Brulletz Logic has been fortunate over the past two decades to have developed a stable industrial customer base for our products: programmable logic controllers (PLCs), PLC communications hardware, and user interfaces. Yet "stable" does not necessarily equate to "loyal." Many of our customers are increasingly installing highly sophisticated equipment and production lines, often doing so in conjunction with myriad equipment makers taking part. Our existing customer often no longer calls the shots on PLC sourcing, instead outsourcing the equipment-line installation and integration activities to one of the equipment makers or third-party consultants/integrators.
What we're finding is that what was acceptable and to specifications for our existing customer, isn't even in the ballpark of what an outsourced line integrator may want. Our sales force has managed this well, professionally dealing with the changing market conditions and connecting with all the new players — we are, in fact, gaining substantial new sales leads by the market changes that are occurring.
Brulletz product development and production functions, though, have not been quite as agile in reacting to the market changes. They're not getting a clear picture of customer needs from our sales staff until late in the game, and they are having difficulty ramping up new designs. And, lastly, our supply chain for CPUs, memory, circuits, relays, etc. — which has been on autopilot for years — similarly is not getting timely information that allows them to keep up with our market changes, and, worst, they're reluctant to change.
Our inability to capture this new business because of our operations and supply chain problems poses a real threat to our future success, as much of the new business is supplanting our old business. If Brulletz Logic doesn't grow with the new, we'll be out with the old.
* The Challenge incorporates hypothetical persons, companies, and products and does not portray the actions of any actual persons, companies, or products.
By Nari Viswanathan
What Brulletz faces as a company is a key challenge most companies face in today's business environment — rapid changes in customer affinities resulting in eroded sales and profit margins. Half of companies surveyed recently indicated that it takes more than a month to sense changes in customer demand. The broad set of processes that Brulletz is inefficient in can be categorized as “order to delivery” or “design to delivery” (if the design aspects are included as well).
Like other industrial machinery, product-based companies, Brulletz' sales organization is probably quite traditional and not tightly linked with supply-chain processes. In addition, the product-development function is engineering-driven and not focused on operational issues. In other words, the individual goals of sales, supply chain, and engineering are not aligned with the overall business goals of Brulletz. The end-to-end order-to-delivery lead times are a good reflection of how efficient the process is.
What should Brulletz do in this environment? As in many other real-life scenarios, the approach must be two-pronged — short-term and long-term. In the short-term Brulletz must build responsiveness into the supply chain, and in the long-term it must transform itself through a sales, inventory, and operations planning (SIOP) approach.
Short term: The three critical assets that Brulletz can leverage to respond to change and build market responsiveness are:
- Supply-chain network: Brulletz needs to perform root-cause analysis to identify the key areas of inefficiencies within their supply-chain network. Given the current economic climate, the effects of not responding quickly to change can be costly with expediting costs, rework, and excess inventory. Each of these can be addressed by measuring the current state and making small adjustments to the order-to-delivery process.
- Products: Brulletz needs to have the ability to introduce new products and phase out old products based on changes in customer brand affiliations. These processes however tend to be more long-term, and it is difficult to make an impact in the shorter-time horizon.
- Inventory: Brulletz needs to adjust inventory targets based on demand and order-lead-time fluctuation, especially since your new customers want different features and capabilities than what older customers wanted. Inventory obsolescence must be minimized.
Long term: Here are some practical longer-term transformation activities that Brulletz must perform within the context of an overall SIOP transformation initiative.
- Customer-level forecasting: Develop customer-level forecasting capabilities to enable the prioritization of customers and product segments so that when market events occur, high-priority segments can be addressed first.
- B2B process collaboration: Brulletz has to look at the equipment makers or third-party consultants/integrators not only as customers but as trading partners who facilitate the connectivity to their ultimate customers. Accelerate involvement of your trading partners into the demand forecasting process — their knowledge about the market is going to be more realistic given their proximity to the customer.
- Rapid product introduction: Develop rapid product introduction, decision-support capabilities to enhance your ability to deal with product obsoleteness scenarios as you phase out old products and phase in new products. This is especially true given that the product requirements as well as the associated services that are provided may be different with the new customers (equipment makers and third-party consultants/integrators).
Brulletz also must focus on the critical activity of measuring the impact of the new business model. One of the critical enablers for managing change is the ability to measure the critical metrics associated, including product-margin erosion, cost to serve, and total landed cost. When uncontrolled market events arise, unless there are automated and repeatable processes to measure metrics, it becomes difficult to measure the impact of the ad-hoc firefighting that occurs to mitigate the impact of the events.
Nari Viswanathan is Research Director, Supply Chain Management, AberdeenGroup (www.aberdeen.com). He can be reached at nari.viswanathan@aberdeen.com .
By Randy Littleson
You've successfully gotten over Brulletz' first hurdle by acknowledging that customers just aren't as loyal as they used to be. That may sound trivial, but too many companies continue to believe that things haven't changed — and facing reality is the first step to winning. You've also correctly figured out that the sales force can find new business, but if operations can't satisfy these new customers and meet demand, they won't keep coming back for more. So what to do?
Most organizations are geared toward operational excellence when things go according to plan. That is, if demand is pretty close to what was forecasted, then they can execute very well and everyone is happy. But in today's volatile environment, differentiation comes from your ability to respond when things haven't been going according to plan. The paradigm needs to shift from focusing just on planning and executing to one that places a premium on your ability to plan, monitor, and respond.
Your organization should be asking itself the following questions:
- How soon can we capture unexpected change in our business?
- How soon do we understand the anticipated risk of an unexpected change?
- How soon will we know who is responsible for pre-empting the risk? How soon will those people know and react?
- How do people know how their risk tradeoffs affect others?
- How do we take into account our global supply constraints as part of our S&OP process?
- How soon do we know when all or portions of our S&OP are out of sync with our original business assumptions?
- How soon do we know when our key corporate metrics are not being met?
- How do we guide collaboration to ensure alignment to corporate goals?
- How do we integrate the data that defines the supply chain given that we operate in an outsourced and heterogeneous ERP environment?
If you're like most companies, you're going to struggle with the answers to many of these critical questions. So what to do?
Start by ensuring that you have best-in-class early warning capabilities. The time taken to detect and correct a defect of any kind is a fundamental requirement of lean and six sigma. Operational processes and supporting IT architecture must be aligned to support early warning.
Next, make sure you've armed all your front-line responders with global visibility into the entire outsourced supply chain. This visibility is not to micromanage your suppliers, but to collaborate with them when things don't go according to plan and to simulate what-if scenarios prior to the reality hitting the supply chain. This is essential. Your team needs to be actively orchestrating the actions of your virtual enterprise to drive the right response to change. After all, you are ultimately accountable in these situations and only you know the proper tradeoffs between margin, customer satisfaction, inventory, etc.
And, speaking of which, your responders must have tools that deliver the ability to select the best option available for both profitability and customer satisfaction. Many organizations today struggle with the ability to ensure their S&OP objectives are actually achieved when the assumptions that went into that plan are challenged the minute the plan is completed.
Today's supply chains are not just about delivering product in the most cost-effective means possible. While that still remains a paramount objective, supply-chain responsiveness today has a far more strategic impact on the business that directly drives top-line performance. By acknowledging today's pressures and developing strategies to excel in the face of constant change, you can ensure that your supply chain is a driver in helping Brulletz win new business.
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.