As the business firm overcomes the pitfalls encountered in the early levels of
its supply chain progress and has its internal house in order, in terms of its
ability to develop and share best processing electronically and on an intraenterprise
basis, the transition to higher levels can occur. Now the firm moves,
with the help of a few carefully selected business allies, into an extended
enterprise or network environment, in search of higher orders of improvement,
which can bring additional benefits/values to all participants. Mattel, Inc. found
higher values in its network, when that toy maker used the Internet with the help
of designers and licensees to collaborate on new product design. The firm
moved design on-line so that virtual models of new products could be transferred
electronically, instead of through the usual manual system. Development
time was reduced by 20%. By digitizing and automating the transfer of information
between Mattel and its licensees, the company found that approvals
could be accomplished in 5 five weeks, instead of the normal 14.
Unfortunately, the idea of network collaboration does not come easily for
most organizations, nor does the technical means to facilitate such cooperation.
Indeed, the concept of creating greater value through an intelligent value network
can be elusive. In today�s business environment, selling value is an extremely
difficult job, as there are few people who understand the idea or will
expend resources to develop these values. Those willing to do so generally
reside at high levels in a few firms and are opposed by an army of others with
an incentive to continuously cut costs and save money, generally at the expense
of willing suppliers. It takes a strong-willed business leader, and supportive
supply chain managers with the help of information technology, to forge ahead
in the face of such obstacles. Lockheed Martin pushed forward in this area and
linked 80 of its major global suppliers into a network for designing and building
a new stealth fighter plane. As part of a $225 billion project, the firm is linking
a global network with real-time access so the key suppliers can work simultaneously
with other global partners. The expected savings could reach $250
million over the ten-year life of the project.
Saturday, January 2, 2010
MAKE, DELIVER, AND RETURN
A similar story unfolds as we look at the other key processes, as they move from
level 1 to level 2. In each case, we see the traditional isolation of functional
organization, driven by local performance measurement, giving way to activities
planned and executed in the full recognition of the impact they have on the
rest of the enterprise. This often benefits the traditional function more than
people would admit, as they are asked to give up what they often see as the
�right way to do things� or �the way it�s always been done.�
One of the most powerful measures in manufacturing has been utilization
� whether manpower or machine. It has taken decades and the concerted
efforts of many leading thinkers to replace this metric with more effective
measures such as schedule adherence. Of course, many now see the fallacy of
working assets even when there is no demand for their output � it just results
in inventory sitting in the system. But the old logic is still seductive!
Take the example of a U.K.-based automotive components manufacturer. It
had installed a new material requirements planning (MRP) system and processes
to provide sales forecasts for procurement and production. Success was
monitored by the level of finished goods inventory and on-time dispatches.
Unfortunately, inventory was higher than it had ever been, and the dispatch
success rate was falling behind dramatically. What went wrong? Analysis soon
revealed that the business had two distinct components � one that provided a
service to in-country customers, with regular, relatively small orders, and another
that provided infrequent, large replenishment orders to overseas agents.
As these order streams were for the same products, the sales forecasts, provided
in good faith by the sales department, always overestimated the regular demand
� causing stock levels to rise. But, of course, there was never enough stock
to cover one of the larger orders � so stock-outs resulted, the regular customers
were starved of stock, and the overseas order was late.
The underlying cause of the problem was level 1 thinking � sales providing
the forecast it thought manufacturing wanted, manufacturing trying to secondguess
the actual demand and playing catch-up to sort out the delivery shortages
at the last minute, and the warehouse showing poor dispatch performance at the
end of the internal supply chain.
Moving the whole situation to level 2 produced the right results and required
changes in the way processes worked across the three functions involved. The
company carried out a detailed root cause analysis of stock, the pattern of recent
sales, and the processes employed. The two separate demand patterns were
recognized through a reclassification of products and customer service goals.
