Calling All Dudes

Tony needs a dude. Not just any dude will do, and he definitely does not want a czar. His needs are immediate. Interested?

Meet Anthony van der Hoek. He works on the Wal-Mart account team at Coca-Cola, and is known to his friends as Tony. He has a problem. With the proliferation of downstream data, Tony needs cleaner data more frequently. He is looking for a data dude to help architect what is needed. While other companies might call the job description data czar, Tony is adverse in today's environment to knight anyone as a czar. Essentially, he needs someone to own the data, drive leadership in data cleansing/enrichment, and design the new information layer to support the team's demand-driven initiatives.

In my work with over 110 consumer products companies, I have met three such individuals—Dave, Mark, and John—that would fit the bill. While organizations do not normally have a data czar—and for many it is a new concept—it is clear that companies need a new information layer and that it requires an architect.

• Vision—The data czar defines the future vision. Like angels, they need both wings and feet. Wings to see the future and drive the organization forward, and feet to understand what is possible and needs to be delivered now.
• Coordination—The data in the information layer is needed by multiple groups across the organization. For example, the reference model for category management is very different than the one needed for forecasting. Working across the organization, the data dude defines metadata definitions and master data governance.
• Enrichment—The data czar thinks outside in. The information layer is designed on the vision of what is possible based on downstream data capabilities and enrichment sources. Since these capabilities are consistently changing, the data czar is continually refining the model to improve insights.
• Integrity—Data cleanliness is always an issue. For example, Loblaw's reuses store numbering, and many companies will reuse UPC numbers. The data czar understands where the data is dirty and develops work-around solutions to continually clean and refresh data sources. They also work across retailers to help drive data standards and process standardization.
• Innovation—The data architect is at the forefront of driving innovation through technology. They work with strategic vendor customer councils to accelerate investment, and help to prioritize investments. 

While the name may vary by company—Tony would call them a dude, and other companies may call them architects—what is clear is the need for one. Remember, "that which we call a rose by any other name would smell as sweet." Romeo and Juliet (II, ii, 1-2) The use of downstream data drives greater returns when the information layer is designed not inherited. Now is the time to act.

What do you think? Have you met a data czar? Do you have any thoughts on what makes a good data information architect? Can you help Tony?

Beyond Rows and Columns

I am hopeful. I see a kinder, friendlier BI world evolving.

In our research, the most strategic IT investment for 2010 is business intelligence (BI). These investments will drive the majority of the spending in 2010. As companies contemplate this spend, I would like for it to not be your standard, traditional BI thinking that does not serve the line-of-business buyer well.

Today, there are four market realities driving projects:

• The demand for industry-driven and content-specific analytics is accelerating.
• The line-of-business buyer is involved more than ever in BI decisions.
• There is a trust gap between line-of-business users and IT, and it is growing.
• The technology market will continue to consolidate. It will become more confusing.

 

The answer to closing the gap needs to be new thinking. Projects need to be about more than reporting. The solution is not more rows and columns. I am excited about new concepts. Three promising innovations are:

Search

Search is not new on the Internet or in office applications. It is new to enterprise reporting. In 2009, Lawson introduced search capabilities into its reporting applications. This is a good first step, but search has the possibility to have an even greater impact. 

Will search engine optimization (SEO) redefine traditional techniques for master data management? Endeca thinks so. Endeca is building search tools to flexibly assemble metadata elements on an as-needed basis. I believe that within two years the traditional approaches on defining master data elements will become obsolete. They are just too rigid and problematic.

Sentiment analysis

Sentiment analysis answers the question of "What do customers really think of my product?" This data mining is a new frontier. 70% of the data is unstructured. The goal is to mine unstructured data to gain insights on facts (Lora is an analyst for a company that just got acquired) and sentiment extraction (How do Lora's clients feel about the acquisition?). The power happens when this unstructured text mining is combined with rules to drive real-time customer feedback (What are Lora's customers concerns about their contracts?). I recently had one of these blow-an-analyst away briefings with SAS. (Many analyst briefings are incredibly dry; every now and then, you get one that is fabulous.) The mining of unstructured text is something that SAS does well. I believe that investments in sentiment analysis will be hot in 2010 in high tech and electronics, digital consumer programs, and e-commerce.

Mapping

The intersection of enterprise data with geomapping is an exciting frontier for supply chain applications. The combination of pattern recognition (this supplier has a consistent pattern of mis-shipping on the third week of the month) with geomapping offers unbounded opportunities. Recently, Cisco gave a presentation to our supply chain peer forum on real-time geomapping of supplier risk. It has the ability to see pattern recognition against real-time risk factors. It is also important for customer sensing. Imagine the possibilities to use pattern recognition while applying demographic filters to mapped data to see which retail outlets are out of stock and where new products are selling in real time. It is possible.

The battleground for IT spending in 2010 is BI. It is where strategic vendors—Microsoft, Oracle, and SAP—will face off. The competition between these vendors for mindshare will be fierce. In the middle of the fight, look for the friendlier, more user-friendly approaches to BI. They are evolving quickly. They will help companies see insights beyond rows and columns. I only hope that the innovations are not lost in the heat of the battle.

What innovations do you see happening in BI?

Make Mo More Money

Meet Morris Owens. He has saved his company $20M through business process outsourcing (BPO). However, his ambitions don't stop there. He wants more money, and has devised a way to get it.
 
Some history

Coca-Cola Enterprises is the largest bottler in the Coca-Cola system. The company has tripled in size over the past 10 years. To support the growth, Mo set up a shared services organization in Tampa, FL for accounts receivable. In 2006, a new president asked Mo, "Are you world class?" After benchmarking AR operations, he sadly admitted that he was not. In fact, Mo found that he was at the bottom of the heap in both dollars reclaimed and cost to serve. He started looking for a better way.

Today, it is about the quality of the voice

The solution was to nearshore customer-facing activities and offshore back-office functions. He selected Guatemala and Krakow, Poland for deduction management and AR. He selected Capgemini for the quality of the voice and capability of 32 languages.
 
Last week, I got to tour the Guatemala center with Mo. As we entered the room painted Coca-Cola red, it was clear that the associates were dedicated to helping Mo find more money. Coca-Cola key chains hung from their waists as they competed to close more deduction lines faster. An associate speaking French to Loblaws (in a free-flowing dialect that my French teacher would have loved) sat next to an English-speaking agent talking to Wal-Mart. No doubt about it, the team is focused, the quality of the voice is present, and in just three months the BPO option has exceeded the prior efforts by the onshore team for collections and deductions.
 
Tomorrow: a process redesign?
 
This implementation was a lift and shift. Today, it is primary labor arbitrage. Mo, there is so much more potential. Labor arbitrage is fleeting as an advantage. Mo, to make more money, consider:

The primary issue for deductions is price. It starts on routes with master data. Why is this not outsourced?
 
Performance-based promotions depend on market-basket and downstream data analysis. This would have been a wonderful opportunity to redesign the process from the outside-out.

The outsourcing of processes will come in the future. Mo, the exciting stuff almost never happens until later. The buyer and supplier go through the mating rituals of lift and shift/labor arbitrage to get comfortable with each other. Mo, keep at it. Make more money.

The Death of DRP

DRP is dying. It is a slow painless death. It is just slipping away into oblivion.

Born in 1973, Distribution Requirements Planning (DRP) was the workhorse of inside-out processes that is now outdated for the demand-driven world. The home of DRP, the DRP table, just no longer has a fit in supply chain planning based on outside-in processes. Consider the changes: 

• Forecast demand for each SKU is being replaced by demand sensing and shaping technologies.
• Current inventory level of the SKU target safety stock is being redefined by multi-tier inventory management pull-based processes.
• Recommended replenishment quantities are being replaced by outside-in backward population of customer requirements based on downstream data.
• Replenishment lead times are still in play, but it is no longer a number in isolation. Instead, it is the reflection of actuals reflecting true supply chain capabilities. 

In life, DRP looked very much like its sister MRP. Both were pushy applications built on the assumption that an order represents true demand and that planning can be improved through rules-based order logic.  In real life, companies found that push is less effective than pull and that rules cannot be configured to represent true--downstream--demand. It's a fact that few realized too late.

A veteran of Year 2000 hysteria and the over-hyped Advanced Planning System (APS) market, DRP was once a workhorse for inside-out applications. As the end grows near and the market moves to outside-in applications, few remember that supply chains need to be designed, that there is a need for both push and pull-based supply chains, and that DRP still has a role in push-based supply chains. The concept of one-way flows of DRP is being replaced by bi-directional flows tightly integrated into logistics based on push-pull decoupling points. DRP will be survived in death by supply chain salesmen (affectionately named arm-twisters), well-intended supply chain consultants, academics, and hangers-on.

There will be no funeral. There will be no returns accepted for DRP software by software vendors. Companies will be asked for contributions to fund new solutions.

What do you think? Do you think that DRP is dead or dying?

Let It Snow!

For most people, fall brings back-to-school rituals, falling leaves, and carving pumpkins. Not for me. During this time, I spend my days on the IT speaking conference circuit. Fall is the busiest period of the year for an industry analyst. As others bob for apples and dress for Halloween, I travel from conference to conference until Thanksgiving. I left my house in August and I will return next week. (Imagine how strange I looked clutching a heavy black winter coat as I got on a plane in 90-degree weather.)

Tonight is a good time to reflect. A lot has changed. Four months is a short time. But in this time of economic change, it seems like a very LONG TIME. August was scary. In August, IT budgets were being slashed and inquiries were desperate cries of help to better manage inventory and benchmark headcount. Some clients were badly stung by the recession. Dupont closed factories for nine months. Logitech, faced with a sharp drop in demand coupled with high distributor inventories, posted a 70% reduction in earnings. Others saw an unprecedented shift in demand. Things could not have been better at Malt O'Meal (a maker of private label cereals) for the brand managers of Listerine at Johnson  Johnson or for the factory workers making Lysol at Reckitt Benckiser. The first six months were a roller coaster ride for demand planners at most companies. 

Now the dust has settled. Client inquiries have a more positive note. The top five inquiry topics are:

• Downstream data—The use of downstream data technologies has passed the tipping point. There are now three data czars, and inquiry on how to formulate a downstream data strategy has never been higher.
• Making money in the front office—All eyes are on the front office. With the dawn of the digital consumer and the shift to a more granular focus for retail trade spend, inquiries have increased to better understand trade promotion management, marketing analytics, and shopper insight technologies.
• E-commerce is new again—It is not just for retailers anymore. This week my colleague, Allen Johnson, posted an article on Alice.com, a new web offering for home shopping. More and more consumer products companies are investing in e-commerce strategies to reach their target markets, and the inquiries are rising on alternative channels (direct to home). 
• Sales and operations planning—Companies cannot learn enough on Sales and Operations Planning (S&OP). This week, 105 supply chain professionals gathered in Boston for our supply chain peer forum. For the fourth forum in a row, S&OP topped the list for companies to focus on.
• Demand sensing is mainstream—We have come full circle. In 2005, we penned the Handbooks of Becoming Demand Driven and coined the terms demand sensing and demand shaping. These concepts are now driving investment.

With Thanksgiving around the corner, I give thanks that things are getting better for most of my clients. We have a new normal, and things are getting more upbeat.

Wish me safe travels getting home. With any luck, I will get snowed in there until New Year's.

Wanted: Experience

My friend Jim Messner of Alticor needs a supply chain planner. He has been looking for 18 months. His efforts have been focused and diligent. He wants to put a planner to work in Michigan, and thinks that I can help him. My efforts have yielded no takers. Even in these days of record unemployment in the state of Michigan, no one has called.

Last week, unemployment hit 10.2% in the United States. There are six people chasing every job. Anyone that has visited Michigan has felt the grip of the record level of unemployment on the local economy. There is no question that unemployment is the number one issue in Michigan. In this once thriving industrial economy there are not six applicants for every job; it is higher than the national average. It is a 25 applicant to one job ratio. Yet, Jim's phone is not ringing off the hook. 

The reoccurring joke at the AMR Research supply chain forum is that same companies are chasing the same planners. They are recycling the same talent. There is a limited pool of really good planners. They are in demand. Company strategies to use planning as an entry level position have largely failed.

Seven years ago, through a strange set of circumstances, I had a debate with Sanjiv Sidhu, founder of i2 Technologies. I remember it vividly. It was late at night, and Sanjiv was contesting my position on i2's future. As an analyst, I had made a statement that the lack of planning talent would constrain i2's growth in the supply chain planning market. I believed that Sanjiv and i2, as a software leader, would not be successful long term. My position was that the traditional software model would make him personally wealthy, but that with the current model we would not see true adoption of software planning. Sanjiv's position was that a bicycle manufacturer does not take the responsibility to teach their owners to ride, and that he had no responsibility to teach companies how to use planning technologies. We were at loggerheads. We hotly debated the topic for four hours from 11:00 p.m. to 3:00 a.m. 

Today, Sanjiv is a rags to richesbillionaire. His company, i2 Technologies, once the symbol of innovation in the supply chain planning market is being sold to JDA. All of the intellectual capital is being sold to a supply chain technology aggregator. Fast forward seven years, and we find supply chain planning innovation largely relegated to self-funded start-ups, and Jim in a period of record unemployment waiting for his phone to ring. 

Companies still struggle with the concept of planning. They are largely reactive. When supply chain planning technologies evolved, they were technologies chasing a buyer. In those days, you seldom saw a business card with the title of supply chain vice president. When you did, it was a reason to rejoice. This has changed. Last month, in my travel in Europe, I visited four companies that now not only have supply chain vice presidents, but have newly elected supply chain leaders on the board of directors!

