The Steelwedge S&OP Service Delivery Platform dramatically enhances the ability of our clients, partners and users to rapidly configure, integrate, implement and train users on a process-driven collaborative Steelwedge S&OP solution.

S&OP has quickly become a management necessity for companies operating complex, global supply chains in today’s climate of uncertainty and risk.  Executives facing pressure to manage volatility and risk have embraced Steelwedge to align demand and supply decisions with revenue, margin and customer service goals.  Companies that have rolled-out best-in-class S&OP practices have realized big gains, including a year-over-year gross profit margin increase of 48 percent, according to a recent study published by Aberdeen Group.

“In today’s volatile world, companies need to rapidly respond to changes in supply and demand as never before.  The Steelwedge S&OP Service Delivery Platform is truly a breakthrough for companies desiring to rapidly implement and adopt a flexible S&OP solution that drives corporate agility.” explained Glen Margolis, CEO of Steelwedge. “This new technology platform enables companies to quickly and cost effectively adopt globally collaborative S&OP processes.”

To learn more about our cool new technology, visit our web site.

Photo: Comparison of the ship sailed by Christopher Columbus with the giant ships sailed by Zheng  He in 1405 (source:Wkikipedia)

The world of global sourcing, manufacturing and distribution is rapidly turning upside down.  Just a short time ago many pundits relegated India as a place filled with IT genius and broken infrastructure totally inhospitable to manufacturing.  After all, China was the place for manufacturing.  However, with each passing day history is moving in full circle.

It was very precisely 606 years ago that Zheng He, representing the Ming Dynasty, made his first trading voyage from China to India. He visited Calcutta, Cuchin, Sri Lanka and other well know places during his journey, traveling in a fleet of ships in 1405 that dwarfed in both size and number the ships that Christopher Columbus later sailed in 1492.  With these enormous ships Zheng He established a brisk trade between India and China in a twenty-five year period.  At the time it was the world’s largest sea trade.

European ships would not surpass these enormous Chinese vessels in size, sophistication or capacity for another 400 years.   Zheng He also managed to clear the seas extending all the way to the Horn of Africa and Somalia of pirates that had long plagued traders.

Today, analysts predict that the volume of trade in manufactured goods between China and India will surpass that of any other global trade route by the year 2020.  And just a few months ago China surpassed every other country in the world other than the United States in terms of economic output.  Anyone intrigued by the world of maritime shipping is aware that the biggest “post-panamax” ships were recently built by Chinese shipyards and are now operated by Chinese shipping concerns.  Those in involved in global IT have no doubt about the growth trajectory in India

So what does this mean to planners?  Volcanoes, earthquakes, terrorism, tsunamis, inflationary energy prices and the like will continue to have a huge, unpredictable impact on global supply chains.  However, we also need to plan for the impact of rapidly accelerating changes in global patterns in consumer demand, sourcing, and transportation.

Just as harnessing technologies such as the Chinese compass and the Indian crucible steel production process were keys to business success in the 15^th century, it is becoming increasingly clear that in the 21^st century the capability to rapidly assimilate, interpret and leverage information is now a business imperative.  Understanding new scenarios, analyzing trade-offs, and integrating sales and operations plans (S&OP) have never been more important.

In the movie Snow White, the Queen possesses a magical mirror that answers any question, to which she often asks: “Mirror, mirror on the wall, who in the land is fairest of all?” …to which the mirror always replies “You, my queen, are fairest of all.”

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Companies want to know “who has the best supply chain?” Unfortunately, there is no supply chain magic mirror;  however, each June we can get summarized financial data.  While not a perfect mirror, it is a partial reflection. It is definately more accurate than mistakenly believing that each supply chain is as good as it gets (e.g. the Queen’s magic mirror in Snow White).

The normal cycle of financial reporting makes June a perfect month to review the past year.  So just as students gather around bulletin boards at the end of the school term and check their grades, in June, I scour websites to understand how supply chains stack up. Luckily, two articles –the CFO Magazine’s Working Capital Survey (http://www.cfo.com/article.cfm/14499542) and the CSCMP Annual State of Logistics Report (http://cscmp.org/memberonly/state.asp)– are published in June to serve as year-over-year guideposts to answer the question, who does supply chain best?

