The answer to that question really depends on the type of retailer and where the retailer's stores are geographically located (regional or national). I work very closely with two major specialty retailers (West vs. East). The West coast retailer is now finally digging their way out of 2.5-year recession, while the East coast retailer is expanding their store count. Note their merchandise and assortment is almost identical, as are their supply chain strategies. The difference is that the West, and in particularly California, is still suffering from an economic recession (sub-prime mortgage crisis). This does not mean that all West Coast headquartered retailers are hurting; companies like Zumiez, Amazon, and Nordstrom have recovered from a dismal 2008, and even 2009 lows (reference comp sales table below).

As always, when I write on retailing my goal is to focus on what is shaping retailers from a supply chain perspective versus a merchandise perspective. I am not a merchant, but I do have a deep understanding of retail supply chain strategies and I want to share with you what I believe is the key to a retailer's success.

1. Retailers need a Supply Chain Strategist and an Economist on their C-Level teams. I am astonished by the number of merchandise-centric retailers that do not value the need to invest in their supply chain talent. Very few, if any, retailers that I am intimately familiar with have appointed C-level executives with a background or degree in supply chain, yet the very nature of delivering the "Right SKU, to Right Store, at the Right Time with the Right Quantity" is predicated on having an executive(s) who understands their retail supply chain from source to consumption. At a minimum, executives must align their organization based on how merchandise flows in order to break down organizational silos.

2. The genesis of improving retailers' supply chains is based upon speed to market, reaction time and total cost to serve (including inventory carrying cost and working capital). Unless you are a boutique retailer sourcing one-of-a-kind merchandise, most retailers' merchandise is the same. For example, if I want a pair of Nike running shoes, I can go to a number of Sporting Good retailers like Dick's, Hibbett's, Sport Chalet, and Sports Authority. As a matter of fact, I can go to a Nike retail store and buy that same shoe or go online and shop at Zappos or one of the aforementioned retailers and buy it on their website. Many retailers are not really competing on product as much as they are competing on "in stock position," assortment, price and promotion, and ability to service (customer experience). The experience piece is mission critical because customers will pay more for an improved experience. Nordstrom competes on service and experience as does Zappos. We have all heard about the Zappos customer care representative who spent five-plus hours assisting an online shopper. That creates customer loyalty and "word of mouth" advertising. Yet, Zappos also competes on shipping (it's free!...what a novel concept).

3. If retailers want to improve their supply chains they must control their inbound inventory by adopting purchase order flow management solution, vendor compliance and inbound transportation management. Outbound velocity (DC to stores) is predicated on the retailer's ability to manage, control and gain visibility to their inbound merchandise. I am always astonished when I ask both small and large retailers if they have a vendor compliant program. Do not mistake vendor compliance with charge backs. I am referring to managing a Purchase Order from creation to delivery. A majority of retailers today still do not use Advance Shipment Notifications (ASNs) to manage their inbound freight.

4. Retailers need to understand what shapes their demand. Meaning, retailers need to understand how dependent and independent attributes shape their demand and then synchronize how they balance their demand with supply (basic S&OP). They must understand that, in order to synchronize supply with demand, they need to manage the variability of their inbound merchandise. The length of the lead time is not as critical as long as the lead time and fill-rate of the inbound merchandise is tightly standardized and consistent. (Note: I am surprised by the number of leading supply chain demand planning and forecasting solutions that do NOT consider inbound variability). However, lead time is important for designer fashion merchandise (ready-to-wear apparel and footwear), especially if the planner/buyer has inaccurately forecasted their initial buy. This would apply to fashion designers like Tory Burch and Michael Kors.

5. Should retailers centralize or decentralize their supply chain networks. I could write my doctorate on this subject. I would counsel all retailers to understand: what shapes demand (predictable vs. unpredictable); reaction time; if your merchandise is a wants vs. needs business; and how the global and U.S. economy affects your business (short and long-term interest rates, fuel prices, unemployment, taxes, Presidential elections, etc.).

