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