2009. A Year in Review

2009 was a true litmus test.  It was the height of the recession. Aggregate volume declined 23% and fundamental demand shifted.  Despite investments in technology, in aggregate, the supply chain response was slower in this recession than in the prior 2001 recession.  There is a growing gap between leaders—companies that really understand and practice the concepts of supply chain management—and laggards.  Companies that excelled at supply chain management sensed demand changes 5X faster  and realigned network decisions than their peer groups (http://www.supplychainshaman.com/category/supply-chain-economic-recovery/).

For many, 2009 was a working capital hangover as companies reeled in the recession aftershocks.  It was the worst year ever, in this writer’s history, for working capital management.  For 68% of the Fortune 1000 companies, Days of Working Capital (DWC) grew. Facing new market obstacles in collections, payables and inventory management, companies buckled their belts and scrambled for cash. As inventory levels climbed during the first part of 2009, tension grew in supply chain discussions.  This was the most problematic –even desperate– for companies when high asset utilization was mistakenly defined as supply chain excellence.

The tightening of credit through 2010 put the spotlight on inventory management (even for companies that had never cared about inventory before). The bloated inventories of 2008 through early 2009, sent a shock wave through executive discussions; and even though business inventories dropped for the first three quarters of 2009 and rebounded in the fourth quarter below pre-recessionary levels, executive teams remain on edge.  As the curtain rises for the last half of 2010, the links in the supply chain are weakened. Capacity is tightening and prices will rise.  The termsdemand sensing, demand shaping, and demand orchestration have a new meaning for battle-weary supply chain veterans.

2009: How did we do?

The good met the test.  The average and poor supply chain processes were not equal and succumbed.  What made a difference?  Companies focused on traditional supply chain planning and tight integration of planning processes to Enterprise Resource Management (ERP) did the poorest.  Companies with an outward-focus on market drivers and building strong what-if analysis to understand demand uncertainty did the best. Leaders have the right stuff. Laggards have a new respect for supply chain excellence.

Let me preface this analysis with a caveat.  I do not believe that you can throw all industries in a spreadsheet and declare a supply chain victor. Since value drivers within each industry are different; I think that true supply chain leadership can ONLY be seen when you compare companies within peer groups.

In this downturn, supply chains experienced a seismic shift.  Using the earthquake analogy, it was an eight or nine on the rector scale.  As I thumbed through the CFO magazine results, I considered many; but settled on three stories:

Containers & Packaging:

Suppliers, at the end of the supply chain, are whipped hard by economic downturns.  When it comes to fighting this bullwhip effect, supply chain excellence matters.  Contrast the stories of Sonoco Products and Owens Illinois. Sunoco Products, a 3.6 billion dollar company, located in South Carolina, manufacturers packaging film for the consumer products industry.  The company has been on a four-year journey to become more demand driven with a strong focus on S&OP.  Owens Illinois (OI), a manufacturer of glass containers with US headquarters in Ohio, has been more focused on transactional efficiency, procurement and IT standardization.  Sunoco has outpaced OI in learning how to be a supply chain leader. Their 2009 numbers speak for themselves.

Table 2: Comparison of 2009 Results of Sonoco Products and Owens Illinios

High Tech & Electronics

When it comes to high tech & electronics, my favorite story of a company successfully navigating the downturn is Cisco Systems.  Cisco took its bumps in the 2001 downturn, did a mea culpa with a 2.25 billion dollar inventory write-off and swore never again.  They redefined supply chain processes under the banner of Customer Value Chain Management (CVSM), successfully integrated 138 acquisitions over  15 years, and built systems to mitigate risks—simulation of 4300 inputs by a team of 10 people—and build supply chain resiliency in the supply chain from the outside-in.  Motorola, on the other hand, has focused more on IT standardization and procurement excellence.  The numbers speak for themselves.

Table 3: Comparison of 2009 Working Capital Results for Cisco and Motorola

Semiconductor

Intel is my pick within the semiconductor industry.  Their focus on supply chain talent development and steadily improving supply chain capabilities helped them through the recession.  They made a conscious choice to not be aggressive on DPO to ensure a strong supplier base. This focus on supplier development built resiliency into the supply chain. Again, supply chain excellence matters. Contrast Intel with Fairchild Semiconductor. Fairchild Semiconductor has a strong focus on IT systems, is building supply chain talent and is early in the execution of S&OP.  Likewise, while Texas Instruments has a deep legacy of supply chain planning excellence, their focus has been more vertical (source/make/deliver) than horizontal (e.g. Sales & Operations Planning, order to cash, etc).  Consider the working capital impact of three companies in the same industry at very different points in supply chain maturity.

