A 25-year high-tech supply chain veteran, Wade McDaniel is vice president of Solutions Architecture for Avnet Velocity, Avnet, Inc.’s global supply chain solutions business unit.

Tradeoffs! When you hear this term, you typically think of giving something up; settling for less. But when we talk about tradeoffs in supply chain segmentation, what we are really talking about are priorities. For some companies, speed is paramount while others may place a higher value on service or differentiation. For others cost may be the singular target. Whatever the value characteristic may be, supply chain segmentation is about managing multiple supply chain configurations to assure each customer gets what they most value.

A basic example of segmentation would be grouping high-volume, low-mix customers in a supply chain built for efficiency, while the supply chain for low-volume, high-mix customers would focus on maximizing flexibility. OEMs that configure their supply chains based on these trade-offs can consistently satisfy customer demands without adding cost or risk to the supply chain.

One of the most common misconceptions about supply chain segmentation is that replacing a standard supply chain model with several customized models will strain an already complicated process. In reality, however, segmentation can help in that it can simplify your supply chain. Business advisor McKinsey & Co. reported that in high tech, segmentation typically improves service levels by 5 to 10 percent while reducing inventory levels by 15 to 20 percent. In my professional experience, I’ve seen results that are even more significant.  Through segmentation, companies can better align their resources so that they are not, for example, spending money delivering commodity products ahead of demand or holding up production waiting for custom parts to arrive with a consolidated shipment of standard products from overseas.

Establishing an effective segmentation strategy requires a deep understanding of how customer and product complexity drive cost and service levels. To assure that you are starting with the most accurate picture of the supply chain, it is important to include inputs from across the organization’s business disciplines, including marketing, sales, manufacturing, planning and procurement.

At Avnet, we recommend customers use the Supply Chain Council’s SCOR methodology to define their current supply chain activity. We then help them to analyze this information in conjunction with the results of a Supply Chain Maturity Monitor (SCM2) survey, a self-assessment questionnaire that helps to identify their organization’s current supply chain reliability, responsiveness and agility levels.

What’s great about segmentation is that it is a method most companies of any size can do. As customer needs continue to diversify, the ability to effectively managed segmented supply chains will become a significant differentiator. So, if you haven’t thought about segmenting your supply chain, I’d suggest you start now, before you find your company skirting along the trailing edge of the competitive landscape.

Wade McDaniel
Vice President of Solutions Architecture
Avnet Velocity

Wade McDaniel is an upcoming presenter at the 2014 Best Practices Conference at Disney’s Yacht & Beach Club Resort.  For more information please click on the link below.

Business Planning & Forecasting: Best Practices Conference w/ Leadership Forum
Disney’s Yacht & Beach Club Resort
Orlando, Florida USA
October 26-29, 2014

Recently Eric Wilson, CPF , Director of Global Demand Planning and S&OP at Tempur Sealy International delivered an IBF Webinar on Risk Mitigation, Forecast Value Added (FVA) and Demand Planning Segmentation Strategies.  Below are some of the Questions & Answers that took place with Eric.

Q: What is Forecasting Value Added (FVA) and how is it calculated?

FVA% (Forecast Value Added) is considered the change in a forecasting performance metric that can be attributed to a particular activity in the forecasting process.  In management speak, it is are we doing better / worse or adding value to a process step?  It may be measured at any point in a forecasting process that adjusts or changes the forecast which may include lags or time horizons but also may be inputs, comparative to a base statistical or naive, or even aggregation (going from month to weeks).  FVA simply is the change in error before and after a touch point or change in forecast due to process (see below). For one analysis, we may compare the baseline model forecast error to the collaborative forecast error to determine the effectiveness of market intelligence.

Q: Where do the judgmental and causal inputs come from in collaborative forecasting? 

We have a formalized monthly and weekly forecasting cycle.  In that we are all tied across the organization to a single forecast and number.  In this process, we are not asking sales or others to forecast, but to contribute to that process.  Everything starts with a baseline and adjustments are made up or down to that baseline and measured at each touch point (FVA%).  Our inputs come from a variety of sources including sales, marketing, channel leaders, brand management, customers, management, and even supply &operations.  Many causal inputs come from these sources as well as our own planners’ expertise and insights into the data.  What we strive to do is find the best and most efficient inputs to our process, which is part of the logic for segmentation.

Q: Do you segment further within the quadrant?

Yes, I did not show it, but typically we will also plot inside each quadrant, a revenue and margin matrix.  This is especially important in the bottom right quadrant in the image below (High FVA% and Low Error).  Collaborative Forecasting can and should be considered as a variable or input in most areas, but within this one we have found it more important to examine the margin returns of planners or other input to the time and contribution requirements.  In other words, high revenue, high margin, or critical items justify more time and resources even if the return is a marginal single percent. On the other hand, low value almost commodity type items such as stable products may fall into this quadrant with lower forecasting error, but spending a lot of time or resources to gain 1% or 2% is not value added to the overall process.