Organizationally, supply chain management has come along way. The importance is recognized. The ecosystem to support these new leaders is not equal to the task. There is a vacuum in the market. Supply chain leaders were never trained on the basics of supply chain planning. They are largely reactive. They have been trained in manufacturing-centric organizations to chase Return on Assets (ROA). They have been rewarded by surviving the school of hard knocks. They understand order to cash and procure to pay. They struggle to understand planning. Just too few companies are good at it. They openly admit it. 

Supply chain consultants are not up to the task. They have made fortunes on implementing Enterprise Resource Planning (ERP). As the demand for ERP talent wanes, consultants would like to fill the void. The basic understanding of supply chain planning by consultants has never been lower. They need retooling.

Sanjiv, today, can be found in a Yoga studio in Dallas. He is starting a new company. It is called O2. The market is poised to launch a new generation of planning solutions. There is new buyer. There is a need. The step change in underlying technology and innovation has changed what is possible. The consultants will not train to understand planning again until there is a pull in the market. Until the new solutions are launched and we kill the outdated notions of DRP and MRP and recognize that an order is not demand, the gears of wealth will not turn.

I will not be able to help Jim. His phone will not ring. The pool of available applicants for planning jobs even in this time of unemployment is just too small. He will have to compromise. 

I am probably not going to be able to help Sanjiv. He has been rewarded by personal wealth and has not been held accountable for the greater impact of what he delivered to the market.

I am hoping to help the market to not make this mistake again. I don't believe that we can generalize about the responsibilities of bicycle manufacturers and software leaders. I do think that software leaders do have a responsibility to train companies to use their software. I believe that success in software sales should not be measured by personal wealth or software commissions. Instead, I think that it should be measured by the delivery of true value through usage of the software. It is time to stop playing the shell game. True value in software happens when companies use the software and an ecosystem evolves to drive excellence through usage.

What do you think? Do software companies that drive step-change innovation have a responsibility to train organizations how to use their software? Do leaders need to take accountability for the development of a supporting ecosystem?

Brad Has A Dream

Let me introduce you to Brad Blizzard, Senior Director of Logistics at Colgate. He went to the University of Tennessee on a baseball scholarship, and through serendipity landed in a career in logistics. I am glad that he did. He has a dream. For many, it is a curveball.

I have seen Brad twice in the last three months (once in August at the Transplace round table and last week at the Ortec user conference). When I speak, it is great to have Brad in the audience. Why? There is nothing worse as speaker than to ask a question, and have a pregnant silence hang in the room. But, when Brad is in the audience, I can count on him to fill the void. He jumps right in. He asks questions and shares his passion for improving logistics.

Each time I speak, Brad tells the same story. It goes like this. "Retailers want us to deliver trucks more frequently; and at the same time, they want us to reduce greenhouse emissions. They want to order by product category and flow it through their warehouse. As a result, we are either shipping more trucks with less product or facing greater stock-outs. Each of us have warehouses in Chicago, Atlanta, Dallas, Newark, and Los Angeles, why can we not work together to meet these needs?"

I love Brad's energy, and his plea normally stirs emotion in the room. Companies have been successful in driving more direct shipments; but across the industry, no one has been successful in driving collaborative transportation arrangements that are more holistic to meet these needs. Increasingly, they are searching for an answer on how, in the face of these rising retail expectations, to ship slower moving items. 

I would like to help Brad and the industry, but I believe that to accomplish this goal we need to redesign order management. It is a stumbling block to making Brad's idea a reality.

Logistics is on the back foot

The average order reflects a demand lag of 14 days from a customer purchasing a product at the shelf to the consumer products company receiving an order. As a result, as depicted by the diagram from Kraft below, the order signal lags true demand replenishment needs.

 

To make it work there needs to be more process discipline 

To make Brad's vision a reality there needs to be more discipline in the order process. Order management is not simple. There are many ways to take an order, and consumer goods companies are struggling with how to consistently take and respond to orders. In the research, we find that order lead time is variable based on how orders are accepted (e.g., phone, fax, B2B, VMI, etc.) and that only 20% of companies have a good handle on how they prioritize which orders get which products. Note the variability in Table 1.

So, while I think that Brad is on the right track, and his ideas make sense, to make it work will require a redesign of order management. This is a tough hurdle even for a guy with a great pitching arm like Brad.

What do you think? Do you think that Brad has it right? And, if so, what changes do you think need to happen in order management to make this an effective change for the industry?

Is She Right?

Last week, I had a fight with a lovely lady. It was downtown Montreal. The dinner was beautiful, and I was tempted to just nod my head and agree. However, I was feeling a bit cantankerous (too much travel). So, I took on the group and pushed an unpopular view.

It started as a simple statement by Sylvie Leduc, Molson Coors at the end of the CAS Customer Advisory Board (CAB). The discussion started as a dialog. The topic was trade promotion management. The group was lamenting—over a beer—about the lack of industry definitions and standards. This gap drives project delays and failures. The industry is littered with failed TPM projects.

Let's face it. Customer relationship management (CRM) does not meet the consumer product industry's needs very well. There is a need for very industry-specific functionality for trade promotion management (TPM) that does not exist. The group felt that the lack of standards delayed projects, causing many teams to fail. She felt strongly that if the group at dinner—Campbell Soup, Coca-Cola, GSK, Nestle, RJR, and Sony—ganged together that they could change the industry. She felt that the group could develop best practices, drive industry adoption and reduce project failure.  

I love Sylvie's spunk, leadership and drive. She has driven change in Molson's processes, resulting in a step change of 70% productivity in her front office processes. She is justifiably proud. The industry needs more people like Sylvie. However, I had to tell her that I think that while she is well intended, that I think that she was wrong.

So, why would I take on a client over beer? (Especially a sales leader of Molson over a Molson beer?)  The reason was simple. I did not want a group of talented individuals to waste their time. 

In my seven years as an analyst, I have become a bit jaded. I have watched many initiatives for the industry come and go. The names litter many presentations—ECR, EPC, CPFR, GDSN, GUSI, Price Synchronization, and New Ways of Working Together—but the standards groups struggle with adoption. Even some of the representatives that have worked the hardest on the standards committees struggle with driving adoption—even within their own company.    

Let's face it. The industry is not good at developing and using standards. Or, providing the leadership to support the development of industry-specific software. This is a common complaint by software providers serving the consumer products software industry.  

In TPM, the industry has put the cart before the horse. Whereas, software usually grows from and institutionalizes best practices; but, there are no best practices for TPM. Instead, the software is solution looking to build best practices. It is made worse by the fact that SAP, Oracle and CAS are taking the TPM market in three different directions. None of the software leaders are working with each other on industry standards and none have driven leadership to build an ecosystem to better serve the industry. 

The industry groups are also not in sync. Grocery Manufacturers Association (GMA) is on the periphery. TPMA has just been reorganized, and Consumer Goods Technology (CGT) has a share group (the group is good at sharing, but is not driving new standards). None of the three groups are actively pushing for process standards.

I had to share with Sylvie, that while well intended that starting this initiative was a bit like pushing water up hill.

...a bridge too far in an industry that is not ready to change. 

What do you think? Is Sylvie right? Could the group change the industry?

Shouldn't the Goal Be To Grow the Category?

For me, the fall and spring are conference seasons. During these months, I attend a lot of conferences (about 30 a year). It is like my version of the Amazing Race: globe trotting across the world and making my husband grumpy that I am not home more.

My favorite conference is the CGT Innovation conference held in Miami. I had the great fortune to attend it last week, and I had an even a greater fortune to hear the story of Wayne Delker, Senior Vice President and Chief Innovation Officer, The Clorox Company.  

Wayne feels that consumer products companies need to put their shoulder to the wheel to drive innovation. He feels that if we spur delight that we will drive consumer spending and propel us out the recession. He is doing his part. His model: Create Desire, Help the Shopper Decide, and then Delight.     His result? Grow categories. 

How? Stick to fundamentals :

• Improve price/value on the core business with a focus on 60/40 product superiority (winning a blind test over 60% of the time).
• Extend innovation to include cost.
• Enroll others in building your brands.

He has a zeal to meet unspoken consumer needs. To understand the consumer, he has built an innovation center to allow developers direct access to people using the Clorox products. He also believes that it is not enough to extend the category. Consider these examples of how he grew the category. 

Take the cat litter category. He started with delight. To reduce odors in cat litter, he added carbon. They communicated it to the consumer with some great ads and asked consumers to take the sniff test in the store (using garlic). The litter category grew by 10.9%.  

Or charcoal. Charcoal briquettes were invited in 30,000 B.C. They redesigned the briquette, improved the process and changed the shape. Along the way they reduced manufacturing waste, which improved both costs and sustainability. They drove desire with an add of "it ignites by the time of the first beer. BBQ PDQ." The result? Category growth of 15.8% on an old product.

And, then came Green Works: a totally new category from partnerships with the Sierra Club. The product combines natural ingredients with a brand that the consumer knows. The goal was for the Green Works product to clean as well or better than the similar Clorox product. It was built with help from formulation partners and is manufactured by a third party. It breaks the mold of the unstated war between chemical companies and environmental groups. Sierra endorses and receives a portion of the profit. Again, a product that grew the category.

One of the drivers that propels these results at Clorox is open innovation. Today, 80% of development at Clorox done in partnership with someone. It includes suppliers, universities, the government, and even with competitors. The most public joint innovation is the Clorox, Glad, and P&G partnership that combines some cool technology developed for femcare into some heavy duty garbage bags. 

Yes, we agree, innovation can propel categories. If only there were more stories like Wayne's.

For more on innovation in consumer products, check out our articles at AMR Research.

So Much for the Shovel

Last October, as the recession was deepening and legislators were wrapping up the American Recovery and Reinvestment Act of 2009, there was a call for shovel-ready projects to improve roads and highways. Naive folks, like me, crossed our fingers and hoped that the stimulus dollars would be channeled into much needed upgrades of transportation infrastructure. I hate sitting in traffic, and as a logistics professional I know that the degrading state of U.S. roadways is adding to supply variability and longer order lead times for shipments. 

This week, my hopes were crushed and my bubble was burst. While attending CSCMP in Chicago, I listened to the findings of the 20th Report. I found out just how little impact the stimulus spending will have on improving the state of logistics. Here are the sobering facts:

• Not as many trucks, but a lot of bumps. During 2008, 3,000 trucking companies went out of business, reducing 7% of trucking capacity. We have seen a record number of over-the-road carriers going out of business. Less-than-truckload carriers have 20% excess capacity. As a result, there is a lot of capacity for too few loads. Pricing is stiff resulting in havoc in operating ratios.
• It is not even a down payment. Less than 6% of the Recovery Act is targeted at improving transportation infrastructure; it amounts to $45 billion. With the barrage of news on billions and trillions of government spending, it is hard for me to keep track of spending. I have been wondering is this enough? Will it help? The answer is not much. Approximately half of the stimulus transportation spending will go to roads. For perspective this will double the spend of a normal year's budget. Many small projects, valued at $20 million or less, are being started all over the United States, but they will have little true impact. 
• It is bad. The American Society of Civil Engineers periodically publishes a report card on the infrastructure, and the result is not pretty. Roads get a grade of D. Bridges get a C rating. Inland waterways get a D. Unlike the miles of newly finished highways in Shanghai, 35% of U.S. highways are in poor or mediocre condition. Bridges are designed for 50 years. The average life of a U.S. road bridge today is 43 years. One in four bridges need replacement. The average age of federally operated locks on waterways is nearly 60 years, way past the design life of 50 years.  The need is for 300 billion annually. We are spending 70.3 billion. The stimulus package is not even a down payment on the true need.
• Fuel taxes are insufficient. While I have always thought that gas taxes would help, the Highway Trust Fund (reinvestment from gas tax revenues) is failing. Money in the fund is raised indirectly via a Federal Fuel tax of 18.4 cents per gallon on gasoline and 24.4 cents per gallon of diesel fuel and related excise taxes. The problem is that folks just are not driving as much, creating a shortfall of $5 to $7 billion dollars this year, with a projected shortfall of $8 to $10 billion in 2010. 
• Logistics infrastructure needs a major overhaul. It takes time (3 to 8 years) to build plans to construct roads. To get the stimulus funds, states have 120 days to commit half of their allotment or give it back. There is no time to plan and tackle the critical projects. 

Yes, you may see some shovels moving on your local highways, and there will likely be alot of marketing of how "your stimulus funds are working for you." But, don't be fooled by the hype. The spending is insufficient and poorly planned to solve our real problems—too little to get the economy really trucking.

What do you think is the answer to our logistics problems? How bad do you think that it will get? Do you think that the CSCMP 20th State of Logistics Report is accurate?

Innovators Are on Their Own

I was speaking, but there was no interest. They were more interested in their iPhones. I asked for questions and heard click, click, click. They were typing on their mobile devices.

This week, I was speaking to Silicon Valley venture capitalists on supply chain management (SCM). Their interest in funding SCM applications is gone. The go-go days of SCM investments are over.   

The folks in this important valley think that current applications have solved the problem. The collective belief is that the goal of SCM is to minimize inventory, and that the opportunity is over. They are far more interested in investments in social media. It reminds me of the exuberant spending in e-commerce exchanges prior to the bust of the e-commerce bubble in 2001.

The lack of venture capital spending on innovation in SCM leaves the burden of SCM innovation for a few, very hearty, entrepreneurs that are willing to self-fund their own start-ups. They are tackling the requirements of pull-based replenishment and demand sensing to meet the current needs of companies:  

Sensing Inventory in the Up-Turn

The wheels of manufacturing are starting to turn three and four levels back in the supply chain. This is good news for many; but there is bad news. Orders will come without warning. They will come as a big slog. 

