I thought that Sbaccor Security was prepared for just about anything. We are an operationally sound company with a nice mix of established and new residential and commercial security products for long-time customers/distributors as well as new customers in emerging global markets. Sales and profits have grown at a manageable pace for the last decade. However, we've been blindsided by the recent economic situation, how it has spurred our customers to react, and how customer-demand changes have rippled back through Sbaccor.
Many Sbaccor customers dramatically lowered their order volumes or cancelled orders altogether. Others have redirected where their goods are going (regions, markets), gumming up our logistics even though we're now suddenly moving lower volumes. A few customers in hot markets, such alternative energy and healthcare, have actually rushed in new orders or increased volumes on existing orders. In our three plants, we've now got excessive amounts of components inventory, work-in-process inventory, and finished-goods inventory. With production slowed to a crawl except for the hot orders, we look more like a distributor than a manufacturer. But—and this is where it really gets crazy—we're still having trouble satisfying the hot orders; we can't get the right components, sequence production, and build and ship those products on time.
I met with our COO, sales director, plant managers, and material managers recently, and told them I am willing to blame the economy only so much. We all need to step back and ask some tough questions: How could our current processes and information systems—sales to supplier-management to production and to shipping—have been so blind to these pending market changes? Why weren't our processes able to flex with our customers, anticipating these scenarios and managing them more efficiently? How can we be losing business and still not be able to satisfy the business that remains?
* The Challenge incorporates hypothetical persons, companies, and products and does not portray the actions of any actual persons, companies, or products.
By Randy Littleson
You're not alone. The economy is wreaking havoc on many company's ability to accurately predict demand across their products. And, like Sbaccor, many manufacturers also are being pressured from the other side, with suppliers struggling to cope and deliver in light of the economic pressures and increasing volatility.
There are a series of actions Sbaccor should undertake:
- At this critical juncture, it's important to avoid looking at demand and supply alignment issues at the aggregate level and to, instead, do so on a product-by-product basis. You will likely find that volatility pressures are not applied universally to all products. All of your analysis and decision-making should take this into account.
- The company needs to assess the current manufacturing priorities and ensure that resources are targeted on those products that are currently selling and not used for those products with declining sales. This would normally be done in the sales and operations planning (S&OP) meetings, but the company can't wait for the S&OP process to be established to make these changes. The appropriate cross-functional team should be assembled immediately to do this analysis and make appropriate decisions.
- That being said, Sbaccor must implement an S&OP process. From the business problem description, there appears to be some significant misalignment between the key areas of the company (sales, marketing, procurement, manufacturing, etc.). An effective S&OP process can ensure alignment and reduce surprises.
- It seems that the company doesn't have a good handle on what gets sold and when. Demand-sensing capabilities—point of sale (POS) data for example— could provide early warning of demand changes. Many companies start with a simple approach of sending spreadsheets and then mature to more automated and integrated approaches. The key here, though, is to sense what is happening faster. Latency in understanding true demand automatically means you are delayed in reacting to changes. Shortening this latency will immediately increase flexibility and responsiveness.
- Sbaccor should look for opportunities for postponement strategies, delaying builds until the customer order comes in (or is more firm). This is another step to providing more flexibility by building in as much reaction time as possible.
- You need to deal with the excess inventory you currently have—especially work in process. If the inventory is obsolete—get rid of it. If it is excess, Sbaccor needs to look for opportunities to get it to customers through discounts and promotions. In the face of increasing volatility, being as lean as possible is critical.
- Sbaccor needs to look at alternative modes of transportation or alternative carriers in order to clear the logistics logjam. Alternatives can provide cost advantages and help build risk-management capabilities into your system.
To deal with its current set of challenges, Sbaccor needs to attack both the demand- and supply-side issues simultaneously. By increasing visibility into these issues, forming cross-functional teams to address the specific issues and arming Sbaccor staff with the tools to quickly detail and collaboratively assess and select the appropriate action alternatives, Sbaccor will be able to realize rapid relief from its current situation.
Randy Littleson is vice president of marketing with Kinaxis (www.kinaxis.com), the provider of an on-demand service that empowers multi-enterprise manufacturers with the integrated demand-supply planning, monitoring, and collaborative response capabilities required in today's complex and dynamic world. Randy can be reached at rlittleson@kinaxis.com
By George Taninecz
What Sbaccor is experiencing is happening throughout your industry and across all types of businesses: unexpected cancellation of orders, wild gyrations with orders, missed shipments by suppliers, and even some missing suppliers and customers. Your situation is compounded further by your inability to efficiently satisfy what demand currently exists, in effect losing sight of your profitable business amid the market chaos. The good news is that Sbaccor has abetted the situation, and, as such, can work to improve it.
