supply chain leader - issue 5

Ideas & Innovations from i2 TechnologiesIdeas & Innovations from i2 Technologies

April 2008April 2008

The Supply Chain Results CompanyTM

• Measuring PerformanceAcross the Value Chain

• How to Get Supply Chain Value Fast

• Overcoming the New Demand Uncertainty

• The Case for Knowledge Process Outsourcing

• Managing the Human Element

Plus• Interview with Sprint’s Michael Hahn• Leveraging POS Intelligence

to Improve RetailFlow-Through

• Measuring Performance Across the Value Chain

• How to Get Supply Chain Value Fast

• Overcoming the New Demand Uncertainty

• The Case for Knowledge Process Outsourcing

• Managing the Human Element

Plus• Interview with Sprint’s Michael Hahn• Leveraging POS Intelligence

to Improve RetailFlow-Through

Gett ing Resul t s Gett ing Resul t sfaster

i2 Senior Director,MarketingBeth Elkin

EditorVictoria Cooper

Art DirectorPeter Klabunde

Circulation ManagerSangeeta Bajaj

Contributing WritersLauren BossersMichael CohenCynthia FuscoJohn KadlecekJon KempKirsten MonbergDeborah Navas

Editorial Advisory BoardSanjiv Sidhu –

Co-Founder and Chairman of the Board

Pallab Chatterjee – Interim Chief Executive Officer

Hiten Varia – Executive Vice President,Global Customer Operationsand Chief Customer Officer

Steve Estrada – Senior Vice President, Global Services Operations

Chuck Kramer – Senior Vice President, Retailand Consumer Industries Sector

Aditya Srivastava – Senior Vice President andChief Technology Officer

Kelly Thomas –Senior Vice President,Manufacturing Sector

Razat Gaurav –Vice President, Global Logistics

April 2008 Vol. 3, No. 1

Reproduction of this magazine in whole or in part in any medium is prohibited without written consent of the editor. Contact: [email protected].

© Copyright 2008, i2 Technologies, Inc. This magazine is available online at www.i2.com.

In This Issue

Supply Chain Leader / April 2008 1

Cover storyMeasuring Performance Across the Value Chain

by Alok Pathak and Kenny Li

Page 4A new discipline, called supply chain performance management (SCPM), offers a structured way for businesses to identify andaddress performance issues at various levels of the business, as well as across the value chain.

Features

Case study2 Meeting (and Exceeding) Customer Expectations at Teich AG, by Jon Kemp

DepartmentsPage 2 Perspective: 20 Years of Innovation at i2, by Sanjiv SidhuPage 8 Viewpoint: The Power of Many: User Groups Spur Professional Growth, by Kirsten MonbergPage 14 News Briefs: Supply Chain Management Leadership Garners PraisePage 16 Interview: Buying It Right at Sprint. An interview with Michael Hahn, by Victoria CooperPage 27 Opinion: How (and How Often) Do You Measure Supply Chain Results? Interviews with

Fairchild Semiconductor, Emerson, Timken Steel Group, and MIT Supply Chain 2020, by Michael Cohen Page 34 Focus: Leveraging POS Intelligence to Improve Retail Flow-Through, by Amarnath Thombre and Sanjiv SidhuPage 38 Guest Column: Total Channel Management Demands a Dynamic Partnership, by Michael AguilarPage 44 Inside i2: Our Innovation, Your Results, by Hiten Varia

Page 20

The Case for KnowledgeProcess Outsourcing by Anand Iyer

Many supply chain organizations are turning to outsourcing variouscapabilities—from information technology outsourcing (ITO) tobusiness process outsourcing (BPO)to knowledge process outsourcing(KPO)—requiring multi-locationteams to work together effectively.

Page 10

How to Get Supply ChainValue Fastby Kelly Thomas

Even the most complex projects canbe tackled in an incremental fashionto achieve results quickly—using a“business release” approach and managed services.

Page 40

Managing the HumanElementby Michael Levi

Today, we know that people willchange because they are offered theright incentives—and this meansthat we must align our numericalobjectives with the human rewardsthat will ultimately drive our businesses toward results.

Page 24

Overcoming the NewDemand Uncertaintyby Robert Anson

Today’s new international market-place demands that suppliers andmanufacturers create a more openand honest relationship—one thatacknowledges demand variations,and shares risks and rewards withboth businesses.

Perspective by Sanjiv Sidhu

i2 Technologies celebrates its 20th anniversary thisyear, and in honor of that milestone—and the magazine’stheme this issue, “Getting Results Faster”—I’ve thoughtabout what our value proposition was at the start and howit has evolved. With that in mind, I’ll try to summarizesome of our innovations and where we think the supplychain management discipline is going.

Twenty years ago the predominant methodology tokeep the supply chain under control was MRP (materialresource planning). MRP is essentially unidirectional planning, where you start from a forecast and a distributionplan and continue on to develop a master production plan,which enables you to issue purchase orders to suppliers.You factor in the inventory you have on hand, subtract itfrom what you think is your demand, and then figure outwhat you need to produce, generally on a weekly basis.Another way to look at this approach is that you startwith demand requirements and work your way back tosupply requirements. The managers who used this approachachieved a fair amount of supply chain discipline.

The problem was, despite using this approach, com-panies found their inventory levels remained too high.The limitation of MRP was that the constraint calculationwas sequential. First you calculated what your materialneeds were, then you calculated your capacity needs. Therewas limited intelligence for looking at all of your supplychain constraints simultaneously and therefore limitedopportunity to optimize what needed to be done in thepresence of all constraints.

Addressing delivery to promiseMRP also did not solve the problem of customer

delivery to promise, because there was no visibility intosupply availability or supplier activity. So manufacturersdepended on having inventory on hand to keep theirdelivery promises.

Around this time—the 1970s—the Just-in-Time move-ment to create what became known as lean manufacturingbecame popular. Japanese manufacturers—especially in theautomotive industry—were using mechanical techniqueslike kanban (use one, pull one) to control inventory. Thismentality worked well where you had high-volume,streamlined production. But it didn’t work in constraint-sensitive areas, such as semiconductors (where there couldbe a shortage of raw materials) and steel factories (makinga wide mix of products). In other words, it wasn’t so effective in low-volume, high-mix environments. It also

fell short in environments such as high tech and electronics,where the product mix changed rapidly as a result of customer demand changing rapidly. In such environments,customer lead times are higher than supplier lead times.

It was in this environment that Ken Sharma and Ifounded i2 in 1988. We were interested in supply chainmanagement for several reasons, not the least of whichwas that we saw the immense potential in this area forenhanced efficiencies from software capabilities.

Our first product was called Factory Planner. It hadmany innovations. Foremost, it allowed manufacturers toplan in a multidirectional way. If you had a supply constraint,you could determine the best mix to produce given thismaterial constraint, or, likewise, if you had a capacity constraint, you could determine what to do. Maybe youhad a constraint in the middle of the supply chain. If so,you could figure out what your plans should be upstreamand downstream from that constraint.

Factory Planner also allowed you to deal with multipleconstraints simultaneously, instead of sequentially. A thirdinnovation was that the software was the first commercialplanning software that resided in the computer’s memorymode (RAM). So it could run up to 100 times faster thantraditional MRP.

Lastly, Factory Planner introduced the concept ofdepicting plans graphically. We used emerging technologiesin this area to create user-friendly graphical interfaces thatsuited managers’ need to get the big picture about problemsand solutions quickly and clearly, without wading throughmarshes of data.

20 Years of Innovation at i2

Supply Chain Leader / April 20082

Extended supply chainsOur second-generation product was Supply Chain

Planner. It applied the same principles to larger supplychains—not just the factory, but multiple factories. It alsoaccommodated distribution planning, and we were able tooptimize distribution in ways that traditional productscould not, by using memory-resident software, as we hadwith Factory Planner. The capabilities in speed and acces-sibility we gained in memory mode allowed us to performmore iterations, more “what-if ” analyses, faster. Now we could represent real-world contingencies much more accurately, helping our customers understand the impli-cations of choosing certain capacities or parts in their supply chain.

We became very good at advanced planning andscheduling and continued to broaden the scope of whatwe offered, adding highly differentiated demand planningand transportation planning software. We were constantlybringing new capabilities to the market.

Twenty years later, global supply chains provide morecomplex challenges, calling for ever more inventive andcomprehensive solutions. With the help of our software,many of our customers can now respond to new orderswith promise dates in less than one second. If material isnot in inventory, the software’s full visibility into the entiresupply chain can help planners determine how long it willtake to produce it, taking into account all of the otheractivities in the chain currently using the same materialand capacity.

Our innovations have not been confined to softwaredevelopment. We have continued to build on our funda-mental mission: to help companies achieve their targetedbusiness results by optimizing their supply chain efficienciesand using the supply chain as a competitive lever. In theearly days, CIOs wanted us to depend on their MRP systems for core data. But we realized over the years thatthe quality of data and the kind of data needed to optimizethe supply chain aren’t in ERP (enterprise resource planning)systems. The data maintained there supports the company’sfinancials, not its supply chain. The resultant bill of materialsdoes not have enough information about alternative materials, for instance; nor are capacity and supply leadtimes represented well, if at all.

In the last few years, we have built our own master datamanagement system. It augments the weaknesses inherentin ERP systems, just as our earlier software augmentedMRP systems. This consistent approach of augmenting—and not ripping and replacing—represents our partnershipphilosophy with the companies we serve.

In the networked world of today, a lot of data importantto running an integrated supply chain do not exist withinthe four walls of a company. Such data are related to

Sanjiv Sidhu is the cofounder of i2 andthe chairman of the board.

For more information, contact:[email protected].


supplier inventories, point-of-sale (POS) data from thecustomer interface, channel sources and other aspects ofmodern supply chain management. This is the kind ofdata needed to create operational efficiencies.

Closing the loop through PDCAAnother shortcoming of ERP systems, from the supply

chain perspective, was that, although they could issue work,purchase and customer orders, they did not have the intel-ligence to analyze what was going wrong with a plan. Inthe plan-do-check-act loop (PDCA), the “do” and “check”elements were absent. In recent years, we have continuedto strengthen our software’s capability to close that loop.The software can figure out what’s going wrong with aplan, through root-cause analysis, early enough that re-medial actions can be initiated to “make the plan happen.”

To close the loop on our history to date, I’ll summarizeby saying we started out as a planning company, focusing on the process first and then providing tools to support or facilitate that process. Improvements in processmethodology have played an immense role in increasingoperational efficiencies in supply chain management.What we’ve done is embed the processes in the software.

Reflecting on the journey we’ve taken, I realize nowthat one of our chief contributions has been in compressingthe time to results. I believe this will become a matter of daysrather than weeks or months in the future. We introducedthe concept of daily planning, and now a company like Dell,for instance, is planning not just daily but three times a day.

One caveat should be mentioned. No matter howadvanced and capable the tools are, without realigning theirorganizations and processes and identifying the metricsthat are critical to meeting business goals, companies willfail to realize the benefits and capabilities inherent intoday’s software solutions.

After the great ride of the past 20 years, I remain committed to the journey ahead. Fundamentally, I believesupply chain management is a “green” discipline. If theinefficiencies and overruns in the supply chain can beaddressed, the environmental impact is huge, with lesswaste and more efficient use of resources and energy.Because today’s supply chains are global, the decisionsaround sourcing of materials, building to order, and collab-oration with channel partners, suppliers, and customers tocreate a tighter, more robust supply chain quite possiblycould have more impact than many other green initiatives.


Measuring Performance Across

Measuring performance has evolved from a broad corporate goal to a data-driven science, beginning withthe rise of IT tools and corporate reporting systems in thelast two decades. Executives and managers were overjoyedat the huge volume of information they could suddenlyaccess, but this proved to be a dual-edged sword becausenow they had more performance data than they knewwhat to do with. While the performance of virtually everycorporate process was suddenly revealed at a very detailedlevel, most executives had little idea how to interpret thedata, or link it to the top-level strategy.

In response, a new group of reporting businesses

emerged, promising to help executives make sense of theirenormous volume of information. Spreadsheets that simplyreported data were replaced with new analysis tools thatsliced and diced this information, creating the new field of business analytics. Soon, most companies were using areporting solution that enabled them to analyze theirfinancial data at a very minute level, revealing performanceproblems affecting the bottom line.

As these reporting tools became more sophisticated,they also enabled companies to isolate and analyze im-portant aspects of performance, such as cash-to-cash cycletime, providing true insight that executives could use to


the Value Chain by Alok Pathak and Kenny Li

improve key metrics. Simple reporting was transformedinto business intelligence, as the focus shifted to operationalanalytics: using analytical data to create and track process-specific improvement plans and goals. In a short time,virtually every business had a corporate performance manage-ment (CPM) effort in place, supported by dashboards and scorecards that tracked key business metrics such asproduct quality, inventory levels and delivery times.

Today, packaged CPM solutions and in-house effortshave created real financial benefits. But the majority ofCPM initiatives have one critical shortcoming: they focus on top-level strategies revolving around financials,

budgeting and forecasting, but fail to address how thesestrategies can be transformed into specific operational initiatives.

Extending CPM across the supply chainFor CPM efforts to deliver maximum return on invest-

ment, they must go beyond identifying problems at a highlevel and drill down through individual product lines tothe shop floor, where meaningful changes can be made in everyday processes. A new discipline, called supply chain

VALUE CHAIN CONTINUED on Next Page . . .


performance management (SCPM), offers a structuredway for businesses to identify and address performanceissues at various levels of the business, as well as across the value chain. SCPM enables executives and managersto more effectively analyze and improve the impact ofindividual processes, both within and beyond the company’sboundaries. It’s aimed at providing operational informationand insights across the global supply chain, both horizon-tally and vertically.

While CPM focuses on strategic financial goals andhigh-level decision making, the growing field of SCPMenables top-level decisions and measurements to be prop-agated throughout the supply chain hierarchy. Executivescan now improve their ability to determine the success ofcorporate strategies that are enacted at the operationslevel, and how well strategic goals are aligned with tacticaland operational goals. For example, a common CPM goalis to increase profit margins. SCPM focuses on under-standing, at a very detailed level, why margins are lowtoday—and what specific operational changes and initiativescan lead to significant improvements.

Because of the maturity of financial standards and corporate governance practices, CPM solutions have provenfairly easy to package and to duplicate. However, becauseof the incredibly complex way in which most companiessource, manufacture and deliver products and services,SCPM methods and solutions are much more difficult tostandardize. There will always be variations among supplychains, but the discipline of SCPM is based on developingand applying a set of standard processes and measures aimedat analyzing the complete value chain—and ensuring thatit both reflects and enacts the corporate strategy.