Meeting this type of demand will be tough. As demand increases, companies can be caught with insufficient inventory to respond. Since current supply chain applications focus on historic trends, a reliance only on ERP and APS leaves the supply chain on the back foot: not enough inventory to meet rising demand. And, considering that companies make the most money in the times of recovery, many will miss out.

Inventory and the Art of War

Inventory management starts with strategy. It should also end with the successful completion of the strategy. It is about much more than economic re-order points, statistical optimization, and requirements planning. In this time of economic uncertainty, and pending stagflation, inventory can be used as hedge to manage risks. For many commodities, now is a good time to buy and store inventory to mitigate against rising inflation or stagflation.

It is taking self-funded start-ups from companies like Market6, One Network, Retail Solutions, and Terra Technology to help manufacturing companies solve these problems. It will not come from the silk-lined purses of the Silicon Valley or venture funds from larger technology companies like Accenture and SAP. Innovators are on their own. Click, click, click...

Tweet!

This night, I got 121 new followers on Twitter. As I write this blog, they are still streaming across my inbox. People that I do not know from a wide range of backgrounds and interests. I was stumped. I knew that it could not be my endearing personality, my struggle to be good at social networking, or my wit. I was at a loss of what drew so many new followers to my site. Until, I connected the dots...

Sage Circle, an analyst firm on analysts, compiled a list of 724 technology analysts with Twitter accounts. They then loaded it into TweepML (a group-creation service) and, voila, I have 121 new friends. The tech industry now has a central place to go to follow analysts across a range of services. This morning I read tweets from my new friends. It is a cornucopia of information:

• One of my new followers is writing about the 10.4% reduction in consumer credit. Yes, while my mailbox was full of credit card applications a year ago, in 2009 the post office is clearly not deriving as much revenue from credit card postage. 
• Another is writing that there is a 1-9-90 rule in social networking: on social networking 1% are active, 9% collaborate, and 90% are new lurkers. OH MY, at the age of 55, I am now an official LURKER. 
• That my boss is excited to attend the meeting with the Clinton Global Initiative this week. I clearly need to accelerate my work that I have promised him.
• That apples are better when dipped in honey... Need I say more?

My 29 year-old daughter is amazed that I am on Facebook, that I am attempting to Twitter, and write for a blog. Perhaps tonight when she calls me, I will share how much better apples are when dipped in honey. Perhaps this will even redeem me from being a LURKER.

Oh yes, Twitter is a box of wisdom that I am just learning how to use and appreciate. Today, a group list introduced me to 121 new friends within 24 hours with interesting points of views. It clearly demonstrates to me—the UNKNOWING—the ability of social networking to drive viral networking.

What do you think? How are you finding Twitter?

Best-In-Market Supply Chains

It is not the same. Two years ago, 4,000 people rushed for seats. The aisles overflowed. There was energy in the audience. This year, it was a quieter and smaller audience largely dominated by technology providers.

This week as the curtain rose on the stage of the 2009 Council of Supply Chain Management Professionals (CSCMP) 2009 conference, it was missing the spark. Despite the brilliance in the opening keynote presentation by Gary Maxwell, SVP of Wal-Mart and several deep panel discussions on the changing face of logistics, the conference under-delivered on the first day.   

The council is still in transition. It is moving from an organization that is the voice of logistics in North America to excel in wider-supply chain coverage. At the conference, while transportation presentations were stellar, general supply chain content missed the mark.

For me, the highlight of the first day was the presentation on Best-in-Market by Gary Maxwell, SVP of International Supply Chain for Wal-Mart. With Wal-Mart's philosophy of ordinary people doing extraordinary things, and a passion for everyday low cost to drive everyday low price, the focus of Wal-Mart's international expansion is to think local and design best in market supply chains.

Wal-Mart is no longer a North American retailer. The company has 228 global distribution centers supporting 10 different store formats driving 23 global banners. Wal-Mart is the genie behind the curtain for ASDA in the United Kingdom, Amigo in Puerto Rico, Seiyu in Japan, MAXXi Brazil, and Pali in South America. While the name is different, the supply chain is best-in-market, the strategy is consistent. Be local in the right way. Start with shopper expectations and work back. Build a supply chain design based on land/labor costs and laws/regulations. Hold the core values of continuous improvement, respect for the individual, and customer service the same.

For many in the audience, Gary's speech on best-in-market was a stark contrast to their definition of best in class. The speech was a great testimonial that winning supply chains start with the customer back. That the response needs to be local and tailored based on the shopper and local business drivers. As a result, Wal-Mart can successfully sell an over-wrapped $2 peach in Japan and be equally good at supplying a bulk aisle with locally-grown vegetables in India. It is a story of:

    Outside-in 
    Customer first 
    Design from the shelf back

How can what seems so simple and work so well be so OUT OF TOUCH with conventional practice? Thank-you Gary for reinforcing the supply principle that to be global, we must start local. For sharing the story that we cannot win internationally when we broad-brush markets and super-impose a common design. Your provided a spark in a conference that was largely missing the mark.

The Recession Is Making Supply Chains Stronger

We are not back to normal. While companies want to sweep away the impact of the recession—like I will hopefully sweep my driveway clean of leaves this weekend—it is just not that easy. The impact of the recession hangs heavy in the air driving indecision.

As I visited with seven companies this week, two things that are clear: IT budgets are getting a haircut and companies are getting more serious on driving supply chain excellence. 2010 is not about buying new software. It is not about new projects. It is instead about maximizing the usage of current technologies and building supply chain talent.

In five of the seven companies that I visited, supply chain organizations are gaining power. Let me share the story of one client.

The company has 14 divisions that act like autonomous businesses. Prior to the recession, when this company said supply chain, they really meant manufacturing. The company’s heritage is manufacturing excellence, and prior to the recession supply chain excellence for the leadership team equated to manufacturing efficiency. Not so anymore.

The company was hit hard by the recession. Serving the auto and housing industries, the company had a one-two punch that idled factories for seven months. In this period they were forced to focus on cash. They learned new lessons on working capital metrics and inventory. It was not easy. However, as I sat with them nine months after the start of the downturn, I realized that the company has a greater understanding of supply chain management. They get it in ways that they never have before.

They have moved 21 people into a center of excellence. The focus is on driving continuous improvement processes and drive supply chain thought leadership. They do not want to lose the momentum. It is more than a program of the month. To do this, they have focused on:

• Alignment—Based on a strong belief that great communication cannot happen without common definitions, the company created a Wiki to ensure a shared understanding across the globe of 3,000 terms. They have assigned clear ownership by an individual on the team to make each term relevant (sharing use cases, stories, programs, etc.) to the company's supply chain processes.
• Executive Leadership—For the first time in the company's history, there is a supply chain leader on the company's executive team.
• Cross-functional Focus—Instead of laying off thought leaders from finance, sales, marketing, and manufacturing, the company invested to bring thought leaders together to forge a new level of supply chain leadership for the company.
• Training—Knowing that they will lose 20% of their workforce over the next 10 years, and that the gap in supply chain competency is an issue a day, they have worked in partnership with APICS to develop a supply chain training program. 

Like the hardening of steel, the recession is tempering supply chain organizations for higher performance. They—like 2/3 of the clients that I speak to—have learned the hard way that supply chains matter.

What do you think? Is the recession making supply chains stronger?

Getting to YES!

Mary is trying hard. She is implementing her third supply chain strategy. The first two failed. She has asked for help.

When it comes to implementing supply chain strategy, most companies fail. They fall victim to two plagues: change management and lack of governance. The plagues start with a few people exhibiting small symptoms, and then quickly spin out of control pronouncing the strategy Dead on Arrival (DOA) before the first project milestone. 

Last week, I was speaking to Mary on implementing a supply chain strategy. We talked about why prior two failed.  As I probed, I hit a nerve when I asked about governance. Her comments echoed over and over again in my brain this week. Mary said, “We laugh about it, but it is true. In our organization, it is easy to get a NO. In fact, everyone is empowered to tell us NO. The problem is that we are unclear how to get a YES. And, since we cannot get to a YES, we cannot move forward.” 

Too many organizations are like Mary’s. Resources are being sapped and progress is stalling. Supply chain strategies fall victim to the two plagues.

Today, I found something to help Mary. In my job as analyst, I connect the dots of questions to answers. I help companies find solutions to problems. Mary has a problem, and ThomasGroup, a niche consulting company focused on driving operational performance improvement, shared a slide with me that may be a solution. I think that their insights will help Mary, and I think most of you. 

While this model is primarily focused on the alignment of a manufacturing organization, the model can easily be changed to serve other constituents. The key is mapping the intersection of change management and governance to help people see how they can get to YES. Unfortunately, most of the roads of good intentions on supply chain strategy lead to NO, project frustration and ultimate failure.

What do you think?  Have you seen good governance models to help companies get to YES?  Do you like the ThomasGroup's model? Got any insights of what has worked in your organization?

A Supply Chain We Admire

Last Friday, I visited a North American regional retailer. The topic was supply chain excellence. During the course of the strategy day I shared information on the emerging requirements on food and safety legislation: the ability to track one step forward and one step backwards in four hours. They were unfamiliar with the provisions of House of Representatives Bill 2749. 

The group smiled and rubbed their hands. Then one of the more vocal members of the group said, "we think of this as a supply chain to admire. We will never be able to afford a supply chain with these capabilities." On Monday, they had a recall. Not a big recall, but one that will have a lasting impact. I read the article in the paper and wondered if they were still rubbing their hands.

As outlined in Figure 2, based on our research, the time to sense and act on a recall is far greater than those outlined in HR 2749 with a substantial volume of product consumed before it can be recalled.

While most think of this legislation only in terms of what it will do to a consumer products company, it will have an equal affect on retailers. The company that I was visiting on that sunny afternoon had 32 manufacturing facilities, with a house brand that had grown 3% market share in many market categories in the past 6 months.

Retail IT budgets are tight. The company that I was visiting had a budgeted IT spend that was 50% of a consumer products manufacturer. And, while a supply chain to guarantee a safe and secure supply chain may seem out of reach for this retailer, it only takes one major recall for companies to understand that a food safety recall is serious business; and with House Bill H.R. 2749, the impact will not be optional. It will be criminal. All companies will be charged with maintaining a full pedigree of the origin and previous distribution to establish a maintain a system for tracing food." It will be much more than a supply chain to admire.

What do you think? Do you think that retailers will be able to step up to the plate and design a safe and secure supply chain to support the pending legislation? Or do you think that this is a case where a serious recall will drive a reversal of recent market share gains of private house brands? A sad fact is that consumer research shows that consumers trust retail house brands more than many of the national leading food brands.

Yes, I think that they will find out that it will be about much more than supply chains to admire. 

This week, I will be connecting more dots on supply chain excellence... If you would like to read more on food safety and the impact on supply chain processes I recommend an article by my colleague Simon Jacobson, "Food and Beverage Manufacturers: Avoid TREAD Act Déjà Vu and Get a Grip on Quality Now."

The Curtain Rises—Meet the Recession Generation

There is a new consumer in town. As the curtain rises on the last stage of the recession, there is new shopper in the aisle: the recession generation.

Affordability has a new definition. It is all about perceived value. With this change there is good news and bad news for manufacturers. 

First, the good news. Nielsen is reporting that retail dollar sales grew by 7.4% year over year in August to $85.9 billion within food, drug, and mass-merchandisers (including Walmart). This reflects an increase of 0.7 points from the previous year. Edible categories saw the greatest uptick in both dollar and unit sales. As pocket books tighten, people are eating at home and cooking more.

Now, the bad news. The value shopper is the new normal. IRI projects private brand shares will grow to the mid-20’s in the U.S. market by mid-year 2010. The U.S. is looking more like Europe, with private brands at 28%-30% share. To fight back, consumer manufacturers are redesigning a NEW product portfolio dilemma based on value. Historically, these companies have focused on inventing only premium products. Today, there is a scramble to own the middle of the portfolio introducing value brands like Tide Basic. If you want to know more about this subject reference our best read article for the month of August by my colleague Steve Steutermann.

Welcome to the new normal. In a recent survey by ThinkVine and Digital Research, we see that shoppers are doing three things: stocking up on sale items, reducing spending on non-essentials, and using more coupons. The channel behavior has also changed. They are shopping more at dollar stores, visiting stores closer to where they buy gas, and shopping more at warehouse club stores. In the research, these changes are happening the most frequently in the categories of snack, cereal, juice drinks, salad dressing, and paper towels. The impact appears to have affected 90% of shoppers, with even more cost cutting is planned in the next six months.

This impact is a shock wave in how consumer product companies do business. Product portfolio management and category analytics are forever changed. There is a new need for an information layer to support more granular analysis to drive more powerful analytics. Each front office within consumer products is developing a back office function for data analysis and support of the sales account teams to re-channel money and redefine retail relationships. These processes are becoming outside-in. It is IT spend outside of the CIO's budget.  

As the curtain closes for the first act, the rousing applause will go to the company where line of business leaders drive leadership on how to drive new use cases at the store (where it matters most). It will build on new data sources—geo data, digital consumer data pilots, enrichment data, panel data—and the curtain call with the standing ovation will happen for the company that realizes that this requires a systematic approach. It cannot be sustained by heroics and tribal knowledge.

What do you think? How do you see the new normal? Let me know what you think. This week I will be discussing product portfolio management with two companies in the South. Until then, I will be helping clients connect their dots of supply chain excellence.

