My recent blog series on the JDA FOCUS 2010 user conference focused primarily on JDA Software’s strategy and product roadmap on the heels of its recent acquisition of i2 Technologies. But FOCUS 2010 was reportedly the largest vendor’s conference ever, with more than 1,700 registered attendees, more than 100 customer presentations, and nearly 300 total sessions.
Now, I concur with ARC Advisory Group’s Steve Banker with regard to his displeasure at the fact that analysts and the press were barred from more than a third of the sessions there. It makes me wonder why anyone would think that analysts and press should not hear something that everyone else can, including the presenter’s direct competitors (given that many directly competing companies use JDA or i2 and their employees could attend every session at the user conference).
While a rare occurrence, this was not the only user conference that I’ve attended where analysts were barred from sessions. Namely, many sessions were also closed or were under a non-disclosure agreement (NDA) for analysts at AspenTech’s recent aspenONE Global Conference. In addition, at PROS Pricing’s B2B Pricing Summit at New York Stock Exchange (NYSE) in early 2010, press and analysts were barred from all sessions, including the keynote that was presented by another industry analyst (reportedly at the strong insistence of strangely paranoid customers).
Still, the JDA FOCUS 2010 conference was replete with available compelling supply chain management (SCM) end-user stories that made me feel like a kid in a candy shop trying to pick only a few sessions. After some agonizing, I opted to attend an executive panel on sales and operations planning (S&OP) as part of an S&OP track, given both JDA and i2’s prominence in that field.
In addition to its forays into pricing optimization, JDA has demonstrated significant advances in this important area, with both JDA and i2 having strong S&OP and integrated business planning (IBP) solutions that can be plugged into existing transactional and operational planning systems. JDA is continuing its partnership with the Oliver Wight consultancy in this space. The vendor has also been involved in the collaborative planning, forecasting, and replenishment (CPFR) and S&OP integration initiative organized by the Voluntary Inter-industry Commerce Solutions (VICS) organization.
Fred Baumann, VP of Industry Strategies at JDA, has long been involved in VICS’ committees (as well as John Bermudez of Oracle, to be fair). Other panel participants and speakers that came from Oliver Wight, Lowe’s Companies, West Marine, Kraft, and Whirlpool have all contributed to the creation of industry guidelines and have practical experience deploying CPFR and S&OP in various industries.
Tough Economic Times Shed Spotlight on S&OP
As analyzed in my recent blog series, in uncertain economic times the importance of S&OP has been accentuated. Companies must doggedly monitor their return on investment (ROI) while maintaining a long-term perspective, and senior management must be unequivocally engaged in this process. One key success factor is fostering education in S&OP among professionals involved in financial planning, demand forecasting, product development, inventory management, marketing, and capacity planning throughout all levels of the organization.
Demand management becomes increasingly important in a recessionary environment as well as keeping sales & marketing, finance, engineering, operations, and the entire value chain on the same page and with reconciled holistic goals and metrics. TF Wallace, a frequently quoted authority on S&OP, has claimed in his numerous presentations and Webinars that businesses that invest heavily in S&OP are able to make fewer excruciating but necessary cuts than those that do not, citing Lehman Brothers, AIG, and Citibank as bad extreme examples of the latter cases.
S&OP also facilitates marketing promotions, new product development (NPD) and launches, and higher levels of involvement of each component of a supply chain at the various stages of a launch. For example, there is an apparent overlap of marketing and demand planning in product launches. These two factions of a company must work closely in tandem to execute a successful product launch, continuing throughout the entire lifecycle of the product.
The renaissance of IBP and S&OP tools comes from their ability to allow all of the corporate participants to learn from the past and understand which assumptions have (or have not) worked, and why. They are also able to better assess the future by sensing the market drivers and evaluating risks and opportunities scenarios. Finally, everyone has to arrive at a consensus after analyzing trade-offs between the “Make”, “Source”, and “Deliver” options.
The importance of change management when implementing or revising S&OP processes in an organization cannot be over-emphasized. The session’s panel participants were particularly keen on emphasizing the process of communicating the company’s action plan to all employees.