Table 4: Comparison of Intel, Freescale Semiconductor and Texas Instruments

What is next?

The only thing certain for 2010 is uncertainty.  The litmus test—2009 results at the height of the recession—supports that true supply chain excellence matters.  However, the best working capital numbers do not make the best supply chain.  It is about conscious choice.  Just as Intel made a choice about paying suppliers quicker to improve reliability, companies need to make similar choices about the alignment of working capital targets into supply chain strategy, setting targets for each and active management of the horizontal process that underlies each of the metrics. For leaders it is deliberate; for laggards it is largely uncontrolled.

These lessons are even more important as the recession hangs over us like a black cloud with the possibility of a double dip recession. No doubt about it, we are writing case studies in supply chain excellence. If only there was a magic mirror…. I hope that you do not become a supply chain casualty.

What do you think?  Did I miss a great story in the data published by CFO magazine? Is there a story of supply chain excellence that you would like to share? Please share your thoughts with the over 2000 readers of this blog.

Footnote:

Definitions of Days of Working Capital (DWC), Days of Sales Outstanding (DSO), Days of Inventory Outstanding(DIO) and Days of Payables Outstanding (DPO) and the numbers contained in this article are sourced from CFO Magazine’s June 2010 article on Fortune 1000 company working capital performance.

The stories shared on these supply chain leaders are based on publically available information: investor calls, public presentations, and public forums.  While I have personally worked with all seven of the supply chain teams listed in the article; and there is much more to share on each of these stories, I have limited my comments to publically available information.

The names of specific technology providers are deliberately omitted from this article

Note: This article provided by courtesy of Lora Cecere, Altimeter Group,  www.altimetergroup.com

Historically, company planners had cobbled together forecast data from multiple systems — a problem compounded by mergers and acquisitions— using unwieldy spreadsheets, manual processes spanning multiple departments, and only a minimal amount of analysis. The resulting forecasts were often inaccurate. In the post-boom economy, flexible and accurate planning would not only be critical to stabilizing current operations, but would play a center-stage role in strategic decision-making across the entire organization.

However, solving this problem was no easy task. Like many technology companies, the company begin outsourcing in late 2003. With this business model, forecasting and planning product sales became an even greater challenge– 11 major product lines, 50 product families and more than 10,000 SKUs to forecast for hundreds of customers across the globe. In addition, their products were highly configurable and customized, ever-changing with constant updates. And, many of these configurations had a very short lifecycle—additional creating forecasting complexity.

Further, the company had independent planning processes through various departments: Sales created revenue forecasts; finance created revenue targets; and operations did product forecasts–all different processes usually with different measurements that did not tie together. They were manual processes with no timelines, all managed through a combination of SAP r/3 and Excel spreadsheets. It was difficult to maintain any consistency and data integrity. With minimal feedback between the groups, there always were differences in the numbers.

The Global Demand and Order Management team had to manage day-to-day consensus planning for hundreds of products, while supporting senior management efforts to reorient the company’s entire business strategy.

• What would the demand ramp look like in each region and segment?
• What impact would new market entries have on product mix and profitability?
• What effect would canceling or delaying a new product have on revenue streams and customer satisfaction?

Company executives needed answers. In essence, they needed a way to seamlessly integrate and executive on their demand forecasts, enabling every group from marketing and sales to operations and the CFO’s office to drive their actions based on a common understanding of the demand.

The company quickly identified requirements for a completely new business system, one that pushes the proverbial envelope of traditional forecasting and planning system, by including:

• Effective process and change management to support flexible, strategic planning and drive shorter cycle times
• Support for complex product lines, including variable product mixes, hierarchies and life cycles
• Support for diverse business processes to accommodate new product development and acquisition, multiple currencies, and unique rules for material, revenue and sales forecasts
• Cross-functional visibility and participation across sales, marketing, finance and operations, with the ability to offset gaming, normalize disparate reports and support international users

The company evaluation team reviewed their current ERP capabilities as well as supply chain management (SCM) solutions. They found that current resources could not effectively support planning of highly configured products and were biased toward production forecasting, when they needed flexible cross-functional forecasting and planning.