It Has To Be About Usage

Today, I got an e-mail from Steve Hochman, previously a peer of mine at AMR Research, and now in charge of supply chain programs at Nike. He gave me some feedback on my upcoming webinar on downstream data.

Steve was reading the AMR Research Consumer Products bulletin, and checked out the text describing the webinar. His caution was that the focus of the webinar needs to be less about downstream data and more about how to use the data to drive value. And how to save $$. Steve is right, and I appreciate the coaching.

So, in the spirit of Steve's coaching, please join us to hear how to use downstream data to drive improvements in category management, prevent out-of-stocks, and demand sensing. Additionally, Mark Krembeliski of Procter & Gamble will join us to share how he used downstream data to improve forecast accuracy by 50%. Join us on September 8th at 11:00 AM to see the audience polling results of how others are using downstream data. 

After all, the greatest challenge is usage. The greatest results happen when companies, like P&G, start with a clean sheet of paper versus force-fitting downstream data into systems designed for orders and shipments. 

What do you think? How do you think that attendees on the webinar will respond to the poll on how they are using the data?

I hope to talk to you on the webinar. Until then, I will be hanging out in Boston connecting the dots for supply chain professionals.

Keep on Trucking

The lazy hazy days of summer should not lull us to sleep.  

We are still in an unprecedented recession.  In July, consumer sentiment took a step back for the second month in a row, with retail sales down 0.1% month to month and 8.3% year to year.  Unemployment is over 9%.  This will continue to be a bad hangover for the economy. 

With the slowdown in the economy and the soft demand for dry van services, many companies took advantage of this situation to re-bid lanes, resulting in an average savings of 15%. However, this window of opportunity is closing. Manufacturing activity is increasing in the United States, with a PMI approaching 50. This means that the manufacturing recession is about over.  This will increase the demand for trucking.

Inventories have been consumed, and the wheels of production are starting to turn again for our clients. A sure sign of recovery is when manufacturing 3-4 layers back in the value chain starts to ramp up. As the supply chain ramps up, transportation resources will start to tighten. During the recession, dry van capacity has shrunk. Private fleet downsized, and small carriers folded in the throws of the downturn.

Last week, we were discussing this with Mike Kilgore CEO of Chainalytics. Mike's company offers benchmark services in transportation. He also surveys for sentiment. His panel survey data is below.  

What is clear is that the window for rebidding freight has closed. Now is the time that we need to be thinking about logistics scenarios to plan for the upturn because at the end of the day, we have to keep on trucking! Nothing is worse than to be caught short in lanes because of lack of planning.

What do you think? Is it time to plan for transportation scenarios for the upturn? Do you agree with the sentiment from Chainalytics panel data? Let me know.

Do You Have the Right Stuff?

Collaboration is an overused word. While many companies bandy the term about, true collaboration only happens with there is a win/win value proposition for both parties. It goes beyond data sharing.

Being able to power true collaboration, requires the right ingredients. Recently, we caught up with Procter & Gamble, to discuss a presentation at a recent Efficient Consumer Response (ECR) conference. P&G has been a leader in collaboration for over 20 years. Like any consumer products company, they have had a lot of false starts.  

The key to P&G's success in getting it right was making sure that the right ingredients were in place: shared vision, skills, incentives, resources, plans, and leadership—and that the programs had very little over-lap to ensure execution.

The gap that we most often see is having a holistic approach like this one. Companies, like the false starts of P&G, will have pieces of the program, but have not put together all of the pieces to drive success. There is a tendency to look at it as a project, not as a change management initiative.

Is this what you see as the gap?

Time To Focus on the Three Rs?

It is fall. Time for school. Ever since elementary school, we have focused on learning our three R's:  reading, writing, and arithmetic. 

However, when it comes to trade promotion management we are not so buttoned down. An ugly truth is how few companies know their ROI on advertising and trade spend. In our research, only 24% attempt it.  

One of the reasons is the lack of a standard industry definition. While the impact of trade promotion tactic can be easily calculated—you run an event and calculate the impact of an event—advertising, brand-building, new product launch and competitive activities are not easy. The impact of spending in advertising and brand building has an impact over multiple years.

Last week at NRF Tech, Jay Dittman from Hallmark presented on this topic. He had the courage to tackle the ugly truth of the ROI of trade spend. We applaud his bravery. It is one of the first presentations that we have seen that gets at the ugly truth.

The story...

Hallmark is a retailer with $4.4 billion in sales. It was started in 1928.

Jay began to track ROI on spend in 2002. He found that there was no common measurement within Hallmark or the industry. The payback hurdles varied, and there was no consistency in the calculation of the baseline forecast. Sound familiar? 

His answer? Three Rs. 

    ROI: Return on Investment. Marketing-driven investment/marketing investment.

    RSI: Retail Sales Increase. Incremental sales with a clear understanding of baseline changes.

    ROO: Return on Objectives. Analysis of how tactics drive alignment against objectives.

Jay's focus is that ROI is not sufficient. That the focus needs to be on Return on Objectives.

Attached is slide from Jay's presentation that demonstrates the approach:

I like Jay's approach. Unfortunately, too few companies know their baseline lift or have the courage to analyze what is important. What do you think? Seen an approach that you think is compelling? Time to rethink our 3 Rs of marketing spending?

Let's Hear It For PetSmart!

It was late at night. You knew immediately what had happened. Fluffy, our wonderful Boston Terrier, had met a skunk. Worse still, there had been a fight, and it was CLEAR. We knew that the skunk had won. 

Little known fact: Did you know that the more hair that a dog has that the tougher it is to get rid of the skunk odor? 

We were in luck. PetSmarthad an answer. The groomer at PetSmart shaved her from head to toe. We breathed a sigh of relief as the noxious smelling hair piled high into the trash can unveiling a naked, but fresh smelling dog that we loved.

PetSmart is all about pets. You can take your dog into the store. (I have to sadly admit that my daughter had to teach this one to me... I could not imagine a store that would welcome my dog. But, while the store hardly recognized me, my daughter marched in proudly and Fluffy got lots of treats.)

Go to their corporate website and you will see all of the pictures of their leadership team that include their favorite personal pets. The pull is compelling. 

PetSmart is on to something. 62% of Americans have pets. PetSmart has 31 million customers in their loyalty data base, representing 81% of their customers (including Fluffy). The company's strategy is Every Day Low Price (EDLP). As a result, pet supply sales are growing 3-5%. They have also grown through the evolution of SERVICES. Their philosophy is a "total lifetime care for every pet, every parent, every time." With 3,000 stores stocking 1,500 items, they own 12% of the pet foods channel.

Their services offerings are unique. 

-Grooming: They make $1 million dollars a year by giving hair cuts to dogs like Fluffy. The groomer is an important job. The average groomer makes $40,000/year and a few lucky ones take home up to $100,000/year.  
-Pet Hotels: They offer pet hotels for high end boarding. This year they opened 20 new pet hotels.
-Animal Training: This service represents 1% of sales. It is lucrative. All the payments are made up-front. 7 out of the 10 times that they return, they buy something else.
-Day Camp: Designed for the working family, pet day camps allow owners to drop off their pets on the way to work and retrieve them on their way home.
-Veterinarian Services: In partnership with Banfield Partnership, they offer full service vets—750 of them.

Last week, I had the opportunity to get some insights directly from Phil Francis, Executive Chairman and Don Beaver, CIO of PetSmart at NRF Tech. I also found them to not only be visionary about selling to pets, but also insightful about the use of information technology. Here are my favorite experts from the program.

What have you learned?

IT Expense is around 2% of revenue. We are a SAP shop. Lately, I have been trying to figure out what has happened to my costs. I had lower costs when I deployed a best of breed strategy.  But, now I have higher costs and I don’t have best of breed, but I am happier. In the 1980’s, I operated five stores and one channel and one format. Today I operate a a multi-channel, multi-format store operations in many countries. As a result, the bar is raised, IT costs need to be higher. 

What makes a successful CIO? 

The average CIO is frustrated. They believe that they know more than others on the team. They think that "I have better background." They don't feel listened to.

My advice. Take a deep breath. Give up the trappings of control and quadruple effectiveness.

Worried about having a seat at the table?

If you are worried about the seat of the table, don’t worry about it. If you don’t have a seat, you you may be o the menu. Don’t worry about being at the table. You should ask "am I on the menu, but don’t have the seat?" Figure out how you can get a seat so that you are off the menu.

Don’t be Belushi from Animal House.

A better metaphor is the puppeteer. Partner with the business. Talk to colleagues and as they discuss, and shape and inform. Influence what they want. And, when they come up with what they want, it will be 86% your idea. As soon as it is THEIR idea, they fund it, they drive it, and they …

For giving up 11 points of perfection, to have the line of business fund and drive it, that is a better deal. The smart CIO is not a committee of one. He is not the smartest guy in the room. Give up control…

Multi-channel??

I have scar tissue on this one. Pet supplies are ranked 25th as an e-commerce category. At first we tried to ship products without paying attention to density/value. You can ship things with high density and value long ways. This is why diamonds get sold one place in the world. We won the battle of sock puppets and we killed the new on-line channel competitors, but we had to learn that dog food should not be sold on-line. Instead, we had to optimize web commerce.  today, the bigger value is with commerce and community. People that have boxers want to learn about boxers and talk to other boxer owners. Our store locater is the most viewed area on our e-commerce site.

As the consumer evolves, how will Petsmart evolve?

We have done well thinking of the customer first. We are focused on serving Our biggest customers… Wal-Mart talks about PetSmart and Best Buy. 

We are not after a confrontational strategy. We believe that our train track is about differentiation. We need a great data base and passionate employees to connect and run the business. We cannot do this without good information from IT. Data processing should not matter, information does matter.

Fluffy thanks PetSmart for their haircut. I thank PetSmart for their services. The audience at NRF Tech thanked PetsMart for their insight. Great job guys!

Need to Save $100 Million Dollars?

This week, as I traveled, I heard a familiar story. Five supply chain managers had been handed a goal to save $100 million dollars. Seems that $100 million dollars is the going rate that supply chain leaders need to save these days.

As they scratched their heads and wrung their hands, I smiled. By now, I was seeing the pattern. 

The recession is making us all more cost conscious. Need money? The common place for companies to wring out money is the SUPPLY CHAIN BANK. However, all TOO many times, we see that companies are penny wise and pound foolish.

Companies have tried to wring out money of traditional supply chain processes that they have made their supply chains unstable. Ever tried to run that low cost bottle in manufacturing? Or managed obsolete inventories when manufacturing attempts to reduce costs by running longer production cycles? By focusing on the lowest functional costs, companies lose their way. They stumble. They will reduce the costs of source, make or deliver, but raise total costs because they do not appropriately capture the trade-offs. Sound all too familiar?

Ironically, the greatest opportunity for savings is outside of the traditional supply chain processes of source and make. The treasure chest can be opened through value chain mapping. So, if your boss hands you the task of saving $100 million dollars consider starting with one of these seven programs:

1) Cost to Serve. Off the bat, the average company can easily put $5-$10 million in the savings basket by focusing on cost-to-serve.

2) Product Portfolio Rationalization. Product portfolio management can easily reduce 2%-3% of costs. Start by rationalizing the portfolio, and all of the associated costs—including inventory write-offs and obsolescence—will fall quickly to the bottom line.

3) Install Enterprise Manufacturing Intelligence (EMI). The average company can re-capture 20%-30% capacity in manufacturing through the implementation of EMI solutions. If you are running low on capacity focus here before adding new factories. 

4) Design for Supply. By focusing on common formulations and platforms, companies can quickly reduce inventory, shorten the manufacturing response, and improve customer service. Last week, I had dinner with a company that had added $7 million to the bottom line by focusing on common packaging. This consumer products companies had 44 variations of caps for the same product. Do you think that the consumer really wants to pay for 44 variations of caps?

5) Focus on the Form and Function of Inventory. While traditional companies focus on inventory levels, the more advanced company focuses on the fright form and function of inventory. This shift can easily reduce inventory by 10%-15%.

6) Tax Efficient Supply Chains. One thing that we will have more of post recession is taxation. Companies are reducing their supply costs by 5%-7% through network optimization to include the factors of tax efficient supply chain in their design of value in the value chain.

7) Supplier Development. There is a reason why Honda can sell a car for $1,500 less than competitors. The answer is supplier development. To understand more about supplier development and how holistic redesign in this area can drive savings, I encourage you to read a recent piece of research from Jane Barrett. 

For more on this topic, check out my recent alert.

What is customer service?

It is late. The sun is setting as the plane lifted-off the Detroit tarmac. It has been a VERY long day. I am tired. I am on deadline for articles; and wouldn’t you know it, I was front and center in a comedy play of errors. 

My flight held for 25 minutes as we waited for passengers to run from gates A3 to A76 in Detroit. (How come they never do this for me???)

The table on my seat is broken. I am typing this blog at a 40 degree angle. 

The person in front of me has inclined his seat. My computer is resting on the stomach flab that I wish would go away. (Why does the guy in front of me always recline his seat???)

The guy beside is snoring. (I feel like I am in the "Take Sominex tonight and sleep" commercial. )

This blog is more than a friendly reminder that business travel is fun. It is about customer service, the need to define it and the need to deliver it.

 Ask, do you want to improve customer service? And, you will get a resounding YES! 

But, if you ask, what does customer service mean? You will 9 times out of 10 get a blank stare. As if to say, don't you know what customer service means?

I would argue, that most have not stepped back to assess what should customer service mean to their organization?