The panelists encouraged the audience to go back to the basics that TF Wallace and Robert Stahl as well as Oliver Wight have established in their respective S&OP bodies of work. They have also stressed the importance of having an S&OP champion (or an S&OP process owner) in relating critical information to and from the executive team.
CPFR: Coming of Age, At Long Last?
But while S&OP systems can help align respective internal organizations of retailers and their suppliers with their strategic goals, how about reconciling these respective S&OP systems via external collaboration? CPFR was hailed even way back in the late 1990s as the next-generation approach to collaboratively bridging the gap between retail and manufacturing, but it has yet to live up to its hype.
I think that the biggest reason CPFR has not been successful in the past is a strong reluctance and mistrust to share data. CPFR painstakingly takes commitment, visibility, and time. Data accuracy was also an issue and most contemporary planning systems at the time were not able to handle the sheer volumes of data overload generated by point of sales (POS) systems at retail stores.
A CPFR undertaking is too complex to get started, and not all involved parties share the goals and the outcomes equally. If consumer product goods (CPG) manufacturers and retailers could view themselves as one macro entity (which is very hard with their different margins, profit targets, management teams, etc.) then perhaps the gains of CPFR could be accomplished.
In addition, it is also very important to have appropriate technology that can underpin CPFR, and I am not sure that vision has ever been fully realized either. Indeed, one of the biggest challenges has been that many trading partners are still trying to manage CPFR relationships on spreadsheets, which do not foster visibility and the “single version of truth” that is needed to scale the initiative beyond just a few partners.
Another reported reason has been inadequate responsiveness in the system to react to demand pattern changes and other disturbances. Companies need the ability to look at their business (i.e., evaluate what-if assumptions) through both granular (micro, tactical, per region, per customer, per product, etc.) and “the bigger picture” (macro, strategic, supply-chain-wide, etc.) lenses.
I think that many of these issues are changing now. Retailers are realizing that they must share data to meet their cost and product availability objectives, while the data accuracy and volume issues are being solved. Getting past the POS data volume issue was one of the real breakthroughs of the novice RedPrairie Flowcasting solution, while Kinaxis RapidResponse’s speed of what-if scenario creation, simulation, and tactical decision-making (on a single decision-making data model) has helped many companies with the issue of system responsiveness.
As additional examples, the Logility Voyager S&OP and CPFR solutions give companies the ability to automate many of the acceptable tolerance measurements so that their valuable human resources are focused only on where they can add value and improve the quality of the information or resolve any strategic or tactical issues proactively. There is a well-known example of successful CFPR collaboration between Lowe’s and Whirlpool, whereby one speaker referred to the publicized partnership as “two companies, one plan.”
Retailers and Suppliers: Not Always a Happy Relationship
But how can one reconcile conflicting goals and planning approaches (and targets) of these two camps? Namely, the manufacturers’ aim is to have long production runs for economy of scale reasons, whereas the retailers want to profitably sell all their product categories. Karin Bursa, Logility’s VP of marketing aptly put it in our recent exchange:
“Actually, most retailers are in the business of renting real estate (shelf space) and they want to carry whatever will sell and provide margin. To do that effectively, they need a great assortment of available goods.”
Well, these assortments often cannot accommodate every supplier’s long runs and high volumes of goods. Therefore, I think manufacturing is changing a lot in this area. Sure, they would still love to have long runs, and if you’re making boxes of household staples and necessities (e.g., Tide or Cheerios), that is still feasible. But with fickle consumers running the show now, manufacturers are realizing that flexibility to respond to customer demand is more important than wringing that last cent out of production.
Two other factors are forcing manufacturers to collaborate with retailers. First, with 20 percent or more of their estimated marketing development funds (MDF) and revenue tied up in promotions, they have to work with the retailers to make these investments successful. Second, with the rapid rise in private label goods, manufacturers have to cooperate with retailers to retain shelf space.
Why Should Mighty Retailers Reciprocate?