Hear Eric Wilson speak @IBF’s

Business Planning & Forecasting: Best Practices Conference w/ Leadership Forum
Disney’s Yacht & Beach Club Resort
Orlando, Florida USA
October 26-29, 2014

Craig McLaughlin

Back in early 2013, when I moved into my current role of leading the global Integrated Business Planning (IBP)/ S&OP program for Mondelez, I came into the job from a Business Unit operations leadership role.

As any of you operational folks will relate to, getting “stuff” done “now” is what keeps the lights on, but moving into a global job takes some adjusting because in our case, my focus shifted from decision making to decision influencing. A frustrating shift if you aren’t ready for the change.

In my first 90 days, as I learned the ropes of the IBP program and how to navigate the waters of the global job, I quickly realized that implementing a standard IBP program across the globe was going to require a shift in how I approach problem solving and decision making. I realized that implementing such a program started with basically making a team of high performing, type A executives understand that the way that they are running their business can be improved. Now picture this…you have a team of senior executives who are in their positions because they have been successful and they are leaders in their field, being told by someone they don’t know, that they can do better…  That’s the first meeting!

It takes time for executives to embrace the need for change and the scope of that change. It requires them to reflect, ask questions and understand the change. They then need to cascade their support down through the organization, repeatedly.

Successful IBP implementation only occurs when the General Manager of the business believes that they own the process and explicitly states it. It requires for their management team to also embrace this ownership and finally the employee population needs to see the leadership living the values of IBP, so that they begin acting in new, improved ways. This change doesn’t occur overnight and requires an approach of repetitive follow-up and re-education. It requires a clear communication strategy. It requires a change management approach. It requires patience.

I’ll be sharing more on my journey in implementing IBP at IBF’s upcoming Business Planning & Forecasting: Best Practices Conference in Orlando, Oct 26-29, 2014.  Plus, I will be also sharing views at the Leadership Forum taking place on Oct 27.  Hopefully, we’ll see you there.

Craig McLaughlin
Head of Global Integrated Business Planning
Mondelez International

Data is more available today than ever as a result of technology advancements (i.e. faster computers, mobile & handheld devices). Therefore, for businesses to succeed, they must be able to identify, capture, analyze and manage the slew of data that they are regularly being confronted with.

Likewise, Management of Data and Analysis (Data Analytics) is critical for building a sustainable procurement process and a robust supply chain. This ultimately leads to efficiency and cost effective process or standards.

So, why should the procurement and supply chain organization embrace data analytics?

The reasons include but not limited to the following:

1. It harmonizes all the components of the Supply chain (i.e. Demand Planning, Procurement, Operations etc.)
2. It provides a centralized source of truth for data and information
3. It enables the organization to make informed decisions
4. It minimizes wastes when properly and effectively utilized
5. It is an effective tool for managing change in an organization

The next question is – how do we implement data analytics?

The steps required for implementing a robust procurement & supplier chain data analytics include, but not limited to the following:

1. The stakeholders must address the What, the Why and the When data attributes and criteria questions
2. Define Data strategy (i.e. Tools Selection and Methodology)
3. Define metrics, map metrics to quantifiable & measurable process transactions
4. Execute the Data strategy

I’ll be sharing more on building the analytics capability at Marathon Oil during IBF’s Business Planning & Forecasting: Best Practices Conference w/ Leadership Forum
October 26-29, 2014 – Orlando Florida USA

Hope to see you there!

Kay Bello
Advanced Senior Business Analyst
Marathon Oil Corp. 

Volume 33 Issue 2
Summer 2014

Click here to DOWNLOAD a preview of the latest Journal of Business Forecasting (JBF)

Click HERE to become an IBF member and get a JBF subscription FREE

FEATURED ARTICLES:

A New Approach to Effective Demand Planning
By Richard Loretto
Global companies are changing their operating models to meet increasingly complex demands on their businesses. Too often companies struggle with how to effectively adapt their demand planning operations as these models evolve. If not done right, it can lead to unclear and inaccurate forecasting, ultimately putting the long-term viability of the business at risk.

How Does Demand Planning Create Value for the Organization
By Mark Covas
Learn how various industries think about the value a Demand Planning group brings to their organizations. Whether you want to know how to determine if you have the right amount of Demand Planning resources or how you can present a business case for requesting more resources to grow your Demand Planning capabilities, this article will help you demonstrate to your organization the value you are creating.

The Revolution of Talent Management in Demand Planning
By John Gallucci
The Demand Planning field has advanced rapidly over the last decade, and the leading Planning organizations are being rewarded by hiring talent with a much different skill set. Talent Management is a highly debated topic at IBF Leadership Forums, and revolutionary insights are unfolding through these healthy discussions. Are early adopters about to gain a significant competitive advantage, or will Demand Planning continue to be a destination where focus on the basic fundamentals of forecasting will always be more relevant? In this article, I explore multiple sides of the debate, and provide my own outlook for this hot topic.

What About a Telescoping Planning Horizon?
By Larry Lapide
This column discusses various aspects of the Sales and Operations Planning (S&OP) planning horizon in terms of the length of time and the foci of decision making within it. A Telescoping Planning Horizon approach is introduced that extends the planning horizon based on all supply-demand lead times, as well as focuses on various decision-making and decision-support data used in the short-term versus the long-term segments within the horizon.

