All posts by Ashish Kumar

In Part I (link here), we started off on the road to “Integrated Business Planning” (IBP) by posing 5 fundamental questions that need to be answered in evolving a strategic supply chain road-map. Links to other parts are here (Part II) and here (Part III).

In Part III, we looked at the ongoing disruptive technological innovation. In this article, let’s take a brief look at the implications of disruptive innovation on the supply chain enablement for any business.

Most important thing to realize about technological innovation is that, by itself, it does not have a significant impact until it is translated into a business innovation that is a game changer for your competitive environment. History is replete with many examples of this.

First patent for the original sewing machine concept was granted in 1846. There was a lot of technological innovation in the next few years – each was a key to the eventual success of the sewing machine that is used today. However, the early years were spent in fighting patent battles with each other until someone came up with the first business innovation of converting the “patent thicket” in to a “patent pool”. Four stake holders agreed to: (1) merge their business interests in 9 patents, (2) charge a single, reduced licensing fee – down from $25 (about half the cost of the machine then) to $5 a decade later – and (3) divide the licensing revenue in the proportion of their contribution to the final design. This allowed (1) more manufacturers to enter the business, (2) increase the supply of machines and licensing revenues and (3) reduce the cost of sewing machines due to competition.

Yet, not all four stake holders made it big in the long run. Why?

The 2nd and even more important business innovation came when the original & later incarnations of Singer Manufacturing Company created a “hire-purchase plan” i.e., the first installment-payment plan in the United States for customers who could not afford the up-front payment for the machine’s high price and a “door-to-door sales” model to demonstrate the machine’s value. Singer encouraged customers to buy newer models by buying back their older models. It also expanded rapidly in international markets and opened factories globally to reduce import duties and transportation cost. Centralized decision making / planning and decentralized execution was quite a business innovation for those times.

The point here is that while a company may not be the innovator of the disruptive technology, it can translate the technological innovation into a business innovation unique to its competitive ecology and ride the disruption as the leader instead of being forced to follow others in that evolution.

There are several other takeaways from the evolving disruptive technological innovation for your competitive supply chain environment:

1. Supply chains of customer-centric organizations must evolve to meet the demands of “mass customization” to ensure user-specific online or offline experience. Similarly, “pricing models” will have to evolve to profitably serve the lot size of ONE !
2. Managing the “anytime, anywhere, value pricing, high service” expectations of customers is forcing companies to quickly identify & eliminate redundancies in their “lean + agile” supply chain networks to ensure complete, accurate and on-time deliveries.
3. Key to long-term success of a company lies in (a) incorporating innovation in to repetitive orchestration of its integrated business planning process and (b) ensuring sound solution architecture plus high maturity levels of its resources and processes to execute those plans.
4. There are serious implications – both for companies and individuals – for the number and types of jobs that will be around a decade down the road and the skill-sets required to keep up with these changes.
5. Positive effects of disruptive innovations will have to be balanced with risk-mitigation against their exploitation for anti-social or evil purposes. Eliminating security risks to avoid their catastrophic consequences will be an on-going challenge but cannot be an excuse for disengagement.
6. Change management and process re-engineering challenges posed by these innovations are enormous, unavoidable and can be underestimated only at a corporation’s own peril. Riding the change requires creation of a company culture that harmonizes perpetual, smart risk taking with realistic risk mitigation.
7. Implications of recent and on-the-horizon innovations for your supply chain will act like a two-way sword. Not internalizing these innovations will create a strategic advantage for competitors and can prove to be the death knell for any business. On the other hand, internalizing these innovations to re-invent the DNA of your company into a lean and agile business model will also have its own set of challenges on all fronts (people, processes, platforms, policies and performance). Smart executives will realize that this is a false dilemma (illusion of choice) since failure to embrace innovation and the associated change is never really a sustainable option !

In Part I (link here), we started off on the road to “Integrated Business Planning” (IBP) by posing 5 fundamental questions that need to be answered in evolving a strategic supply chain road-map. Link to the article addressing the 1st question (Part II) is here.

In this article, let’s take a look at the 2nd question :

2. What are the key innovations of the recent past and the near future? These will help you evaluate the new tool-sets available to enhance the effectiveness of your supply chain planning & execution process. These innovations (some of them quite disruptive), will also help you understand future competitive challenges that you will face if you do not exploit them appropriately.