Moreover, the company needed a solution that addressed consensus planning for complex manufacturing that would support both operational efficiency and plan performance management.  So after evaluating the demand planning modules by SAP and SCM vendors, the company chose Steelwedge Software (www.steelwedge.com).

Steelwedge offered the company a unique approach which leverages the Steelwedge Sales and Operations Planning (S&OP) platform, a combination of best practices gained in over a decade of forecasting and planning research and implementation with dozens of complex manufacturers, plus a next generation technology engineered by enterprise software and business planning veterans.

The company’s Global Demand and Order Management organization first created a standard forecasting and planning process with fixed time schedules and managed all the activities to keep all groups on schedule. There was a dramatic increase in collaboration between the sales, finance and operations departments on information and key assumptions.

Then, the departments began to engage each other in a more systematic fashion. As a result, the need for intensive reconciliation went away and allowed them to move to a monthly process. Every month after the forecast is done—first the sales input is made, then the revenue targets are set, and then the product forecast is done— the teams get together to review any discrepancies and ensure that the departmental plans all in sync and they are all on the same page. Hence, the solution has also allowed them to manage forecast by exception as opposed to each line item.

Today using Steelwedge Software, the company creates a consensus forecast that incorporates direct feeds from the corporate sales opportunity pipeline system and balances the bias of operational systems with quantitative and qualitative input from cross-functional teams. The new process has cut forecast cycle times and allowed staff to focus more time on analysis and planning. The Steelwedge implementation, including integration with the company’s CRM system used for sales pipeline management and with multiple SAP r/3 systems, took less than 16 weeks.

Steelwedge now serves as the central link between company’ CRM and SAP ERP systems. The company has also extended the Steelwedge solution through a web services interface to the company portal—giving users and executives access to current and historical pipeline numbers and forecasting analysis.

With Steelwedge, the company gained greater visibility and predictability in their business and a less costly, more effective way of planning. Not only do operations run more efficiently, during the first phase of the project, the company  achieved some significant strategic business results.

• Provide strategic insights that guided critical financial, product management and marketing decisions
• Smoothly managed the integration of major acquisitions including AFC and Vinci Systems driving new revenues and sustaining North American optical market leadership
• Accelerated development of international versions of product lines, leading to significant new accounts

The company’s ‘ initial investment in Steelwedge paid for itself in less than one year. Today, the company reports millions of dollars in annual cost savings in inventory and logistics. In addition to being the critical bridge across organizations and functions, the company expects that its current S&OP automation project with Steelwedge, will save them nearly a million dollars annually, provide an IRR of over 62%, and pay for itself in two years. In addition to improvements in supply chain management metrics arising from the project, the company expects to further facilitate strategic planning, improve Wall Street guidance, and free up key personnel to focus on value-add activities.

And with the assistance of business intelligence provided by Steelwedge Software, the company has revamped its business strategy, targeting high-yield markets, internationalizing key product lines and closing major acquisitions. The result: significant quarter-to-quarter revenue gains and strategic new accounts. As the industry digs out from the crash, the company  looks forward with confidence.  With strategic forecasting now a top priority, and Steelwedge driving consensus planning, the company is set to control its own destiny.

The company’s’ Global Demand and Order Management organization has developed a highly effective cross-functional forecasting and demand planning process, setting the stage for the company’s  to move toward a comprehensive Sales and Operations Planning (S&OP) process incorporating extensive supply, demand, and financial feedback from sales, marketing, finance, and operations. The goal of the global S&OP project is to improve executive visibility and drive efficiencies across the organization. In addition to selecting Steelwedge Software to support post-merger planning, the company has also chosen Steelwedge to support their its global S&OP process roll-out.

Forecasting and planning “guru” Dr. J. Tom Mentzer said “Now that the company has adopted best-in-class forecasting and demand management practices, increased its global footprint, and made several major acquisitions, it is natural for company to leverage the industry’s leading business planning software solution, to enable a best-in-class global S&OP process.”

Effective Sales and Operations Planning (S&OP) measurably improves margins. However, historically, S&OP relied on backward-facing shipment data, subjective opinion, and incomplete operational data.  It was overly complex, costly, time-consuming, unreliable and inaccurate.

