Rethinking the Supply Chain Final

7/28/2019 Rethinking the Supply Chain Final

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RETHINKING THE SUPPLY CHAIN:

MEETING THE COMPLEXITY CHALLENGE

Spring, 2008

Enterprise Applications Consulting

Joshua Greenbaum, Principal

EAC

2303 Spaulding Avenue

Berkeley CA 94703

t e l 5 1 0 . 5 4 0 . 8 6 5 5

f a x 5 1 0 . 5 4 0 . 7 3 5 4

[email protected]

www.eaconsult.com


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Table of Contents

Introduction:Fixing the Complexity Double Bind ............................................................................................. page 1

The Supply Chain Double Bind:Complexity in Action .................................................................................................................... page 2

Demand Solutions:An Alternative to the Supply Chain Double Bind ....................................................................... page 8

Demand Solutions and the Customer Experience:Making Complex Supply Chains Simple and Cost-Effective ..................................................page 11

Conclusion:

Towards Affordable and Effective Supply Chain Efficiency ...................................................page 16


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Rethinking the Supply Chain

Copyright EAC 2008 1

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 well-

documented, 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 companys internal supply chain experts people with deep historical

knowledge of a companys 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.


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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 companys ability to improve supply chain management, while

releasing manufacturers and distributors from this supply chain double bind. EACs review

of Demand Managements products, sold under the brand name Demand Solutions, as well

as extensive interviews with the companys 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 Managements offerings help overcome the problems of

complexity, and the third section discusses how Demand Solutions customers have used the

companys 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.


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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 isbecoming 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.


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Figure 1: THE TWIN CHALLENGES OF INNOVATION:

REDUCING TIME TO MARKET WHILE INCREASING NEW PRODUCT REVENUE

Average time to market has shrunk by almost 30 percent since 1998, while

dependency on new product revenues has grown by almost 62 percent

Source: Deloitte Research

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 lions share of profitability occurs in the

first six months of new product introduction, which makes maintaining an efficient supplychain 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.


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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, its not surprising that average deal size has grown as well, with

one top tier vendors 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.

EACs 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.


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Figure 2: LACK OF VISIBILITY TO WHERE MONEY IS, AND WILL BE MADE:

A MAJOR CHALLENGE TO EFFECTIVE PRODUCT DEVELOPMENT

Source: Deloitte Research

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


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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.

Figure 3: SCOPE CREEP:

SUPPLY CHAIN MANAGEMENT SOFTWARE FUNCTIONALITY

Source: Tulane Consortium for Supply Chain Management

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


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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.

EACs review of the companys solutions, and EACs 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. EACs 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. Its 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.)


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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


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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 companys 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 Ricohs Langevin. Its

easy to communicate throughout the supply chain.

Demand Solutions

Replenishment (DS-RP) and

Forecasting Management

(DS-FM) are easily

understood by non-supplychain people, particularly

sales people, says Ricohs

Langevin. Its easy to

communicate throughout the

supply chain.


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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 cant 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 EACs 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


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together, they present a well-constructed alternative to overly complex supply chain management

solutions.

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.

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


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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.

Theres not a lot of IT resources required, says Michael Floros, vice president of supply chain

at Zotos. Were 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. Weve 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


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systems, and other inputs. When I first started doing these processes it took several days,

reports Day-Timers Blasek. Now Im 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. Weve developed

a process of communicating using the tool. I cant

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 cant 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, Greg Langevin,

Ricoh-USA


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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

Blaseks 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 valuablewith

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 90s at the customer SKU level now.

These more concrete measures dont 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 companys customers, many of them large multi-

nationals, 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,


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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.

Rethinking the Supply Chain Final

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