The Market-Driven Supply Chain

A Revolutionary Model for Sales and Operations Planning in the New On-Demand Economy

The Market-Driven Supply Chain

Author: Robert P. Burrows III
Pub Date: October 2012
Print Edition: $39.95
Print ISBN: 9780814431634
Page Count: 288
Format: Hardback
e-Book ISBN: 9780814431641

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Excerpt

INTRODUCTION

WE ARE IN THE MIDST of a profound shift in the ways of commerce:

The economic engines of supply and demand have traded places. The

business of buying is shifting from a centuries-old supply-driven model

and moving rapidly to a market-driven, customer-centric one. Customers

are dictating what they purchase, insisting upon specialized

products for unique situations and tastes. Product-line complexity is

getting broader, and demand variability per product is growing higher

by orders of magnitude. Seemingly excessive service levels and

response times are becoming the norm.

While sales and operations planning (S&OP) traditionally has

been an important operations management process, its design has

remained essentially unchanged for more than 40 years. It customarily

has been internally focused, with a one-size-fits-all-customers

mindset. Today, however, S&OP is being whipped by strong, unrecognized

market forces that are increasing inventory and lowering

manufacturing and distribution productivity. The forces that drive our

economic engines are rapidly changing in the United States and

Europe and will spread to all other markets as those markets mature. In

today’s on-demand economy, demand has come to dominate supply as

the driving force. This new circumstance is why the traditional, 40-

year-old approach is failing.

We have implemented the new market-driven supply chain

processes using advanced S&OP in many good companies. In most

cases, the share price increases by three to nine times over the course

of the few years required for full implementation and realization of

benefits. The company’s value increases because of the process and

increased cash flow, not because of some information technology (IT)

system. The market-driven supply chain delivers customer value,

defines and delivers competitive advantage, and generates free cash

flow. All three of these deliverables are not even considered in

operations-driven S&OP or demand-driven supply chains.

Studies done by AMR Research, now part of Gartner Group, have

found that more than 70 percent of companies are stuck in entry-level

S&OP processes, reacting or responding to the winds of change in the

market. Traditional approaches are operating two or more steps

removed from the market. In order to not only survive but thrive in

the new on-demand economy, you must learn how to implement an

S&OP process built on market savvy and operating “at the market.”

The Market-Driven Supply Chain will show you how your business can

accomplish this.

A revolutionary transformation in business management processes

is required to deal with the profound changes emerging and expanding

in the world economies. Today, the economy of business has a whole

new set of dimensions, as shown in Figure I-1. The figure outlines how

an enterprise views the overall planning process, given a supply versus a

demand view of the economy.

The supply chains of the future must become market-driven rather

than operations-driven or even demand-driven. As we describe in

Chapter 1, the market-driven supply chain uses a Level IV, or

advanced, S&OP. In the market-driven supply chain, the customer’s

definition of value is the paramount concern. In contrast, in demand-

driven or operations-driven supply chains, internal economics and

inventory are the drivers.

From a supply view, markets are seen as homogeneous; we manufacture

a hammer, and everything looks like a nail. Conversely, from a

demand perspective, markets are specialized by consumer/customer

groups, with different solutions and products required for each group.

Prior to the 1970s, in a supply economy, the rate of change was very

slow; a product’s life cycle was measured in decades. Today, in a

demand economy, a product life cycle of even a few years is considered

long. In the 1990s, product rationalization was the mantra. Now, an

S&OP process tuned to the demand economy enables complexity

when it is necessary to address specific customer needs in specialized

markets. Segmentation now needs to be done on customer values. In

the old supply view, decision making was driven by customers rather

than sales or marketing efficiency. In the old economy, with vastly less

product complexity and high concentration in distribution, planning

models were developed using the assumption that the underlying

demand patterns were normally distributed. Today, demand at the

product stock-keeping unit (SKU) level is significantly more volatile.

Analysis finds most SKUs have random demand patterns. This factor

alone necessitates a very profound change in approach.

A significantly more dynamic, customer-focused, and forwardthinking

S&OP model is needed to achieve success. The market-driven

supply chain needs to be managed by an S&OP process with lots of

market savvy. To distinguish between the market-driven supply chain

and the process managed by it, we refer in this book to market-savvy

S&OP as the most advanced and Level IV S&OP process. In the

market-driven supply chain, the market—not the manufacturer—

leads, and even dictates, the ways of commerce. A new “market-in”

approach to business planning and product production and deployment

is essential if a company is to be successful in today’s challenging business

environment.

To win, the enterprise must manage to “at market” demand and

manage the customer’s demand for valuable services. If your present

S&OP has an uncommitted top management, is mired in detail, or

lacks strong marketing and sales leadership, you must change the culture

starting here and now. If your process does not have strategic

vision or consists of interdepartmental rifts and disconnects, your

move to a new S&OP process is critical.

This book will help you create a market-savvy S&OP that is

built on strong cross-functional collaboration and market insights. A

market-savvy S&OP becomes a competitive weapon, designed to

achieve market share growth and positive cash flow. The robust

process empowers and multiplies the strengths of individual executives

in a collegial culture.

In this book, you will learn how to make a successful transformation,

both in management process to operate “at market” and in the

company’s culture, to move to a customer-centric approach that generates

remarkable business results. You will not only see how your business

can compete but how it can dominate in its markets. The major

benefits your company accrues from implementing market-savvy

S&OP will be free cash-flow generation and market share gains.