Innovations in Business Forecasting: Predictive Analytics
By Charles W. Chase, Jr.
There has been a lot of focus on demand signal repositories (DSR) over the past several years with little emphasis on leveraging that information using predictive analytics. The majority of the output has been focused on descriptive analytics, or reporting. If you want to be more proactive than simply basing replenishment on shipment data, you need access to downstream data, analysis, and insights to make decisions that put you ahead of the demand curve. It is about more than just forecasting trends and seasonality, using DSR information for demand sensing to identify and measure market signals, and then using those signals to shape future demand. DSR is a basic foundation but Demand Signal Analytics (DSA) is where real differentiation and value can be gained.

How to Build a Relationship between Sales and Logistics for an Effective Demand Planning
By Jason S. Marinoff
The article shows that the best way to bring Sales and Logistics together is to find common ground. The quick sell to Sales is product availability, and to Logistics, having the right inventory at the right time. Once they understand their mutual interests, their relationship will grow. Good communication is also important. Salespeople are on the front line, and know fairly well the customers’ promotional plans. If they communicate this information to Logistics in a timely manner, it would help to improve product availability.

Predictive Analytics Forecast Snail’s Pace Growth
By Evangelos Otto Simos, Ph.D.
Dr. Simos is Director of Forecasting and Predictive Analytics at e-forecasting.com, a division of Infometrica’s Data Center, and professor of economics at Paul College, University of New Hampshire. This report does not purport to be a complete description of global economic conditions and financial markets. Neither the Journal nor Infometrica, Inc. guarantee the accuracy of the projections, nor do they warrant in any way that the use of information or data appearing herein will enhance operational or investment performance of individuals or companies who use it. The views presented here are those of the author, and in no way represent the views, analysis, or models of Infometrica, Inc. and any organization that the author may be associated with.

The U.S. Economy—Slow, Albeit Improving
By Jamal Nahavandi, Ph.D.
Dr. Nahavandi is Associate Professor of economics at Pfeiffer University School of Graduate Studies, specializing in Business Economics, International Business, and Healthcare Economics. The information in this forecast is gathered by the Journal from sources it considers reliable. Neither the Journal nor the individual institutions providing the data guarantee accuracy; nor do any of them warrant in any way that use of the data appearing herein will enhance the business or investment performance of companies or individuals who use them.

Answers to Your Forecasting Questions
By Chaman L. Jain, St. John’s University

Click here to DOWNLOAD a preview of the latest Journal of Business Forecasting (JBF)

Click HERE to become an IBF member and get a JBF subscription FREE

The Journal of Business Forecasting (JBF) has been providing jargon-free articles on how to improve demand planning, forecasting, supply chain, and S&OP, step-by-step for over 30 years. A subscription to the JBF comes with IBF membership at no additional cost.

In September 2013, I accepted a new challenge as Forecasting and Demand Specialist at Wolf Oil Corporation, an independent lubricants company. Wolf Oil shows fantastic growth figures, which focuses on their private labels and the introduction/ re-launch of the two company trademarks.

The company has grown to such a level, a step change in the business process is required to support the growth and customer service.

Together with hiring a Forecasting and Demand Specialist, Wolf Oil is also looking at different options to support their current operational system. It’s certainly time for change at Wolf Oil and Sales & Operations Planning (S&OP) will be a driver to support our objectives. But, how does one get started with all these changes in a sales driven environment and get to a make-to-stock process?

In order to move our process from make-to-order to make-to-stock, I had to identify the sources of frustration in each department. The people involved in sales (key account management, internal sales support team and our local distributors) mainly complained about long lead times and orders not being ready on time. The operational team faced pressure from sales resulting in a constant flow of firefighting and “chasing their tale.” The Purchasing team had to make forecasts on raw materials and components based on history resulting in shortages due to the increasing growth figures at our company. It soon became clear that these frustrations could be tackled by getting each department’s attention to understand the common objective of the company. We all want to serve a customer.

The 3 Pillars that supported our S&OP introduction included:

• Cross-functional collaboration
• Open and clear communication
• Alignment on data

During the introduction phase, all stakeholders (sales, operations and purchasing) were introduced in the different steps of an S&OP process. The big challenge in changing the Wolf Oil process was found in the Indirect Channel Sales structure. The S&OP mindset needs to be drilled down from the corporate organization (operations, sales, marketing,…) to the local distributors and their customers. One of the most important aspects in this implementation is identifying the readiness level of people for change. Creating momentum and a win-win situation is the objective.

Sounds simple? Indeed, but never forget you’re dealing with people. Although, the journey continues, I will be sharing further details on our lessons learned at the upcoming IBF & APICS Best of the Best Sales & Operations Planning Conference Europe. I would enjoy hearing about your journey either as comments on the blog or at the event.

Sven Smets, CPF
Demand & Forecasting Specialist
Wolf Oil Corporation