Manufacturing lead times and minimum batch sizes were rebalanced to suit the
market demands that were now recognized. Most importantly, the business
processes for forecasting, production planning, and dispatch were redesigned
and the effects reflected in a reimplementation of the MRP planning tools. The
company realized an increase in product availability in one of its two major
product groups from 62% to 96% with no increase in stock and in the second
an increase from 86% to 96% while reducing stock by 34%. This situation
provides one more impressive result for a change in thinking from level 1 to
level 2.
level 1 to level 2. In each case, we see the traditional isolation of functional
organization, driven by local performance measurement, giving way to activities
planned and executed in the full recognition of the impact they have on the
rest of the enterprise. This often benefits the traditional function more than
people would admit, as they are asked to give up what they often see as the
�right way to do things� or �the way it�s always been done.�
One of the most powerful measures in manufacturing has been utilization
� whether manpower or machine. It has taken decades and the concerted
efforts of many leading thinkers to replace this metric with more effective
measures such as schedule adherence. Of course, many now see the fallacy of
working assets even when there is no demand for their output � it just results
in inventory sitting in the system. But the old logic is still seductive!
Take the example of a U.K.-based automotive components manufacturer. It
had installed a new material requirements planning (MRP) system and processes
to provide sales forecasts for procurement and production. Success was
monitored by the level of finished goods inventory and on-time dispatches.
Unfortunately, inventory was higher than it had ever been, and the dispatch
success rate was falling behind dramatically. What went wrong? Analysis soon
revealed that the business had two distinct components � one that provided a
service to in-country customers, with regular, relatively small orders, and another
that provided infrequent, large replenishment orders to overseas agents.
As these order streams were for the same products, the sales forecasts, provided
in good faith by the sales department, always overestimated the regular demand
� causing stock levels to rise. But, of course, there was never enough stock
to cover one of the larger orders � so stock-outs resulted, the regular customers
were starved of stock, and the overseas order was late.
The underlying cause of the problem was level 1 thinking � sales providing
the forecast it thought manufacturing wanted, manufacturing trying to secondguess
the actual demand and playing catch-up to sort out the delivery shortages
at the last minute, and the warehouse showing poor dispatch performance at the
end of the internal supply chain.
Moving the whole situation to level 2 produced the right results and required
changes in the way processes worked across the three functions involved. The
company carried out a detailed root cause analysis of stock, the pattern of recent
sales, and the processes employed. The two separate demand patterns were
recognized through a reclassification of products and customer service goals.
Manufacturing lead times and minimum batch sizes were rebalanced to suit the
market demands that were now recognized. Most importantly, the business
processes for forecasting, production planning, and dispatch were redesigned
and the effects reflected in a reimplementation of the MRP planning tools. The
company realized an increase in product availability in one of its two major
product groups from 62% to 96% with no increase in stock and in the second
an increase from 86% to 96% while reducing stock by 34%. This situation
provides one more impressive result for a change in thinking from level 1 to
level 2.
RESULTS ARE SIGNIFICANT
The careful sharing of data and knowledge, previously considered proprietary
or even sacrosanct, opens the way for the firm to work its relationships with
the most important and immediate supply chain neighbors � customers, distributors,
and suppliers � to find other hidden values within the extended
enterprise. Organizations willing to take the necessary steps with selected business
allies can reasonably expect to achieve the following results:
_ Shorter lead times and cycle times, often reduced by as much as 40 to
50%
_ Better, more accurate order entry and tracking, requiring far less
reconciliation
_ On-line visibility of raw materials, work in process, and finished goods
across the end-to-end supply chain � with the ability to divert goods
in transit
_ Less need for inventory and safety stocks, coupled with an increase in
inventory turns by as much as four to five times
_ Lower warehousing and transportation costs, resulting in a 5 to 10%
reduction in freight bills
_ New revenue opportunities, often in nontraditional areas
_ A reduction in general, selling, and administrative costs in the range of
5 to 10%
Using business process management (BPM) technology to facilitate this
careful sharing and to find the savings cited introduces a new avenue for process
improvement, typically at the point where most businesses are faced with diminishing
returns from their supply chain efforts.