How SCPM worksSCPM is based on the concept of measuring and

managing performance at every level of the business, usingstandards such as the Supply-Chain Operations Reference-model (SCOR®), Six Sigma and Total Quality Management,and tools like dashboards and scorecards. To prevent mis-alignment, it is critical that metrics and standards are firstapplied at the highest levels of the business, and then cascaded down through the tactical and operational levels.This ensures that both corporate performance and supplychain performance will be assessed for improvement andthat, ultimately, they will be closely aligned.

For example, a business may define an overall corporategoal of maximizing cash flow by increasing sales revenueswhile simultaneously decreasing operating expenses. Everyfunction and process within the company must be alignedwith this top-level goal in order to achieve it.

However, close examination may reveal a number ofdisconnects within the business. Sales compensation may

be based on bookings—but salespeople should also bemeasured on achieving cash-collection goals. Operationsmanagers may be rewarded for managing at full capacity,when they should be striving to maximize inventory turns.Functional targets and rewards should always support thelarger corporate strategy, but in reality they may actuallywork against it.

One way in which SCPM helps to align and managethe supply chain is through independent industry bench-marking. But SCPM demands much more extensive andin-depth benchmarking than most companies have everundertaken. Not only must executives study the best practicesof industry leaders and key competitors at the top levels ofthe business, but they must also understand the intricaciesof these companies’ supply chains. This enables executivesto understand the “as is” situation of their own business,as well as to create an ambitious, but achievable, plan forthe future.

When an overall supply chain plan has been created,the SCPM effort next turns to defining the specificprocess improvements that will support both operationsgoals and the long-term strategy for the business. Theseimprovements are measured and managed through the useof highly customized dashboards and scorecards that keepsupply chain performance enhancements on track andensure a continuous cycle of improvement.

SCPM not only enables businesses to analyze what ishappening now and what has happened in the past, butalso what is forecasted to happen in the future, throughthe creation of forward-looking plan data. Powerful scorecards, dashboards and analytical reports allow supplychain decision-makers to test multiple “what-if ” scenariosand predict the impact of their decisions. For instance, abusiness with a customer service level of 80 percent mightbe considering a new goal of 90 percent. SCPM toolsenable managers to assess the actual operations costs ofreaching this goal, which might not support long-termprofitability. Managers may determine that an 85 percentcustomer service level represents the best possible cost and profit outcome, while still supporting the company’stop-level market strategies.

SCPM dashboards and scorecards take the concept ofplan-do-check-act to a new level, because they reflect atop-down model in which the overall corporate strategy isalways considered first. They stand in sharp contrast totypical operations scorecards and dashboards, which arebased on achieving discrete process improvements that

Functional targets and rewards shouldalways support the larger corporatestrategy, but in reality they may actually work against it.


may be disconnected from—and incompatible with—thehighest-level goals of the organization.

For example, i2 recently worked with a high-techmanufacturer that had spent two years and $2 million custom-building a set of 20 in-house reporting systemsthat focused on discrete performance improvements, suchas increased forecast accuracy. Not only was the initial coststaggering, but the business was also investing more than$1 million annually in maintenance costs. This investmentmight have been justified if the reporting systems hadbeen aligned with top-level goals, but they were narrowlyfocused on bottom-up operational improvements—andcompletely disconnected from one another. i2 was able to replace these 20 in-house reporting systems with itsholistic performance manager solution, capable of aligningthe entire organization with the highest corporate goals.This represented a tremendous advantage in supply chainalignment and performance, as well as a significant “buyversus build” cost benefit.

The challenge of implementing SCPMThere is little doubt that undertaking an SCPM initiative

that supports the broader CPM effort makes sense forevery business. But understanding and applying the concepts of SCPM represent an enormous undertaking.

Part of the challenge lies in the fact that the disciplineof SCPM is still in its infancy. Packaged solutions are notyet available and will be difficult to develop because of thecomplexity of global supply chains and the variationsamong individual businesses. In addition, while this articledescribes a recommended approach for applying SCPMconcepts that is based on i2’s more than 100 supply chain

analytics implementations, there is no universal process forextending SCPM across the value chain.

A huge hurdle for the typical business is developingand applying a robust set of metrics to create an accurateview of current corporate and supply chain performance,both within the company and across the industry. Supplychain leaders such as i2 have access to deep libraries of keyperformance indicators and industry benchmarks at boththe strategic and the operational levels. i2 can also helpcustomers understand which metrics and benchmarks arerelevant to their own competitive challenges, a majorshortcoming with models such as SCOR, which can overwhelm executives with hundreds of metrics that mayor may not apply to their own business situation.

These are significant challenges, but there is an evenlarger one. Successfully applying SCPM concepts requiresthe right combination of skills and expertise among thosecharged with the implementation.

An implementation team must include strategists whohave an extremely high-level perspective and who arecapable of understanding the position of the businesswithin its industry, the products and processes of chiefcompetitors, and the key trends impacting the competitivelandscape. SCPM requires the participation of supply chaindomain experts who are capable of using a top-downapproach to align the company’s overall goals with specificoperations initiatives. These specialists must not only havein-depth process knowledge, but also a broad view thatconsiders the supply chain models and best practices ofothers in the industry. In addition, the SCPM team mustinclude technology experts who can work with the supplychain experts to bring improvements to life through the application of the best possible technology solutions.

Few companies have the right combination of in-houseexpertise to successfully create and implement an SCPMeffort, and it is probably not cost-effective or practical formost companies to hire such a diverse group of professionalsas full-time employees. The obvious answer is to form apartnership with a supply chain leader that offers thishighly specialized experience and expertise. For thoseunwilling to look beyond their own businesses for supportin creating and implementing SCPM initiatives, thisincredibly powerful new discipline will remain out ofreach—and existing CPM efforts will be destined to fallshort of their true potential.

Alok Pathak is a director of consulting services at i2.

Kenny Li is a technical director at i2.

For more information, contact [email protected].

i2 Business Analytics Content Library

• Inventory• Procurement• Demand• Forecast• Operational

– Manufacturing– Capacity– Production

• Distribution• Profit Optimization• Transportation• Sensitivity• Segmentation• Replenishment• Exception

400+Metrics & KPIs

150+StandardReports

SCM Analysis

TransportationAnalytics

RetailAnalytics

InventoryOptimization

Business technology users today often have multipleopportunities to join user communities. But what moti-vates someone to join? Member discounts to events?Opportunities for career networking? An inexpensive wayto troubleshoot implementations? The reasons to join maybe as varied as a group’s membership, but no matter whatthe motivating factor is, user group membership can be acost-effective way to expand your skills, maximize yourtechnology investment and ensure that your voice is heard.

“User groups play many important roles,” says BillBryan, chairman of the i2 User Group. “Obviously membership plays a key role in my ability to represent mycompany's interests to our software vendors. But I believethere is a broader purpose. I look at the i2 User Group as my entrance into a huge networking community.From this base of contacts and interactions I have theopportunity to improve our company’s performance,advance our field of supply chain management as a whole, and grow my personal knowledge base.”

Some of the first technology-focused user groups originated during the days of mainframe computers andwere designed to serve as a forum to share informationand software exchange, independent of the factory-supplied programs. In 1955, the first known user group,SHARE, was founded by aerospace industry corporateusers of IBM’s first computers. It is still active today.

The i2 User Group, founded in 1996 on the principlesand beliefs of Ken Sharma, the late co-founder of thecompany, is dedicated to addressing the needs of the i2user community and fostering an open line of communi-cation with i2. Sharma believed that the voice of the enduser must be heard at all levels of the company, and wasknown to say, “Take care of the customer, and everythingwill take care of itself.” Today, the i2 User Group consistsof more than 500 members, and offers networking andeducational opportunities to share information and experi-ences related to the selection, implementation and effec-tive use of i2 solutions.

From the beginning, companies joined the i2 UserGroup because they were interested in learning from other

companies’ experiences using i2 products and processes toaddress their business problems. i2 User Group TreasurerBruce Budahn, who has been involved in the organizationsince its founding, says, “We tried to learn and apply thoseexperiences to what we needed to do at our company. Thei2 User Group allowed us to network with others who hadgone through a similar process and gain insight into animplementation from the lessons they learned. This sharingof best practices allowed us to prepare in advance for thoserisks that could occur at any company.”

Budahn also says he finds value in the enhancementand maintenance process discussions and voting offered asa result of his User Group membership. “These discussionopportunities help create awareness not only among UserGroup members, but ultimately with i2 as to what weneed from a product standpoint. Having a formal processthrough which we know our voice will be heard andwhere users can help generate awareness and set prioritieswith regard to product development and enhancements isof tremendous value to us,” says Budahn.

The opportunity for mentoring, and learning fromthose who have “walked the walk,” is another key benefitto user group membership. “User groups allow you to net-work with colleagues at world-class companies, enablingyou to expand your knowledge, learn best practices andavoid significant pitfalls,” says i2 User Group BoardMember Tom Dadmun. “User groups are an invaluablesource of knowledge that can turn a major project from adaunting journey fraught with risk into a well-plannedand executed experience. It's always nice to have a learnedgroup of experts at the ready.”

Communication, not just among users, but among acompany and its customers, can be enhanced through usergroup membership. That’s not to say that as the businessclimate changes every conversation is an easy one, butkeeping the lines of communication open, in both prosperous and lean times, can make a world of differenceto the success of the customer-vendor relationship. This is especially true when companies like i2 look to makechanges to their solutions.


The Power of ManyUser Groups Spur Professional Growth,Stronger Relationships with Vendors

Viewpoint by Kirsten Monberg


Members of the i2 User Group are at the forefront ofproviding that voice to the company as a result of directcontact with the company through special interest groupsand the enhancement voting process.

“I think the User Group has been tremendously val-uable to us,” says former i2 User Group Chairman RaviVancheeswaran. “With the Semiconductor Special InterestGroup, we have been able to solve some really difficultproblems related to inventory optimization and scenarioplanning. Our influence is stronger when we speak with asingular voice as a user community, giving us a greaterpower of influence as we seek product enhancements.”

For more information on the i2 User Group, please go towww.i2-usergroup.org.

User groups offer their members the power of many experiences, opinions and best practices, enabling professionalgrowth and stronger relationships with technology vendors.The strength of user communities comes from an active membership that shares the common goal of maximizing technology investments through best-practice sharing. Bybuilding relationships among members, as well as with thevendor, user group members can speak with a common voiceand create tangible benefits for everyone involved.


How to Get

Supply Chain ValueFast

How to Get

Supply Chain ValueFast

by Kelly Thomas

by Kelly Thomas


But it isn’t just value that is valued, so to speak. It’salso speed. Business executives want rapid time-to-valuefor their supply chain investments. And when executivesthink of “rapid,” they are thinking of delivering results in athree to six month time frame. Is it realistic that all supplychain projects deliver value within such a time frame? The answer to this is yes, because even the most complex projects can be tackled in an incremental fashion to achieveresults quickly.

Of course, there are business problem areas and solutionapproaches that lend themselves more readily than othersto achieving rapid value. i2 has identified two approachesto achieve rapid return on investment in supply chainmanagement. The first is an incremental approach wepioneered, based on short “business releases” within a morelengthy improvement program. (See “An IncrementalApproach for Software Implementation,” Sloan Manage-ment Review, Winter 1999.) A business release is an integrated set of changes that results in some businessimprovement. The changes may be made in one or moreof the following areas: processes, people, organization,metrics and technology.

This approach stands in contrast to the traditionalwaterfall or “big-bang” delivery approach in which thesolution is defined, designed, constructed and delivered intotal. Many companies still make use of the waterfallapproach, which lends itself to much longer cycle timesand, potentially, much higher costs. But many executiveshave become wary of this approach in the past two

FAST CONTINUED on Next Page . . .

he 1990s brought widespread adoption of new supplychain management technology and systems, which trans-lated into dramatic business improvements. As a result,most companies have now maximized their value in areasof improvement that could be quickly addressed. Drivingtrue innovation becomes the next challenge for these companies, as they look to further differentiate themselvesfrom the competition through significantly improvedbusiness processes and technology.

Many companies have come to realize that their businessmodels must be on a continuous improvement trajectory.Those that fail to acknowledge this fact are often caughtby surprise and are left playing catch-up. As Tom Meredith,Motorola’s CFO, and former Dell CFO, once said,“Fortunes are won and lost in moments of transition.”

Every year, the push to move toward a better businessmodel becomes even more urgent. Even dominant businessmodels of three to four years ago are under pressure andmust be repeatedly refined and modified. Continuousreinvention is now a requirement for success in the modernbusiness landscape.

Nevertheless, this does not mean that the value equationhas changed. All improvement projects should be basedon a strong return-on-investment framework, such asreturn-on-net assets (RONA) or economic profit (EP).These equations are measures of wealth creation and,thus, shareholder value. Therefore, all supply chain projectsshould be placed within a return-on-investment frame-work. In the context of economic profit, at a high level,each project should be driving higher operating profit,reducing the capital deployed or both.

Even the most complex projects can be tackled in anincremental fashion to achieve results quickly––using a “business release” approach and managed services.

Economic - xProfit =

NetOperatingProfit After TaxRevenue Pricing Cost of Goods Sold

CapitalDeployedFixed AssetEfficiency

InventoryEfficiency

WeightedAverage to Costof CapitalDebt Rating

T


approaches that will only yield results over a longer periodof time (for example, greater than 12 months).

For example, business analytics delivered throughmanaged services or a business optimization center(BOC) will almost always yield fast results. This is thesecond approach that i2 has found to deliver fast time-to-value. A managed service is an on-demand capability thatis delivered without the need to implement or install soft-ware at the customer site. The BOC is a small group ofcustomer domain experts from a solutions provider andtechnology domain experts who deliver managed servicesfor a business problem or set of business problems. Forexample, a business optimization center can analyze point-of-sale data, determine sell-through patterns and makerecommendations on inventory positioning and shipments,without ever having to install software at the customersite. This capability can be up and delivering value in lessthan three months.

On the other hand, if you are implementing an ERPsystem, you are probably in for a long haul. In some companies, the blueprinting process alone will take as longas two years. Projects requiring lots of customization or

decades. The reason is clear today: enterprise resourceplanning (ERP) and similar projects are like multiple-organ transplant surgery—they are complex and risky.

Information technology project complexity is driven by two primary dimensions: the requirements scope andassociated customizations, and the depth of how intrusivethe new systems are to the existing information technolo-gy and business landscape. Innovation is easier when thereis little legacy to deal with. As Cisco executive Wim Elfrinksaid in the October 30, 2007, issue of Fortune: “The reasonGod was able to create the world in seven days is becausethere was no installed base.” Thus, solutions to drivingvalue quickly should be based on a focused scope andminimum intrusion into the installed base.

