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When a student asked Albert Einstein whether the questions on that years physics exam were the same as those of the previous year, he responded, Yes, but unfortunately for you the answers are very different. Its the same with our game-changing trends. We see equivalent supply chain trends, but approaches to dealing with them have become increasingly sophisticated. Real progress has been made, but many challenges remain.

This white paper examines the original megatrends study done 13 years ago, juxtaposed against a new survey of more than 150 companies completed in January 2013 and

leading-edge research done by the faculty as well as the knowledge base of our sponsors.This document provides a brief synopsis of the lead-

ing thinking today on 10 game-changing trends in supply chain. These 10 trends illustrate the transitions from

1. customer service to relationships management 2. adversarial relationships to collaboration

with suppliers3. incremental change to a

transformational agile strategy 4. functional focus to

process integration 5. absolute value for the

firm to relative value for the customers

6. forecasting to demand management

7. training to knowledge-based learning with focused talent management

8. vertical integration to virtual integration

9. information hoarding to information sharing and visibility

10. managerial accounting to value based managementAs noted above, we recently (November-December

2012) completed a survey of more than 150 supply

By Paul Dittmann, Ph.D., Executive Director, The Global Supply Chain Institute, The University of Tennessee, and former Vice President of Supply Chain for Whirlpool

E very month it seems as though an article or lecture presents a new assessment of the major issues and forces supply chain professionals face. Consultants, academics, and companies have their own unique view of the industrys game-changing trends.

What makes our report any different?The 10 game-changing trends discussed in this white

paper have their foundations in a landmark study done 13 years ago and co-authored by Ted Stank on our faculty. We have the largest industry network in the academic world, and based on our interaction with hundreds of companies annually, we believe these 10 trends are the ones to focus on. We think you will find it fascinating, as we did, to reflect on changes that have occurred in each of 10 dimensions over the past 13 years.

Nine members of our supply chain management faculty participated in writing this document. The University of Tennessee is ranked No. 1 in the world in supply chain management research, and we found that the 10 game-changing trends align perfectly with our faculty members research. In addition, we leveraged the extensive knowledge base of our two sponsors, Ernst & Young and Terra Technology.

This article is an excerpt from a comprehensive report that will be published in an upcoming special edition of The Link. This report is a collaboration between UTs top-ranked supply chain faculty (No.1 in the world for research productivity) and global sponsors Ernst & Young and Terra Technology.

Which 10 trends will have the greatest impact on your supply chain? Read an excerpt from a special report from nine UT faculty that examines the most significant developmentsand whats changed over the past decade.

The Global Supply Chain Institute is a world-class resource for supply chain expertise at The University of Tennessee

UPCOMING UT EVENTS

April 15-17Vested Outsourcing

May 1-3Global Supply Chain Foundations

August 19-21SC Performance and Financial Principles

August 21-23SC Relationships and Leadership

October 27-November 1Global Supply Chain Executive Development Program

1

NEWS FOR SUPPLY CHAIN PROFESS IONALS SPR ING 2013

The Link

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By Sven Dharmani, Senior Manager, and Anjali Mathur, Senior Consultant, Ernst & Young

I s your inventory rising while your customer service levels dwindle? Has an unforeseen event caused unex-pected demand? Is your supplier short on material? Supply chains routinely face these issues, which more often than not lead to short-term solutions with long-term repercussions. Ideally, a supply chain would approach such tenuous situations with cost-benefit scenario analysis, alignment across planning functions and executive sponsorship. This seems like a simple solution, but companies have struggled to improve their supply chain planning despite the advent of advanced planning systems.

In this tumultuous business climate, 87% of companies have turned to an integrated business planning process to drive better agility and growth. The average enterprise has at least five such initiatives in play to better balance supply, demand and finance,1 but a majority have yet to maximize it as a tool to help unlock their supply chains true potential. While they have improved micro-level processes within planning, they have not mastered the macro-level process of integrated business and operations planning (IB&OP) the next generation of sales and operations planning (S&OP).

Todays supply chain is driven by three primary market forces: volatility, visibility and velocity. Combined, they create compelling reasons why organizations need to embrace IB&OP to drive sustainable and profitable growth primarily, because a robust IB&OP process allows companies to not only sustain a high-performing supply chain, but also let them embrace and adapt to the challenges presented by next generation supply chain capabilities. As customers, distributors, manufacturers and suppliers evolve, enterprise-wide alignment is essential to tackle challenges that may arise. These include:

Increasingly demanding consumers and customers. Volatility is the new norm. Supply chains are witnessing much higher volatility than experienced prior to the 2008 downturn, and it appears that higher volatility will remain. And, as product lifecycles shorten even further, the velocity of change will

accelerate. Demand continues to become harder to predict, causing a domino effect with poor customer service, a high level of back orders, excessive inventory (low turns) and a buildup of slow-moving and obsolete inventory.