Collaboration and technology are applied as the external cultural barriers are
subdued and together businesses improve processes and infrastructure in parallel,
as they seek the best possible cycle times for process execution, and the
means to generate new revenues, and better utilize collective assets, ensuring
that the best-able company performs the key process steps. Business process
transformation occurs then in an atmosphere where key customers and suppliers
are contributing directly to the process improvements that enhance performance
across the extended enterprise.
or even sacrosanct, opens the way for the firm to work its relationships with
the most important and immediate supply chain neighbors � customers, distributors,
and suppliers � to find other hidden values within the extended
enterprise. Organizations willing to take the necessary steps with selected business
allies can reasonably expect to achieve the following results:
_ Shorter lead times and cycle times, often reduced by as much as 40 to
50%
_ Better, more accurate order entry and tracking, requiring far less
reconciliation
_ On-line visibility of raw materials, work in process, and finished goods
across the end-to-end supply chain � with the ability to divert goods
in transit
_ Less need for inventory and safety stocks, coupled with an increase in
inventory turns by as much as four to five times
_ Lower warehousing and transportation costs, resulting in a 5 to 10%
reduction in freight bills
_ New revenue opportunities, often in nontraditional areas
_ A reduction in general, selling, and administrative costs in the range of
5 to 10%
Using business process management (BPM) technology to facilitate this
careful sharing and to find the savings cited introduces a new avenue for process
improvement, typically at the point where most businesses are faced with diminishing
returns from their supply chain efforts.
Collaboration and technology are applied as the external cultural barriers are
subdued and together businesses improve processes and infrastructure in parallel,
as they seek the best possible cycle times for process execution, and the
means to generate new revenues, and better utilize collective assets, ensuring
that the best-able company performs the key process steps. Business process
transformation occurs then in an atmosphere where key customers and suppliers
are contributing directly to the process improvements that enhance performance
across the extended enterprise.
COLLABORATION IS BEGINNING TO DEMONSTRATE ITS VALUE
We can see that in spite of the reluctance to work with external business
partners, collaboration can and does occur, as the firm moves through its maturity
model.
Beginning in the inform level, there are a series
of one-way communications set up, primarily to handle design changes, to enter
data through an electronic data interchange system, and to process electronic
funds transfer. In the interact level, the firm breaks down its internal resistance
to cooperation and begins to carefully exchange data important to optimizing
across the full organization with a select group of business allies, often on a
pilot or experimental basis.
As the chasm to level 3 is crossed, the firm enters the transact area and
begins conducting business with some of its external partners on an electronic
basis, usually by linking some part of its planning system with selected business
allies. Further progress becomes difficult, for the reasons cited, particularly the
reluctance to share information externally. Fortunately, some firms prove the
value by making customers, suppliers, and distributors a part of their supply
chain effort, providing services to each other as another means of reaching
optimum conditions across the end-to-end network that forms. In the fifth level,
a community environment is achieved, where the linked firms fully utilize a
collaborative business/operating model for interaction, with elements of
customization, personalization, and community building appearing.
While many firms resist this type of progression, a growing body of evidence
shows that more value is generated as enterprises overcome their normal
proclivity not to collaborate and do share vital information outside of the four
walls defining the firm�s business. Examples where business allies, such as
Tesco and Nestl� or Procter & Gamble and Wal-Mart, share database information
on consumer trends and current market conditions to improve the results
from special sales events form one such basis.
Using electronic collaboration is common practice within the four walls of
Barclays, and Swan intends to extend its use across the firm�s external network,
into the area he calls �the virtual space between [Barclays�] external and internal
firewalls.� The model being employed is one that blends applications ranging
from instant messaging to knowledge management, to introduce a �new breed
of collaboration software and a new level of communication.� The idea is to
allow real-time interaction for employees handling information that can change
in a matter of minutes. The most sophisticated companies, Kontzer reports,
�want to imbed presence awareness � the ability to detect the online status of
others on the network � throughout their networks, so employees can find
available experts without looking away from their screens� (Kontzer, 2003, pp.
29�30).
partners, collaboration can and does occur, as the firm moves through its maturity
model.