Where should you focus for fast results?The best way to deliver results quickly is to match a

specific problem area that is conducive to fast results witha solution approach that is relatively non-intrusive. Thetable below provides a framework for evaluation, alongwith examples of solution approaches to problem areasthat can deliver fast results. Likewise, it shows solution

Evaluating Time-to-ValueProblem Area Examples Solution Approaches

Shorter

Longer

• Business analytics/reporting• Inventory optimization• Forecast optimization• Point-of-sale data analytics• Sales and operations planning

• ERP• Order management• Procurement systems• Business model changes• System replacements

• Incremental business releasemethodology

• Managed services• Business optimization center• Business content library

• Waterfall• Customizations/developments• Big bang


concept to deliver an improved sales and operations planning process in a short period of time. Sales and operations planning is rich with needs for information and decision support throughout the process of plan creation and execution.

The pathway from short-term to long-termShort-term and long-term value delivery do not have

to be mutually exclusive. Rapid value delivery should beconsistent and act as a building block for additional valuein the future.

i2’s business-release methodology is built on this ideaof incremental value delivery. Each business release deliversa set of capabilities (process, metrics, people, etc.) thataddresses a distinct business need and contributes to economic profit. Newer delivery mechanisms, such asmanaged services through a business optimization center,build on the business-release approach. In this case, how-ever, the need to install software in a customer environmentis eliminated, thus reducing significantly the amount oftime and effort involved.

A number of companies are using managed servicesand the BOC delivery approach as a stepping stone to afuture system installation. For example, i2 is working withone company that uses managed services and i2’s BusinessOptimization Center to provide financial-impact reports,analyses of inventory and capacity deviations—shortfallsand excesses—as well as to plan scenario management.And now this company wants to build these capabilitiesinto a system in their own environment.

This company valued the fact that the managed serviceswere up and running and delivering results in a three-monthtimeframe. And they were able to refine in-house the system requirements they wanted as they went throughthe learning cycles that the BOC provided. They wereable to achieve significant business value while goingthrough the definition and design phases of a traditionalIT system implementation—without the expense andinternal upheaval of those steps, but with the domain andtechnology expertise of an experienced business partner.

Today, as increased competition and product innovationcall for an increasingly rapid time to value, a business-release and managed-services approach to supply chainmanagement has become mission critical for the world’sleading companies.

system replacement typically also will be lengthy, just as companies that use a waterfall development and implementation methodology will often see lengthyimplementations.

These projects are “big bang” in nature, meaning thatall of the requirements are defined, designed and imple-mented in an all-or-nothing fashion. Inevitably, projecttimelines lengthen and costs escalate as layers of require-ments and late process changes are added. When big bangis the norm, there is a self-reinforcing loop, since manybusiness users see these projects as their once-in-a-lifetimechance to get their desired capabilities, thus exacerbatingthe cost and time factors.

It is important to note that faster delivery approaches,such as the incremental approach and managed services,can be used to accelerate value even on the tough, typicallylonger-cycle business problems. These can be used tobootstrap the overall programs and show early successes.

How to obtain on-demand capabilityProjects managed by i2’s Business Optimization

Center have revealed that executives want an on-demandcapability. A sample query might be: “Show me the optionpenetration rate of the luxury package on the SE automodel within the Omaha region. Explain to me why it was greater or less than planned, and tell me whatwe can do about it today, please.” This is substantially different from waiting for the monthly cycle to complete,then getting an ERP backward-looking report and thenfiguring out what to do about it in the next planningcycle. Furthermore, these needs may not be previouslydefined in such a manner that they can be put into amonolithic system.

Managed services delivered through a business opti-mization center combine human intelligence with tools todeliver improved analytics and answers to daily businessproblems. This means the BOC may make use of manualtechniques, spreadsheets and analytical engines that areinstalled in an offsite environment. This capability alsoruns 24x7, so that business problems delivered at the endof one day can be structured, sent to an offshore entity in India, Eastern Europe or China, and then solved forthe customer by the beginning of the next business day.This is business-decision support delivered rapidly,around the clock.

A number of companies today are using the BOC

Kelly Thomas is senior vice president of i2’s ManufacturingIndustries Sector. For more information, contact [email protected].

A business release is an integrated set of changes that results in somebusiness improvement.

News Briefs


.

i2 Cited in TMS Leaders’ Quadrant by GartnerGartner, a leading industry research firm, placed i2 in

the leaders’ quadrant in its 2007 Magic Quadrant forTransportation Management Systems report. The i2 TotalLogistics Management footprint includes solutions forstrategic network design and analysis, transportation modeling and what-if analysis, transportation bid opti-mization, shipment planning and optimization, trans-portation execution, freight financial management, supplychain visibility, performance management and analytics.

i2 helps manage the transportation life cycle at leadingcompanies such as Anheuser-Busch, Caprabo, CooperTire & Rubber Company, JCPenney, LG Electronics,Penske Logistics, PepsiCo, Ryder, Samsung, TexasInstruments and others.

Supply Chain Leader Receives Industry RecognitionSupply Chain Leader magazine was recognized by

several professional organizations in 2007 and early 2008for successfully reaching its target audience with appealingcontent, innovation and design. The League of AmericanCommunications Professionals LLC (LACP) awarded i2a Silver Award in the newsletter/magazine category of its2007 Spotlight Awards, an annual print, video and webcommunications competition.

Additionally, PR News’ Platinum PR Awards programawarded Supply Chain Leader an honorable mention in theexternal publication category. The awards salute the year’smost outstanding communications initiatives and pro-grams and set the industry benchmark for excellenceacross all areas of public relations.

The 18th Annual International GALAXY 2007Awards recognized Supply Chain Leader with a SilverAward for copywriting in the general magazine category.The competition honors excellence in product and servicemarketing and symbolizes the assembly of numerous disciplines that create marketing excellence and honors the professionals who contribute to the process of buildingimage, creating profit and making a difference in the marketplace.

Finally, Supply Chain Leader was given the BronzeAward in the 21st Annual MERCURY 2007/08 AwardsCompetition. The award is given for excellence in pro-fessional communication, and Supply Chain Leader wasrecognized in the external magazine category.

CGT Recognizes Burt’s BeesConsumer Goods Technology magazine recognized Burt’s

Bees, the leading manufacturer of more than 150 Earth-friendly, natural personal care products, for OutstandingAchievement during the Consumer Goods Technology FallConference in October 2007. Burt’s Bees was recognizedin the small to mid-size business category for its supplychain solution work with i2.

Burt's Bees uses i2 solutions to more precisely managekey manufacturing variables, from work-center capacityand set-up times to material availability, labor availability,due dates and production policies. Built on the principlesof lean manufacturing and constraint-based planning, i2solutions enable companies to reach the best throughputand customer service at the lowest inventory level andcost. Burt's Bees is reaping benefits through more effectiveworking inventory, higher throughput, higher on-timedelivery rates, improved customer service levels and lowermanufacturing costs.

Ken Sharma Award for Excellence Finalists Honored Ten i2 customers were recognized as Ken Sharma

Award for Excellence finalists in a ceremony at the i2User Group’s Directions conference November 6–7, 2007.The award is named in memory of i2 co-founder KenSharma, and recognizes companies for their ability to leverage i2 solutions to drive innovation and businessexcellence. An independent panel of AMR Research analysts judged the entries and selected finalists in several categories, including implementation depth and breadth,supply chain innovation, and return on investment. Thefollowing companies were recognized in each category:

• Implementation Depth and Breadth:VF Corporation, Sprint Nextel, Cummins, Inc.

• Supply Chain Innovation: Panasonic, FairchildSemiconductor, Texas Instruments, Inc.,Tata Steel Limited

• Return on Investment: China Steel Corporation,BAE Systems, Lenovo Group Limited

Global Ken Sharma Award winners were selected from among the category finalists and will be recognizedat i2 Planet 2008, April 30–May 2. Winner names werenot available at press time.

Supply Chain Management

AMR Research’s Supply Chain Top 25 Beat Marketwith 17.89 Percent Return

AMR Research reported in January 2008 that its SupplyChain Top 25 portfolio of companies outperformed themarket for the third year in a row. The average total returnof the Supply Chain Top 25 companies for 2007 was17.89 percent, compared with returns of 6.43 percent forthe Dow Jones Industrial Average (DJIA) and 3.53 percentfor the Standard & Poor’s 500.

In a press release, Kevin O’Marah, chief strategy officerat AMR Research, stated, “We’re excited to once againhave proof that supply chain excellence and leadership domake a difference. Clearly this is a group of companiesthat excels, strongly weathering the ups and downs we saw in the market last year.”

AMR Research’s Supply Chain Top 25 is an annualranking that recognizes large manufacturers and retailersthat display superior supply chain performance, capabilitiesand leadership. The analysis takes basic public data as a foundation—return on assets, inventory turns andgrowth—and considers expert and peer assessments of thefuture leadership potential of each company. Twenty of thecompanies ranked in the AMR Research Supply ChainTop 25 are i2 customers.

Aidmatrix and NAFC Named Winners of CSCMP’s2007 Supply Chain Innovation Award

The Aidmatrix Foundation Inc. and the NationalAssociation of Free Clinics were awarded the 2007 SupplyChain Innovation Award by the Council of Supply ChainManagement Professionals (CSCMP) at its November 2007annual conference. The award was presented by CSCMP’sResearch Strategies Committee and Global Logistics &Supply Chain Strategies magazine, who established theSupply Chain Innovation Award to recognize the best and most innovative teams in supply chain today.

Keith Thode, Aidmatrix chief operating officer, andNicole Lamoureux, executive director of the NationalAssociation of Free Clinics, presented their case to a panelof judges from industry and academia. The FreeClinicLinkprogram they presented is a web-based tool that connectsmedical donors with members of the National Associationof Free Clinics. The tool enables free clinics nationwide toreceive donations of medical products and to purchasemedical products at discounted rates. This supply chainhas made great progress in the area of medical relief and

A L T E R N A T I V E T H I N K I N G A B O U T V I R T U A L I Z A T I O N :

Build In Cohesive Maneuverability.(Translation: Dare Anyone To Keep Up With You.)

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Leadership Garners Praisefacilitated over $50 million of donated products. The costsavings alone totals more than $1 million from collabora-tive buying and real-time data integration with suppliers.

i2 Technologies is a founding supporter of Aidmatrix,having donated the original supply chain software fromwhich today’s Aidmatrix solutions evolved. By combiningproven supply chain management and Internet technologywith collaborative partnerships from the business andnonprofit sectors, Aidmatrix creates visibility to supply anddemand information, better decision support capabilities,more collaboration, and an open forum to engage moredonors in mobilizing needed aid quickly. Ultimately, it linksaid with need worldwide. Aidmatrix mobilizes more than$1.5 billion in aid annually, working with more than 35,000nonprofits and government agencies worldwide. Theinternational organization activates product, human andfinancial resources impacting the lives of more than 65million people. To learn more, visit www.aidmatrix.org.



Interview by Victoria Cooper

16

Buying it rightMichael Hahn is the vice president of Product

Operations at Sprint, the third-largest wireless operator in the United States (revenue, $41 billion). Hahn isresponsible for inventory management, demand planning,procurement, transportation and warehouse logistics forall products purchased and sold in Sprint’s distributionchannels. Before joining Sprint in 2004, he had a similarrole with AT&T Wireless for nine years, where he wasvice president of Consumer Equipment, responsible forlogistics, inventory management, supplier managementand product portfolio. Prior to entering the telecommu-nications industry, Hahn had experience working formajor U.S. retailers, such as Circuit City and Macy’s.

In this interview, conducted by Supply Chain Leadereditor Victoria Cooper at Sprint’s headquarters in OverlandPark, Kansas, in late January, Hahn discusses the resultsof a wide-ranging supply chain initiative at the company.

Supply chain efficiencies remain a focus at this wireless operator, as it applies the most advanced technologies to solving the riddle of getting the right product to the right customer at the right time.

What is the scope of the products your team supportsat Sprint?

The products include our core wireless devices, includingour standard handsets, and our data devices, such as PDAs(personal digital assistants), wireless modem cards, smartphones, and the accessories to support all of these devices.The distribution channels include the independent dealer/agents, our national retail partners—such as Best Buy andRadioShack—and more than 1,300 Sprint-owned retaillocations. In addition, Sprint has an extensive direct fulfill-ment effort utilizing the Web (Sprint.com), telesales,and the Sprint Business Direct sales team, across small,medium and large businesses, plus public sector accounts.

Are there any other supply chain organizationswithin the company?

Yes. There is a corporate supply chain organization,with responsibility for the supply chain activities with ournetwork equipment, capital purchases, contract manage-ment and cost negotiations. My team has an outstandingworking relationship with this organization, which alsoprovides us with our performance metrics and handlessupplier disputes.

Product Operations is the customer-focused organi-zation, and serves as the last line of defense before theproducts leave our warehouse and reach the customers’hands or the distribution channel.

How closely do you work with Marketing?

My team reports into the product development organi-zation, and we are closely aligned with both the sales andmarketing organizations. We’re an integral component ofthe planning cycle for understanding what our productneeds are for the future. Sprint has always been known forcreating unique and innovative products—for instance,Sprint offered the first GPS-enabled phone in 2001, andwe are leaders in navigation and location-based servicesfor mobile phones. We work closely with the marketingand sales organization to understand the demand for our


products and then work with our suppliers to ensure thatwe have adequate supply available at the right time andlocation throughout all of our distribution channels.

How have customer demands changed over the pastfew years, and what has this change meant at Sprint?

Simply put, customers have become more demanding,calling for greater diversity in the types of devices offered.Quarter after quarter, we have seen that our customersenjoy doing more with data services on their phones, suchas email, Web surfing and access to entertainment. Theywant “smart” phones, whether they’re on a Windows,BlackBerry, or Palm operating device, with full access totheir e-mail and the Internet.

Currently, Sprint has some of the hottest products onthe market, ranging from devices that allow you to textmessage easier via a cell phone with a slide-out qwertykeyboard to many of the most innovative data devices inthe marketplace. The devices are getting more cutting-edge, offering a wide variety of different applications. Tomeet the growing needs of our consumer and businesscustomers, we must be able to offer a diverse collection of feature-rich devices.

The traditional use for a basic wireless phone—makingcalls back and forth—is still a substantial share of thebusiness. But, that said, the number of customers utilizingdata capabilities over the Sprint network continues togrow, quarter over quarter. And Sprint’s new “SimplyEverything” unlimited voice and data pricing plan for$99.99 opens the door for even more customers to fullyexplore data services on their wireless phones and trulyappreciate what wireless mobile data services can offer.

Is the product mix going to get greater?

Yes, and fortunately, Sprint has a long history of beingahead of the curve when it comes to products. The needsof the customer are forever changing, and there is more ofa need for segmentation in our channels. We have a greatdeal of diversity in our customer base, from the smallbusiness owner to the Fortune 100 corporate customer;from the individual consumer to the government client.We have to make sure that we have the diversity in ourproduct assortment to meet their needs, whether it’s adesire for data, music, video, text messaging or Direct

Connect (push-to-talk), or a combination of such features.And yes, we still offer voice products.

