Assessment

Competing Initiatives - Supply chain and manufacturing operating managers find themselves in 2005 faced with an array of competing initiatives - from RFID, to Lean, Six Sigma, Outsourcing, Vendor Managed Inventory (VMI), Collaborative Planning Forecasting and Replenishment (CPFR), Spend Management and Compliance. These initiatives offer the promise of improving transaction processing, streamlining processes, minimizing risk and optimizing throughput. Yet COOs are hard-pressed to demonstrate the contributions of these initiatives to overall cost reduction and increased operational efficiency. While there is a growing awareness of the need for better tools to help measure and monitor the effectiveness of the supply chain processes, Supply Chain Performance Management (SCPM) technology applicability is confusing and adoption is slow.

Our previous research shows that operating managers have turned to Business Intelligence (BI) solutions to fill the gap between terabytes of data and meaningful, actionable business insight. However, adopters are finding that these solutions do not always provide information that is actionable, because the information is not available in a timely manner for individuals and lacks context. As well, Business Process Management (BPM) and Compliance solutions do little to address the needs of the supply chain initiatives. We assert that the business processes and initiatives that are getting the most attention are not being evaluated to determine their contributions to overall business performance goals; therefore the effectiveness of those initiatives remains in doubt.

To address that uncertainty, companies must manage the supply chain initiatives within an overall Performance Management methodology. Ventana Research defines this as Operational Performance Management (OPM), which is the practice of managing the effectiveness of operational-centric business activities, initiatives and processes to a common set of goals and objectives. We maintain that deploying the process of Sales and Operations Planning (S&OP) is one way to assure that initiatives are prioritized correctly and perform to business objectives. Our research will show that successful companies evaluate and manage initiatives within an S&OP framework and adopt SCPM technology to support it.

Finance and Operations Alignment - Adoption of consensus Demand Planning and S&OP solutions will continue in 2005 as companies focus on synchronizing their various demand signals with supply and address the business performance impact of their product portfolio changes (New Product Introduction, End-of-Life, Revisions, etc.). Dedicated software has been around since the 1990s, but adoption of a single sales forecast record across all operations and finance remains low. As well, Supply Chain Management (SCM) and Product Lifecycle Management (PLM) systems ignore the financial impact of product portfolio changes. Finance, Operations and Engineering still plan in silos. Companies with high-velocity portfolio change typically address the impact of those shifts on spreadsheets.

Notwithstanding, those working at the confluence between financial reporting, which is GAAP based, and management reporting, which is operational-centric, lack a unifying technology that is easy to use and simple to implement. The best companies have adopted driver-based planning and perform some form of continuous planning, budgeting and forecasting. They also evaluate each of the individual contributors to the consensus forecast for accuracy. These companies assess the cost and profitability impacts of supply chain alternatives effectively. While cost and profit collaboration technology is available, it is neither well adopted nor well integrated. Our research will show that customer profit is best evaluated in a consensus environment and that IT investment in this area has a large ROI. It also will show that the most effective companies include innovation and product performance reviews as part of their executive S&OP review.

Operational Effectiveness - Ventana Research believes that operational managers continue to make decisions about supply chain supply, fulfillment and distribution alternatives without clear understandings of their impacts on performance targets. We see companies spending too much time dealing with the consequences of myopic fixes (like expediting "critical" orders, sourcing from low price suppliers, holding additional inventory buffers, etc.) and not enough time on doing root cause analyses to identify issues and understand the cross-functional impacts of alternatives. We believe this "Understand" is the first step in a process that we call the PerformanceCycle™ methodology. Companies should deploy this approach to manage operations effectively. This methodology employs a three step ("Understand-Optimize-Align") closed-loop process that links together the business and user requirements for any level of the organization. This process then provides the mechanisms to access and assess technology that can provide people with needed information and, through collaboration, reduce cycle times for making decisions or taking action.

Solutions to support this "Understand" step, like Business Intelligence (BI) applications, have matured considerably, but there is confusion about the extent and applicability of this technology for operations. Technologies such as like OLAP based Dashboards can be deployed to rapidly retrieve, aggregate and disaggregate data and drill down on geography and history. However, few of these tools allow alternative decision record-keeping, provide predictive analytics ("What will happen if …?") or "score" the process itself like many Supply Chain Performance Planning and Scorecard solutions can. These technologies have matured, but it is unclear how effectively they are being adopted.

Ventana Research maintains that these and other technologies can be employed to address operational effectiveness when done right. As one example, our 2005 research will show how Balanced Scorecards are being deployed manage business processes and identify performance exceptions and how they help companies align operational activities to performance objectives. For supply chain operations, we will assess the extent of use of the Supply Chain Operations Reference-model (SCOR) standard.

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Ventana Research advises our clients that their supply chains and manufacturing departments must focus on ways to improve operational effectiveness, using IT resources whenever necessary to make this possible and practical. Corporations invested trillions of dollars over the past decade on supply chain management software and systems. However, historically the focus has been on improving transaction processing, streamlining processes and optimizing throughput -- in short, the focus has been on improving efficiency. Little, if any, resources focus has been on supply chain effectiveness and the ability to detect exceptions before they become expensive problems. Supply Chain organizations now must begin a process of managing their core processes more effectively by adopting Operational Performance Management best practices and deploying appropriate technology.