Beginning in the inform level, there are a series
of one-way communications set up, primarily to handle design changes, to enter
data through an electronic data interchange system, and to process electronic
funds transfer. In the interact level, the firm breaks down its internal resistance
to cooperation and begins to carefully exchange data important to optimizing
across the full organization with a select group of business allies, often on a
pilot or experimental basis.
As the chasm to level 3 is crossed, the firm enters the transact area and
begins conducting business with some of its external partners on an electronic
basis, usually by linking some part of its planning system with selected business
allies. Further progress becomes difficult, for the reasons cited, particularly the
reluctance to share information externally. Fortunately, some firms prove the
value by making customers, suppliers, and distributors a part of their supply
chain effort, providing services to each other as another means of reaching
optimum conditions across the end-to-end network that forms. In the fifth level,
a community environment is achieved, where the linked firms fully utilize a
collaborative business/operating model for interaction, with elements of
customization, personalization, and community building appearing.
While many firms resist this type of progression, a growing body of evidence
shows that more value is generated as enterprises overcome their normal
proclivity not to collaborate and do share vital information outside of the four
walls defining the firm�s business. Examples where business allies, such as
Tesco and Nestl� or Procter & Gamble and Wal-Mart, share database information
on consumer trends and current market conditions to improve the results
from special sales events form one such basis.
Using electronic collaboration is common practice within the four walls of
Barclays, and Swan intends to extend its use across the firm�s external network,
into the area he calls �the virtual space between [Barclays�] external and internal
firewalls.� The model being employed is one that blends applications ranging
from instant messaging to knowledge management, to introduce a �new breed
of collaboration software and a new level of communication.� The idea is to
allow real-time interaction for employees handling information that can change
in a matter of minutes. The most sophisticated companies, Kontzer reports,
�want to imbed presence awareness � the ability to detect the online status of
others on the network � throughout their networks, so employees can find
available experts without looking away from their screens� (Kontzer, 2003, pp.
29�30).
. BUSINESS PROCESS MANAGEMENT SYSTEMS UNLOCK THE REAL BENEFITS FOR THE SUPPLY CHAIN
Supply chain processes (along with other business processes) can be analyzed
in the context of the organization�s strategic imperatives and evaluated from the
perspective of both strategic importance and complexity and dynamism.
The strategic importance dimension relates to how crucial that process
is in achieving the organization�s competitive strategy. The higher the
rating, the more influence the process has on achieving the strategic
imperative.
_ Complexity is a measure of the number of steps and/or participants in
the process with reference to the number of organizational or departmental
boundaries the process crosses. The greater the number, the more
complex the process.
_ Dynamism is a measure of the frequency of changes to the process that
the organization would ideally want.
_ The complexity and dynamism axis is an aggregation of these two
factors.
The key strategic processes are those in which an enterprise would:
_ Invest most management time and resources
_ Reorganize around, to minimize handoffs and make the processes flow
most efficiently
_ Retain as core to its success and which should remain in-house at all
costs
The processes of least strategic importance are those that may be considered
for alternative sourcing. The processes to the left of the chart are those that
would typically be delivered through packaged solutions. Those in the middle
of the chart would be delivered through work flow and/or rules engines. The
most complex and dynamic processes, to the right of the chart, will, in the short
term, largely remain manual.
An examination of the current and desired future states of the cross-enterprise
processes reveals where the key opportunities lie and shows the prime
targets for joint investment.
Many of the legacy processes prove to be overly complex and receive too
little management attention compared to their strategic importance. The map
immediately shows the priorities for process transformation:
_ Investing in processes according to their strategic importance will ensure
the greatest return in that investment.
_ Eliminating unnecessary process complexity and dynamism will maximize
people�s productivity and reduce both the time to execute and the
number of errors that occur.
in the context of the organization�s strategic imperatives and evaluated from the
perspective of both strategic importance and complexity and dynamism.
The strategic importance dimension relates to how crucial that process
is in achieving the organization�s competitive strategy. The higher the
rating, the more influence the process has on achieving the strategic
imperative.
_ Complexity is a measure of the number of steps and/or participants in
the process with reference to the number of organizational or departmental
boundaries the process crosses. The greater the number, the more
complex the process.