What is your product volume?

Across all of our products in our distribution network,Sprint “touches” more than 4 million units a month, froma forward and reverse perspective. But the types of ordersthat Sprint fulfills range from tens of thousands of unitsshipped in bulk to a national retailer to a single phonewith customized software shipped to a satellite businesslocation. So the range of “where and who” we ship to isquite diverse.

INTERVIEW CONTINUED on Next Page . . .

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our true demand needs are. With the i2 forecasting andreplenishment tools and capabilities, we were able to create the solution.

The applications and systems that we worked with i2to develop have allowed us to better forecast our inventoryneeds, more accurately distribute our products to the rightplaces across our distribution channels, and better replenishour warehouses and locations.

Sprint had the vision years ago to recognize that theportfolio was going to expand, to get more diverse, with a fashion component. We realized we would not be able to enlarge our inventory, but rather would have to manageit in a more disciplined way across multiple models.We could not do this on our own, without some of theadvanced technology offered by a company like i2.

Did you need to change your organizational structure?

By automating many of our processes and achievingmore accurate demand planning and replenishment manage-ment, we have been able to structure our organizationmore efficiently. Instead of having people structured bychannel, working at very detailed levels for lack of auto-mated tools, we have now organized our managementprocesses across the following competencies: warehouselogistics, demand planning and procurement, and replenish-ment and distribution. And I’ve instituted a fourth function:program management across these three groups.

What about your warehouse logistics network?

To further simplify our business we went from 19warehouses (after the merger) to 2 central warehousefacilities. Our main point of distribution is centralized inone of the largest distribution hubs in North America:Louisville, Ky. We have a great partnership with UPS,whom we work with on our transportation and warehouseneeds. UPS provides the “brick and mortar” as our out-sourced, third-party logistics partner, but Sprint managesthe processes and requirements. The partnership betweenUPS and Sprint is excellent and involves executives at themost senior level of each company’s management team.

Sprint also uses Brightpoint in Indianapolis to supportthe logistics management in our dealer/agent distributionnetwork. Brightpoint is the most capable supply chainprovider focused in the wireless space, and has a long history of partnership with Sprint.

By consolidating and centralizing our logistics needs,we can leverage tremendous savings and maximize efficiencies. And we are now “next day” to anywhere in the country, regardless of order size.

What is the nature of the competitive environment?

The global telecom market is forecasted to manufactureover 1 billion devices in 2008. It’s a very competitive environment, with more than 80 percent saturation in the United States. The companies who succeed will be the ones who plan, forecast and procure accurately and in a timely manner with their suppliers.

What was your first challenge when you came toSprint almost four years ago?

When I joined Sprint, we needed to improve in ourinventory forecasting and distribution. We experiencedchallenges with supply during product launches as well aswith forecasts for procurement and replenishment. Inaddition, we faced long vendor lead times and deliveryinconsistencies.

When we merged with Nextel, our distribution networkbecame even more complex, with legacy systems that didnot “speak” to each other and were mostly manual ratherthan automated fulfillment processes. We determined thatto achieve world-class demand and supply managementwe would need to change our organizational structure,our processes and our systems technology.

What role did i2 play in your initiative?

When I arrived at Sprint, the company had just inkedan agreement with i2. I guess you could say I inherited it,but I then became its champion. We liked i2’s history andbackground working with similar-sized corporations thatmanage inventory across multiple distribution channels.We chose i2 for its ability to help us manage the flow ininventory through our points of distribution and, in turn,monitor the demand that we have planned with our suppliers to ensure that they manufacture and deliver thegoods when we need them. What we needed was moreaccuracy and more agility in our demand and supply modeling.

What we don’t want to have is our suppliers manu-facturing the wrong quantities—too few or too many. Wedidn’t want them manufacturing the wrong models or thewrong colors, having too much of one model or too littleof another. We need for them to focus on building to what

The global telecom market is forecastedto manufacture over 1 billion devices in2008. It’s a very competitive environmentwith over 80 percent saturation in theUnited States.


What are some of the improvements you’ve realized?

In addition to cost savings, we’ve reduced inventorylevels across all of our distribution channels. We’ve improvedour in-stock levels, despite the fact that our product portfolio is more diverse than ever. This is a substantialimprovement for any industry, not just the wireless space.

We’ve seen significant improvements in forecast accuracy. The purchase forecast accuracy (3 months out)has doubled to around 70 percent, while the replenish-ment forecast accuracy (1 week out) has improved by 60percent. We’ve automated more than 90 percent of ourreplenishment orders.

Doesn’t Sprint have a large retail presence?

Yes. What we often don’t get credit for—and I thinkthis applies to all telecom operators—is that we are a largeretailer, in addition to our other distribution channels. Wehave more than 1,300 retail locations. How many retailershave that many locations? So retail is very important to us.

What is your next challenge?

How can we reduce the inventory levels even further?How do we reduce the timeframe between when an itemis manufactured in Asia to when it is delivered to theSprint warehouse?

What I’d like to see is a true “just-in-time” scenario.This will require collaboration with all of our partners,involving third-party logistics operators, our IT partners,transportation providers, and our device suppliers.

Clearly, the device suppliers are our partners in thisendeavor. We cannot insist on something that is a surpriseto them, so we have to engage them in our processes fromthe earliest moment. They have to understand what we’reworking on, and what our customers demand. We workcontinuously with them to make improvements in quality,availability and efficiency.

Our role in the food chain works like this: we workwith the manufacturer on the requirements and capabilitiesneeded to support the customer and their needs. All ofour potential devices are then tested thoroughly on ournetwork, before they are launched and approved for saleon the Sprint network.

We are working on the development of a device from12-to-24 months before it’s launched. It’s up to Sprint to

understand what the content should be, what the softwareneeds are, and what services the customer requires accessto. We do not manufacture the devices, although we needto forecast and plan the quantities correctly so our supplierpartners can meet our inventory needs.

We’re developing devices today that will ship in thesecond half of 2009. The ironic part is that because thelife cycles of our devices are as short as they are, it’s evenmore important than ever to “buy and plan it right, fromthe start,” and our partnership with i2 has helped Sprintmake this happen.

Victoria Cooper is the principal of Cooper Communications(www.coopercomms.com), based in Sausalito, Calif.For more information, contact [email protected].

Our margin of error continues to getsmaller as we add more diversity to ourproduct portfolio.

The Case forKnowledge Process Outsourcing

by Anand Iyer



Managing complex supply chain operations and applications requires an increasingly broad collection ofsophisticated skills. Sustaining a team that possesses this skill set, while controlling costs, is one of the main challenges facing businesses today. Because it takes a large,skilled staff to support supply chain management appli-cations, enterprise and legacy systems, and the humanprocesses with which they intersect, personnel costs caneasily be at odds with tight budgets. Complex workflowsand data integration consume management attention,undermining the focus on continuous improvement andexception management. Because staff is tied up in basicoperational tasks, innovative projects with a real businessreturn on investment wait in the queue. Likewise, thecomplexity involved in the delivery of future requirementsdemands deep solution expertise, often lacking in existingsupport teams.

In addition, companies are challenged by increasinglyfrequent changes in business requirements as they respondto market dynamics. For instance, new technology inautomotive, telecommunications and consumer electronics

has opened up new markets to semiconductor manufacturers.Each market has its own business requirements with whichthese manufacturers have to stay current. A contract withan automaker to provide a component for a number ofyears can go unchanged. But a component for a cell phonemust be custom made for a particular model, and will bein production only as long as the phone is produced. Inthe latter case, the shorter product life cycle for the customcomponent requires effective order and inventory manage-ment to maximize profit. In a quickly changing scenario,businesses often rely on ad hoc spreadsheets that cannothandle either the volume or the complexity required fordata analysis and decision making.

These market challenges can all be met through out-sourcing with service providers to help fill the resourcegaps. Many supply chain organizations are turning to outsourcing various capabilities—from information tech-nology outsourcing (ITO) to business process outsourcing(BPO) to knowledge process outsourcing (KPO)—requiringmulti-location teams to work together effectively.Advancements in technology and international telecom-munications, as well as a mindset shift brought about bythe forces of globalization, have made it easier for multi-location teams to accommodate each other and work productively. The availability of outsourced teams, onshoreand offshore, comprised of specialists who can run day-to-day supply chain functions, and experts who possess thedepth of knowledge required to offer business and strategicguidance, has begun to help shift the goals of supply chainservice providers. As they endeavor to satisfy their customers,they are delivering outcomes, not just software products.

Whether it's demand management, inventory opti-mization, channel management, forecast optimization orpoint-of-sale-based replenishment, leading-edge supplychain service providers offer such capabilities as serviceswhich can be rapidly assembled and reassembled to meetthe demands of today's market. This eliminates a rigid setof roles, fixed assets and processes that can be ineffectual,costly and slow. Additionally, by assembling multi-locationteams, these leaders are able to work with their customerson an operational level rather than on a project-by-projectschedule. And these teams become part of the customers’supply chain organizations, dedicated for the long haul.As a result, expenses are reduced, learning curves areshortened and effectiveness is increased.

Building a team like this is similar to a semiconductormanufacturer outsourcing a component to a specific man-ufacturer who becomes integrated into the production of

KPO CONTINUED on Next Page . . .

Many supply chainorganizations are turning to outsourcingvarious capabilities—from information technology outsourcing(ITO) to businessprocess outsourcing(BPO) to knowledgeprocess outsourcing(KPO)—requiringmulti-location teams to work together effectively.


the final product. Let’s look at how a hypothetical semi-conductor company’s responses to changes in the markethelped develop today’s KPO scenario. ABC Semiconductorhad manufacturing sites spread across five continents.Because of a siloed approach, oftentimes the differentbusiness units within ABC were talking to the same customers. Each business unit had its own relationshipwith one of ABC’s manufacturing sites, creating massiveduplications and inefficiencies.

To simplify business processes and focus business unitson growing revenue, ABC was reorganized to make businessunits focus on sales, marketing and design. Manufacturingbecame a shared asset that was its own cost center focusedon increasing efficiencies and getting the best return oncapital investments. It didn’t make sense to purchase manufacturing equipment that wasn’t going to be in pro-duction often enough to justify its cost. As a result, ABCmade the innovative (at the time) move of using a mixedstrategy of internal and external manufacturing sites. Inthe quest to find cost-effective ways of doing things, itdetermined that in some cases it was smarter to use subcontractor resources, and in others it was best to keepproduction internal.

When the dot-com slump arrived, ABC’s CEO wantedto see more cost-reduction measures. He put increasingpressure on upper management to reduce expenses in staffand support functions. At this time, advancements inglobal communication technologies supported the moveby the CIO to develop an ITO strategy that moved routine

application maintenance and specification-based program-ming jobs to low-cost countries. Soon ITO became a routine, ordinary part of the work landscape. Still, thepressure remained to further reduce expenses while maintaining service-level agreements with customers.

In the meantime, the industry worked its way out ofthe dot-com slump, and the company crafted a morenuanced strategy to develop the business, leveraging BPOand KPO. The changes included carefully matching supplychain policy, business-support policies and customer segmentation with the different lines of business. A one-size-fits-all supply chain strategy for diverse markets wasno longer effective. It was apparent that to accomplishcompany goals while keeping costs low, the traditionallines between IT and business needed to be blurred insome areas, notably in the supply chain operations space.Supply chain business expertise expanded to include supply chain management applications.

In addition, the years of working globally with teamsin different geographies had provided fresh data andinsights into the structure of work; which tasks could beoutsourced and which needed to be done in-house. In the final analysis, ABC met its market challenges byembracing innovation and allowing itself to build the team it needed from both inside and outside of its walls.

BPO performs essential tasksCompanies like ABC learned to solve resource problems

by going off site when justified. The early days of out-sourcing were focused on information technology capa-bilities, but it soon became obvious that companies neededthe human resources to perform essential tasks beyonddata warehousing and analysis. While BPO paved the way for KPO, the two must be viewed as providing quitedifferent capabilities to a company. The kinds of services

As they try to satisfy their customers,supply chain service providers are delivering outcomes, not just softwareproducts.

Progression of Process Outsourcing

1900-1980s 1990s 2000s 2007+

Enterprise Competencies

Enterprise Focus• Strategy• SC Ops• Technology• Manufacturing• Payroll &

Accounting

• Brand/Sales/Marketing

• Analytics/BI• R&D• Call Center• Logistics

Business Competencies

Enterprise Focus• Strategy• SC Ops• Technology

CompetencyPartner Network


• Analytics/BI• R&D

• Manufacturing• Payroll &

Accounting

• Call Center• Logistics

Knowledge Competencies

Enterprise Focus• Strategy• SC Ops



• Analytics/BI

• Technology• Manufacturing• Payroll &

Accounting

• R&D• Call Center• Logistics

Core Process Competencies

Enterprise Focus• Strategy



• SC Ops• Technology• Manufacturing• Payroll &

Accounting

• Analytics/BI• R&D• Call Center• Logistics

provided by BPO include:• Low-cost offshore programming• Integrated ordering• Fulfillment management of solutions• Order picking and tracking• Distribution• Warehouse management• Print and fulfillment• Data processing • Technical support• Email support to customersAs indicated on this list, BPO focuses on scripted tasks

within business processes that can be learned quickly—ina few weeks or months—by offshore workers. Typically, anentire business process is given to a BPO vendor. In somecases, the hiring company transfers some staff to the BPOvendor as well.

KPO provides in-depth industry knowledgeKPO moves one step above BPO in the pecking order

by adding domain expertise and an in-depth understand-ing of a specific industry. KPO workers have specializedproficiency in their field, which often requires severalyears of experience, a high level of intellectual skill and an advanced degree. Their work requires a fair degree ofjudgment, subjective analysis and interpretation. In general,KPO workers provide business-sector expertise—ratherthan pure process or technology expertise—that directlyaffects efficiency, effectiveness and business outcomes.

Typical KPO services include:• Data input, transformation and reporting• Research and data analysis• Financial data analysis• Inventory analysis• Marketing and channel data analysis• Supply chain application operation and maintenanceWhen looking for a KPO partner, companies should

look beyond the best price point available to the most critical competencies and knowledge available across alllocations globally. Imperative to any KPO approach is thatthe provider offers secure hosting and working environments,ensuring that all sensitive data and intellectual propertyare secure and protected. All members of a KPO team alsoneed to have deep operational experience within a specificindustry area, so they can set up solutions that give customersthe greatest knowledge available in a given vertical.