Organization design, key performance indicators (KPIs) and other metrics. Functional organizational design tends to drive siloed behavior. Additionally, the functions lack common KPIs (balanced scorecard) and are focused on individual team metrics rather than cross-functional KPIs. Aligning performance incentives without considering cross-functional KPIs drives further challenges, such as conflicting goals between high efficiency versus cost effectiveness, making it harder to create an aligned organization.

Multiple, uncoordinated plans. Through the recent economic downturn, companies shifted their focus to functional effi-ciency to reduce costs and survive. Consequently, companies continue to stay functionally focused, and they have a mul-titude of plans that each function operates against, such as a financial plan, demand plan, operational plan and inventory plan. More often than not, these plans are not synchronized or coordinated, let alone based on common data.

Exploding volume of data. Though companies have volumes of data, only a small portion constitutes valuable informa-tion, and even fewer provide insights to support business decisions. As the volume of data increases, the efficiency of converting that data into actionable information is an ever-increasing challenge especially with the lack of an enterprise system or common master data across func-tions. In the case of mergers, acquisitions or spin-offs, the complexity of managing data is not often considered. As a result, significant time is spent compiling, manipulating and reconciling data versus developing intelligence that can drive high-value decisions. Even though IB&OP is key to enabling a high-performing

supply chain, companies still struggle to effectively run their IB&OP processes. This ineffectiveness creates an ongoing chal-lenge for sales, supply chain, product development and finance functions alike. As indicated below, while formal meetings and demand and supply alignment are typically highly utilized, there is a lack of process execution at the more tactical levels.

IB&OP is the next generation of S&OP, integrating financial planning into the traditional planning process that involves product portfolio management, customer service, and demand and supply planning. IB&OP is at the core of aligning strategic plans (financial, product portfolio, capital investment, etc.) with operational plans (manufacturing, distribution and demand management). It leverages linkages with financial objectives to synchronize plans and drive optimal decisions.

2 THE UNIVERSITY OF TENNESSEE GLOBAL SUPPLY CHAIN INSTITUTE | WWW.GLOBALSUPPLYCHAININSTITUTE.UTK.EDU

Although the vast majority of companies have turned to integrated business and operations planning, they have not yet unlocked its full potential. Learn how a truly successful IB&OP process can integrate and balance sales, supply chain operations, and management.

1 What questions ARENT you answering with S&OP today? Steelwedge website, www.steelwedge.com/blog/what-questions-arent-you-answering-with-sop-today.html, accessed 12 March 2013.2 S&OP: What You Can Learn from the Top Performers, Supply Chain Management Review website, www.scmr.com/article/SOP_What_You_Can_Learn_from_the_Top_Performers, accessed 12 March 2013.

external inputs across an enterprise with an integrated, consensus-driven operating plan. As a result, it is critical for users to embrace a process that maximizes cross-function collabo-ration and operates on a regular, rather than sporadic, basis.

Implement a holistic forecasting model. A clearly defined demand management process incorporates marketing and sales intelligence while aligning with an organizations financial plan, including strategies to address perfor-mance gaps. The forecasting process also moni-tors demand exceptions and forecasts accuracy, and it measures bias to correct the spe-cific streams that are inducing the error or bias.

Focus on data-driven, proactive behavior. Met-rics and incentives aligned across the enterprise that promote the business objectives rather than functionally focused metrics are critical, as

THE UNIVERSITY OF TENNESSEE GLOBAL SUPPLY CHAIN INSTITUTE | WWW.GLOBALSUPPLYCHAININSTITUTE.UTK.EDU 3

AVERAGE RATING OF IB&OP/S&OP PROCESS USE2

IB&OP FRAMEWORK

3 Tallying the Benefits of S&OP, APQC website, www.apqc.org/knowledge-base/download/247943/a%3A1%3A%7Bi%3A1%3Bs%3A1%3A%222%22%3B%7D/K03263_S%20and%20OP%20article%20KB.pdf, accessed 12 March 2013.

Note: The Low column indicates the median performance level for organizations with a low degree (1 or 2 on a 5-point scale) of external demand collaboration with customers. The High column indicates the median performance level for organizations with a high degree of external demand collaboration with customers (4 or 5 on a 5-point scale).