The key to lowering inventory levels (specifically safety stock) is the ability to increase the velocity, thereby reducing cycle time from the time a customer buys an item from a store shelf, to the time that the item is put back on the shelf. If you only replenish your store once a week, the time to shelf could actually be 9 to 16 days, factoring in transit time and DC order processing time. If retailers want to improve their flow of inventory, they need to understand the total time from source to consumption to ensure they have product on the shelf. Fashion-centric businesses based upon consumer "want" will be pushing inventory based upon new seasons, whereas a retailer that sells replacement tires will both push and pull inventory, but mainly pull because their demand is shaped by "need" which is not easy to predict. We call this "intermittent" demand, shaped like this: (0,0,0,1,0,01,0,0,0,0,1).

6. Social media is here to stay. Get used to it, embrace it and determine how to leverage it. I was recently at the Inc.500|5000 conference and had the chance to listen to social media guru Gary Vaynderchuk. He made a few comments that stuck out for me. With the internet and social media (Facebook, Twitter, LinkedIn) we replicate and distribute news and events globally in less than a 48-hour time period, compared to the advent of this technology, when it would take 50-plus years to gather and distribute the same worldwide. However, we are now moving from a content-centric world to a context world.

The internet and social media exposes all of us. Like it or not, we are becoming a very transparent society. We are moving away from a transaction-based society (low cost and low service) to high touch where consumers want and expect a one-on-one experience, even a relationship, with the businesses they frequent. According to Vanderchuk, we need to move past pushing content to focus on the context of the message. Simply stated, retailers need to get in touch with their customers and become more intimately engaged with them. Nordstrom, for example, has effectively done this through personal shoppers. It is the old the cliche that "the word of mouth" is the strongest form of advertisement. Hence, retailers need to differentiate themselves through "word of mouth" channels that use social media as a delivery agent (both push and pull).

7. Retailing needs a major "system reset." As mentioned in point six above, social media is having an impact on retailers but I predict it will reach its peak in the next five years. This is not to say that social media will disappear, but a new technology or "system reset" will reach exponentially beyond today's social media. On the other hand, a "system reset" typically take years (a generation). For example, we move information and data at light speed but it takes days, weeks and months to move physical inventory.

Apple, Microsoft and Amazon have reshaped their industry with a "system reset" by moving music and books (content) at the speed of light. When is the last time you actually bought a physical CD or book? But when and how do we move physical inventory (non-digital media) at the speed of light? To a certain degree, retailers are moving in that direction by allowing consumers to view inventory in all channels, even the retailer's supply base, and then providing the consumer the ability to procure the merchandise. A true "system reset" in retail is moving away from stores (brick and mortar) to the ability to build your own custom wardrobe and pick up your new apparel and shoes within an hour. This would require a decentralized model - a local manufacturing and distribution model with the supply chain infrastructure (air, road, and/or train) to succeed. Is it that far-fetched to think you could by an item online and pick it up in less than one hour? No, retailers are doing this today with buy online and pick up at store, but I am suggesting a no store model where consumers make an online purchase that is delivered to their doorstep with an hour...ultimate convenience. This requires a mind shift in our ability to manufacture and distribute merchandise - a "supply chain system reset."

Retail is back and definitely moving in the right direction for most major retailers. The exception would be regional West Coast retailers who are now seeing the light at the end of the tunnel, specifically California. The major retail health indicators validate this point. For many retailers, 2011 Com Sale percent is up, as is their stock price. Although The Gap, Walgreens and Zumiez stock prices are down for 2011 YTD, their stock prices are higher compared to year-end 2008 lows. In addition, we are witnessing a slight surge in stock prices for retail-centric software solution providers. For example, Manhattan Associates and JDA stock prices have increased in 2011. The 2011 Holiday Season will be a tell-tale sign and will determine if my retail recovery prediction is correct.

My name is Isaac Edwards (IE) and I am the Senior Director of Supply Chain for a large sporting goods retailer. Over the last five years of my career I have consulted with the Oracle on a wide range of topics. The last time I spoke to the Oracle was over six months ago on the topic of push and pull boundaries. Think of push and pull boundaries as simply where to position inventory based upon supply and demand variability.