Companies that do not have the resources to add staff,or the knowledge in place to solve complex supply chainproblems, can meet their needs and excel in their businessusing a mixture of ITO, BPO and KPO. In most cases,because these outsourced resources focus only on one customer’s supply chain interests, cycle times are low and

Anand Iyer is an i2 fellow.



operations stay in a continuous innovation mode. Thisenables companies to focus on updating and implementingnew processes on a regular basis so they can hold a competitive advantage in the marketplace.

Companies today want supply chain managementimplementations that drive quick value. Too often inthe past, these implementations required significantupfront financial investments and took years to realizea return. Now, leveraging more than 20 years of lead-ing-edge knowledge and domain expertise and 10years of offering knowledge process outsourcing capa-bilities, i2 Operations Services takes inventive, out-come-based approaches to solving these problems—redesigning processes when necessary, implementingtechnology to reflect those process changes and help-ing companies make sense of their data.

Using i2 Operations Services, companies can out-source core supply chain processes including forecasttuning, channel sales management and inventoryoptimization—bundling the services and solutionsthat they need to meet their business requirements.

With secure hosting and working environments,and a dedicated staff of experts in both the UnitedStates and India, i2 Operations Services providesend-to-end supply chain initiative support, from solu-tion planning to hosting and application mainte-nance. i2’s specialists have deep operations experiencewithin specific industry areas, giving them the abilityto set up and deploy i2 solutions with the users’ spe-cific needs in mind. Executive affiliates also providepractical insight and expertise derived from theiryears of working within industry.

Applying the experience from more than 1,000supply chain initiatives, i2 Operations Services hasdemonstrated success with some of the world’s leadingcompanies. By outsourcing supply chain managementfunctions to i2, customers are increasing profits, removinghardware and personnel costs and reducing risk.

i2 Solutions

Operations Services

Overcoming the New Demand Uncertainty

Overcoming the New Demand Uncertaintyby Robert Anson


As consumers, we have realized enormous benefitsfrom supply chain globalization, which has made a newworld of options available to us. Suddenly, we can choosea laptop or cell phone in our favorite color, with customizedfeatures that meet our own specific needs. While we usedto wait for August to look at next year’s car models, todaywe can walk into a dealership at any time of the year tofind brand-new vehicles waiting for us, or order one to bedelivered in a few weeks’ time. And our local departmentstore, which used to change its assortments only a few timesa year, seems completely reinvented each time we visit.

While we enjoy this amazing abundance—and, often,the lower prices that have resulted from global competition—today’s international marketplace has created seeminglyinsurmountable challenges for supply chain managers.Spread around the world, driven by fickle fashion trends,supported by ever-changing selling seasons, and dispersedacross a seemingly infinite number of product categories,consumer demand has never been harder to predict ormanage.

There is no doubt that suppliers have done their bestto rise to this enormous challenge, especially in expandingthe capacity of their operations. But, while global supplychain capacity has risen to answer the new level of demand,suppliers still face natural and inevitable limitations insuch areas as raw materials and physical infrastructure,which have made it hard to keep pace. Additionally, theymust manage their capacity investment: they cannot assumeinfinite demand. Their success really depends on one central competency: ensuring that the right amount of theright material is available at the right time, at the rightplace, and at the right cost to meet promises and sustainprofitability.

How can supply chain managers hope to balance thiscombination of business needs and imperatives? Today’snew demand uncertainty cannot be managed unless bothmanufacturers and suppliers are willing to shift to anentirely new mindset—one that encourages a truly globalview, and that eliminates the traditional barriers that separate trading partners. By taking a more global and

collaborative view of their shared supply chain, manu-facturers and suppliers can work together to manage andeven leverage the demand uncertainty that characterizesthe worldwide marketplace.

Think globally––act globallyThe reason so many manufacturers struggle with the

ramifications of offshore and low-cost-country sourcing is that they are trying to apply traditional strategies to acompletely different business paradigm. The old adage“think globally, act locally” doesn’t hold up when the supply chain is distributed around the entire world, andthe entire concept of “local” no longer applies. Modernsupply chain managers must embrace a new mantra:Think globally—and also act globally.

Instead of building a series of regional supply chainsthat serve each of their manufacturing locations, supplychain managers must take a truly global view. They needto aggregate demand across the global business, evaluatetotal supply needs, and examine the best trade-off oppor-tunities when the unexpected occurs. Faced with a potentialmaterials shortage at one facility, they can reassign materialsfrom other locations or re-route inbound material fromthe source in order to capture the greatest return acrossthe entire value chain. Then they can make intelligentallocation decisions that maximize the volume of thehighest-margin products, meet critical regional selling season deadlines, fulfill especially large orders, or satisfythe needs of key customers.

Today, offshore lead times and delivery costs can beroughly equivalent to closer-to-market onshore locations,whether products are being delivered to the United States,Europe or South America. Redirecting supply can be arelatively straightforward decision; that nearly loaded shipin a faraway port can be routed to Rotterdam instead ofHouston at approximately the same delivery time andcost. While offshore and low-cost-country manufacturinghave presented challenges, today’s new global supply chain

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Today’s new international marketplace demandsthat suppliers and manufacturers create a moreopen and honest relationship—one that acknowledges demand variations, and sharesrisks and rewards with both businesses.


does offer significant advantages in terms of flexibility—benefits that most supply chain managers have not yetfully embraced or realized.

For many organizations, the ability to see and balancethe global demand and supply picture requires process andorganizational changes. Once centralized at the regionallevel, supply management will need to take place on a muchbroader international scope. This new global perspectiveenables manufacturers to more effectively manage demanduncertainty. Armed with an enterprise-wide view and anew sense of agility, supply chain managers can honortheir traditional inventory and velocity targets, while alsominimizing the costs associated with expedited shipments.

Make your supplier your partner––reallyThere is yet another mindset shift required of supply

chain managers who want to successfully manage fluctu-ating consumer demand—and it involves redefining theirhistoric relationships with suppliers in order to make themtrue partners.

We all know that serving consumer markets meansoperating with a given amount of uncertainty every day.No matter how talented a manufacturer’s employees, howwell-honed its processes and how advanced its technologies,meeting the changing preferences of an international population will never be an exact science.

But the traditional manufacturer-supplier relationshiphas been based on the notion that end-user demand ispredictable; that a certain amount of product or material isabsolutely required on a given day. In many respects, thehistoric manufacturer-supplier relationship has been characterized by a sort of unfounded optimism.

While manufacturers know that their materials-requirement forecasts will always be somewhat inaccurate,they have asked suppliers to commit to these estimatesanyway—and then adjust upward or downward as the truedemand level reveals itself. Recognizing that manufacturers’initial forecasts are usually overly optimistic, suppliers haveresponded by making delivery promises that they couldnever realistically fulfill. A true desire to partner has toooften degenerated into a series of gaming and hedgingexercises—with neither party emerging as the winner.

Today’s new international marketplace demands thatsuppliers and manufacturers create a more open and honest relationship—one that acknowledges demand variations, and shares risks and rewards among both businesses. For example, manufacturers can assign a tieredcost structure to capacity usage at supplier facilities,negotiate specific cost terms for the use or non-use of thiscapacity, and pay in advance to reserve capacity. In return,suppliers can provide additional upside volumes withoutthe usual price premium, or agree to incur penalties if theyfail to deliver the promised volumes.

This kind of manufacturer-supplier model requires an improved level of trust, which is enhanced by sharingand calibrating uncertainty. Instead of engaging in games-manship and overestimating, manufacturers can maketheir demand uncertainty more explicit, just as supplierscan make their actual assignable capacity more explicit.Manufacturers can restructure their demand forecasting inorder to make it more collaborative, as well as basing it on a “range” of uncertainty that is more realistic andinformative than a definitive forecast.

For example, demand can be partitioned into threetiers: 80 percent confidence, 50 percent confidence and 30 percent confidence. As both organizations progressthrough the forecasting horizon, uncertainty will shrinkand confidence will increase. This creates a manufacturer-supplier relationship based on informed confidence, whereuncertainty is visible—and so are the costs and consequencesof missed deadlines. This type of approach is especiallyvaluable when supply capacity elasticity is low anddependency is high—for instance, when a manufacturerrelies upon a second-tier supplier for a critical componentrequired in the late stages of product assembly.

A new world requires a new perspectiveThere is no doubt that supply chain globalization rep-

resents a significant challenge for even the best-managedbusinesses. But this challenge is difficult to meet for thosemanufacturers—and suppliers—who try to adapt old waysof doing business to a world that has been completelytransformed.

Today, achieving supply chain excellence requiresentirely new perspectives and strategies. Two imperativesare clearly emerging. One, companies need to globalizesupply planning and management—often through the useof an enterprise-level demand-supply process. Two, theyneed to establish more honest, collaborative supplier relationships that acknowledge and share uncertainty.These innovative approaches must be embraced by anybusiness that seeks to gain competitive advantage intoday’s transformed business environment—where theentire world is a potential customer.

Bob Anson is senior director of Total Supply Management at

i2. For more information, contact [email protected].

The old adage “think globally, act locally” doesn’t hold up when the supply chain is distributed around the entire world.

means in terms of revenue and expense for the company.Visibility and accessibility of supply chain performancedata are critical to the S&OP process because they empowerus to better respond to requests for internal or subcontractorcapacity, analyze progress on major initiatives such as newproduct introductions, or capitalize on excess capacity forincreased revenue-generating opportunities.

Annually, we conduct a supply chain metrics review to assess our total supply chain management costs andasset utilization. We engage a consulting firm to conduct a comprehensive SCOR® (Supply-Chain OperationsReference-model) assessment for us, and also to bench-mark Fairchild against others in our industry. We use thisannual review process to identify performance gaps andsolutions to close those gaps, as well as to prioritizeimprovement initiatives and investments.

One of the areas of significant improvement realizedthrough the metrics and benchmark analysis process isdelivery performance to commit date. Fairchild targeted10-plus percentage points of improvement to increase ourcompetitive advantage in service. We used detailed root-cause analysis and regular metric reviews, and also developedsome new functionality to monitor performance throughthe factories to proactively manage late work-in-processinstead of waiting until the time of shipment. Timelyavailability of results allows the planning teams and factories to rapidly respond if things are off track.

Our root-cause analyses also revealed that our order-promising system was not adequately accounting for anumber of secondary constraints. Despite some productsbeing nearly interchangeable in our system from a capacityperspective, we were not fully allowing for these whenpromising orders. Consequently, we factored more detailfor significant secondary constraints into our processmodels, and the problem was resolved.

Another important area of improvement for Fairchildinvolved taking better control of our channel inventory.An extensive review of our channel inventory processeshas enabled us to substantially improve our inventory controls and sell-in, helping us to mitigate the bullwhip

OPINION CONTINUED on Next Page . . .

Opinion by Michael Cohen

Mary WilsonDirector,Global Supply Chain ManagementPlanning Systems,Fairchild Semiconductor

The Global Supply Chain Management Systems teamat Fairchild develops and manages the global supply chainsystems and related business processes that drive our supply chain success. Our CEO, Mark Thompson, highlyvalues and understands the leverage that an efficient supply chain can give the company, and has given us theresources to be successful. Our supply chain organizationconsists of several hundred people in locations around the globe, and forecasting and measurement are key components of our success. Our focus on supply chainmeasurement and process improvement during the lastfive years has delivered great results.

Every week our team measures key supply chain performance metrics and reports the results to our seniorexecutives. The report includes our top-tier metrics, suchas inventory turns, shipment-to-commit and delivery-to-request performance, and the revenue outlook—measuringour backlog and our position relative to revenue realization.We also take it to the next level and look at areas like new product delivery performance, customer delivery performance and lead times.

While geared toward C-level management, theseweekly metrics reports are also distributed to the supplychain team. This broad distribution offers visibility intoour metrics achievement throughout the supply chain,allowing team members to quickly review the performanceof their product group or manufacturing site and, if necessary, to do a root-cause analysis and remediate issues.Speed is another key component to our success. There issignificant complexity in our supply chain, and suddenchanges in demand, supply or costs require us to be fast,flexible and able to react based on real-time information.

Our longer-term view of the supply chain is managedthrough a monthly sales and operations planning process(S&OP). The comprehensive metrics package we publishplays an important role in that process. We start with aconsensus forecast roll-up, and then managers from eachfunctional area of the business meet to determine ourcapability to respond to that forecast—and what that

How (and How Often) Do You MeasureSupply Chain Results?

While geared to C-level management,weekly metrics reports are also distrib-uted to the entire supply chain team.


effect. Our weekly measurement and monitoring have ledto significant improvements in stability of weeks-on-handand buffer stock.

I am fortunate to work for a company with an executiveteam that realizes and appreciates the strategic value that awell-managed supply chain brings to the overall business.Our focus on results and commitment to weekly, monthlyand yearly monitoring and evaluation have made us amore efficient, productive company—and made supplychain management a competitive differentiator forFairchild Semiconductor.

James GeeseyDirector of eSourcing,Emerson

Emerson has over 60 divisions with more than 270manufacturing facilities all around the world. Raw materialsare approximately 40 percent of our sales, so our procure-ment processes are very important to our overall performance.

At the corporate level, we handle the sourcing for anymaterials or components that have leverage opportunitiesacross business divisions, and that turns out to be about 60percent of our direct materials. Procurement is the onlyfunction that is center-led. Corporate commodity teamsare organized in a business/commodity matrix, leaving thebusiness divisions to manage commodities that are non-leverageable at the corporate level.

To measure our performance and to drive improve-ments, we look at one overarching metric, and that’sreturn on total capital (ROTC), which we then breakdown into its components—cost of goods sold and working trade capital.

On the cost side, we monitor net material inflation,which we manage to reduce the cost of goods sold. We’vedeveloped a proprietary tool to track certain events thatinfluence our material costs. If, for example, we seechanges coming in the cost of steel or copper, we get earlywarnings on that and we take action to deal with it.

We measure inventory monthly and net material inflation at least quarterly. Based on that data, there are a number of ways we can respond. We can look for alter-

native materials or sources. We are very fond of on-lineand electronic negotiations—including reverse auctions,Dutch auctions and multivariate events—all of which arewell-known methods that help us reduce component costs.

In those processes, however, we are always very carefulto only invite suppliers that we are very comfortable with.We will never invite an unqualified supplier to bid just todrive down costs, as sometimes happens in this business.You introduce a lot of supply chain risk into your operationsif you are not careful in that way. When you cut corners,you jeopardize market integrity, and that’s something wewon’t do.

We also find it very important to get in front of theproduct development process by inserting the procurementfunction into new product design, so that our engineersare working with a design-for-sourcing mentality. This isimportant because once a bill of materials is fixed for aproduct, a good purchasing person can only take about 10 to 20 percent of the material cost out of that productby using the best sourcing practices available. When youget engineering and purchasing working together in theconceptual phase, however, you can often take 35 to 45percent of the material costs out of the product. So that’swhere the biggest gains are made.