IMPACT OF EXTERNAL DEMAND COLLABORATION ON KEY IB&OP AND S&OP MEASURES3

Low calibration

16%

11%

0.16%

High calibration

8%

15.9%

0.05%

N

38

33

38

Selected S&OP measure

Inventory carrying cost as percentage of average annual inventory value

Return on assets

Shrinkage as a percentage of total revenue

IMPACT OF EXTERNAL SUPPLIER COLLABORATION ON KEY IB&OP AND S&OP MEASURES3

Low calibration

$3.43

27.12

High calibration

$1.98

12.97

N

45

53

Selected S&OP measure

Demand/supply planning costs per $1,000 revenue

Number of FTEs for the supply chainplanning function per $1 billion revenue

(Continued on page 6)

As a result, IB&OP drives collaboration both internally and externally. But as with any business capability, there is a wide gulf between top performers and those that merely practice it. Not only do top perform-ers apply S&OP leading practices to a far greater extent, they also take the next step of integrating their supply chain planning and financial planning processes to drive true IB&OP. Subsequently, these top-performing organizations are far more effective at driving benefits.

Companies with successful IB&OP pro-cesses not only integrate planning processes across functions, they also embrace the following core tenets that serve as a basis for each element of the IB&OP process:

Be forward-looking in a 3- to 24-month window. Rather than a company con-tinually operating in firefighting mode to tackle problems as they arise, IB&OP addresses issues in advance. The focus is not on the past months results or the root cause, but rather what the company can do to significantly improve perfor-mance on a 3- to 24- month horizon.

Embrace a collaborative, cross-functional, monthly process. IB&OP is more than just the customer service, demand and supply planning traditionally seen in S&OP. It also inserts critical new product development, finance and regulatory/legal functions into the overall planning process, and it incorporates internal and

University worked closely with PFJs managers to develop and adapt a decision support tool, with appropriate metrics and benchmarks that would facilitate an objective evaluation of any potential solution. Table 1 depicts an abbreviated version of the decision support tool. The tool steps outside of just operational cost measures and ROI computations, and also adds strategic, tactical and behavior components to the evaluation of the new system.

PFJ initially expected to center its decision around the solutions potential return on investment (ROI), as measured by the operational cost improvements garnered by the system verses the actual price paid for its full installation. However, the collaborative brainstorming sessions with professors from the University of Tennessee, enabled the development of a set of objective cost measures from PFJs existing operational metrics to

make the ROI evaluation.Results of the test included objective

operational measures including the pre- and post-test cost evaluations in several operational cost categories. The results were also based on subjective data collected from PFJ personnel, who used the system. This data was collected

with short question-naires administered weekly during the test period. Using the combined data sources, the PFJ management team was able to determine a formal score for each category of the test and in most of categories of performance, the system performed

poorly and was graded in the low area of the evaluation tool. Although the results of the initial test led to a final decision to not adopt a COTS solution, the controlled, methodical evaluation process was a positive experience for PFJ. The process resulted in PFJ walking away with a greater understanding of its technologi-cal gaps and a better appreciation for what its existing IT staff could do by way of developing an in-house solution that could ultimately give PFJ a competitive advantage.

During the technology evaluation process, PFJs confidence increased with regard to the viability of an internal (make) strategy (relative to the solution). PFJ realized that a core com-petency for the company is its ability to execute

After nearly doubling the number of its North American fuel stations, Pilot Flying J felt the need for new technology to help manage its operational growth. A member of UTs Global Supply Chain Forum, the company chose to work with UT and Colorado State University to develop an evaluation tool that helped them make some tough choices about the options they evaluated, and ultimately led to an unexpected outcome.

John E. Bell, Ph.D., University of Tennessee; Randy V. Bradley, Ph.D., University of Tennessee; and Meghann Erhart, Pilot Flying J

In the summer of 2010 Pilot Flying J (PFJ) faced a unique situation. The company had practically doubled the number of its truck stops in North America with its merger with Flying J, and many of its operational processes were changing dramatically due to this growth. In an attempt to manage the operational com-plexities of its rapidly growing organization, and to ensure efficient and effective execution of its business processes, PFJ was in search of a techno-logical solution that would enable the accomplishment of its strategic and operations goals. The expectation of such a solution was that it would auto-mate and optimize processes and resources allocation, both of which had historically been accomplished manually. However, making such purchases would have serious cost and process implications for the company and there were concerns that standardized solu-tions may not be easily adapted to the unique and fast paced environment at PFJ. Therefore, identifying the appropriate solution and the associated expected benefits became an impor-tant focus for PFJ. As such, in the Fall of 2010, PFJ reached out to colleagues at the University of Tennessees Supply Chain Management program for insight on the correct metrics and benchmarks for evaluating a potential solution. Over the next year, professors from the Univer-sity of Tennessee and Colorado State