_ Dynamism is a measure of the frequency of changes to the process that
the organization would ideally want.
_ The complexity and dynamism axis is an aggregation of these two
factors.
The key strategic processes are those in which an enterprise would:
_ Invest most management time and resources
_ Reorganize around, to minimize handoffs and make the processes flow
most efficiently
_ Retain as core to its success and which should remain in-house at all
costs
The processes of least strategic importance are those that may be considered
for alternative sourcing. The processes to the left of the chart are those that
would typically be delivered through packaged solutions. Those in the middle
of the chart would be delivered through work flow and/or rules engines. The
most complex and dynamic processes, to the right of the chart, will, in the short
term, largely remain manual.
An examination of the current and desired future states of the cross-enterprise
processes reveals where the key opportunities lie and shows the prime
targets for joint investment.
Many of the legacy processes prove to be overly complex and receive too
little management attention compared to their strategic importance. The map
immediately shows the priorities for process transformation:
_ Investing in processes according to their strategic importance will ensure
the greatest return in that investment.
_ Eliminating unnecessary process complexity and dynamism will maximize
people�s productivity and reduce both the time to execute and the
number of errors that occur.
BUSINESS PROCESS MANAGEMENT BECOMES THE KEY ENABLER AT THIS LEVEL
It is essential, as we describe how new values can be created and shared in level
3 and beyond efforts, that the reader appreciate that there must be an electronic
means of transferring data and knowledge between the collaborating businesses.
Until recently, such transfer was limited by the unwillingness of businesses to
share data externally and because of the disparate systems in which the knowledge
was stored, inhibiting easy access or transfer. BPM and business process
management systems (BPMS) enter this scenario, as firms find the value of
sharing previously secret information and analyzing the data and trends together
to define new business propositions. Connecting enterprise-wide resource planning
systems in a way that allows the participating firms to extract valuable
information, without violating security issues, becomes the breakthrough technique
for building a network response to market and customer needs.
Business agility develops as more than an interesting concept in this level,
when BPM creates the opportunity to quickly and accurately share information
between firms of any size, on a variety of subjects, and align these firms with
business objectives. Document transfer moves from days to seconds, trade
settlements are reduced from 5 days to an hour, build-to-order products are
completed in 24 hours rather than 5 to 6 weeks, and call center inquiries are
satisfied in 10 seconds instead of hours. These are just a few of the new
capabilities brought on as the firm moves to the advanced levels of supply chain
management and enhances its ability to communicate with selected business
allies in an electronic environment, through the use of BPM technologie
3 and beyond efforts, that the reader appreciate that there must be an electronic
means of transferring data and knowledge between the collaborating businesses.
Until recently, such transfer was limited by the unwillingness of businesses to
share data externally and because of the disparate systems in which the knowledge
was stored, inhibiting easy access or transfer. BPM and business process
management systems (BPMS) enter this scenario, as firms find the value of
sharing previously secret information and analyzing the data and trends together
to define new business propositions. Connecting enterprise-wide resource planning
systems in a way that allows the participating firms to extract valuable
information, without violating security issues, becomes the breakthrough technique
for building a network response to market and customer needs.
Business agility develops as more than an interesting concept in this level,
when BPM creates the opportunity to quickly and accurately share information
between firms of any size, on a variety of subjects, and align these firms with
business objectives. Document transfer moves from days to seconds, trade
settlements are reduced from 5 days to an hour, build-to-order products are
completed in 24 hours rather than 5 to 6 weeks, and call center inquiries are
satisfied in 10 seconds instead of hours. These are just a few of the new
capabilities brought on as the firm moves to the advanced levels of supply chain
management and enhances its ability to communicate with selected business
allies in an electronic environment, through the use of BPM technologie
Tuesday, December 1, 2009
THE ROAD TO THE VALUE-MANAGED ENTERPRISE:
As supply chain efforts have matured around the world, a clear distinction has
appeared. Businesses that embrace the inherent concepts are opening a serious
gap over less able competitors. They do so by using advanced techniques �
primarily adopting external collaboration and the use of technology enablers
across linked organizations � to focus not only on cost improvement but
revenue enhancement. The distinction that can be developed has been used by
such leaders as Wal-Mart, Procter & Gamble, Toyota, Intel, Dell, Cisco Systems,
Tesco, and Nike, to open up commanding leads in their industries. These
organizations and others are moving rapidly toward what becomes a valuemanaged
enterprise and a dominant position in an industry, while many of their
competitors remain bogged down in the early levels of their supply chain
progression.