Return on total capitalOn the trade, working capital side of the metrics, we

look at what we call “raw-material inventory velocity,”which is measured by days-on-hand of inventory. It’s a commonly used measure of asset utilization. We alsostrive to improve days payable outstanding, so we shortenthe days in the cash cycle, which is also known as the cashconversion cycle.

We take this approach because we think that when youtie everything back to return on total capital, you manageall things relatively well. You end up making more holisticdecisions about sourcing by not just focusing on one element.

These days, anyone can go to Asia and get significantcost reductions, but you also have to consider the additionalcapital costs required for that decision, or the supply chainrisks that enter into the equation. The longer the pipeline,the larger the bullwhip effect.

Of course, we are well established in Asia, but we primarily use Asian sources for supporting domestic production. We also use Asian suppliers to support NorthAmerican production, but we use a sourcing decision support tool to help us analyze price, working capital andsupply chain risk. It’s also a multi-function effort—it’s not just procurement sitting in a vacuum. Everyone has a seatat the table and that helps us make the best decisions.

When you tie everything back to returnon total capital, you manage all thingsrelatively well.


Opinion (Continued)

heats per day and the planned output from a handful ofother key processes downstream, then we’re not sweatingthe metrics at the next level down on the pyramid—thosemetrics will be for others to monitor.

If we don’t see the right output at key process points,then we know we’re not going to be able to finish andship the right amount of product this period, and we needto start asking questions. Each time you take a step downon the pyramid the amount of data explodes, so we stayfocused at the top. You can’t look at everything or you’ll be overwhelmed.

Of course, we have people on the sales, manufacturingand supply chain teams that are looking at the data ateach step down the pyramid. At any given level in thepyramid, we can measure data in months, weeks, days,hours or minutes. We’ll get down to the level of one workcenter or machine. We’ll measure the inventory in front of that machine, and the sequencers will monitor andschedule that machine on a shift-by-shift basis.

We’re looking at lead times every week, comparingworking capital to sales on a monthly basis, and reviewingoperating expenses on a daily, weekly and monthly basis.When we see deviations at any level, the people responsiblefor that area will start asking questions, performing analysisand taking actions as required.

A balancing actNone of this happens in a vacuum. These metrics are

used in our S&OP (sales and operations planning) process,which my group leads. Every Wednesday afternoon webring the business representatives to the table to reviewthe metrics, our plan and where we stand. And, unless it’s Christmas Day, we seldom cancel that meeting. It’s not unusual for Timken Steel’s president to stop by andparticipate in that meeting—and it is huge for us to havethat kind of support. It shows that he views the supplychain as important to the success of the business.

In that weekly meeting we balance the needs of thesales team with those of the manufacturing team. Theseneeds are inherently at odds with each other in any organ-ization. Sales folks want every product available in anyquantity, at all times, to satisfy customers anywhere in theworld. Manufacturing folks want to make batch sizes and

OPINION CONTINUED on Next Page . . .

Because our business models are so diverse, all functionsexcept procurement are led at the division level. So to sharesupply chain best practices, we have quarterly meetings,where division and corporate leaders gather to exchangeideas, to inform each other about what their teams aredoing, and to set strategy.

At Emerson, we are growing at a healthy clip, and wehave to ensure that our supply chain is as solid as it can beto sustain our top-line growth and to mitigate risk.Therefore, carefully monitoring our supply chain andmeasuring its performance are critical to our ongoing success.

William BryanDirector,Supply Chain and Supply Chain Economics,Timken Steel Group

The steel group at Timken has approximately 2,500employees, and in 2007, we had more than $1.5 billion inrevenue. We have a complex business, performing 100 different operations, with more than 300 different steel types,and about 9,000 customer specifications in our system.

It is important that the supply chain group shares asignificant portion of the economic responsibility for theoverall business, because what we do drives much of thefinancials for all of Timken Steel. In a similarly correlatedrelationship, the accuracy of our planning assures bettercustomer service through on-time delivery to our promisesand more precise determination of lead times.

We must excel at a number of key factors to leverageour supply chain performance; having, and meeting, theright performance metrics at all levels of the business iscritical to our success. At the highest level, you need tobring together the key metrics that interact with eachother. We call it a balanced metrics approach, because you can’t just look at any one metric in isolation.

On our top-level scorecard, we balance throughput,inventory, on-time delivery, lead times and cost. They areall connected, and you have to consider them all to under-stand the whole supply chain picture. I view our metricslike a pyramid, with each element getting segmented andmore detailed as you move down each level on the pyramid.

Our top-level management group focuses on the topof the pyramid—the metrics that look at process pathconstraints and other key areas for our business. Forexample, melting steel, or “heats,” as we call it, is a criticalprocess. Every day we see the number of heats from ourmelt shops, and as long as we’re achieving the planned

Our system of checks and balancesforces us to think through the overall ramifications of various supplychain decisions.


some data is also counterproductive.When managers make supply chain decisions based

on limited data, they are prone to make more iterative,sequential decisions. This happens because the managersknow they are acting on limited data, and they are worriedabout making a big mistake. Therefore, in their efforts tomake fast decisions, they end up slowing things down bytaking small, sequential steps. There is some research thatsupports this observation.

Using new networking technologiesWhat is better, therefore, is to capture the most im-

portant real-time data available, and use that data, alongwith other environmental uncertainties and drivers, to domultiple-scenario simulations that consider the system-level impact of various choices. This approach yields better supply chain decisions.

To do this, companies need advanced systems andtools, of course, but more importantly, they need to bevery good at communicating across multiple functions of the business, so the person making decisions has a good grasp of the context of the entire operation. This isimportant because information takes time to harden intodata that can be used for quantitative analysis. Further-more, during its transformation into hard data, informationoften loses its texture and context.

At MIT’s Supply Chain 2020, we see real value comingfrom the blogs and social networking sites that are growingall around us. We are now working with companies whoare contemplating using these new ways of communicatingin their supply chain process. I believe companies that doso effectively will see significant improvements in theirsupply chain performance.

Although many companies’ supply chain leaders meetregularly to discuss problem areas—say every Friday at3:00 p.m.—that doesn’t mean that you are getting people’sbest thinking at that time and place. Ideas come at alltimes. Inevitably, supply chain events will trigger newthoughts and concepts. People come across informationthat is important to be shared immediately, not at anappointed meeting time.

Social networks and blogs give managers and othersthe ability to stay connected at all times. They enable people on the team to think proactively, post informationand ideas, react to information, and in this way create acontinuous communication process.

For example, if I were a company manager, I could be

sequences of similar items to get production efficiencies.My group is responsible for bringing these teams togetherand achieving a mutual goal of delivering both customerand shareholder value.

We’re constantly adjusting capacity in response todemand, taking into account the whole picture from rawmaterials to customer delivery. Our system of checks andbalances forces us to think through the overall ramifica-tions of various supply chain decisions. This includes playing the hand you’ve been dealt as best you can, as wellas influencing future scenarios. To me, it’s just commonsense, although some would argue that common sense isnot all that common.

Mahender Singh, Ph.D.Research Director,MIT Supply Chain 2020

Measuring supply chain performance on a regular basisis obviously important for having a supply chain frameworkthat is aligned with a company’s business strategy. Real-time data are important, particularly on the execution endof things—for tracking components and raw materials, foron-time delivery of finished products, and so on.

Data, however, do not capture everything you need toknow to make good supply chain decisions that supportthe business’s goals. People are comfortable with numbers,and there is a sense that if I am measuring 5,000 datapoints, then I can’t miss a thing, and that is good for thesupply chain. But that’s not always the case. In short, Ibelieve there is an over-reliance on hard data in the industry.

We believe that no amount of analysis will providewisdom—that hard data do not equate with insight.Making matters worse, in this over-reliance on numbers,supply chain managers are under increasing pressure tomake faster decisions, because businesses are moving atmuch faster speeds today. What I am seeing is that becauseof this pressure to make fast decisions, managers have atendency to exclude much of the data available to themand to focus on selected key performance indicators (KPIs).

Unfortunately, ineffective KPIs can lead to wrongdecisions, too. I have interacted with several companiesfacing this challenge, and people will often say that theycan’t take in a lot of data to make a decision because it slowsthem down. Then, if they are slow in making decisions,they will miss opportunities and pay a heavy price.However, we are finding that this tendency to ignore


Opinion (Continued)

Social networks and blogs…create acontinuous communication process.


product cycle times, for example, and tying those back to improving working capital and gross margins.

As supply chains continue to evolve, growing in lengthand complexity, the role of the CFO also should grow.Now, more than ever, CFOs need to have a good view oftheir company’s suppliers and the financial and regulatoryrisks that come with a more complex and extended supplychain.

Just consider the increased trend to outsourcing,often in international locations that are more difficult tomonitor from a company’s corporate offices. The CFOmust evaluate the stability of the chain, factor in theextension of capital and the already huge and growingcosts of transportation. Plus, there are new risks whensupply chains are so extended, including the sourcing ofproducts from other nations. The CFO needs to have astrong level of comfort about the people building theproduct and the materials going into the product, becausethe associated risks are so significant.

Capturing efficienciesFurthermore, the uncertainties we see in the economy

today make the CFO’s role in supply chain managementeven more important. In our current economic downturn,growth for many companies will be very hard to come by.In the absence of growth opportunities, to maintain financialperformance companies must do whatever they can to findand capture efficiencies in their operations. Again, it is inthe supply chain where they will find the leverage to makeadjustments and capture those efficiencies.

In general, there is never a lack of information availableto CFOs, but it’s important to draw a clear line betweenreporting and analysis. Numbers are great. Data areimportant. But you always have to ask, “What does thismean for the business?” To do that, it’s important for theCFO and others to maintain good lines of communication,so they will benefit not only from the numbers, but fromthe knowledge of the entire team. At i2, we continuouslycommunicate with people across various functions withinthe company, as well as with our customers and peers outside of the company, to understand the trends and thecontext of the business environment.

on a trip in Singapore and overhear a discussion or read inthe local newspaper about problems with a small supplierthat my company is using. This information wouldn’tmake headline news, and by the time it showed up in ourprocess, either through late deliveries or quality problems,it would be too late for us. Using a mechanism such as ablog, I could post this information, and everyone on thesupply chain team would immediately be aware and takesteps to validate and act on the information.

Using these new networking technologies is the nextstep in supply chain management, although none of thesetools is a substitution for measuring real-time data. Thevalue here will be in creating better ways to utilize thedata that are available, both through traditional metricsand through tapping into the wisdom of the people on the team. The results will be better, faster decisions andincreased flexibility of the supply chain.

Michael BerryExecutive Vice President and Chief Financial Officer,i2 Technologies

As a CFO, I have always been interested in the supplychain, because it is one of the largest components of acompany’s ability to achieve its business objectives.Furthermore, one of the great things about the supplychain is that it allows you to measure so many thingsabout your business, which is always attractive to theCFO—we live in a world of numbers and measurements.

All CFOs are responsible for assessing and measuringthe costs and the return on investment for their company’sinitiatives. While we have many tools to do that, at theend of the day, my focus on metrics comes down to onething—cash flow. Especially in our business, cash is king.

The CFO has always been at the forefront of opti-mizing the company’s spending to make sure the businessobjectives are met. Within the past couple of years,however, I am seeing more CFOs thrust into the role ofevaluating their company’s supply chain. It makes perfectsense to do so, because it’s in the supply chain that youfind the things that have the potential to really rock yourworld and impact your company’s performance significantly.For this reason, CFOs are now more involved in measur-ing the supply chain, looking at inventory turns and

The Last Word

Opinion interviews were conducted by freelance writer

Michael Cohen.

It’s in the supply chain that you find thethings that have the potential to reallyrock your world and impact your company’s performance significantly.

World-class manufacturers of food, pharmaceuticalsand other critical products place heavy demands on theirsuppliers. In today’s increasingly competitive environment,manufacturers expect vendors to meet often extraordinaryquality, production, customization and timing requirements.Suppliers who cannot meet those exacting demands struggle, fail and often disappear.

Those who can meet these requirements emerge asprofitable market leaders. That is certainly the case in thehighly competitive packaging industry, and for Teich AG,a respected international supplier of innovative, flexiblepackaging materials. A wholly owned subsidiary ofConstantia Flexibles, Austria-based Teich Aktiengesellschaftutilizes aluminum, paper and other prime raw materials to manufacture high-quality packaging for manufacturersin the dairy, confectionery, food, pharmaceutical and pet industries.

To meet the exacting standards of those demandingcustomers, Teich leverages state-of-the-art systems andprocedures to meet ISO 9001:2000, BRC and FDAhygiene certification requirements and its own high qualitystandards. The company employs 2,000 workers and operates its own aluminum rolling mills to ensure theintegrated production of foil supplies for the entire corporate group.

Not long ago, company managers took a hard look attheir performance and at the production and control systems they needed to remain competitive. They sawboth challenges and opportunities, and, in response, laidout an ambitious plan to upgrade their vital metal-foiloutput capabilities.

Production challengesThe Teich AG rolling foil mills at Weinburg, Austria,

supply its key customers and sister companies with a widerange of packaging-related foils. The production processes

are extremely complex and require the individual plants tomeet very demanding, and frequently changing, deliveryand product-customization requirements. The company’sprevious-generation systems did not provide the control or flexibility to consistently meet those high expectations.

With those older systems, central order processing was costly and time consuming. Scheduling was largely amanual process, with planning for both material procure-ment and the production process done primarily on paper.Feedback was slow and error-prone.

Given these fundamental limitations, Teich AG wasforced to keep extensive and expensive rolling-foil reservestocks on hand at all times. Even then, every special-delivery request presented a significant planning and production challenge.

Integrated approachTo address those shortcomings, Teich AG set out to

create a new, vertically integrated rolling-foil productioncapability. The company’s planned 100 percent automated-foil “Rolling Plant II” represented its largest-ever capitalinvestment, and would integrate advanced planning andmanufacturing execution technologies to create a high-availability, real-time supply chain solution. The newrolling-foil facility would incorporate sophisticated manage-ment capabilities to manage scheduling and tools, materialflow, manufacturing execution and shop-floor activities.

The new facility would allow the package provider tomore precisely schedule material batches and items, toplan rolling workload, and to precisely monitor activitiesagainst planned windows. Teich AG managers expectedthis new Rolling Plant II project to deliver:

• Procurement optimization• Internal and external delivery performance

improvement• Reduced work-in-progress (WIP) and WIP

material requirements• Shorter production lead times• Faster responses to production opportunities• Optimized resource utilization through improved

material routing and capacity management• Planning and scheduling synchronization• Reduced deviations in planning, scheduling,

inventory and costs• Improved visibility and collaboration between

planning and production• Reduced manual-coordination requirements


Meeting (and Exceeding) Customer

CASE STUDY


Expectations at Teich AGTo meet those ambitious objectives, Teich AG called

on a long-term technology partner, 4Production.4Production specializes in the planning and control of theproduction of metals, paper and other industrial products.