Even manufacturers that have worked closely with supply chain partners, integrating processes (e.g., sales, production, supplier management) and business management systems, are similarly operating amid the worst recession in decades. The difference is that these companies are aware of negative events in their own supply chain before they unfold, are working to prevent them, and have established scenarios to respond if they do occur. Unlike Sbaccor, they're not suddenly waylaid by their own demand and supply channels. Any advantage today is helpful, and not being surprised is a huge advantage. In this economy no strategy or practice is bullet proof, but ongoing communication with supply chain partners and real-time sharing of data and information are helping manufacturers protect both their firms and the overall supply chains in which they participate.
It's not easy building and working in a collaborative supply chain, one in which partners think about and try to improve value streams that cut across companies. Many companies have trouble solving value-stream problems within their own company, let alone companies out of their management control and scattered around the world. For example, nearly one-quarter of North American manufacturers have absolutely no integration with customers or with suppliers, according to The MPI Group research. Less than one-quarter are extensively integrated with customers and suppliers, respectively.
Like the majority of manufacturers, Sbaccor is likely somewhere in the middle—integrated to the point of being able to conduct sound business in good times, but not nearly enough to coordinate efforts across your supply chain to profitably withstand the current shifts and challenges. Your time to move out of the middle is short, and so, along with your senior leadership, quickly focus on the following areas and begin asking these questions within your organization:
- Customers: How much capability do we have to see into our customers' systems and information, allowing us to glimpse how they're planning and forecasting in these tough times? How might we turn this capability into value for our customers and more business for Sbaccor? How can we begin doing this now?
- Suppliers: Are we offering our key suppliers' access to our planning information and forecasts in order to help them see facets of our business that are still in demand, ensuring us a sufficient supply of goods and materials? How will this help them make better strategic decisions that will benefit them and benefit Sbaccor short-term and long-term?
- Supply chain: Are our departments, functions, and value streams working collaboratively with both suppliers and customers on market and business issues—new products, regulatory compliance, safety, sustainability, surviving in the tough economy? Are our senior executives meeting with leaders of supply chain partners to spearhead this effort, establish mutual supply chain objectives, and encourage and manage front-line collaboration?
- Operations: Do Sbaccor's strategies and day-to-day policies, processes, and business management systems enable supply chain cooperation to occur, culling benefits internally and for every company participating, or are there obstacles or repeated workarounds throughout departments and activities? How can we locate the barriers and their root causes and quickly break them down?
Addressing these issues is necessary for the stability of Sbaccor and its supply chain. Yet some of your customers may not want to open up their organizations and work with you. And you're probably apprehensive about working more closely with some of your suppliers and, possibly, even customers. But tough times have a way of spurring necessary action.
Now is the time to have honest communications with all of your critical suppliers and customers. The news may not be good, but it's necessary to get all the hidden information flowing. You may be able to assist challenged customers before they make decisions that negate sales for you and them, and in doing so forge a bond that could prove beneficial for years to come. Awareness of Sbaccor's growing markets might convince suppliers to ramp up operations to assist. And, similarly, you might uncover market news and near-term forecasts that are not so bleak, giving you reason to plan and invest for an eventual turnaround.
George Taninecz is vice president of research for The MPI Group (www.mpi-group.net), a Cleveland-based research and knowledge-development firm. George can be reached at www.mpi-group.net
Step on your soapbox! Here's your chance to debate and discuss this month's
Challenge and past Challenges with other readers. Check out the
IW Manufacturing Business Challenge thread
in the IndustryWeek Forums. Add your comments, or read what others have to say.
Click here to view now
Tell us how your company is dealing with the volatile economic climate. In
approximately 500 words, tell us about your efforts. If it meets IW's
publishing criteria, it will be posted in the Archives section of this website.
E-mail your solution to info@iwchallenge.com.
If you wish to be identified with the Solution, please include your name,
title, company and a telephone number where you can be reached. IWMBC selects
Reader Solutions from those submitted and reserves the right to edit
submissions for length and clarity.
Tell us about a Challenge your company is currently facing. If it passes
editorial muster, the IW Manufacturing Business Challenge experts will offer
solutions in an upcoming e-newsletter. Send your Challenge to
challenges@iwchallenge.com. If you wish to
be identified with the Challenge, please include your name, title, company and
a telephone number where you can be reached.
www.industryweek.com
www.kinaxis.com
www.mpi-group.net
To unsubscribe to the IW Manufacturing Business Challenge e-newsletter, send a blank e-mail to unsubscribe@iwchallenge.com.