The leaders have nurtured the advantages offered by moving their supply
chains into a position of having superior capabilities, gained through greater
access to knowledge across what becomes an intelligent value chain network.
The difference for these businesses can be a doubling of earnings per share. The
laggards and followers tend to keep their focus on internal improvement only,
particularly the never-ending quest for lower costs of operations. While we
accept that this cost orientation will hardly cease to exist, the contemporary
view holds that there must be an equal and pervasive effort directed at distinguishing
the firm in the eyes of the most important customers and end consumers
so that new and profitable revenues are generated. Moreover, there must be a
methodology in place to track the claimed improvements to the profit and loss
statement, and there should be documented benefits for those members of the
network that assist in the improvement process.
To facilitate our presentation and to establish a framework for understanding
how a business can make progress toward the desired position with a supply chain
effort and within an industry, we will use a familiar maturity model as a guide for
the discussion. The purpose is to introduce the concept of supply chain optimization
and how companies can approach their desired status and to apply a five-level
progression model to explain the route to advanced business performance while
calibrating the results. From this beginning position, we will present the processenabled
matrix, to explain how a firm can add the most benefits from improving
the process steps in the intelligent value network. More importantly, we will
describe how to trace the improvements to financial advantage � for the firm
involved and its business allies. In later chapters, a simulation technique will also
be discussed, so the interested firm can experiment with the techniques described
without incurring undue risk. Throughout the text, actual case examples will be
used to give the concepts a flavor of reality.
appeared. Businesses that embrace the inherent concepts are opening a serious
gap over less able competitors. They do so by using advanced techniques �
primarily adopting external collaboration and the use of technology enablers
across linked organizations � to focus not only on cost improvement but
revenue enhancement. The distinction that can be developed has been used by
such leaders as Wal-Mart, Procter & Gamble, Toyota, Intel, Dell, Cisco Systems,
Tesco, and Nike, to open up commanding leads in their industries. These
organizations and others are moving rapidly toward what becomes a valuemanaged
enterprise and a dominant position in an industry, while many of their
competitors remain bogged down in the early levels of their supply chain
progression.
The leaders have nurtured the advantages offered by moving their supply
chains into a position of having superior capabilities, gained through greater
access to knowledge across what becomes an intelligent value chain network.
The difference for these businesses can be a doubling of earnings per share. The
laggards and followers tend to keep their focus on internal improvement only,
particularly the never-ending quest for lower costs of operations. While we
accept that this cost orientation will hardly cease to exist, the contemporary
view holds that there must be an equal and pervasive effort directed at distinguishing
the firm in the eyes of the most important customers and end consumers
so that new and profitable revenues are generated. Moreover, there must be a
methodology in place to track the claimed improvements to the profit and loss
statement, and there should be documented benefits for those members of the
network that assist in the improvement process.
To facilitate our presentation and to establish a framework for understanding
how a business can make progress toward the desired position with a supply chain
effort and within an industry, we will use a familiar maturity model as a guide for
the discussion. The purpose is to introduce the concept of supply chain optimization
and how companies can approach their desired status and to apply a five-level
progression model to explain the route to advanced business performance while
calibrating the results. From this beginning position, we will present the processenabled
matrix, to explain how a firm can add the most benefits from improving
the process steps in the intelligent value network. More importantly, we will
describe how to trace the improvements to financial advantage � for the firm
involved and its business allies. In later chapters, a simulation technique will also
be discussed, so the interested firm can experiment with the techniques described
without incurring undue risk. Throughout the text, actual case examples will be
used to give the concepts a flavor of reality.
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