4Production applied its unique knowledge of manufac-turing production systems to deliver a solution that inte-grated its 4P MES production management system withi2 Factory Planner technology. This approach promised anew and higher degree of planning accuracy and flexibilityfor the new and expanded Teich AG rolling-mill operations.4Production then implemented the new technology inparallel with ongoing production runs and fully trainedTeich AG foremen and shift supervisors on the solution.

“Increasingly, the productivity of rolling-foil mills is acore part of our growth strategy. This way we are able tostay abreast of the increasing demand for our products,”says Wolfgang Geyrhofer, process engineer with Teich AG.Geyrhofer says Teich AG selected 4Production based onproven performance in similar implementations, “since thecompany is very competent and has enormous experienceat its disposal from comparable projects within the aluminum industry.”

i2 Factory Planner provides intelligent decision supportfor production planning and scheduling, and is designedto simultaneously manage material and capacity constraintsin the development of workable operating plans for plants,departments, work centers and production lines.

Planners and schedulers can utilize Factory Planner tointelligently optimize the performance of a manufacturingfacility to reduce lead times, inventory and operating costswhile improving throughput and due-date performance.

Extensive modeling capabilities allow buyers to more efficiently forecast, purchase and manage key productionmaterials. This field-proven approach allows manufacturersto spot and resolve potential supply chain bottlenecks andto create more precise and timely production reports.

“i2 Factory Planner was selected for this combinedsolution because of its seamless integration with the 4PMES solution,” says Erwin Bronk, 4Production chiefoperating officer. “Factory Planner could be implementedquickly, and delivers the accelerated planning and special-ized functionality needed in the Teich AG productionenvironment.”

Speed and efficiencyThe combined solution gives Teich improved flexibility

and transparency at all levels of foil production. As part ofthis solution, 4Production helped Teich redefine andimprove manufacturing-related processes, interfaces andresponsibilities. This approach now supports optimizedplanning and production, and allows Teich to respond morequickly and efficiently to late-breaking change requirements.By more fully integrating with key suppliers, Teich AG hasalso improved its ability to meet critical production schedules.

“These integrated planning and control systems enablemaximum transparency within production,” notes RainerHuber, project manager of the Teich AG’s Weinburg rollingmill. “Things are more at ease.”

Teich AG reports the following specific improvementsfrom this integrated planning and production solution:

• Real-time, closed-loop production planning,scheduling and execution capabilities

• Automatic-loop, batch-execution adjustments for better scheduling and planning

• Faster internal order quotes• Reduced production lead-time requirements• Reduced foil stock and reserve-stock requirements• Greater stock and production visibility• Fail-proof system for maximum availability• Seamless integration between planning and 4P

MES system scheduling and execution• Optimum throughput, lead times and delivery

performance for Teich AG’s largest-ever new system investment

Those gains now enable Teich AG to meet high cus-tomer expectations, and help keep this proven leader at theforefront of the competitive packaging sector.

— Jon Kemp

Leveraging POS Intelligence to Improve Retail Flow-Through


Historically, consumer product companies have focusedon “selling in” their products to the retail channel withoutpaying adequate attention to the actual “selling out” to theend consumer. Since typical contracts safeguard retailersagainst the risk of carrying inventory—through protectiveclauses, such as price protection and end-of-life (EOL)markdown support, they don’t mind the sell-in focus anduse it to their advantage during quarter-end sales pressures.In fact, most sales-incentive programs are focused onenticing retailers to buy more product from manufacturers,rather than collaboratively focusing on increasing the sell-out to the end customer.

Retailers focus on maximizing sales of a particular category for the short term—spreading product lavishlyacross many branches to expedite sales—and are not asconcerned as manufacturers are with maximizing the salesof a particular brand. With a high-demand item like theiPod®, retailers will try to hoard as much product as possible, often causing shortages and lost sales elsewhere.But then, when sales of hot products drop off, or slower-moving product backs up in the retailer’s pipeline, theresulting inventory carrying costs, deep discounting anddiminished brand profits come out of the manufacturer’spocket. These hoard-and-discount cycles can cause a 4–6point swing in product net profits and make the differencebetween a profitable product and one that incurs losses.

Specifically in the consumer electronics industry, a hot-selling product can swing to a net operating loss solelybecause of the liquidation costs at EOL, with the rush toflush the old version out of the retail channel so that thenew version can get its shelf space. In an industry wheremargins and product life cycles increasingly shrink, andgrowth is a competitive necessity, such preventable financialand brand-equity losses are insupportable.

Clearly, brand owners need to shift their focus to whatthe end consumer is buying from the retailer, and point-of-sale (POS) is the best data source to effect it. Once thefocus shifts away from celebrating sell-in to increasingsell-out, the attitude toward channel inventory shifts tokeeping it under tight control and ensuring that it isdeployed in the right place to maximize end-consumersales opportunities. Fortunately, it is possible for brandowners to get daily insights into both the POS and store-level inventory picture because of recent advances in information technology.

When analyzed correctly and regularly, this informationis highly effective, ensuring that channel inventory isdeployed accurately and, most important, in uncoveringhidden sales opportunities. Leading consumer product(CP) companies embrace POS to drive their supply chainsby making both short-term and long-term decisions based

on consumer behavior rather than on what the retail buyeris planning to order.

Using POS effectivelyMany of these CP thought leaders have developed

competencies around POS that enable them to make betterdecisions about inventory deployment and promotions thanthe retailer can. For example, typical brand owners havemultiple products placed at every retailer store. Each ofthese products has different popularity and pull acrossregions and store locations. However, in most cases, retailersdeploy the same mix of products to every region, leading tosimultaneous stock-outs and overstocks, unless the brandowner intervenes, based on insights provided by POS.

i2 worked with one brand owner that saw store avail-ability jump from 70 to 95 percent by closely monitoringPOS and inventory deployment and, at the same time,lowering the overall inventory at the retailer. The manu-facturer increased operating margins and sales, therebylifting the company to tier-one status with the retailer.The clincher in this case was the brand owner’s ability topoint out that the retailer’s abysmal sales—despite a hotmarket and a channel flush with inventory—resulted fromthe stores displaying the older version of their best-sellingproduct, which was obviously out of stock. Simply resettingthe store displays with the new version increased the salesin the market by 500 percent—a win-win scenario forboth the brand owner and the retailer.

Brand owners are increasingly focusing on creatingcompetencies around POS and taking charge of the exe-cution of their brands in the retail channel for increasedsales and margins. Retailers too, are more open than everto sharing daily POS information with brand owners asthey see the advantages in a mutually beneficial partner-ship. Wal-Mart’s RetaiLink® is a classic example of a big-box retailer encouraging brand owners to take an activepart in inventory management and monitoring sales execution in the retail stores.

Retail channel management modelsIn the past few years, multiple successful models of a

mutually beneficial relationship centered on brand ownersplaying an active part in retail channel management haveemerged. Among them are:

1. The aggressive consignment model, where the brandowner takes financial ownership of the inventory in thechannel and accepts payments only at POS. In return, theretailer lets the brand owner control the movement ofgoods and gives additional benefits, such as increased price

POS CONTINUED on Next Page . . .

Focus by Amarnath Thombre and Sanjiv Sidhu


and better shelf space, to account for the enhanced cash flow and reduction in working capital. Such relationshipsrequire extensive contract renegotiations and may not befeasible for every retailer/brand-owner relationship.

2. The brand owner only takes ownership of managingthe inventory within agreed-upon parameters, without anychanges to the financial contracts. The retailer in suchrelationships monitors the overall service-level perform-ance, but the manufacturer controls the movement andplacement of goods. Typically, such models work well forcommodity products that are not of strategic focus for theretailer, and for brand owners with significant clout withthe retailer.

3. In an enhanced CPFR (collaborative planning, fore-casting and replenishment) model, the brand owner sharesinsights derived from analysis of POS data to influencethe forecast signal and deployment of inventory. Moreimportant, the brand owner also points out opportunitiesfor increased sales through targeted promotions. This is a significant departure from traditional CPFR, where the focus is primarily on order collaboration—heavilyinfluenced by the brand owner’s focus on achieving aquarterly sell-in goal. When the brand owner enters aCPFR discussion with clear, operational insights derivedfrom a systematic analysis of the POS data, the discussionturns into a lively exchange of ideas aimed at increasingthe sell-out while keeping inventory under tight control.

Developing POS competencyThe shift in focus to sell-out requires brand owners to

systematically develop competencies around POS in orderto have meaningful impact on sell-out and channel inven-tory. Integrating clean POS data within an array of cutting-edge, exception-based, demand-sensing and planning toolsand services now makes it possible for manufacturers tostay in tune with changing consumer preferences and to

ensure that their supply chain is directly aligned with themarket at all times. Daily visibility and analysis by SKUand by store are fundamental to optimizing shelf inventoryby individual store demand. Analysis of POS data at thestore level enables replenishment teams to preemptivelyaddress potential stock-outs and act upon sudden localbursts of demand by quickly diverting the flow of goods to the high-selling regions.

Developing rich analytics capability at the store/SKUlevel not only enables quick reaction to changes but alsocreates a broad, root-cause analysis framework to under-stand the underlying market forces that are causing thechange from expected patterns. The framework can helpidentify shifts in consumer preferences toward the productmix or the effect of a competitor introducing a new productor making a price move. Also, the framework can providethe necessary breathing room to counter a negative trendor take advantage of a positive one before it is too late toreact.

By developing process playbooks that map trends inPOS performance to a library of possible root causes,brand owners can take surgical, demand-shaping actionsat a region/SKU level to ensure optimal spend of theirpromotions budget and prevent localized problems frombecoming broad trends.

While POS data can be instrumental in optimizingthe performance in the retail channel, such data also providesignificant advantages to the brand owners to managetheir own supply chain. The problems posed by low-mixaccuracy in short-life-cycle product supply chains are well

Hoard-and-discount cycles can cause a4–6 point swing in product net profitsand make the difference between a profitable product and one that incurslosses.

Demand-Shaping Process Playbook

POS deviationdetected

Analyze market

intelligencereports

Identifyroot

cause

Readjustsell-out

plan

Pull analyses

of different scenariosfrom lever

library

Apply appropriate

demand-shaping

lever

Is deviationdetected at

the national orregional level?

Is deviationdetected at

the category ormodel level?

known. The problem only worsens when procurement andcapacity allocation decisions are made based on forecastsderived from historical sell-in signals that do not reflectcurrent market reality and incorporate multiple levels of bias.

Fresh POS data, on the other hand, represent consumerpreferences on a daily basis. When coupled with syndicatedmarket data, POS provides a far more accurate forecastsignal and mix.

The managed services approachMoving to a POS-driven supply chain may seem

daunting at the beginning, starting with the immediateconcern about the validity and cleanliness of the POSdata. Many brand owners i2 surveyed were receiving regular feeds of POS data but were doing very little withthe data, due to either skepticism about quality or the lackof a clear approach for deriving meaningful insights fromthe data. Most companies lack an internal POS compe-tency, resulting in the data at best being collated intoreports, without any operational plan associated with it.

Realizing the need to help companies get over theadoption hump, companies like i2 have taken a managed-services approach to help develop a POS competency formanufacturers—a competency they can integrate intotheir organization in the long term. The service takes aresults-oriented approach, helping the brand owner togather POS data from the retailers, providing cleansingand validation services, and developing the necessary analytics and planning capabilities through a combinationof skilled resources and tools (see sidebar).

i2 has a dedicated set of POS experts and statisticiansthat leverage world-class tools to derive the intelligencefrom POS and work with the brand owner to help buildinternal competency. The service delivers clear, operationalinsights based on POS analytics that customers can lever-age to collaborate with the retailer or take internal correctiveactions. This is like learning to ride a bike with trainingwheels—where i2 as a partner works with the manufacturersto set up the POS competency and jointly drives the forecasting and replenishment decisions, until the brandowner achieves sufficient competency to go it alone.

Finally, new-generation demand sensing and forecast-ing solutions not only reduce inventories and markdowns,prevent stock-outs and increase sales; they lift the focus toa higher strategic level. Streamlining operational processesand enabling end-to-end visibility along the entire supplychain enable what happens at the store shelf to align moreclosely with corporate goals. These actions also result in abetter end-customer shopping experience, thus reinforcingcustomer brand loyalty—no small dividend.

Amarnath Thombre is director of services at i2.

Sanjiv Sidhu is i2 cofounder and chairman of the board.



Historically, replenishment teams have nothad the visibility to determine the fundamentalcause of stock-outs, and so channel stuffing wasmost often the one-size-fits-all, short-term solu-tion, with attendant revenue losses. POS-basedvisibility has made such generic “cures” obsolete.

POS demand sensing, root-cause analysis prevents:

1. Current and future stock-outs: Potentialstock-outs are identified by comparing POSdata-determined SKU rates by individual stores,and with inventory levels at those stores andfeeder distribution centers. The solution alsoproactively identifies the root-cause problem andcombines that analysis with guided resolutionworkflows.

2. Overstock situations: These are relativelyeasy to discern, based on the rate at which anSKU is moving against current in-store inventorylevels. POS provides the most accurate and current picture of the market, and manufacturerscan divert inventory to the right place, prevent-ing a stock glut in the channel.

3. Stores not scanning: Often, when a store is“not scanning”—SKUs are not moving as rapidlyas at comparable stores—the issue may beshrinkage or poor stockroom management.

4. Root-cause analysis identifies four types offorecast variance to actual: where forecast salesand actual sales differ and by how much.

POS Root-Cause Analysis Identifies Key

Replenishment Problems


don’t spend a lot of time putting the right product in theright place because they can fall back on their suppliers totake care of the problem, creating a flawed system that ties up capital for both the supplier and the retailer. Thisdynamic represents a perfect scenario for shifting theresponsibility for forecasting and demand managementfrom a retailer to a supplier.

By engaging in a TCM relationship with suppliers,retailers reduce their total weeks of supply, and can sell at a net-zero ownership of goods, depending upon theirpayment terms. Their free cash flow goes up enormously,because the supplier is tightly controlling inventory andassuring that sales will be maximized by putting the rightproduct in the right place, at the right time. In addition,end-of-life expense becomes much less of an issue, due to demand shaping and depleting inventory in a system-atized manner.

Proving the value of a new kind of partnershipConvincing a retailer to change to a TCM business

model is typically a long process for a supplier. During the course of several months, the supplier should meeteach week with the customer and compare forecasts todemonstrate that the supplier has the superior forecast.After 3–4 months of this process, the supplier shouldbegin collaborating with the customer to manipulate itsforecasts. As the customer continues to see forecastsimprove through this collaboration, the door is opened forthe supplier to ask the customer to take over the manage-ment of forecasting and demand fulfillment functions.