As a sporting goods retailer with more than 750 stores, it is impossible for us to guess how to put the right SKU, at the right store, at the right time and at the lowest cost. We have over 40,000 SKUs in our assortment and we introduceat least 5,000 new SKUs each season (quarterly). When we used the Oracle over four years ago to evaluate our supply chain and how we were allocating inventory at the stores, he would always say, “Tell me how you allocate, and I will tell you how your downstream supply chain behaves.”

For my company, this proved true. When we merged with one of our largest competitors (Sport Fanatics), our downstream supply chains were at completely opposite extremes. We pre-allocated over 90% of merchandise in pre-packs (apparel and footwear), while Sport Fanatics systemically could not support pre-allocation. They picked and packed nearly 95% of their inventory. The results for both companies were horrific. We were over allocating our inventory and as a result, 15% of our merchandise came back in the form of in-store transfers or returns to vendors. We processed over 400,000 return cartons per year. However, we had great inventory turns and very low cost per unit because we only delivered to our stores once a week. On the other hand, Sport Fanatics had miserable inventory turns. They were tying up a lot of working capital, but their comp sales and in-stock position were better because they pulled inventory through their DC and replenished to their stores two to three times per week.

We consulted the Oracle to figure out how to move inventory through our supply chain using statistical forecasting and replenishment techniques. The actual techniques were pretty straightforward, but our collective teams had not looked at SKU characteristics based upon the Coefficient of Variance (CV). Most retail-centric companies, including our organization, are led by merchants instead of folks with a background in Supply Chain Management. The Oracle would always say, “I am not going to tell you what to buy, but I am going to tell you how to buy, how much and how to allocate.” We now have a supply chain that evaluates our inbound (supply variability) and outbound (demand variability) on a continuous time fence. This is possible because we have control over our inbound freight from both foreign and domestic suppliers. We now control 95% of our inbound merchandise, we have visibility to factory performance and we constantly measure our lead times and variance in our supply chain. The Oracle would always communicate to our merchants, buyers and planners that they need to start behaving like “investors” by both managing and controlling their suppliers’ variability. If you measure variability, you can better understand its impact and ramifications.

We also made big changes to our organizational structure, key performance indicators (KPIs) and key success factors (KSFs). The Oracle defines KPIs as behavioral indicators versus KSFs, which help you determine if you have achieved success. We made one major change in our organizational alignment; we moved from a merchandise-centric organizational structure to a demand-driven structure by hiring a SVP of Supply Chain Performance, Susan C. Peters. Our SVP has responsibility from source to consumption and back (reverse logistics). Specifically, she has responsibility for distribution, inbound and outbound transportation, inventory optimization (assortment planning, replenishment and allocation), and supply chain planning and execution technology (Visibility, Assortments, Purchase Order Planning, PO Flow Execution, Allocation, WMS, TMS, LMS and even POS). She oversees the physical movement of all merchandise and the amount of inventory that is in our supply chain from source to consumption. She is not accountable for merchandising, sourcing, pricing, or store operations. Think of it this way - our merchants are experts at their category, product, market and customer “wants,” but they are not great allocators or inventory analysts. Not to mention that our inter-store transfers and markdowns have significantly decreased.

Susan had worked as a consultant for the Oracle’s consulting firm and specialized in retail. She brought a level of sophistication, managerial science and leadership talent that we needed. The first thing she did was to have our team map out our supply chain from vendor to store in order to understand our lead times and lead time variability. We calculated the lead time and variability for every vendor (starting with PO creation), their fill rate percentages, and the standard deviation on their lead times. We documented our lead time for all carrier modes, by carrier and by lane. We documented the lead time variability within our own distribution centers and our returns process from store to DC. She communicated to us that the Oracle “would not start a continuous improvement project unless he understood the cycle time for each process step in the supply chain and the variability.” Susan learned from the Oracle that “time” is a killer. We needed to understand where we were wasting time so we could compress it. By compressing time, we increased our flow of inventory and this gave us a competitive advantage over our competition, not to mention we have improved inventory levels because we have a “predictable assortment.” Susan is now working with the Oracle to evaluate vendors who currently offshore their production and move it on-shore. They are targeting SKUs with short seasonal life and high demand variability (fashion). More to come on how compressed lead times and reduced variability can offset the cost from foreign LCC (low cost countries) production.