Two weeks ago, AXIA, a supply chain consulting firm, was in our office to share insights on some great work that they are doing in supply chain management in Brazil and their desire to enter the North American market. They have built their value-based model on defining and delivering customer service based on a model from the book, Living Supply Chains.

 

Unfortunately, the airline has not figured out that I want CONSISTENCY. When I purchase a ticket, the airline should be ALL about reliability, predictability, and consistency. I do not want drama or fodder for a blog post.

And just as unfortunate, most supply chain managers process orders every day like robots not knowing what their customers REALLY want. 

So, the next time that you are sitting in an airline seat with a guy on your left snoring, the guy in front of you sitting in your lap, and a victim of airline customer service policies (like waiting for the next plane to arrive so that 13 people can run from terminal to terminal), think: Have you designed your customer response and defined what customer service means? For all too few, the answer is no.

You will find me this week in seat 4B on my way to San Francisco. Let's hope that it is a better flight!

I Think Better With a Mechanical Pencil in My Hand....

It is Sunday. 

It is my day to read a stack of my favorite newspapers, file my expense reports, and write my articles for the week. To get started, I always make a pot a coffee and reach for my favorite mechanical pencil. I don't know why. It just works better that way. I love the mechanical pencil.

It was invented in 1822. The unassuming mechanical pencil is ninety-years old. These days, I like anything that is older than me. As a victim of another birthday last week, things that are older than me make me feel young. And, as I watch the stream of workers—the age of my daugther—streaming by the window dance-walking with their MP3 players in their pockets, I clutch my mechanical pencil. Maybe, I am not so old after all.

Mechanical pencils don't require sharpening. I love the consistency of the pencil line as a check-off the items that I have finished. I like the fact that as long as it is loaded, it always works. I don't have to worry with the shavings or wrangle with a sharpener. 

Yes, it is the simple things in life that can give us pleasure if we let them. 

Now, let's just hope that Paper Mate doesn't eliminate my favorite mechanical pencil from their product portfolio—through SKU rationalization—because fewer and fewer people are writing these days with mechanical pencils. Yes, I need to keep them away from my research on improving profitability through item rationalization.

Are We Fiddling While Rome Is Burning?

Collaboration. 

A term SO frequently used in the industry. Yet, progress has moved so slowly. 

We have focused on collaborative initiatives for 20 years. If you are like me, we have given speeches, participated in pilots, bought new technologies, and written about it. For many years, it was the flag that was waved. Yet, today, for many of us 30 years later, we have fundamentally not changed out-of-stocks at the shelf, inventory levels in the channel, or the industry's time to respond to new products in the channel. Why?

Recently, I led a webinar session on collaboration. In the session I spoke that true collaboration only happens when we have alignment on a win/win business goal. That while we have spawned a lot of industry initiatives and done a lot of data sharing, we have not used collaboration to redefine the consumer products value chain and drive higher levels of value. We have well-intended, but unachieved aspirations. 

On the webinar, I was joined by Bill Gilmour, General Manager of the Consumer Products Industry for IBM and Jim Flannery, Managing Director of Customer Development at Procter & Gamble Global Operations.

During the webinar, Jim encouraged companies to adopt the Global Scorecard Initiative. Over the past year adoption of the scorecard has grown, with a 20% increase in the number of participants. This industry-led initiative started in 1999 in Europe as an extension of Efficient Consumer Response (ECR) program. The scorecard is based on seven indicators and nine standards. He spoke of scorecard adoption and the change management issues. In his experience scorecard deployments take three years. The first year is noise. In the second year, the noise starts to go away, and in the third year the scorecards enable the relationship to go on auto pilot.

Jim also encouraged companies to focus on long-term outcomes in consumer products/retail relationships. He shared that Procter & Gamble's greatest success in top to top planning—often termed Joint Value Creation by P&G US or Jointly Agreed Growth (JAG) in Europe—is when it is focused on long-term outcomes. P&G's experience is that a twelve month focus is too short. Within the company, there is a shift. These meetings are now focused on business planning for a two-three year timeframe. The first step is a common language that is cemented by common metrics. 

Most of the webinar focused on the need to move from data sharing to data usage. While data sharing has increased exponentially (60% of the channel in the United States and 80% of the channel in England), the goal needs to not be just data sharing. Instead, it needs to be on actionable outcomes. The webinar shared some good insights, but I don't think that it fundamentally answered the question of how we make a step-change improvement in solving the greater problems of improving the shelf response.

During the evening, following the webinar, I was reading Andrew Groves' opinion editorial in The Wall Street Journal, titled "What Detroit Can Learn from Silicon Valley." Mid-way through the piece, I read, and re-read his comments; and I thought back to my webinar. His advice:

"History shows that most companies do not deal well with transformation. They have a difficult time accepting that the future will be vastly different from the present because they rose to power in the old business environment....

It is hard for managers to distinguish between an erosion in a company's competitive position and a change in the fundamental nature of the industry. Knowing the difference is one of the most difficult things to do, even though it is among the most important. 

The transformation of an entire industry does not happen very often. It only occurs when a number of factors align, such as a change in consumer demand, a shift in parts of the supply chain and the emergence of key technological changes." 

I started to think. Are we at the transformation point of the entire value network? I think so. Andy's piece was written to the automotive industry; however, I think that it should be required reading by supply chain professionals; and for those driving the consumer products industry. Today, the consumer products industry is facing unprecedented change; yet, we plod along the same paths.

While Andy, adopted, drove, and endorsed technology at Intel, the executives at the helm of consumer products companies do not value technology. It is largely seen as a necessary cost. They label themselves innovators, but in reality they are laggards. 

Today, we have an unprecedented amount of downstream data; yet, the primary investments in industry technologies are in order-based systems. We are not leapfrogging on the use of downstream data and pattern recognition by through learning from other industries like finance and insurance. If the industry put its shoulder to the grindstone, and spent half as much time on driving downstream data as they have on Global Data Standards, we could get daily downstream data on a daily basis from the majority of retailers to drive replenishment and sense true consumer demand. We could use pattern recognition systems from finance and insurance to drive early detection of shelf issues. Yet, we plod along on order taking and order processing systems. Today, our systems are largely the automation of the blind leading the blind.

While we talk global, we need to realize that retailers are, and will remain regional. Customer preferences will proliferate. Consumer products companies will grow through serving global markets. By 2020, 16 cities will have populations greater than 20 million. They need to be treated as individual markets in their own right. Yet, our systems are designed to supply, not to sense. We have rewarded the concept of the brand manager. We have build supply chains not value networks. Both are outdated. 

Broad-brush marketing tactics are no longer effective. The changes in media—television, newspapers, internet—are disruptive. It is harder and harder to reach our customer through traditional media. We are at the intersection of the digital consumer and downstream data. We need to automate bi-directional flows from the channel on a near-real time basis. 

The regional account teams are needed to redefine assortment, promotion, and go-to-market strategies. We need to plan globally, yet act regionally. The best supply chains start at the shelf and work backwards, outside-in. Yet, supply chain teams are focused on supply and the account teams are like the wild-wild west. These teams remain largely un-automated and untamed. They operate as an island. And, as a result, we are missing the opportunity to use the account teams to sense and shape demand. We are in a war at the shelf with private label. There is a new era of affordability that cannot be met with traditional systems and processes.

Unfortunately, we cling to the what has made us successful. Most of our collaboration efforts in the industry are stuck—adoption is low, change is slow—because we have not fundamentally recognized that we are at a transformation point for the entire value network. We are trying to automate conventional processes that don't serve the shelf well. I fundamentally believe that the nature of our value chain has changed and that we need to start again to define collaborative processes from the shelf back, automating the response based on daily sharing of daily data. I believe that the GCI, GS1, and GMA efforts are helpful, but not sufficient. I feel that we need to recognize that we need to redefine how we sense and respond to demand. Yes, Andy, I think that we are at an inflection point. We cannot be like Nero playing the lyre while Rome burns...

And, don't forget, history tells us that Nero did not even smell the smoke while playing the lyre. What do you think?

For more on how to use downstream data, reference my AMR Research report, "Drowning in Downstream Data? Why Not Use It To Make Money?"

I love the ice cream cone

What do ice cream cones, bottled water, and condoms have in common? Before you let your imagination run wild, it is a mundane topic—the redefinition of waste. Today, 70% of consumer products companies are trying to improve the customer experience and reduce packaging waste. We can no longer take the landfill for granted, and so much of the client experience is about packaging design. If only all products were like the ice cream cone, where there is a great client experience and there is nothing left to put in the landfill.

Each summer, I spend time on community service teaching at a children's camp. This year, we visited the city landfill and studied waste. Visiting the city dump with the children was a wake-up call. A reality check of just how many trucks there are of black bags bulging with plastic are going to the dump.

Some companies are trying. In this blog, I share some examples that I borrowed from Datamonitor this morning from FoodProcessing.com: 

• Auamantra Natural Spring Water. New in the United States, this water is packaged in bottles produced by Ensothat use a form of polyethylene terephthalate (PET) that can be recycled and biodegrades in 1 to 5 years. Essentially, in this package, microbes are able to “eat the bottle for dinner.”
• State of Mind Bottled Water is packaged in Planet Green’sReverte Back to Nature Bottles. These “oxo-biodegradable PET bottles” are infused with Planet Green’s Reverte additive, which biodegrades over time via molecular degradation triggered by exposure to light. Sold in the United States, the plastic bottles used for this bottled water are said to be 100% recyclable.
• PepsiCo’sFrito-Lay unit has a new compostable package for its Sun Chips Multigrain Chips. This package is said to decompose in a matter of weeks in a compost pile.
• QickStrips rolled into the sides of new Sensis QuickStrips Condoms. These strips function much like pull-off tabs for adhesive bandages and ensure that the user does not have to touch the condom to put it on. Grove Medical LLC, the U.S.-based maker of this product, estimates that 30% of condoms are applied incorrectly which leads to issues like rips and tears.

However, if you go to the city dump, I think that you would agree there is much more to do. Plastic is both a boon and a menace for the industry. Consumer products companies larger than $5B in revenue have more than 50% of their waste stream going into landfills. And, despite these points of light, it is not going to change any time soon. 

So while there are a few proof points (like the ones above), isn't it time that we think about packaging more like the ice cream cone?

 

For more on this topic, reference the AMR Research article, "Disposal and the Supply Chain: Don’t Take the City Dump for Granted."  

A Sticky Situation...

The fingerprint results are negative. The shelves are empty. Forty-nine products are missing. It is believed that is known that he had contact with 72 persons in 30 states. The impact was severe: 34 hospitalizations. 300,000 cases were shipped to Danville, Virgina. What happened? Who is it? It is none other than E.Coli 0157:H7. 

Where did this bad actor come from? How did he travel? We still don't know. It remains a mystery. That is our story.

It is a sticky situation. It should not be the way that the cookie crumbles. But, for Nestle, the recall of cookie dough products on June 19th is the first act in a long play on the stage of a time of change for the food and beverage industry. Unraveling the facts to get to the root issue of the problem is like solving a mystery. It's sort of like playing the game of Clue, where as a child, I believed that it was Professor Peacock in the Study with a lead pipe only to find out that it was a revolver in the library. Right now we only know that the bad actor was E. Coli 0157:H7 and that the products were produced at Nestle's Danville, Virginia facility. We do not know where he came from or how he came to be.

Solving a mystery like this is slow. Too slow for the consumer. Too slow for the impact on the bottom line. It will be painful for Nestle. As they work through the cookie dough recall, they will lose millions of dollars, face lawsuits, and watch their 41% market share decline. 

What we do know: FDA inspectors have been working round the clock testing environmental and production records and testing samples, but there is no trace of the bad actor E Coli 0157:H7 at the Danville Plant. The microbial fingerprints do not match.  

In prior plant inspections of 2005 and 2006, the Nestle plant officials denied access customer complaints or inspect it's program to prevent food borne illnesses to FDA inspectors officials in plant inspections 2005 and 2006. This is changing. The House of Representatives bill R 274—The Food Safety Enhancement Act of 2009—is slowly making it's way through the House of Representatives. It has been approved in committee. In parallel, the Senate is working on S. 510, the FDA Food Safety Modernization act, which is sponsored by Senators Kennedy, Durbin, Burr and Gregg. These bills would give the FDA more control and guarantee document access to FDA inspectors during inspections. The Center for Disease Control estimates that 76 million Americans become ill, more than 300,000 are hospitalized, and 5,000 die each year from food-borne illness. President Obama has included $1 billion in his proposed budget for the FDA to spend on addressing food safety.

A lot has changed in the world of food safety. A year ago, we published a report on food safety with a call to action for the food industry to get serious about the problem. Companies felt good about their capabilities. Our study of 220 food manufacturers clearly showed that their positive beliefs were not warranted; yet, over 70% of companies rated themselves as excellent or very good in capabilities across the supply chain.

Companies feel good about their capabilities. They should not.

It is only a matter of time before it is their turn for a recall. They, like Nestle, will find themselves on the world stage fighting the daily press issues on a food borne illness issue.

Change is slow, but is occurring. Last year when we published our study on food traceability, few companies wanted to talk about it. But, today, our calendars are filled with inquires on how to improve traceability one step forward and one step back in four hours. A step forward, but not far enough.

Yes, legislative change is coming. But, can supply chains change fast enough to avoid costly recalls? Here are our thoughts:

HAACP needs to be part of the product design 

Hazard Analysis and Critical Control Points (HACCP) methodology is a systematic preventive approach to food safety focused on prevention rather than finished product inspection. HACCP is used in the food industry to identify potential food safety hazards, so that key actions, known as Critical Control Points
(CCPs) can be taken in consideration to reduce or eliminate the risk of the hazards being realized. It is mandated for manufacturing by the FDA and USDA for perishable foods like juice, seafood, meat and poultry with the techniques being used on a voluntary basis for other food and beverage categories. So, as a reader, you might say, "SO what is wrong with that?" 