Team members from PFJ

and the University of

Tennessee were each able

to bring unique

perspectives and

experiences to the table.


business processes efficiently and effectively. This realization allowed them to be more confident in investing and launching a completely new suite of internally developed solutions following the evaluation.In addition, the evaluation enabled PFJ to learn about deficiencies in its own manual processes and personnel training programs. Although stressful at times, the evaluation provided organizational learning and insights not previously captured by the companys normal day-to-day operations. Finally, PFJ learned that simply examining the merits of an external solution using ROI and cost measures is not sufficient. For example, following the evaluation, PFJ was able to more deeply understand how important social/behavioral issues are for adopting and integrating a technological solution, especially if it is an externally developed solution.

The results of this partnership included unforeseen benefits for both the corporate and academic partners, that not only have implications for making technology-related acquisition decisions, but also have implications about the benefits of academic and corporate partners working jointly on challenging managerial issues. First, the University of Tennessee researchers were able adapt a framework from the academic literature and apply it in an a priori manner to identify key performance metrics and objective thresholds to evaluate a technological solution in an operational setting. Additionally, evaluating the companys response to the new technology helped the research team gain organizational learning insights not usually available

for academic observation. Finally, and most importantly, the unique situation and request for assistance from PFJ, led the University of Tennessee researchers to acknowledge the need for a more practical and industry-friendly decision support tool. Working with the PFJ team, the UT researchers were able to help develop a decision support tool that has been tested and is applicable to the acquisition and testing of other solutions at other companies.

Team members from PFJ and the University of Tennessee were each able to bring unique perspectives and experiences to the table. In doing so, this combined team was able to analyze and effectively implement a plan for an unprecedented technology evaluation and potential external adoption. This effort is representative of the type of benefits that can be gained by joint research projects between the corporate members of the Global Supply Chain Forum and the Supply Chain Management faculty at the University of Tennessee. In navigat-ing uncharted waters, this partnership allowed both the academic and corporate members to gain insights and find solutions that each could not have foreseen or constructed without the others inputs. As a result, improved insights and the right decision were realized by PFJ, while the UT research-ers achieved improved knowledge and theoretical insights to a rigorous and very relevant problem. It is the aim of the GSCF to continue to foster such projects in order to realize similar benefits for both academic and corporate partners.

FIGURE 1: SAMPLE ASSESSMENT GRIDLow/Seldom

Decrease or no change in

market share

Can be imitated almost immediately

< 10%improvement

< 75% of the time

< 15%improvement

Medium/Often

5% increase in market share

Can take up to a year to imitate

10-15% improvement

75-90% of the time

< 15-20%improvement

High/Almost Always

> =10% increase in market share

Takes more than a year to imitate

> 15%improvement

> 90% of the time

> 20%improvement

Performance Category

STRATEGIC IMPACT

The solution enables your organization to gain market share.

The solution provides a capability/competency difficult to imitate.

TACTICAL IMPACT

The solution enables your organization to improve administrative efficiency.

The solution improves your organizations ability to allocate scarce resources.

OPERATIONAL IMPACT

The solution aids in the coordination of activities/processes across functional areas.

The solution improves your organizations labor productivity.

6

Q.What are some of the new supply chain programs UT is offering this year?A. The inaugural class for our new Global Supply Chain Executive MBA arrived on campus this January. Weve got a truly impressive group of supply chain professionals from a number of leading companies including Dell, Mondelez, and Coach. Their next global experience will be in Paris this June and later Budapest, Singapore, and Shanghai. Having a group from different industries and countries has

Ted Stank, Ph.D., is the Bruce Chair of Excellence in Business and one of UTs leading supply chain management thought leaders.

THE UNIVERSITY OF TENNESSEE GLOBAL SUPPLY CHAIN INSTITUTE | WWW.GLOBALSUPPLYCHAININSTITUTE.UTK.EDU

raised the level of conversation. Ive really enjoyed digging into some of the more complex issues that theyve confronted as supply chain executives. Im not sure Im not learning as much from them as they are from me.

Q.Has this type of collaboration with industry always been one of the supply chain programs strengths? A. Definitely. Our alliance with industry gives us the opportunity to keep our finger on the pulse of whats happening in supply chain across industries and the globe. In fact, this month were publishing the first in what will be an annual series entitled Game-Changing Trends in Supply Chain. The information at the core of this report comes from our interactions with literally hundreds of companies each year through programs like our Global Supply Chain Forums and our Center for Executive Education. We plan to formalize our applied research relationship with our partners, focusing future research on topics that are cutting edge and meaningful to their business issues today.