She also engaged the Oracle and his inventory optimization team to conduct a Coefficient Variance Analysis (CV). We evaluated all 40,000 SKUs individually over a 12-month period. We looked at both distribution centers’ inventory turns and we reviewed inventory turnover, allowing us to understand how well we were using our working capital (cash). The goal of the CV analysis was to understand how dependent (promotions) and independent variables were impacting the CV. Note that CV measures how predictable a SKU behaves. The more predictable the SKU, the easier it is to forecast and push the inventory to the appropriate store, compared to a SKU with a greater CV value where you want to pull the SKU and wait for POS data. Granted, where you place the SKU in your supply chain is also based upon product characteristics and supply lead time.

As a sporting goods retailer, we sell a lot of baseballs during the spring season. We determined if we had the supply, we could push the baseballs to the store and they would sell (high volume and low demand uncertainty). On the other hand, we also sell exercise equipment year round and found that in certain markets (geo-demand or store clusters) we should push some equipment and keep some level of inventory in our back stock room, but we also had certain areas of the country where the CV value was high. Therefore, we developed a Hub and Spoke network to move exercise equipment to the stores, but also directly to our customers’ homes (next day delivery and installation). Susan’s message has always been that not all SKUs are the same, not all orders are the same and not all vendors are the same. Therefore, your supply chain cannot be a “one all fit all model.” In summary, standardize where possible to gain efficiencies, but understand your supply and demand variability so you can manage it.

Have you ever asked yourself why some companies are more successful than others? I ask myself that question a lot. I must not be alone, given how many books are written on the topic. Good to Great comes to mind by Jim Collins, as does In Search of Excellence: America’s Best-Run Companies by Tom Peters, or Management Challenges for the 21st Century by Peter Drucker. The list goes on and on. I do not claim to have a better “mouse trap” on the concept of management theory and managerial science. However, I have had the privilege of working with top executives from both domestic and international companies across many industries, and multiple companies within the same industry. From what I have observed, there are five key distinctions and attributes that make some companies more successful than others.

1. It starts with trust.
Intimate trust is required among the Executive Leadership team. By intimate, I mean an almost family-like, brother/sisterhood quality to the team dynamics. I have noticed that successful organizations have a bond between the Executive Leaders whereby no one is afraid to avoid conflict, speak up, and say what is on their mind. The Executive Team members are passionate about the company’s goals versus their own personal goals. Another way to state this is that the executives give more of themselves then they actually receive… they demonstrate selfless action.

Time and time again I have seen unsuccessful companies run by dogmatic leaders, who take the “air out of the room,” who deem themselves more important than the rest of the team, and consequently surround themselves with “yes” people. I once participated in a meeting where a CEO of a large automotive retail chain asked how his company should realign his national sales team. He was given direct feedback from his team - and then ignored it. I refer to this as “DNBI” – the ‘duly noted, but ignored’ syndrome. Now ask yourself if you think his team will provide objective facts and data and openly share their thoughts. I highly doubt it. When there is intimate trust, company politics vanish. Why? Because politics are created in organizations when one individual places his or her priorities and agenda above everyone else’s. This fosters manipulative behavior, which is detrimental to any company.

As a leader in your organization, ask yourself, do your team members trust one another and you to the point where they feel encouraged to bring up and resolve areas of potential conflict?

2. Leaders are passionate beyond explanation and committed to the cause.
I have found that successful companies have passionate people throughout the organization. This does not mean a bunch of unorganized “cheerleaders.” Rather, it means that associates from the warehouse to sales people in the field believe in what they are doing, but more importantly, understand how their role impacts the common good of the company. Again, this starts with the Executive Leadership team having a strategy and sharing a “story” about where the company is going and why. Successful companies have at least a three-year strategy that they are constantly reviewing, tweaking, monitoring their organizational performance against, and providing near-time feedback to their associates and other stakeholders around. Successful companies build a self-recovery system so when they get off plan, they get right back on track.