The answer is that it does not go far enough. It is applied ONLY in manufacturing. There are critical control points all along the value chain including the consumer's home. Remember the Banquet pie recall of 2007? ConAgra claimed that the pies were safe if they were cooked well-enough. The oven was the critical control point. The pies were only safe if they were cooked well enough, but the instructions were not followed. The pies were eaten without sufficient cooking, making the consumer sick.

In this case, almost all of the illness is associated with eating cookie dough raw. I love to bake cookies. For me, scraping the bowl and eating cookie dough off of the spoon is part of the ritual. There is a high likelihood, that the product was not designed to be safe enough to meet this critical control point.

This is Tread Act deja vu

Remember the public bruising the automotive industry received from the high-failure rates of Firestone tires fitted on Ford SUVs? 700 injuries and 200 deaths occurred before the Transportation Recall Enhancement, Accountability, and Documentation (TREAD) Act was mandated by the US Congress. Signed into law in 2000, TREAD brought sweeping business process changes to the automotive industry. At the heart of the legislation were requirements forcing vehicle manufacturers to report information on defects and product safety to the National Highway and Transportation Safety Administration (NHTSA), which, in turn, would perform analysis, identify trends, and subsequently warn consumers of potential defects in vehicles. It also created criminal liabilities for vehicle manufacturers that violated these requirements.

The lesson learned? With the TREAD Act, vehicle manufacturers quickly learned that in order to turn pain into gain, simply improving the access, analysis, and reporting of compliance and warranty data was not enough. Having data and not being able to use it effectively in a timely manner can be worse than never having the data in the first place.

Who is really responsible?

When David McKay, Kellogg CEO, testified before Congress on food recalls on March 19th, 2009, he was asked who in his company had ownership for food safety. The answer was a list of many individuals. Kellogg like many food companies has the responsibility delegated to everyone, which means nobody. In food and beverage manufacturing we are all responsible, but there needs to be one leader. A single person in the organization to drive leadership and change. 

We need to communicate to the consumer at the shelf 

The Nestle shelves for cookie dough in the recall were bare. They did not have to be. The industry does a horrible job of communicating to the consumer at the shelf—where they need it most—during a recall.

QR codes, used frequently in Japan, enables consumers to use their picture phone to scan a code and access updated information—where the product was manufactured, the current state of the product on a recall or validation of a claim (organic, allergen free, range free, etc.)—in near real-time. Last month, FoodLogi Q launched a mobile application (mobilemarQit) that is in pilot tests with two customers to interface with the customer at the shelf. Mobile device communication with the consumer has the potential to change the buying experience.  

Similarly,TraceGains, a provider of traceability technologies, has launched a similar application that tracks back to their e-affidavit that can track 255 attributes in a web-based form. Suitable for field to fork initiatives, it is fed through their e-affidavit system from the field. 

Our systems are not up to the change

To meet the proposed standards of the upcoming legislation requires a process redesign. We follow 110 consumer products companies, and only three companies that we follow are up to the test. A major gap is the availability of a product data model and the convergence of the product data model with the process data model to convert product specification information into master recipe and local plant control plans. Most companies have implemented Enterprise Resource Planning (ERP) and feel comfortable that they have what it takes. They don't. And, will find the testimony in front of Congress about why they cannot track products across product transformation steps—cutting, drying, mixing, curing—to be painful.

This week, Kalypso, a system integrator of research and development technology consulting, launched a rapid-deployment program to implement Oracle Process PLM, termed PLM VIVO. I loved their three-level product data model. It is this type of definition to enable master data for food traceability that companies need and they do not know that they need it. Unfortunately, most of the master data focuses today have been in transactional data MDM projects to improve order to cash and procure to pay. Important work, but it does not help the industry solve this problem.

Let us know what you think. Do you believe that the industry is ready for the new legislation. That the current processes and technologies are equal to the change? Let us know. Please give us your comments.

How Safe Is Your Food Supply Chain?

Food and Beverage Manufacturers: Avoid TREAD Act Déjà Vu and Get a Grip on Quality Now

You Can't Afford Not To Sweat the Small Stuff

While companies often think of demand shaping as a large corporate program, many times it is the little things that shape demand. Consider a couple of examples: 

• Health and Wellness: I was eating lunch at the Capital Grill last week in Washington. The menu had a calorie count beside each item. Believe it or not, a wedge salad and a piece of cake was more than the daily minimum calorie count for a marathon runner. Our table quickly modified our order.

• The Voice of the Customer: Mommy blogs and concept testing from blog sites are growing in importance. Did you know that Tropicana's 50% less sugar effort started from a blog site? Or that many companies are considering only internet-based marketing on blog sites because of their increasing influence?

• Association: Some times demand shaping happens through an association with the product. Did you know that Coca-Cola Black was preferred by jazz lovers? If the product had focused on marketing to this segmentation, it might have succeeded.

I remember writing some of the first demand shaping research. During the early days, clients would call and say, "What is this thing that you call demand shaping?" Now it seems to be plastered over the literature of every consulting partner and technology vendor. I just want to be sure that we don't forget not to sweat the small stuff. The small stuff is often what drives major shifts in demand.

Got any good demand shaping stories to share?

Obituary 2010: The Food Industry

As I sit and listen to the news about the need to fund healthcare reform, the role of health and wellness, and the new set of regulations on tobacco, I wonder if we are writing the obituary for the food industry. It would read like this…

Today, we mourn the death of an old friend, packaged convenience food.

Some say that he has been born again as a drug. For evidence to this fact, please contact the Federal Food and Drug Association (FDA).

Born in the 19th century and having mastered and prospered from the skills of salting, curing, drying, pickling, fermenting, and smoking, he evolved in the 21st century into a series of regional value chains, giving rise to a 400% increase in worldwide food exports in the period of 1961-1999.

A veteran of increasing regulation standards, he mobilized quickly to meet the challenge of food labeling in 1990. His efforts on nutritional labeling, accompanied by standardized serving sizes and uniformity of health claims, helped families to make better lifestyle choices.

Through the great recession of 2008 and 2009, he led shareholder returns in consumer products.   However, in 2010, he stumbled and fell under the double-pronged attack of rising commodity prices coupled with greater regulation and taxation to support federal health and wellness programs. Regulation of convenience food following the 2009 bill to regulate cigarettes—making them a drug—crippled him, leading to an early tragic death. 

He was preceded in death by his friend in life, common sense. As the end grew near, few remembered his role in providing information to enable an individual’s right to choose a healthy lifestyle. 

The convenience packaged food industry is survived in death by arm-twisters, ear-markers, dimwits, half-wits, and well-intended politicians.

The room at the funeral was empty. Few knew that he was gone.

The Square Root of Zero will be Zero

I am not an economist. While I loved my macroeconomic theory courses, they, in many ways, resembled Goldilocks and the Three Bears for me: a story I loved listening to but that took the shape of fables in my brain.

As we slipped into recession, many clients asked "When is the economy going to turn around?" I would laugh, and say, "Does this old gal look like an economist?" However, as clients keep asking me this question, I feel like I should know, so I have been devouring 2-3 books a week and avidly reading the Financial Times, The Wall Street Journal, and The New York Times to try to ferret out an answer. While I still don't have a great answer, I remain very curious because I feel that we are living in unprecedented times that will make great stories for our grandchildren.

This week, I attended the Consumer Goods Technology (CGT) conference in New York, and listened to a panel of Wall Street analysts who cover companies in the consumer goods sector. I was captivated by the insights by one of the speakers on the panel, Nik Modi of UBS Equities. Mr. Modi said that we should think about the economy as a big square root sign. The market behavior is not a U or a V.  Instead, he said, "Think of it as a square root sign, with a big drop with very flat growth for a long time, say 10 years."

He supported his argument with some interesting factoids:

• Blood donations--people selling blood for money-- hit a record high in March 2009.

• Shoe repair stores are continuing to do a record business.

• Companies selling rental furniture sales were up in the first quarter of 2009.

• Tonnage carried by common carriers continues to be down.

His theory matches mine. The great depression of 1929 had many market ups and downs, but companies had very little growth for 10 years. My factoids are less colorful, but support Mr. Modi's theory:

• Limos and taxi cab business are operating at 40% of 2007 volume sales. When I visit New York and ask how business is, the answer remains the same: down with no real marked change. You can actually get through the Lincoln Tunnel into the city with very little hassle.
  
• While airplanes are flying full on discounted rates, they are planning on cutting 10% to 15% of capacity to increase price. There are very few empty seats in the air right now, yet airline profitability is a problem. 
  
• 20% of the graduating seniors in my stepson's college class are finding jobs. The majority of college graduates will return to live with mom and dad.
  
• The number of e-mail campaigns that I am receiving from hotel chains to stay in their hotels are increasing, and the offers are getting better. I think that they know that I am still a road warrior hunting for the best deal.
  
• The rate of theft for one of my consumer television manufacturing clients is continuing to rise.  Some consumers are walking out of Wal-Mart with a large color TV and returning it for cash.
  
• Rail traffic is down by 24.7% (May 2009), marking the worst year over year percentage since the beginning of the recession. According to StreetTalk Advisors, "U.S. rail car loadings fell in May 2009 in all 19 major commodity groups tracked by the AAR, including coal (down 89,134 carloads, or 15.8 percent); motor vehicles and equipment (down 35,674 carloads, or 52.3 percent); and metals and metal products (down 33,987 carloads, or 62.7 percent). Carloads of chemicals were down 23,147 carloads (18.3 percent) and carloads of grain were down 21,910 carloads (24.5 percent).”

So, while many manufacturing companies are hoping for an uptick in the recession in September, this is not what my antenna is telling me. I, like Mr. Modi, think that there are still more storm clouds on the horizon. I like Mr. Modi's analogy. I also think that there is a delta between the level of growth before and after the downturn and that we are facing many years of low growth.

After all, the square root of zero is still zero. What do you think? Are the storm clouds of the recession starting to recede for you or in your industry? What are the indicators that you are watching?

Don't Forget There Needs To Be Value in Value Chains

In 1989, as part of my graduation from the Wharton School of Business, I had the great opportunity to work on a school project in mainland China. It turned out to be a month before the events in Tiananmen Square. The project focused on the evolution of state-owned enterprise in the emerging economy of China. Before I had this opportunity, the concept of the state-owned enterprise was unknown to me. For a small-town West Virginia girl, it was eye-opening. I had never fathomed that business would ever exist to not make money.

Democracy and capitalism have always had a tenuous relationship. It is ironic that in the United States we have the largest and one of the most open democracies in concert with one of the most autocratic forms of capitalism. I think today we are trying to strike a new balance.

In the past six months, the U.S. government has entered into the world of the state-owned enterprise.  Today, the government owns two of the three largest automotive manufacturers, ownership stake in over 500 private companies, and 50% of the financial institutions, with rumors the airlines and state governments are next. To help fund this, the U.S. government is borrowing $3 trillion a year, much of it from the Chinese.

In this recession, China has learned that its own economy is dangerously leveraged on foreign demand for Chinese manufactured goods. The global downturn exposed the fragility of the Chinese economic miracle, and we feel that worse might be coming. We worry that the collapse of profits in China could very well spark a banking crisis, much like the collapse of real estate prices did to the U.S. financial institutions in 2008.

The Chinese financial system, which is dominated by large, slow, non-transparent, often corrupt state-run banks and centralized decision-making, is at risk. Slowing exports could be the tide that goes out and reveals that Chinese banks have been swimming naked. We believe that the Chinese financial system, which has almost no effective securitization, is much less prepared to deal bank failures than the United States is. 

To lead us through this transition, with the introduction of the new pay czar, we now have 25 czars.  The dictionary defines a czar as one having great power or authority. As these czars enter the new realm of leadership of U.S. state-owned enterprises, we must not forget that true value only happens when there is value in the value chain. The U.S. government purchasing the auto industry and placing it under a car czar will not fix the ills. 

U.S. autos are just not aligned to meet customer demands. The dealerships are not designed to sense and shape demand, and the supplier processes—largely transactional—have not built value chains to accelerate platform development. Honda and Toyota take supplier collaboration to a whole new level, which gives them significant competitive advantage translating to what believe is a difference of $1500 a car. We worry that the subtlety of what drives value in value chains is not understood by the czars, and that the storm clouds of the recession have not passed.

I held my passport very tightly as I crossed back into Hong Kong in 1989. I would have given up anything in my suitcase to keep my passport and have permission to cross the border. I sighed a breath of relief when my feet regained a foothold in a country where citizens had choice and businesses focused on profit and value. I only hope that our new czars come to understand what drives true value in business.

The ABCs of Packaging Don't Add Up for Value

In consumer products, the package becomes a statement of the brand. However, as companies have become bigger through mergers and acquisitions and global expansion, the approval of packaging and the management of artwork is a major issue. 

Consider the facts:

A is for Approval

It takes 22 weeks to approve a package.
At least five people in the organization have to sign off on the design.

B is for Barrier 

Artwork approval is the number one barrier to time to market. 

Technology can reduce the time for artwork approval by 30% and improve productivity by 5%, yet, only 35% of companies have the required technology.

The process is fraught with waste and error. The average disposal costs of packaging waste due to error is 1.4% of consumer products revenue. Without technology or process, it can average 2.5% of revenue.

