following the implementation of Demand Solutions. At Ricoh, monthly forecast accuracy is now in the 80-85 percent range, with some months reaching 95 percent accuracy, according to Langevin. Forecast accuracy at Zotos after one year went from 50 percent to 70 percent, with a target of 80-85 percent for the coming year. Day-Timers has also seen a dramatic improvement in forecast accuracy: "We were less than 60 percent accurate before we started using Demand Solutions," says Blasek. "We are consistently in the 90's at the customer SKU level now."

These more concrete measures don't tell the entire story, however: customer satisfaction is also a major, if somewhat hard to quantify, factor in Demand Solutions' ROI. Indeed, at Ricoh, this is the most important ROI factor of all. The company's customers, many of them large multinationals, are increasingly demanding service level agreements that effectively grade Ricoh on its ability to deliver product on time. By allowing Ricoh to closely meet customer requirements, Demand Solutions "allows our supply chain to become more of a selling instrument," says Langevin. "The biggest value to me comes from the improvement in customer service."

Conclusion:Towards Affordable and Effective Supply Chain Efficiency

The bottom line for the Demand Solutions portfolio is that this level of usability and customer satisfaction comes at a cost that is orders of magnitude lower than what many believe to be the industry norm for supply chain management solutions. Even very large deals, like the implementation reported by Zotos, are significantly lower than the millions spent on supply chain management solutions by all too many customers.

What these prices say, in light of the high levels of functionality and customer satisfaction revealed in the interviews noted above, is that the complexity double bind in supply chain management is not an inescapable fate. Companies with relatively complex supply chain management needs can meet those needs, and achieve an ROI that is significantly higher than the current state of the industry, by implementing a solution that is targeted at solving the most pressing requirements of complex supply chains without imposing an equally complex solution.

Importantly, this solution can be delivered in a way that empowers all stakeholders, and favors institutional memory and knowledge over pure mathematical formulas. The ability to make the extended supply chain a collaborative experience is perhaps one of Demand Solutions greatest strengths: Too often, technology-based solutions focus on making different systems work closely together, while ignoring the fundamental need for human interaction. Demand Solutions effectively strikes a balance between technology-centric and people-centric functionality, and in the process provides an important option for companies looking to build and maintain complex supply chains in an increasingly complex world.

Table of Contents

• Introduction: Fixing the Complexity Double Bind
• The Supply Chain Double Bind: Complexity in Action
• Demand Solutions: An Alternative to the Supply Chain Double Bind
• Demand Solutions and the Customer Experience: Making Complex Supply Chains Simple and Cost-Effective
• Conclusion: Towards Affordable and Effective Supply Chain Efficiency