Over the course of 17 years of consulting, I have found that people want to understand where they are going and how their individual performance affects company performance. I worked with a company that made it simple for their associates. Each associate had a placard on their desk. One side of the placard listed the company’s strategic goals for the year, while the other side listed the individual’s goals. There were no more than five corporate goals and no more than 10 individual associate goals. The objective was to align associate job functions and performance with the organization’s goals.

As a leader in your organization, ask yourself, “Do I know where my company is going and do I have a compelling ‘story’ that has been shared with my organization?”

3. A discipline to stay focused and execute on results.
I once heard a quote from an unknown source, “What you focus on is what gets done.” I have found that companies that are dynamic but consistent are more successful than companies that are dynamic and inconsistent. Inconsistency is stemmed from chasing industry fads and not staying focused on core competencies. I realize the phrase “core competency” is over used, however, it is important to know your company’s strengths and weaknesses. As the infamous Sun Tzu wrote in his book, The Art of War, “Know thyself” before going to battle. Successful organizations have an insatiable appetite for results. They thrive on taking action on their intent. Mark Samuel of Impact Consulting would call this “personal accountability.” Successful companies love keeping score, holding their associates accountable and rewarding them for meeting or achieving their priorities and goals. Hence, successful organizations are not afraid to have crucial conversations about accountability and the discipline of execution with their associates.

Sports analogies are often over used in business, but I do like to draw parallels between basketball teams and Executive Leadership teams. A basketball team consists of five team members with one goal - executing as a team to put the ball in the basket to ultimately beat the other team (competition) by way of keeping score (measurement). Basketball requires team participation. An individual star basketball player is ineffective against a team of five players working in unison. Case in point, the great Michael Jordan had 10 NBA individual scoring championships, however, it took him 7 years before he won his first team title in the 1990-1991 season. I believe this victory was made possible because Phil Jackson surrounded Jordan with a great team that complemented Jordan (Scottie Pippen, Horace Grant, Bill Cartwright, BJ Armstrong and John Paxon).

As a leader of your organization, ask yourself, does your team have the discipline to execute? Do they know what is expected of them and are they being held accountable for their individual and organizational results?

4. Willing resources vs. capable resources. Another way to state this is, are your resources committed to the cause and are you giving them the tools to succeed? Henry Ford said, "The only thing worse than training your employees and having them leave is not training your employees and having them stay." I have found that organizations that have “willing” and committed resources are more successful than “capable” resources. You can have brilliant talent on your team from the best universities, but if they are not committed to your organization’s cause, then quite frankly, they are useless. Commitment to hard work, making personal sacrifices, being accountable, and willingness to learn are the resource traits that I have seen make great companies.

I had the opportunity to hear Lou Holtz speak at a Manhattan Associates User Conference about nine years ago. He argued that success is about making sacrifices. Being grateful for or aware of one’s good fortune is not enough. Creating or nurturing opportunity takes internal drive and dedication. You can teach and train people what they need to know, but what they do with it comes from their own internal hunger and commitment.

The same applies to Executive Leadership teams. The most successful companies are committed to their business 24/7. Yes, I said 24/7! I worked with an Executive Leadership team as a Change Management Facilitator three years ago and what I found fascinating was that the team was “on” 24/7 not because they felt peer pressure, but because they truly loved what they were doing, and consequently, they were motivated to overcome their company’s challenges. It was not uncommon for them to meet during the weekend to review strategies and tactical plans. I am not advocating a lack of work/life balance. Instead, I am convinced that successful organizations foster passionate leaders who bring their outside life and values to work.

As a Leader in your organization, are your resources willing, committed and talented, and is your Leadership team as committed as you are?

5. Avoidance of Accountability.
I am a fan of Mark Samuel, author of Personal Accountability and Organizational Accountability. I stated above that Samuel defines accountability as taking action on your intent. With every situation, you make a choice; you can either be a victim or you can be accountable for your actions. Successful organizations are made up of highly accountable people. Beyond taking action on their intent, they are change agents driving the business forward. Using another sports analogy, successful organizations require associates who want to play the game and take action versus sit on the sideline. Benchwarmers are frowned upon.

I was prompted to write this piece after watching how some companies have come to enVista with a ‘call to action’ and then followed through and ‘executed’ the strategy that we helped them develop, while others spent significant dollars on consulting and executed zero.