There are many rapidly evolving technologies and innovations with a significant impact on supply chains strategy, tactics and operations. Let’s look at broader themes of the innovations (in no particular order) over the past decade and those on the horizon whose full impact is still not very clear.

The 4th industrial revolution already under way is enabled by digital technology and ubiquitous connectivity. Digital manufacturing in the “smart factory” will be enabled by digital supply chains, automation, data exchange in cyber-physical systems, the Internet of Things (IoT), cloud computing and cloud storage. Distinction between hardware and software is giving way to integrated / aggregated “solutions” or “appliances” ranging from iPhone to even more affordable smartphones and tablets to wearable mobile platforms putting information at the fingertips, eyes and ears of billions.

Evolution of in-memory computing and columnar & row-based relational data base are enabling real-time integration of Big Data and Advanced Analytics with fault-tolerant algorithms for demand generation, multi-echelon inventory and network optimization as well as collaboration across the end-to-end Digital Supply Networks (DSN).

Usage of internet / world wide web has evolved in barely 2 decades from connecting information (Web 1.0) to people (Web 2,0) to knowledge (3.0) to intelligence (Web 4.0). The user-base of internet has expanded just as rapidly with connectivity quickly becoming a utility taken for granted. Networking has evolved from social networks (e.g., Facebook) to professional networks (e.g., LinkedIn, inter- and intra-company networks) to 140-character updates on twitter. Collaboration with apps that share text, data and media has evolved from Napster and file-sharing torrents to apps embedded within ERP & supply chain solutions that enable real-time & asynchronous sharing of information and intelligence.

Explosion of social media and user generated content (e.g., wiki) mean that the old-fashioned distinction between the creators (suppliers) of content and consumers (receivers) of content (mostly one-way traffic) has been replaced by two-way flow of information, analysis and intelligence. This has significantly enhanced the voice & visibility of the end customers with a feedback loop. Wrath of an angry customer on social media – mad at the quality of service or products s/he received – can go viral in no time causing significant damage to brand image that takes years to build.

Online shopping (e-commerce) with price-searching BOTs, auctions, commitment to guaranteed “delivery date” and on-line order tracking have radically changed how individuals and corporations procure goods and services. Real-time price determination and on-line promotions based on an individual customer’s history and profile have become standard functionality for the leading on-line retailers like Amazon.

Open source software (e.g., Linux), web browsers (e.g., Google Chrome & Firefox) and services (e.g., Wikipedia) are challenging the proprietary delivery models, platforms and interfaces that supply chain solution vendors developed barely 5-10 years ago. We have also seen the explosion of APPs on the likes of Apple Store and Google Play. Vendors of supply chain execution and planning solutions have followed suit with similar APP markets. This ecology of “smartphones plus web browser based operating systems (OS) plus thousands of APPs” has enabled aggregation of value chain for a given function / activity (e.g., online purchase or competing in games with competitors across the globe).

Just as “desktop OS + client” applications were replaced by “browser + website” over the past 2 decades, “mobile devices + APPs” will soon be replaced by “wearable mobile devices + BOTs”. These BOTs can be programmed to initiate actions as well as respond to “smart messages” from other human or machine users to automate conversations (customer support), transactions (purchasing & shipping) or workflows (within and across business function, such as operations, finance, sales, HR etc). They can also proactively search for exceptions / discrepancies or disruptions in the supply chain and propose or even carry out pre-defined and pre-approved remedial actions.

Internet of Things (IoT), i.e., billions of devices connected via internet and talking to each other, will enlarge the scope of e-commerce and associated supply chain functions from machine-to-human (M2H) and human-to-machine (H2M) interactions to pre-programmed, automated and smart machine-to-machine (M2M) interactions. Vulnerabilities of IoT connected devices have proven to be easily exploitable and will take time to be fully addressed. Most of us have read about the “denial of service” attacks that can take down high-traffic e-commerce sites creating havoc on the net. These coordinated attacks can come in waves with software viruses exploiting loopholes in IoT devices, hijacking them and using them as pawns in a concerted global attack.

Artificial intelligence is enabled by big data, predictive analytics, smarter & flexible algorithms, extensive parallel computing, etc. Its impact on data-driven and automated supply chains is enormous but still has not been fully comprehended. GPS has already gone mainstream in the past decade helping with real time tracking of trucks and containers globally and optimization of shipment routes as well as delivery networks using geo-analytics. Now, GPS enabled devices are complementing other Automatic Identification and Data Capture (AIDC) technologies, such as RFID and bar codes, to make inroads on the smart factory floors and the warehouses.