Now, technology-enabled S&OP processes drive a practical S&OP process, systematically integrating people, processes and data, and restoring confidence in the forecasting and planning processes. Effective technology-enabled S&OP guides participants through a workflow-driven, collaborative process, resulting in a highly accurate aligned forecast and plan that all functions and trading partners can trust. With solutions such as Steelwedge Compass Express S&OP planners can quickly adapt resources to changing conditions, significantly increase margins and dramatically improve revenue predictability. The key is the adoption of a flexible, easy to use, collaborative, and comprehensive solution.

Improve Revenue Visibility

Two-thirds of Fortune 500 companies have no formal way of aligning supply and demand based on corporate-wide inputs. Unscientific approaches result in poor focus of organizational resources like capacity, manufacturing, staffing, sales efforts, finance and budgets. The overall Sales & Operations Planning (S&OP) process suffers in turn. Creating true revenue visibility not only requires strong analytic support, but also the automation of systematic and automated processes for soliciting feedback and creating agreement among multiple parties

Create a Profitable S&OP Plan

Steelwedge empowers executives to evaluate alternate pricing scenarios, product mixes, and configurations. Once the optimum margin forecast scenario has been identified, promotions, product packaging and configuration, and customer targeting decisions can be even further tuned to drive the most profitable demand plan possible. Through participative processes, sales, operations, marketing, and finance are able to work in unison toward a common goal of selling and delivering the most profitable mix of products. The result is enhanced corporate earnings and more efficient operations.

Increase Corporate Accountability

Most planners point solutions don’t allow you to identify, track and archive multiple plans of record, individual adjustments, detailed accountability statistics, and process measurements. For example, the sales staff is inevitably overshooting and undershooting their numbers. However, they typically do it consistently. What’s needed is a system for tracking those consistent fluctuations and archiving the information for analysis.

Support Emerging Manufacturing Initiatives

Steelwedge is the first S&OP solution that addresses vital emerging manufacturing initiatives, revenue visibility issues, and corporate accountability challenges faced by today’s corporations.

Outsourcing Managing outside suppliers or contractors requires a high degree of collaboration and communication, as well as negotiation skill when dealing with competitive bids for limited manufacturing capacity. Accurately understanding inventory liabilities, managing demand and coordinating forecasts is essential for effective outsourcing.

Postponement Planning In order to understand how many configured products will be sold and to “manage the mix,” manufacturing companies need to dynamically manage product attach rates and connect sales pipeline data to customer buying patterns that are based on historical estimates and analysis of item/component demand.

Lean Manufacturing There is a misconception that with just-in-time (JIT) inventory there is no inventory and hence no need for a forecast. In actuality, accurate forecasts are more important than ever. Suppliers need to know what orders to expect, and specialized components often have long lead times and are not always in inventory. Moreover, regardless of short-term operational requirements, product management, marketing and finance need to plan and invest based on a common set of future assumptions.

Mix Management In today’s volative environment, companies are struggling to understand and deliver the right mix of products, components, and packages.  Retailer’s are increasingly bundling products to reduce costs and increase margins while technology players are becoming highly focused on delivering the exact mix of components required by their clients.  In this envrionment, the need for an S&OP process that manages  product mix and assortment is crucial.

1. For the first time in the history of S&OP – thanks to cloud computing and other technologies – it is possible for companies to implement and adopt this mission-critical process in a timely manner.   The evolution of ERP, CRM and SCM solutions coupled with improved data stores, data integration tools and user sophistication has further driven this growth.

2. The cloud computing approach and the advent of highly specialised S&OP applications means that business users no longer need to rely on weighty IT support to drive their S&OP process.  In the past, business users were dependent on internal IT organizations with long lists of competing priorities, disparate platform standards,  long capiital budgeting cycles, and limited bandwidth to support such initiatives.  Today, thanks to cloud computing and improved integration tools, it is possible to implement an S&OP system in the time it used to take just to order the hardware – as little as 10 to 12 weeks.

3. Oversupply and unpredictable demand in today’s economy coupled with staff shortages are making it more imperative than ever to improve, reduce the latency, and automate the process.  If in past years the focus was on supply deliver, today the focus is on tightly matching supply against demand.

4. The high cost and limited availability of credit have put new pressures on working capital and therefore inventory management.  The need for more effective inventory management coupled with volatilty in demand make S&OP an essential process for corporate success.

And so, the list of reasons why S&OP has become so hot grows daily.  What other items would  you add?