C is for Complexity

It abounds. I was at a company this week that has 300 unique packages for water, and another with 600 variations of Vodka.

The average consumer products company has 3,200 unique items.  Ironically, small companies ($1-$20 billion in revenue) have 30% more items than larger companies (with more than 20 billion in revenue), with a lower likelihood of automation.

When I pick up a package now, it has a whole new meaning. I think that it is time to rethink the ABCs. What do you think? Are you seeing these problems in packaging artwork design in your business?

Today, I Won the Amazing Race

Today, I won the amazing race. No, not the CBS prime time AMAZING RACE where contestants compete for $1 million dollars. Instead, I won the amazing race that each of us as business commuters face each day. I fought weather delays, mechanical issues, and customer service challenges to slip into a conference room seat on time after a 2,700 mile business trip with two weather delays and one mechanical issue.

Yes, many of us run this amazing race each day. We fight the uphill battle of an airline system that was designed to improve efficiency based on a hub strategy. The network was built on the assumption that the system would have the necessary reliability. However, today, airlines do not have the reliability to make a hub system work. As airports have become more congested, airplanes have aged, and the number of flights have declined, the probability of failure in the face of increasing variability makes a one hour layover in a major hub almost an impossible feat.

As I stood in the customer service line at 10:50 p.m. behind five tan travelers from the Caribbean and a Chinese family (all with international passports), I watched the combination of Carlos, Sabrinos, and Michaelangelo working behind the counter attempting to rebook flights, make accommodations, and assuage issues. (The Three Stooges could not have done it worse.)  None of the representatives could navigate the screens without help, the delays were more than an hour, and they missed details. As a result, I spent the night in a hotel room without a bed, I got a cab voucher that required a 24-hour notice (my flight was in 8 hours) and my bag was lost for two days.

Yes, each of us has done it. We have navigated roadblocks, customer service obstacles, and suffered airline delays. It is not pleasant. Each time that you run one of these amazing races, let it be a wake-up call for your supply chain:

• Are you trying to achieve efficiency without sufficient reliability?
• Has variability increased in your supply chain, necessitating a redesign?
• When things go wrong, can you quickly remedy a bad situation? Can you deliver a positive customer experience? 

Yes, to deliver supply chain excellence, the devil is in the details.  Customer service cannot exist in name only, and the network must first be reliable before it can be efficient. Now, can someone please tell the airlines?

Is Business Intelligence an Oxymoron?

Today, I was fortunate to facilitate a panel at the Red Prairie, Red Shift Conference in San Antonio, TX. The focus of the panel was the Future of Technology. I was joined on the panel by Keith Martin, SVP and CIO for Associated Grocers. Keith's organization is the second largest co-op in the United States. I was struck his comments.

Keith shared that the role of the CIO in thinking about business intelligence is how to liberate data for discovery. He then pressed on to share that conventional technologies drive pre-defined data relationships that limit discovery. The challenge for business intelligence is how to drive a structured approach that can enable discovery while maintaining context.

I flashed back to a dialog that I recently had Angela Shen-Hsieh, a founder of Visual I-O. Angela's company has fused architectural design principles with business intelligence to deliver in-memory visualization of large data sets to drive discovery. As a small start-up firm, they have 12 customers, but are seeking to redefine discovery in business intelligence.

Yes, Keith, I agree. As we have traditionally defined business intelligence, it is an oxymoron. But, I look forward to introducing you to Angela, because it does not have to be that way. 

Connecting the dots this way makes my job fun!

What do you think? Do you think that business intelligence is an oxymoron? And if so, what cool technologies are you using to liberate data?

Health and Wellness Meet the FDA

It was a bad day today in Minneapolis.

It came in the form of a:

    CERTIFIED MAIL 
    RETURN RECEIPT REQUESTED

The letter was to Ken Powell, Chairman of the Board for General Mills from the FDA. The letter is direct and to the point (abstracts listed below): 

"The Food and Drug Administration (FDA) has reviewed the label and labeling of your Cheerios® Toasted Whole Grain Oat Cereal. FDA's review found serious violations of the Federal Food, Drug, and Cosmetic Act (the Act) and the applicable regulations in Title 21, Code of Federal Regulations (21 CFR). You can find copies of the Act and these regulations through links in FDA's home page at http://www.fda.gov."

The focus of the letter was to make General Mills aware that Cheerios is being promoted for conditions that make it an "Unapproved New Drug" and that it is "Mis-branded." The letter, continues to say, "Please advise this office in writing 15 days from your receipt of this letter of the specific steps you have taken to correct the violations noted above and to ensure that similar violations do not occur. Your response should include any documentation necessary to show that correction has been achieved. If you cannot complete all corrections before you respond, state the reason for the delay and the date by which you will complete the corrections."

I am sure that the lights are burning tonight at the corporate headquarters of General Mills. It is a case of health and wellness claims meeting the FDA. The United States is getting more serious about health and wellness claims, and General Mills will not be alone.  Tonight, the lights should be burning at most food and beverage manufacturers. 

As one of the biggest growth categories for food and beverage manufacturers last year, it is time to step back and think about the impact.  With the marketing of health and wellness claims, there is a possibility that a food no longer becomes a food, it becomes a drug, and the whole game changes. Food and beverage supply chains are becoming more like life science value networks.

I love Cheerios. As a toddler, it was the staple food for my daughter. I trusted it. I do believe that oats have fundamental health benefits. But, is this a case where General Mills stepped over the line? And, if so, which manufacturer will get the FDA letter next? And, what will be the impact to future supply chains?

The claims on Cheerios seem rather minor to me when I compare them to what I see in the vitamin aisle, weight-loss categories, and the yogurt case. But, only the FDA knows for sure. 

Stay tuned, I think that the FDA is cooking up fodder for future blogs. What actions are you taking to be sure that your value chains health and wellness claims are in-line with FDA mandates?

Will You Be Ready?

In consumer products, sustainability could change dramatically if a category leader moves to carbon footprint labeling. While most companies fear that governmental compliance will drive carbon footprint labeling in the United States, we think that it is more likely to come from a category leader driving differentiation through a "green marketing" program.

Do you remember when the giant brewer began putting plain-English "born on dates" on bottles and cans of Budweiser in 1996? Ads for Bud touted the beer's freshness. It changed the category. Most companies struggled to redesign their value networks to follow suite. Today, most beer has a "best buy" date on the label with distributors pulling the product from the shelf when it is more than 110 days old. 

Likewise, in 1981, American Airlines introduced frequent flier programs. 28 years later, these programs are mainstream in the industry, driving purchase behavior.

It may not be that far-fetched. Today, a shopper at Tesco knows the carbon impact of toilet paper and paper towels. The Carbon Reduction Label tracks emissions throughout a product’s entire lifecycle, educating consumers in hopes that they make environmentally wise purchasing choices. For the past year on a trial basis, Tesco has been applying the innovative labels to household staples like light bulbs and laundry detergent as well as edibles such as orange juice and potatoes.
 
For those that are interested, each sheet of Tesco’s recycled content “loo roll” is responsible for 1.1g of CO2 emissions, while each sheet of the non-recycled Tesco TP carries a carbon footprint of 1.8g. This is more information that I want to know, but for some consumers this might drive buying behavior.

For the past two years Wal-Mart has aggressively pushed sustainability scorecards. What if they follow Tesco's lead here? If this happened to your category, would you be ready? Can you sense and monitor carbon footprint? Would you have the internal capabilities to quickly change the artwork on packages to counter the attack? Remember the nightmare when the food and beverage industry changed out packaging for nutritional labeling?

Based on our research, for most this would be a risk. In fact, most companies are still struggling to know what their carbon footprint is. Should you consider this risk in your five-year plan?

Another Night in a Hotel...

I spend about 200 nights on the road. While travel may sound great to the unknowing, for the road warrior, it is a lonely, tiring experience. Even more so for me, because I seem to attract travel stories.  I am a magnet for late planes, lost luggage, and weather delays.

This causes me problems. This blog is a celebration of service by companies that have gone the extra mile to put me back on the road.  Despite our movement to a service economy, too few companies deliver true service. Here is my story...

Nordstrom: This retailer's name is synonymous with service.  Last year, I got to experience it first hand. Here is the story.  I was flying through Atlanta.  My inbound plane landed at the E gate, with an outbound connection at T gate.  For those of you familiar with the Atlanta airport, you can feel the sweat on my forehead as I ran from the E gates to the T gates in 20 minutes.  I made it!  However, my luggage did not.  I found myself in Newark, NJ without luggage wearing jeans and sneakers.  The question was how would I get clothes for a 10:00 AM meeting in Northern Jersey with the supply chain team of a major pharmaceutical company?

I went to my hotel room and looked up my calendar.  Sure enough, it was a normal day. Back to back bookings with little time to breath.  What to do?

So, I went to the concierge and booked a car to take me to Nordstoms for a 9:00 AM store opening.  I typed out a list of what I needed with a note of explanation.  At 8:30 AM, I used the mute button <every good analyst has a mute button> on the phone to hop into the car and go to Nordstroms.  I was the first client in the door and made my way to the service desk.  I handed the note to the head of customer service and explained that I had to do calls, and asked if they could shop for me?  They were great.  In the course of 30 minutes, they outfitted me and I was on my way. They even found me some deals!  Got to love Nordstroms!

Meijer:  We have two representatives from Meijer on our supply chain peer forum, and they have encouraged me to check out their stores on my travels. It just has never happened.

One night as I arrived in Cincinnati without luggage at midnight with an 8:00 a.m. start time for my strategy day the next morning, I again stared down at my tennis shoes and my jeans thinking how would I find something to wear for the meeting on the next day. Oh my, what to do?

So, at midnight, I hired a driver to go shopping.  We first tried the 24 hour Wal-Mart store.  Not much of a selection...  So, I shared my story with the driver, he asked, "have you ever tried Meijer?"  I said, "No.  But, it is worth a try."  The difference between Meijer and Wal-Mart at 1:00 AM was night and day. The service was great, and the selection worked. I left the store with an outfit for the strategy day.

So, as I go to bed tonight in a motel room after another long day of travel, I give thanks for Nordstroms and Meijer.  When things go wrong, service makes a difference.  Who do you believe delivers service?

Cool Technologies for Food Traceability

I loved David Mackay, President and Chief Executive Officer of Kellogg's demonstrated leadership before the U.S. House of Representatives on March 19. Kellogg was a victim of the recent recall of PCA peanut products. PCA Coporation, the now infamous manufacturer of peanut butter products, provided ingrediants that resulted in a $70 million dollar loss for Kellogg impacting the stock price .12/share. The company had relied on the industry standard of inspection by AIB; and unfortunately, found out that inspection is not adequate. For those of you that have not read it, it is worth a read.

His recommendations of a single food safety organization, risk assessment, and a revisiting of Grocery Manufacturing Practices (GMPs) strike at the heart of the issue, and our research supports his recommendations. He is so right! However, we would like to see one other consideration. We would like to see manufacturers take one more step: direct communication to the customer at the shelf at the point of purchase. 

Let's face it, we don't make it easy for the consumer. For example, take the pet food recall of 2007 that resulted in 42 million in write-offs and 90 lawsuits. I love my dog, and I wanted to buy them <we now have 6> healthy food; but the more that I read the recall notices, the more confused, I became. I had no idea what products were safe. I cringed when I heaved the 50 pound bag of dog food into the cart.

Today, I had briefings from two technology providers—FoodLogicQ and TraceGains—that are attempting to make it easier for the manufacturer to talk directly to the consumer.

Consider the use of QR codes, used frequently in Japan, that will allow consumers to use their picture phone to access updated information.  Where the product was manufactured.  The current state of the product on a recall or validation of a claim (organic, allergan free, range free, etc.).  As they say in Star Trek, "Beam me up Scotty." I love it.

Last week, FoodLogi Q launched a mobile application (mobilemarQit) that is in pilot tests with two customers to interface with the customer at the shelf where it matters most. Mobile device communication with the consumer at the shelf is going to change the buying experience.  It works with either a short code on the label or transmission of the QR code through a picture phone. On-demand access of where a product was made, the recall status, or validation of a claim, very cool.

Not to be outdone, Trace Gains, a provider of traceability technologies, has over been actively engaged with a similar application that tracks back to their e-affidavit that can track 255 attributes in a web-based form. It is fed through their e-affidavit system from the field.

Yes, we are getting closer to technologies that track from field to fork; but more importantly, the technologies are now allowing us to interface with the consumer at the point of purchase. It can be a differentiator at the shelf.

It may also be needed for compliance. Recently, SAM's Club published a letter to produce suppliers outlining compliance standards for fresh produce. Kroger, Food Lion, and Winn Dixie have followed suit. While their standards are not as severe, the industry is moving from case- to unit-level tracking, and ultimately to mobility-enabled technology at the point of purchase. Cool, very cool.

Private label is growing. It has never been higher. Branded food and beverage manufacturers are under attack. In this time of recession, wallets are getting thinner. Grocery lists are getting shorter. However, I know that my certainity of a manufacturer going the extra mile to deliver the brand promise would sway my decision on what to put in my cart. I might even smile when I heave that 50 pound bag of dog food in my cart. What do you think? Would it make a difference for you?   

Rolling Back the Clock

This week was exciting for me. Three new analysts joined the core supply chain team at AMR Research. Steve Steutermann most recently from Procter Gamble, Paul Lord recently with Lyondell, and Allen Johnson previously with IDS Scheer. It is fun to see new analysts learn the tricks of the trade, but it also brings back memories. 