These are the serious objectives most boards of directors require of senior

management. Achieving these benefits will have direct impact on

the company’s stock price and will create value for shareholders.

You will also learn about a powerful new management process that

will bring about full organizational collaboration and be highly effective

in implementing your company’s strategy. The need for full crossfunctional

collaboration in planning and execution has never been

greater, and the need is growing. The issues are far more complex than

can be effectively handled by individual functional areas operating

independently.

You will learn as well how being market-driven is practical and mirrors

reality, despite initially seeming to be counterintuitive. Becoming

market-driven may appear to be a daunting task, but in the end, it is

not difficult to achieve with the tools described in this book—tools for

the transformation of the culture, tools for the design of new processes,

and tools for the accomplishment of the transition to the new S&OP.

Many in business have long desired and even attempted to have

cross-functional collaborative management, to develop processes

that drive market-share growth, and to generate free cash flow.

Only a few have succeeded. This is often because of two factors: the

lack of a compelling reason for change, particularly when people are

operating inside individual functional areas, and a less-than-rigorous

change management process.

Individuals who have studied, labored, and stressed over achieving

change in enterprise culture in many different arenas—from public to

private, in both social and industrial organizations—know that change

comes only when the whole organization desires it. Change cannot be

forced or dictated, nor can it be accomplished by IT installations. The

CEO must be a role model for change, envisioning increased cash flow

and market share, then cultivating the desire to change through communication

and education. The CEO must recognize change has three

distinct aspects: vision, behavior, and process. A transition to the new

vision, with new behavior and new processes, is required. A change in

culture is implemented through a disciplined change management

process articulating the vision, accentuating the behavior, and adopting

the process.

This book is structured to demonstrate how to apply these three

aspects of change to create a winning market-savvy S&OP process.

We will show you, step by step, how to make the supply chain a strong

and successful competitive weapon. The overarching framework for

the book is shown in Figure I-2, with the associated relevant chapters.

Part I, “Creating Vision,” focuses on the first management change

required to implement a market-savvy S&OP process. Vision in this

context means to correctly define customer values and needs and to

determine what strategies you will use to satisfy these needs.

Part I has two chapters. Chapter 1, “Seeing Anew from a Market-

Savvy Perspective,” establishes what it means to be market-driven and

market-savvy. It describes market-savvy S&OP and explains how to

conduct this type of planning in a way that is fundamentally different

from what you are now doing. The chapter also examines value segmentation

and describes in detail how to perform it, leading to the

development of a go-to-market strategy, which is the statement of how

each functional area within the organization will accomplish the goal

or strategy of the business.

Chapter 2, “Competing on Time and Customer Connectivity,”

describes the time advantage and customer connectivity strategies that

hold the potential for desirable performance improvement when a

market-savvy S&OP is implemented.

Part II, “Changing Behavior,” looks at the second aspect of change

management. The two chapters in this part explore the driving aspects

of changed behavior in an S&OP context: robust analytics and a

customer-centric culture.

Chapter 3, “Managing by Analytics,” discusses the critical requirement

of replacing conventional wisdom based on past behavior with

facts and market-savvy, which look into the future.

Chapter 4, “Establishing a Customer-Centric Culture, “ covers the

drivers of collegiality and a foundation for open and productive collaboration

across, up, and down the organization, all of which are vital

for achieving a customer-centric culture. Chapters 1 through 4 set the

stage by creating and communicating the need for change and outlining

the behavior needed to accomplish the change to a market-savvy

S&OP.

Part III, “Designing New Processes,” is the third and final phase of

the change management process. The processes fall into three major

areas: (1) the monthly collaborative planning processes, (2) the ratebased

planning processes in operations, and (3) the sustaining culture

processes of audits and continuous improvement. Each area is discussed

in its own chapter. Together, they reach the overarching goals

of gaining and sustaining competitive advantage and free cash flow.

Chapter 5, “Designing and Implementing Collaborative Planning

(Segment-Level S&OP),” describes the monthly planning

processes for managing demand and becoming customer-centric that

are led by senior management, with ownership and significant participation

by the organization’s business units.

Chapter 6, “Designing a Rate-Based Planning Process,” covers

weekly execution of the rate-based planning processes for demand

fulfillment at the operational level. These processes enable the organization

to become market-driven in inventory replenishment, procure-

ment, and production. You will learn that rate-based processes replace

MRP (material requirements planning) and work hand in glove with

lean manufacturing initiatives.

And, finally, Chapter 7, “Transitioning to a New Culture of

Market-Driven Supply Chain,” discusses sustaining processes for continuing

and increasing competitive advantage, including the establishment

of process clubs.

Using the principles you will learn in this book, you will be able

to successfully implement a new and highly productive S&OP in

your company. The new processes will have a profound impact on the

business and on your career. The companies that have implemented

market-savvy S&OP now dominate their industries, some by further

strengthening and most by revolutionizing their impact on the industry.

Seven Guiding Principles of the Design of

Market-Savvy S&OP

Seven guiding principles or design principles are described in the book,

one for each chapter. The seven principles provide a useful overview

of what you will be learning:

1. Market In

2. Segment Level

3. Management by Analytics

4. Organize Around Customers

5. Process Heavy, People Light

6. Rate-Based

7. Change Culture

The journey begins with creating a vision. You will learn about this

exciting new approach in Chapter 1.

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