I am always baffled when we are more passionate about a client’s business than they are.
In the end, I believe it boils down to this: successful companies reward and appreciate results, they foster their associates to take action and be accountable, and they seek out passionate people who are motivated by the company’s direction and therefore commit to the company’s cause over their own personal agendas. Simply stated, successful organizations recognize that a positive culture is based upon conversations, relationships and commitments. Effective executives understand the power of language, how to harness that language and deliver a concise message.

As a leader, do you foster accountability, do you create an environment where positive thinking creates positive actions?

I would also add, that successful leaders of successful organizations:

1. Respect their associates
2. They listen
3. Their moral compass is never questioned
4. They are humble
5. They seldom take credit for their company’s success
6. They surround themselves with committed and talented people
7. They have pin point focus
8. They are great storytellers
9. They think more of others than they do themselves

Always enMotion,

Jim Barnes

Over the last year, I have personally been involved with two e-commerce companies that used Agile software development and deployment approaches for their e-commerce sites requiring integration to both Enterprise Resource Planning (ERP) and Supply Chain Execution Systems (WMS). 

Agile is a Project Management approach used primarily for product and software development. The approach is based upon iterative work cadences or “sprints” that build collaboration between cross-functional team members. For those of us who cut our teeth in manufacturing, think of Waterflow as manufacturing “large” batches of work in process inventory (WIP) vs. “small” batches of work in process inventory. We all know from JIT principles and Toyota Production Systems (TPS) techniques that small batches reduce variability and allow for “agile” shifts in production with the goal of meeting unpredictable customer demand.

You may presume I am going to jump on the Agile band wagon... Not exactly! Waterflow deployment approaches, on the other hand, are sequential in nature: design, build and test. The downside to waterflow is: 1) it is sequential, 2) the major steps take longer, resulting in increased variability between steps and 3) if you get the design wrong, the end product delivered could be wrong. The assumption by Agile disciples is that it is impossible to define 100% of your functional and technical requirements and that 80% is “good enough.”

Is one methodology better than other? The answer is “No.” Both methodologies are valuable with respect to implementing and integrating software applications and technology.

In the aforementioned projects, both were successful not because Agile was superior over Waterflow, but rather because the project managers for both projects brought a great deal of experience (15+ years) and defined what I refer to as “a common picture of success.” 

However, both companies struggled at the beginning, rework was common, interdependent work flows between the e-commerce store front and the ERP were missed, and error resolution testing was an oversight. The fundamental challenge is that e-commerce solutions are built on open source code and/or on platforms compared to ERP and Supply Chain Execution solutions that are built on the concept of system configuration and data parameters. 

It is important to describe the difference between software that requires systemic configuration and data parameter settings versus an open platform software solution. I like to think of an open architected software solution as if I were to provide a painter a brush, a pallet of paint colors and canvas and then said, “Paint away.” Compare this to software applications that are dependent upon system configuration and data parameter settings where the same “tools” are provided, but instead of an open canvas, the painter is constrained to a ‘paint by number' approach to create a predetermined end picture.

Therein lies the problem with Agile vs. Waterflow. You need to understand what type of software you are building, and/or deploying. I am of the opinion that is difficult to apply Agile methodologies to a solution architecture that is rigid and solid. In my last two projects, the e-commerce developers were using Agile and the Enterprise and Supply Chain Execution teams utilized Waterflow.

This definitely created conflict, and a very interesting dynamic occurred in the first six months of the nine-month project. The Agile e-commerce team was “sprinting” ahead with their back log folders and daily scrums, making fast and furious progress. However, the resulting perception was that the “sluggish” ERP and Supply Chain Execution team was behind schedule and holding up the nimble e-commerce team.

