The Global economic conditions look grim for 2009. The World GDP is expected to decelerate in 2009. Experts feel that this situation will remain from a minimum of 6 months to 2 years. Economists say that this recession is worst since the great depression.
Generally consumer behavior changes highly in a Bleak situation. Companies struggle to maintain profit margins, and sign new deals. Pink slips become common news. Consumers always stop their spending and get into the wait and watch mode, waiting for the economy to bounce back. Sales graph comes down. There will be an imbalance between the production and consumption. Slowly things get into a vicious cycle.
This global economic turmoil results in tremendous pressure on companies to retain their existing customers by delivering products with the best quality, at a competitive price and an on time delivery. Companies look at all possible options to reduce cost and deliver value-added services to retain their profit margin. An Euro saved is a Euro earned. Companies announce certain immediate measures to ensure smooth business operations during the slump period like constrained budget, inventory optimization, reduced cash to cash cycle time, reduction of waste (muda), internal kaizen to generate innovative ideas for simplifying things. All such initiatives require close monitoring and effective execution. It’s not easy to control and co-ordinate such a massive project for an organization which has a global presence with wide variety of products and global customer list.
Let’s take the example of ABC Electronics – A pioneer in Consumer electronics industry. It has manufacturing plants across the globe with huge product portfolio and worldwide customer base. An optimized Supply Chain always has a positive impact on the balance sheet of the company. The VP of Supply Chain – ABC Electronics announces a cost reduction initiative in order to maintain the profit margins. The major activities he proposed were Reduction in Transportation Cost, Reduction in Inventory and reduction in cash to cash cycle time.
The various challenges that he faces in executing the above tasks are
a. Grasping the existing situation – Data collection is always a painful task. It requires co-ordination with various groups within the organization followed by data cleansing to make best use of it.
b. Strategic & Execution fit – Less than 10% of strategies effectively formulated are effectively executed – Fortune Magazine. There should to be a close alignment between strategic initiatives and the corresponding execution steps in order to achieve the planned results. Ex: When ‘Reducing Transportation cost’ is a strategic initiative proposed by the VP, the execution team should match the same by sensing right insights. It can be reduction of express freights/air lifting or to optimize product mix during regular shipments – whichever is best suited for their specific business practice.
c. Flow of information: The proposed plan must flow vertically downwards without diluting the objective and similarly the information must flow upwards to close the loop.
d. Accountability: All the respective business unit heads must be accountable and should have predefined targets.
e. Visibility: Visibility across the value chain is required so that analysis till the root can be done.
f. Impacts: He must also analyze the possible impact of the new change on the other business KPIs.
g. Remove functional silos– Tendency is to look for the solution in the same area where the problem exists. For ex: Reason for higher procurement cost is often analyzed in the procurement area itself whereas the actual reason might exist in the transportation area. Therefore there is a need for more integrated approach across the functions while analyzing a problem.
h. Results Consolidation: Consolidation of results after the execution of the planned tasks is again a cumbersome process as it involves extensive data collection.
Is there a simpler, smarter and effective way of executing the activities by overcoming the difficulties stated?????
The solution to the above problem is a Performance Management application which can define a business strategy followed by a methodical process to manage the supply chain of an organization to a common set of goals and stakeholder objectives. The application must integrate data across various heterogeneous systems, should have a structured KPI frame work and easy to use scorecards & dashboards which simplifies the process to take right business decisions.
SAP announced its plan to launch the first release of its new SAP Business Objects – Supply Chain Performance Management solution. It will be one of several new performance management solutions aimed at different parts of the organization that will come from the Enterprise Performance Management group at SAP. The solution will provide significant flexibility to adapt the analytics to the needs of the business. Gartner describes this as part of an overall performance management suite. The user interface for SAP Supply Chain Performance Management is strong, with multiple options to display the KPIs, with role-based sign-on so users go straight to their relevant metrics – Gartner, 5/08
In my future blogs, I will talk more about SCPM, why we need SCPM? , SCPM Benefits and other related topics.