Being an industry analyst is a tough job. As the holder of the pen, when an analyst writes something positive about a technology provider, the vendor is very supportive. However, when the piece is negative, the technology provider unleashes their analyst relations team to "persuade" you on the error of your ways. It takes courage to stand up under the pressure. But, at the end of the day, an analyst writes for the end user: the IT professional or the supply chain team. It is important to be objective. These folks' jobs are on the line when they make a decision.

At a recent GMA ISLD event, it was great to see four customers present projects that were incubated in strategy days at our conference rooms at AMR Research. Supply chain has morphed to value chain discussions for the Chief Operating Officer. It has never been more important. One of the projects that was hatched in these discussions returned 8X the technology investment the first year. Each of these projects made a difference.

So, April is a month for me to reflect. The energy and enthusiasm of the new analysts that we are training is great.  But, I cannot wait for them to see advice come full circle. As I saw at GMA ISLD, an objective opinion in making a technology decision and fine-tuning a supply chain strategy can make a big difference! Watching the results from a project that you helped conceive is very rewarding. I left the conference very PROUD. 

I look forward to the future.  Wait until you see what we can do with even a larger team. Please welcome Steve, Paul, and AJ to the AMR Research core supply chain team. Supply chain leadership matters more now than ever...

Celebrating Earth Day

I remember attending the first Earth Day twenty five years ago. Some things have changed—my waist size, my hair color, and my marital status—but, the situation at our landfills has not. Our supply chains are too efficient in delivering waste to landfills.

There are five moments of truth in the value chain. 

1. Influencing the consumer to buy
2. Having the product to sell when consumers want to purchase it
3. Delivering brand excellence in brand usage
4. Servicing the product during the lifecycle
5. Disposal

Unfortunately, too few companies own the moments of truth in the design of supply chains. Demand shaping activities --pricing, couponing, advertising and special packaging-- influence the consumer to buy. While replenishment focuses on having the right product at the right place at the right time and quality management systems monitor quality to ensure a superior customer experience. Few supply chain professionals embrace all of the moments of truth. Responsible disposal can become a part of the brand promise. Consider Hewlett Packard's program to recyle ink cartridges or IBM's demanufacturing facility that is designed to dis-assemble and reuse computer parts responsibly. My dream is for supply chain professionals to embrace and drive excellence at all moments of truth with the consumer.

I dream that this could become reality. This month I had a fabulous opportunity to visit Metabolix. The company located in Cambridge, MA is a pioneer in developing biodegradable plastics. They were very gracious to host me for a tour and discuss the use of transgenetics to alter plant genetics to transform plant cells into miniature polymer manufacturing cites. As I stood in the greenhouse and watched switch grass convert oxygen to polymers, l Iaughed. I felt like I had been cast in a JETSON cartoon script. It seemed just too surreal.

A neat thing about the biodegradable polymers is that you can throw them in your compost pile and have them degrade in about 6 months. This brought back memories of my early days in West Virginia when we did not have landfills.  At our small farm growing up, we burned trash, reused plastic and glass, and buried what we could not use... very little was buried. There were none of those big black bags lining the street on Monday morning in the suburbs. I smiled at the thought of compost piles becoming fashionable in the suburbs. 

Later in the week, I had the opportunity to review a research project on packaging artwork management  with Siemens, a provider of product lifecycle technologies (PLM). I thought of the hard working switch grass manufacturing polymers in the Metabolix greenhouse as I reviewed the results: 

Plastics represent 27% of packaging in consumer products. It is a signficant and companies have no plans to substitute other materials for the plastics packaging component in 2010.

A significant percentage of packaging is thrown away—representing 1.4% of revenue—before conversion. This is a signficant source of waste in the landfills.

Artwork design is the number one issue in meeting new product launch timelines. In our haste to get products to market, mistakes are made. As supply chains have become more global and organizations have gotten more complex. It is harder and harder to get the artwork right for launch with more and more products going into landfills.

Unfortunately, it will be along time before biodegradeable plastics become mainstream. However, this week, Frito Lay announced a biodegradable bag for Sun Chips. A small step... with many more steps to hopefully come. 

We have to celebrate the small wins. I did just that. On earth day, Ben and Jerry's was giving away free ice cream. So, I walked up the counter and celebrated a small win with a Cherry Garcia cone. Not as exciting as the greenhouse at Metabolix, but the image of Sun Chips bag chopped up in the compost pile was a good reason to celebrate. 

What do you think? How fast do you think that biodegrable plastics will be adopted? And, what do you think the impact will be on the value chain?

The Consumer Has Changed. Are You Ready?

Making the unpredictable more predictable…

The grocery market basket is down 6%. The impact of the recession is profound on volume resulting in a reduction in supply chain efficiency. However, this is not the most serious impact. The more dramatic shift is in shopper behavior. The shopper of 2009 has changed. The changes of the shopper in 2010 will be more extreme. The changes are hard to predict. 

We have a conundrum. Supply chains are designed to base future supply on historic order streams. Their supply chains have a two week lag to sense true demand. Yet, today, history is not a good predictor of demand. 
 
This is manifesting itself in interesting ways. In my travels this week, I have met with several consumer products companies that are trying to unravel true demand at the shelf. They are getting some surprises.

On Thursday night, I attended a dinner of 28 consumer product companies. After the salad, and a glass of wine, the group started sharing their stories in a roundtable discussion on the impact of the recession. At the end, we wanted to drink more.  Here are stories from the field:

Consumers are drinking less alcohol. This is the first recession where alcohol spirits are impacted. Customers are downshifting into wine and beer.

While the customer is downsizing their market basket and volume is down 6%, some categories are recession proof. The market basket is shrinking, but sales of tobacco are not. At least, not now... 

The channel is shifting. More sales are shifting to mass merchant, drug and convenience channels. Consumer products companies struggle to service these channels. As more aging baby boomers are moving to the cities, drug and convenience stores are growing in importance. This shift is difficult for many companies that have primarily invested in sales capabilities for the grocery channel.

TV sales are up. Who would have thought that television sales would rise? Traditionally, the housing market was a good predictor of TV purchases. Following traditional logic, with the housing bust of 2009, TV sales should have plummeted. Not so. Consumers are nesting. This is a time where the consumers’ home is their castle, and they are stopping spending on other forms of entertainment – lavish trips, theatre, and restaurants—to spend time at home. They want a nice TV. With out close connection to the market this supply chain leader would never have connected these dots to meet rising demand.

The sales of mouthwash are up. While many readers of this blog, may sigh a breath of relief that the shopper is not relegating mouthwash to discretionary spending, the reason is interesting. Fewer consumers can afford dental care—tooth cleaning is happening at lower frequency—and as a result, more and more consumers are reaching for Listerine. In past recessions, mouthwash has had a greater impact as a discretionary spend.

The lesson to be learned is that to understand the shopper and predict behavior, companies have to consider the role of the product in broader context of usage, not just the conventional market basket. The key to driving sales is making a product more affordable and less discretionary. 

How about it?  Do you have any counter-intuitive demands that you are seeing in your supply chain?  Do you have any tips on how to better sense demand in this unprecedented time?

From Seat 1D

This week, I visited a company that had a 24-hour cycle time, a commitment of 99% service level and an item master that had grown 3X in the past three years. Without a supply chain redesign, this is a recipee for disaster.

What about you? Are you trying to propel a strategy for an end-to-end supply chain that is agile, efficient and responsive? If so, you also may be cooking up a recipe for disaster. How so? Supply chains cannot be agile, efficient and responsive at the same time. Why? The research shows that companies need to choose. You need to carefully design and define the supply chain response. Here are some insights:

Mutually exclusive. Efficient, responsive and agile are three very different response types that are mutually exclusive. You cannot have all three at the same time. If you try to drive the three simultaneously in the same supply chain, you will force employees to make local choices that are unpredictable and detrimental.

Requires design. Each of these words needs to be carefully defined and aligned to the design of the supply chain response. While many supply chain executives make the mistake of throwing the words around in strategy documents like salt and pepper on my eggs in the morning, the words are meaningless without careful definition. 

Tradition. The traditional supply chain is designed for efficiency. It is rewarded by the lowest cost per unit. It is the supply chain that the financial organization best understands. Traditional metrics reward efficient supply chains.
But, in the face of rising demand error, efficient supply chains are not effective. As demand error increases, supply chains need to become more responsive and agile. 

Speed. A responsive supply chain excels at speed. In this supply chain, the cycles of order to cash and order to shipment hum. In this supply chain, demand latency—the time to sense true channel demand-- is minimal. Important elements in the design of this response are Vendor-Managed Inventory (VMI) systems and good forecasting systems. The responsive supply chain is rewarded by reducing cycle times.

Flexible. An agile supply chain has even greater capabilities than the responsive supply chain. It is not only quick, but also nimble. It has the capability to flex with changes. Agile manufacturing work centers based on high performance teams, common formulations and postponement are essential to make this type of supply chain work. These supply chains are aligned by metrics that reward teams for having the same customer service, quality and costs in the face of demand error.
 
How to stay out of the weeds.

In interactions with customers, I see five common misconceptions that get companies into trouble:

1) Many believe that a supply chain can be agile, responsive and efficient at the same time. It cannot be.

2) It is a commonly held belief that the same metric targets can drive supply chain excellence equally for efficient, agile and responsive supply chains. It cannot. Financial incentives and culture are the greatest barriers to excellence for the agile supply chain.

3) That an efficient supply chain is the most effective. The efficient supply chain is only effective when volume is high and demand is predictable. This is less and less the case.

4) That the requirements for demand planning capabilities are lower for responsive and agile supply chains. It is the opposite. The bar is higher. Superior forecasting capabilities are needed to get these supply chains out of the starting gates.

5) That the company has one supply chain. Most companies have 5-10 primary supply chain responses. Each must be designed based on appropriate supply chain tactics. Supply chain excellence cannot be achieved by taking a broad brush approach.

As I wing my way to Atlanta on Delta in seat 1F, I want to leave the reader with a final thought. As supply chain professionals change jobs, they bring a paradigm of supply chain excellence with them to the new job. This is shaped by experience, but may not be appropriate for their new supply chain experience.

If this is you, here are my words of advice from working with over 150 supply chain teams: Before you prescribe, first understand. Supply chain leadership is increasingly about designing the supply chain response based on the understanding of demand, product and supply cycles. They are different in every company. It is easy to copy, it harder to design and build core capabilities. Don’t try to take the easy way out. Do the hard and important work. Build supply chain excellence from the outside-in. Own and design the supply chain response.

What do you think? Any tips for helping teams to understand how to make these choices or insights on how to design the supply chain response?

Going Bananas...

This week, I was invited to attend the Lawson Cue Conference in San Diego. Five years ago, Lawson was an underdog of the Enterprise Resource Planning (ERP) market. Sitting at the conference of 1900 attendees on a sunny San Diego afternoon, I thought back five years ago to the go-go-period of the dot.com bubble. When ERP software was riding high on the hype cycle and the number of ERP providers looked like my Saturday to-do list <...a very long list>....  Who would have thought that Lawson software would be one of the survivors? Or that they would be trying to drive change in food safety and traceability? They have a pretty interesting story of automating track and trace in the salmon industry.

When you attend a conference like CUE, each analyst receives an AGENDA. Analysts are kept corralled in special rooms with fixed time slots. My agenda placed me in a conference room across from a dock loading DOLE containers on an outbound ship. I was in the heart of a banana supply chain learning about software and the survival of a software company.

For two days as the Lawson executives talked about their Smart Office and Enteprise Search, I watched the loading and unloading of the ship. It takes a long time to load and unload a ship. When I left San Diego, they were not done loading the ship. We eat a lot of bananas.

The loading of the ship was symbolic for me of the size of the food safety problem. And of a company trying to solve the tough problem of track and trace in food safety. Just as there are a lot of bananas on a ship, there are as many moving parts in the food supply chain as fruits and vegetables sold each day. 

The problem is too large for any one company to solve. Or any one software solution. The FDA has been more about drugs than food. Solving the problem will take legislation. And, the efforts of many companies.

Consider these facts.

Last year, there were 15 major food recalls in the United States. When a recall happens, only 40% of the product can be recovered and the recall reduces the shareholder value of the producing company by 7%. The write-offs are also substantial: the average cost of a write-off is $20 million dollars and 14% of companies have write-offs in excess of 50 million dollars. And, when a category has a recall, 57% of consumers stop buying the affected product for at least a year. A recall in a category has a category halo effect. A single product recalled in the category can reduce shopper purchases of any product in the category.

It is a global issue with economic consequences. The food supply is global, our systems are not. IT systems and inspection needs to stretch across global boundaries to ensure safety. Less than 10% of the fruits and vegetables sold in a grocery store are the product of supply chains with track and trace capabilities.  And, more and more fruits and vegetables are moving across borders and through ports like my ship of bananas.

Ingredient tracking—even minor ingredients—is growing in importance. 33% of consumer products are outsourced to third-party manufacturers where over 50% of the ingredients are purchased directly by the contract manufacturer for the brand owner. Only 38% of manufacturers have the capabilities to track lot codes across company boundaries to bracket and prevent problems. The industry needs to redesign quality systems based on unit level tracking with hourly quality reporting.

Food safety is essential to the national economy and consumer confidence. Food manufacturers need to ante up. It needs to be an ecosystem play. Vendors like Lawson or Food LogicQ and TraceGains are starting to drive breakthroughs in innovation to solve the problem but, like the loading of the banana boat, adoption will move slowly. It will take more than the risk of contaminated peanut butter in Sasha's lunch box to drive awareness. President Obama, dig in here. The technology is growing equal to the task.

What do you think? How do we improve food safety? And, where will the innovation come from?