At the six-month mark of the project plan, the projects hit a critical intersection called, “end to end integration and user acceptance test planning.” Both projects had to stop and reevaluate their approaches. Why? First, because the requirements planning and definition that the Agile team completed was high-level (big brush strokes 80% fit). Second, the Waterflow team did a poor job communicating to the e-commerce team the sequence of events (prioritizing the back log folders). Third, no one was holding the “pigs” accountable for delivering the code on time. Fourth, scrums are not designed for the “chickens” to get into the detail and problem solve issues. It is assumed that detailed conversations about the design functionality are to be conducted outside the scrum, and this can be a bad assumption. And the fifth and biggest challenge was the lack of an integrated schedule that linked what Elli Goldratt calls, the “Critical Chain.” It is imperative that you have an integrated Project Plan.

Despite the challenges, both projects were successful. The lesson learned from my personal experience is the importance of ensuring that every project team member is versed in the implementation methodology. Regardless of the methodology being used, “the devil is in the detail.” You better understand the functional and technical requirements.

As a pilot, I know where I am going prior to taking off. I complete my pre-flight checks, I file a flight plan, I check the weather en route, and I have a contingency airport lined up in case of an emergency. I have a plan and I know where I am going.

Steering a critical technology project is much the same way. Regardless of whether your company uses Agile or Waterflow, you better define, plan and communicate where your team is going, or you may not safely arrive at your desired destination!

I look forward to receiving your personal anecdotes about your project methodology experiences.

A few weeks ago, I attended CSCMP’s Annual Global Conference in San Diego. Compared to 2009, the overall attendance was higher; there were approximately 3,500 attendees and well over 100 vendors that participated in the Supply Chain of the Future Lab.

When it came to the educational sessions, I attended a number of tracks with a specific interest in Sales & Operation Planning (S&OP). To my surprise there was an entire track dedicated to S&OP with standing room only participation. What I found amazing is that although S&OP is a 30+ year old concept, many companies, regardless of industry, are not executing on such a common sense practice. The genesis of S&OP is to synchronize and balance supply with demand through a formalized process that evaluates aggregate demand and demand influencers with supply and the variability that affects supply. A simple example is how lowering the price of an item sold on the internet or in a retail store creates more demand and that there must be enough supply in turn to cover the influential demand.

It sounds simple, yet many companies’ sales organizations do not effectively communicate with their operational teams. Matter of fact, a common question asked during the CSCMP presentations was who should own the S&OP process. Surprisingly, many of the participants and speakers stated that the Supply Chain (operational) organizations were driving the process versus Finance or Sales. Quite frankly, I believe Senior Executives should own this process. How can you effectively run any company without an integrated financial business plan that reconciles top-down revenue by sales channel and category with bottom up item planning? Yet many companies do not have a formalized and predictive process that plans and measures what was committed to by a sales organization and how supply will be sourced to cover the demand.

S&OP should be a “Standard Practice” versus Best Practice. Why? Because your company can increase revenue while improving forecasting accuracy and lowering total supply chain cost to deliver or serve. What will S&OP do for your company: 1) improve communication lines between Sales, Finance and Operations, 2) improve problem solving, 3) improve problem prevention, and 4) improve both tactical and strategic decision making. 

While attending the S&OP tracks, I contemplated why ERP or Supply Chain Planning Execution software companies don’t have a "Demand Chain Management” module that helps organizations formalize how they run their business. Surprisingly, the larger software companies don’t have a solution that integrates advanced financial planning, sales planning (top down) and operational planning (bottom up), and then allows the organization to simulate scenarios through “what if” analysis. Not surprising, the most commonly used tool for S&OP is Microsoft Excel. Regardless of whether your supply chain is manufacturing, distribution or purchasing centric, S&OP needs to be “Standard Practice" within your organization. You can expect there will be change management, process redesign and technology components required to successfully implement S&OP. Competence over excellence is required first. 

While attending the session by Mars, Inc. I had a thought, “Why do we use the term, ‘Supply Chain Management’ instead of terms like, ‘Demand Chain Management’ or ‘Integration?’” Without demand there is no need for supply and I predict over the next five to ten years Supply Chain Management will be passé.

Many of you are in the process of planning and budgeting for 2011. If you do not have S&OP processes in place within your organization, or if you are interested in learning about the basics, I recommend the books below. And of course, as a strategic supply chain partner, enVista is here to help as well.

Recommended Reading: Richard Ling | Tom Wallace | Oliver Wight | Dave Garwood