Visualization by Augmented Reality (AR) and Virtual Reality (VR) and sensors for automatic detection and identification are now increasing their foot print in to our supply chains with applications, such as order picking (“vision picking”) with “smart glass”, autonomous (driver-less) vehicles, shipment deliveries by UAVs / drones and automation of repetitive and physically demanding tasks by robots.

3D printing will dramatically reduce manufacturing lead times and hence have a very significant impact on required inventory to maintain desired service levels. It will also dramatically reduce economic lot size and time to market for many new products.

Voice recognition in varied languages and accents plus translations across multiple languages are further expanding the reach of these innovations in to a far wider user-base than could have been imagined just a decade ago.

In Part I, we started off on the road to “Integrated Business Planning” by posing 5 fundamental questions that need to be answered in evolving a strategic supply chain road-map (link here). Let’s take a look at the 1st question:

1. To what extent has the supply chain ecology of my organization evolved? Answering this question enables assessment of the history and the AS IS snapshot of the maturity of an organization’s sales & operations planning capabilities.

Gartner identifies 5 stages in the evolution of the maturity of sales & operations planning of an organization: React, Anticipate, Integrate, Collaborate & Orchestrate (link here). It is critical to assess and determine the current stage of maturity of 5 dimensions (5 Ps) of Sales & Operations Planning, namely, People, Processes, Platforms, Policies / Practices and Performance.

1. People, i.e., internal & external expertise available to an organization.

A client in the CPG industry held weekly training sessions for 15+ planners (driven by internal business and IT resources with our help) followed by exams with Multiple Choice Questions. They also pitted teams of planners against each other in the games of Jeopardy & Family Feud with questions focused on real life scenarios that the company encounters, supply chain basics and solution functionality. Each member of the winning teams received $25-$100 gift cards. Suffice to say, there was a dramatic improvement in the expertise level of the planners within 3-6 months.

2. Processes to successfully plan, execute and collaborate across S&OP functions on a repetitive basis.

Another client in the hi-tech industry was using advanced safety stock planing methods for its inventory planning process with a very elaborate sequence of steps for the determination of demand and supply variability and then the safety stock. However, there were several assumptions incorporated in the process that were wrong or no longer valid. The net result was that the planners simply did not believe the recommended safety stock quantities. Even worse, there was no well-defined and consistent process to help planners correct the safety stock quantities. This meant biases of individual planners based on their experience resulted in different approaches to “correcting” safety stock.

3. Platforms i.e. technology enablers facilitating all S&OP functions.

A client in the heavy machinery industry had very high levels of customization in its planning solution that had outlived its utility in the rapidly evolving business environment. This customization was actually coming in the way of the client using standard off-the-shelf functionality from its primary supply chain planing solution and dragging down overall maturity level of its S&OP functions.

4. Policies / Practices i.e., business rules & guidelines that direct how S&OP functions respond to situations & scenarios.

Another client, one of the largest industrial distributors, did not have policies in place that would have enabled planners to collaborate better with outside vendors. It could have negotiated better prices for its raw materials & trading goods in return for giving vendors visibility for its mid-term forecast and committing to buy a significant portion of it based on historical forecast accuracy.

5. Performance metrics – Goals & Key Performance Indicators (KPIs) to set targets and track outcomes that are critical to an organization.

KPIs of each business function can indeed be in conflict with each other. For example, higher customer service levels will need greater inventory & hence higher working capital. However, if there is no mechanism and accountability for balancing these conflicting trade-off, then excellence in the performance of an individual business function may not translate in to an overall advantage for the organization as a whole. Without balancing trade-offs, conflicting KPIs are simply working at cross-purpose with each other.

A couple of points to note:

In most organizations, the above 5 Ps are at different stages of S&OP maturity. Executives driving S&OP functions should focus on proactively pulling the laggard Ps up rather than letting the leading Ps slide down in maturity levels.

It is in the higher stages of maturity (Collaborate & Orchestrate) that S&OP is transformed in to Integrated Business Planning across business functions. It is here that collaboration with internal & external stake holders as well as consideration of service-level and profitability driven trade-offs results in value-maximization of S&OP functions. Only then can supply chain become a true enabler of corporate strategy and a real competitive advantage in the market.