The i2 solutionThe i2 Total Channel Management solution has been

designed to take POS analysis to this next level. The end-to-end solution incorporates i2 software, consultants andanalysts, enabling a successful transition from the buy-sellrelationship to TCM. The solution has been proven with a variety of i2 customers, leading to dramatic increases in sales and turnover, lower sales-related expenses, and significant improvements to the bottom line.

Supply chain professionals today recognize the value of tracking customer behavior through point-of-sale(POS) data. But while tracking POS data has becomeincreasingly pervasive, very few companies actually usethat information to leverage a competitive advantage.Frequently, the data are simply reviewed, but not usedstrategically. Retailers can make that data operational bysharing it with their suppliers, and letting suppliers use the data to take command of all functions powered byPOS. This transfer of responsibility enables total channelmanagement (TCM), allowing suppliers to take control of their own destiny.

What’s in it for the supplier?By managing the forecasting and demand fulfillment

functions, the supplier increases its sales by ensuring itsproducts are in the right place at the right time. The supplier decides how many weeks of inventory will be carried, in what locations, and how to write the orders tomeet its needs and those of the retailer. By moving out ofa reactive mode, suppliers have the ability to concentrateon other areas, such as demand shaping, to maximize theirsales. They can also look at specific markets to targetproblem areas and quickly find resolutions. Through TCM,suppliers can smooth out their production because theyare not continually reacting to what happened the weekbefore. They can adjust for trends on a more incrementalbasis.

Additionally, this collaborative structure invariablyimproves business partnerships, ingraining the supplierwithin the culture of the retailer. It makes it difficult forsuppliers to be removed, and gives them an edge whencompetition is tight. The biggest objection from retailersthat suppliers have to address is the fear of giving up “thepower of the pen.” Demand and forecasting personnel onthe retail side may fear that transferring power to the supplier puts their jobs at risk. Therefore, suppliers mustwork to assure their partners that this new relationshipenables them to be more strategic and shifts the tacticalaspects of the relationship to the supplier.

What’s in it for the retailers?Big-box retailers typically carry 6–8 weeks of inventory

because they know they are going to make mistakes. They

Total Channel Management Demands a Dynamic Partnership

Michael Aguilar is president of Intrepid Consulting Group, LLC


Guest Column by Michael Aguilar

Aguilar

Managing the Human Element

By Michael Levi


As supply chain management has evolved as a discipline,a tremendous amount of resources and attention has beenfocused on investing in the best available technology solutions, as well as putting in place well-honed processesguided by such principles as Total Quality Management,Six Sigma, Just-In-Time and Lean Manufacturing. Buteven the best tools and the most innovative processes donot guarantee success. As companies strive to maximizesupply chain performance, they cannot overlook anothercritical factor: the need to effectively manage the humanelement of the supply chain.

No matter how sophisticated the technology tools andhow refined the processes, a supply chain is, in the end,a human construct—and human beings play the most significant role in its ultimate success or failure.

Behavior: A force to be reckoned withPeople represent a vast and elusive variable in supply

chain management, whether they are the managers andoperators who run the supply chain or the customers andconsumers that operations are built to address. To achievehigh-level results, an organization must work with itsinternal human assets, with the goal to ensure that all participants understand both the company’s vision andobjectives, and how they play a role in achieving both.Equally important, whenever possible companies mustanticipate the behavior of external audiences––includingcustomers, suppliers, and consumers—and respond withagility and flexibility.

The impact of fluctuating human behavior on theglobal supply chain cannot be taken too lightly. Demandvariations, regulatory issues, geopolitical turmoil and theexploding worldwide consumer base are introducing chal-lenges and opportunities at an unprecedented pace. But itis the shifts in consumer preferences that have repeatedly

HUMAN CONTINUED on Next Page . . .


Today, we know that people willchange because they are offered the right incentives––and this means we must align our numericalobjectives with the human rewardsthat will ultimately driveour businesses toward results.

thrown curve balls—and expensive ones, at that—at eventhe strongest organizations, forcing them to realign theirstrategies and their operations to match the shifting con-sumer landscape. Even market leaders have been repeated-ly forced to look closely at every aspect of their businesses,from product mix to organization design.

The people who manage and implement supply chainprocesses and systems can be just as unpredictable andchallenging as the customers and consumers who drive it.In the past, executives tended to believe that people andorganizations would be motivated to change “for thegreater good.” But today, we know that people will changebecause they are offered the right incentives—and thismeans that we must align our numerical objectives withthe human rewards that will ultimately drive our businessestoward results.

We also know that we must build our systems andoperations so that they can manage unpredictability. It isno longer enough to create a lean environment. We mustcreate an environment that is both lean and agile, one that honors the principles of waste elimination while alsoenabling the flexibility to deal with the inevitable surprises—human and otherwise—that disrupt even the best-designedsupply chains.

Effectively managing people and technology requiresboth art and science. While technology is built on aninformation-based foundation that is calculable, measurableand tangible, people exhibit much greater variability inbehavior. While we can never hope to predict or controlhuman behavior with absolute certainty, we can tightly

align our organizations from top to bottom, so that ourhighest-level strategy is reflected in the incentives offered tosupply chain employees at every tier—ensuring that every-one in the organization is working toward the same results.

Aligning people, processes and systemsSales and operations planning has demonstrated that

it is not enough to simply establish connection pointsbetween the supply and demand sides of the organization.Instead, supply and demand must be very closely aligned.And, because the dependent variable is human beings,people and processes must also be aligned, so that thehigh-level rewards translate into personal rewards thatmotivate individual contributors.

For organizations seeking the kind of tight alignmentthat allows them to manage—and even leverage—thehuman element, seven actions can improve overall perform-ance and drive high-level results.

1. Define the top-level vision and expectations, thenalign the entire organization around that. This requires aholistic perspective that considers the interdependent relationships among different parts of the business, thecontributions of each function and the rewards that willmotivate individual employees. The people and processeswithin each function must support the desired results ofthe entire organization, and all functions must worktogether to achieve these shared goals. Incentives shouldreward those core behaviors that strengthen the entireenterprise, instead of focusing on narrow functional targets. Across the enterprise, multiple departmentalmeasures should be replaced with a critical few metricsthat measure progress toward ultimate business goals.

2. Redesign processes and technologies to maximizetheir ultimate contribution to results. Every key processwithin the business must be re-examined to maximize itscontribution to top-level goals, and each process must besupported by highly collaborative, highly usable tools andsystems. Many organizations begin this process by ration-alizing their products, while others focus on enhancingtransparency, so that planning and execution are bettersynchronized. A logical starting point for many businessesis specifying technology tools and systems that moreeffectively support strategic objectives, as well as key performance metrics.

3. Establish a cross-functional system of shared respon-sibilities and rewards. Closer interaction and visibilityamong functions create transparency, which enhances collaboration because individual functions can understandexactly how their own actions impact the larger organization.As everyone begins to share an accurate, timely view of demand and supply data, functional managers can


Using these seven principles as a guide, organizationscan establish a framework for aligning their various functional departments, and then re-aligning them as thecompetitive environment changes and the top-level visionis redefined. Improvements in technologies and processeshave enabled significant flexibility within the supplychain—and this agility must be supported by flexiblehuman components, such as compensation and incentivesystems that are updated as the top-level vision shifts.Alignment is not a one-time event, but an ongoing com-mitment in which the entire organization must engage.

Combining science with artStripped to its core, our modern challenge is achieving

operational excellence while also developing and deliveringsuperior products to customers. This combination of costand service decisions—balancing numerical outputs withthe intangible human factor—lies at the heart of the resultsthat everyone talks about today. Business performance ismost easily understood at its highest level—its ultimateimpact on financial results and market share—but it ishugely influenced by the behavior of individual humanbeings, which is much harder to predict, measure and control.

Many organizations completely overlook the humanelement in designing and managing their supply chains.Others view human behavior as an uncontrollable force,like the weather, which can only be responded to—notmanaged proactively. But, as the playing field growsincreasingly competitive, and the stakes higher, someindustry leaders are beginning to recognize the importanceof understanding and managing the human aspect of theirsupply chains.

Both supply chain technologies and processes havereached a high level of sophistication, but they cannot befully leveraged until the performance of the people whodeploy them rises to the same level. Those companies thatstrategically manage the inherently unpredictable humanvariable of the supply chain will achieve significantly morevalue than those who do not consider its managementmission-critical.

implement control levers that recognize and respond tovariability. Subsequently, the entire organization isempowered to take corrective actions and keep overall performance plans on track.

4. Build confidence through synchronized, operationalinformation. The accumulation of hard data removes doubtsand instills confidence throughout the organization. Bysharing accurate, up-to-date information, the entireorganization can understand what the larger goals are,how progress is measured, and what individual teams needto do. Salespeople can be confident in their projections,eliminating the need for “buffer volumes” that cover anticipated delivery failures. Acting with accurate forecastdata, operations managers can confidently work againstmore realistic timelines and commitments.

5. Monitor and enforce progress toward larger goals.In a closely aligned environment of shared rewards,responsibilities and information, it is imperative to look at overall business performance on a continuous basis,examining any anomaly and acting upon it immediately.Enforcement actions must emphasize the interdependentnature of all functions, as well as the ramifications for the business as a whole. Variations in any aspect of theorganization must translate directly into corrective actionacross the entire company.

6. Establish the right metrics and incentives. It isabsolutely critical that performance metrics reflect thehighest-level corporate vision, and that compensation systems reward the behaviors that help to achieve thatvision. Employees should be motivated not just by traditional sales and operations goals, but also by morespecific objectives that reinforce the overall strategy. Forexample, businesses seeking to increase collaborationbetween the sales and the operations teams can implementmonthly commission payments based on shipments tobookings. This aligns sales goals with operations targets,ensuring that orders actually ship before salespeople arecompensated. It also encourages a more consistent streamof orders, instead of the traditional end-of-quarter push thatcan negatively impact both cost and delivery performance.

7. Drive loyalty through reliability. A tightly alignedorganization creates an environment of trust. Internal performance improvements carry forward across externalpartners, making the entire supply chain more reliable.Businesses can become better suppliers to their customers,and better customers to their suppliers. Reliability andtrust create a collaborative supply chain environment, builton the confidence that promises will be kept and deviationsswiftly corrected. Every action across the chain becomesconnected to the highest-level results, and a sense of loyalty is created among customers.


Michael Levi is director of solutions marketing at i2.


Enforcement actions must emphasizethe interdependent nature of all functions, as well as the ramificationsfor the business as a whole.


Inside i2 by Hiten Varia

Our Innovation, Your Results Much has changed in the world of business since i2’s

startup 20 years ago. Technology-driven automation hascontinued to eliminate many manual processes. Wirelessphones and email devices have become ubiquitous,rendering the 9-to-5 workday virtually obsolete. And theInternet has forever changed the way we buy and sellgoods and services.

But in the past two decades, one thing has stayed thesame—i2’s customers want tangible results, quickly.That’s why, throughout the years, we’ve maintained anunwavering focus on delivering value. We demonstratethat focus through our commitment to research anddevelopment, in which we have invested more than $1 billion since our founding. As a result, i2 has morethan 150 patents issued and more than 140 pendingpatent applications.

We cultivate a specific sort of restless ambition at i2—we’re never satisfied that we’ve found the best way to dosomething. By staying in a perpetual state of innovation,we create continuous opportunities to develop new servicesand technology to meet the evolving needs of our customers.One such way we’re delivering rapid, measurable andworld-class business results to customers is through i2Operations Services.

i2 Operations Services drives the kind of quick valuethat today’s customers seek. Frequently in the past, supplychain management initiatives necessitated substantial invest-ments of money, time and human resources on the part of companies embarking upon them. That reality persiststoday, serving as a roadblock for many organizations over-whelmed by the implementation process.

Deploying creative methods for tackling the toughestbusiness problems, i2 Operations Services enables our customers to outsource key supply chain processes to us.By bundling the services and software that they want i2 to manage, customers can begin achieving value quickly,at a lower cost than traditional implementations. Supplychain management initiatives deployed using i2 OperationsServices can achieve results as soon as changes are imple-mented, with less upfront investment and faster cycle times.

i2 Operations Services has been proven at some of the world’s leading companies, including a top consumerelectronics manufacturer. Operating in an exceedinglycompetitive market, this manufacturer responded toincreasingly complex customer requirements by embarkingon an extensive supply chain management initiative. Thiscompany leveraged i2 solutions and services under the sub-scription model offered under the i2 Operations Servicesumbrella, with the goal to increase on-time delivery, elevatecustomer service and achieve greater market share. Using

i2 Demand Manager and i2 Supply Chain Planner, it movedto the top of its industry in terms of customer service—allwithout a single i2 license being sold or a product beingimplemented in-house.

The electronics manufacturer deployed i2 Total ChannelManagement solutions as a service through the i2 Compe-tency Center in India. A mix of on-site and off-shoreservices enabled a 24x7 planning operation. i2 processconsultants in the areas of business, finance, IT systems,and channel qualification and management were locatedon site with the customer. Business analysts and solutionarchitects in the i2 Competency Center were assigned todesign solutions and operate processes.

Prior to deploying this consumer-oriented solution, themanufacturer suffered from misaligned inventory, stock-outproblems, and dead inventory in slow markets. Sales andprofits were weak, and relations with key retailers werestrained. With the visibility provided by i2 solutions,inventory distribution is now aligned with consumption,and product availability to customers has jumped from 70percent to 95 percent. In the first year of the project, unitsales of a targeted model went from 20,000 to 100,000,and average weeks of supply in the channel went from 25to just 5, continuing to trend downward. A major electronicsretailer has since elevated the consumer electronics man-ufacturer from a tier-three supplier to a tier-one “go-to”brand for its product.

Other successful deployments include a large storagedevice original equipment manufacturer that has leveragedi2 Operations Services to reduce the order error rate to 1 percent. In addition, a large semiconductor companyutilizes i2’s services to run and maintain its global supplychain management solution, while a global leader in thepersonal computer market has leveraged these services torun and maintain an award-winning eCommerce solution.

These are just a few examples of how i2’s uniqueapproach enables our customers to achieve tremendousvalue. But what truly makes i2 Operations Services uniqueis the i2 team that supports it. These industry specialistsleverage their extensive experience to deploy i2 solutionsand services in a customized way that maximizes value foreach individual customer.

This specialized approach enables i2 to deliver greaterprofitability to our customers, as well as lower hardwareand workforce costs, all with reduced risk.

Hiten Varia is executive vice president, Global CustomerOperations, and chief customer officer at i2.


11701 Luna Road • Dallas, Texas 75234www.i2.com • 1-877-926-9286 • 1-469-357-1000

The Supply Chain Results CompanyTM

supply chain leader - issue 5

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