Continued from page 3 Performance measurement dashboard. A clear, concise view of relevant, actionable targets and performance is needed to support formal and measurable processes, accountability and exception-based decision-making.

Seek simplicity that drives value. Organizations should guard against over-engineering processes and solutions that are difficult to sustain in the long run. The power of advanced sup-ply chain applications can often result in overly complicated designs and techniques when the basics are already in place.

High-quality team members. Make sure project resources are the best in their area. They should be prepared to lead new processes, perform as change agents and help build consensus.

People, process and technology. Defining an IB&OP future state requires a holistic approach and careful consideration of the organizations structure and roles, process and policy design, and technology.

Mastery of master data. Lost value propositions and inaccurate results are often attributed to ignoring, underestimating or failing to acknowledge poor data. Common data across functions and departments allows employees to focus on analysis and decision support, rather than spend time on data gathering.In order to stay competitive, companies need to drive

collaboration through IB&OP across the organization. Multiple components across the organization must come together to realize the tangible and intangible benefits of IB&OP. When executed well, the value proposition of IB&OP is tremendous. Many companies have implemented S&OP, but by evolving IB&OP and including areas like financial planning and product development, they can start to realize benefits they might otherwise miss.

is data-driven decision-making through the use of simulation and what-if analysis rather than intuition. Additionally, organizations should focus on creating a balance between people, capacity and working capital, as well as on using consistent criteria to drive decisions versus being incapable of prioritizing opportunities.

Given the organizational complexity of IB&OP transformations, we believe the following are critical to the implementation and sustainability of an effective IB&OP process:

Executive support. Sales and marketing organizations often struggle with new processes, requirements and accountabilities. Senior management must visibly support and enforce expectations. The executive often functions as a change driver, enabling a wide change in this network across the organization.

Neither Ernst & Young LLP nor any other member of the global E&Y organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication.

chain professionals to assess the changes made in the past 13 years on each of these 10 trends. Below weve listed some high-lights of that survey, and we expand on them in the body of the white paper:

The same 10 challenges still exist, but firms have made significant and in some cases surprising progress in the last decade.

Some companies have achieved top levels of performance in certain individual categories, although none has done it in all categories. It is intriguing that no company reported a top level of performance 13 years ago in any category.

There are laggards in each category as well. These firms still appear to be fighting the same battles in the same way.

Respondents believe they have made the most progress in customer relationships and cross-functional integration. Firms seem to be getting much better at focusing on customers outside the firm and shoring up the focus on cross-functional processes inside the firm.

Although companies have made the greatest improvement in cross-functional and cross-organizational processes and

Continued from page 1


activities, those remain the keys to further progress and the areas of greatest opportunity for improvement. The five areas with the greatest opportunity for improvement, according to our survey, are

In addition, talent management clearly emerges as the linchpin required for advancement in all areas.The remainder of this white paper is divided into 10 sections,

one for each trend. Weve used the survey information as one input but also included leading-edge thinking from all of our research and industry contacts.

Look for the full report in an upcoming special edition of The Link.

1Don Bowersox, David Closs, and Ted Stank; Ten Mega Trends That will Revolutionize Supply Chain Logistics

with this new book from Financial Times Press. Dr. Mark Moon of UTs top-ranked supply chain program has written it for supply chain, logistics, and operations management professionals at all levels, from analyst and manager to director,

Based on his nearly two decades of supply chain research and consulting, Dr. Moon succinctly describes the what, why, and how of Demand and Supply Integration in this book. It is a powerful reference guide for every supply chain leader and practitioner.

CONTACT US:

THE GLOBAL SUPPLY CHAIN INSTITUTEThe University of TennesseeCollege of Business AdministrationExecutive Director J. Paul Dittmann, Ph.D. jdittman@utk.edu865-974-9413www.globalsupplychaininstitute.utk.edu

Also on

The University of TennesseeCollege of Business Administration Department of Marketing and Supply Chain Management310 Stokely Management CenterKnoxville, TN 37996


THE UNIVERSITY OF TENNESSEE EEO/AA STATEMENT The University of Tennessee is an EEO/AA/Title VI/Title IX/Section 504/ADA/ADEA institution in the provision of its education and employment programs and services. Publication Number: E01-1409-001-13

How Close Is Your Supply Chain to Best in Class?

We routinely assess how companies stand relative to best in class in their supply chain processes. If you are

interested in learning more, contact

Paul Dittmann, Ph.D.Executive Director of the Global Supply Chain Institute

[email protected]

The University of Tennessee maintains a best-practice database consisting of hundreds of companies. These best practices

cover the entire landscape of supply chain disciplines.

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