Even some participants in the JDA FOCUS 2010 session’s audience voiced frustration over working with mighty retailers, particularly big-box stores. They complained that decision makers at these megastores with market clout are often unwilling to meet the level of collaboration desired in an ideal supplier-vendor relationship.
One attendee commented that he found it a real struggle to supply to Wal-Mart satisfactorily, as the giant retailer frequently overestimates demand and plays fast and loose. At one point it will return more than a half of an order to the supplier while charging penalties in the opposite case of the supplier under-delivering (and following with back orders). When dealing with retail giants such as Wal-Mart, it is essential to get the order quantities right, and this apparently frustrated attendee said with indignation, “I wish we could just see their demand data and build and deliver to that.”
From the retailers’ perspective, national and global brands still matter because they matter to consumers. Retailers want brands with cache – brands that consumers want to buy or have loyalty to. Branded manufacturers spend millions of dollars to build their brands and offer a “unique” experience to the consumer.
Granted, retailers push private labels because of the higher profit margins, and in discount chains it is all about price, yet in many general merchandise stores consumers are still shopping for brands. In addition, many retailers are looking to differentiate based on unique offerings that can come in the form of special (exclusive) packaging, private label brands, etc. Therefore, retailers should be willing to collaborate with renowned CPG manufacturers so they can lower costs on the brands their customers want.
It seems as though the balance of power is almost never equal. Namely, we have the Wal-Mart’s of the world dictating the rules of engagement to their suppliers, and then we have a few CPG giants such as Procter & Gamble (P&G) and Unilever who can also set policy to the regional grocers. What really needs to happen is that economic pressures will dictate that efficiencies must be realized. And there are efficiencies to be gained from collaboration – everyone knows it.
However, this can only happen if incentives are aligned so that the CPG manufacturer and retailer can both benefit from shared goals. When one gets down to it, what retailers care about is having in stock exactly what consumers wants to buy at a price that they are willing to pay. Therefore, collaborating on forecasts, promotions, etc. is still in both parties’ best interest, whether through CPFR or other collaborative data-sharing means.
The Road to Reconciliation
As a matter of fact, reconciling the different needs and planning horizons between trading partners is why CPFR standards were initially drafted, validated, and published. In many cases, the manufacturer actually has a better understanding of the volume and profile of the joint business between the supplier and retailer.
This is why many large retailers have established so-called category captains to help them make decisions about product assortments. Although the category captain role is additional work for the chosen manufacturing partner, that role is typically awarded to the best overall performer, which can mean a preferential treatment.
As for the differing cultures and planning approaches of retailers and suppliers, for most, the real issue is trust. Trust can only be built through developing a closer relationship, which is typically a result of occasional face-to-face meetings, regularly scheduled conference calls, joint success factors, etc.
Synchronizing normal replenishment cycles is the foundation for a collaborative relationship. This activity is more predictable, and once the planning horizons and tolerance levels (time, quantity, etc.) are established, the collaboration progresses and provides some quick wins in increased inventory turnovers and other relevant metrics.
But the real challenges come around communicating changes in demand that are a result of either manufacturers’ or retailers’ scheduled promotions. Obviously, this is easier when the two involved trading partners are talking – making sure that the calendars are synched up and in-store displays or special promotional packaging are delivered on time.
Perhaps even more of a challenge arises when the retailer has a promotional campaign planned with a competing supplier. In this scenario, everyone should know beforehand that an anticipated spike (lift) in the promoted volume will likely produce a lower demand for the non-promoted manufacturer(s).
The session attendees were invited to pose questions to the panelists, providing some insight into the concerns of today’s operations and supply chain managers. While some were interested in the details and specifics of S&OP and CPFR processes, such as selecting the right software and performance metrics, many more questions were about the issues surrounding the economic downturn: i.e., best practices, conflict resolution, financial planning, implementation in a global business, and monthly executive meetings.
The panel’s salient conclusion was that whether your organization is a discrete manufacturer, a process manufacturer, or a retailer, you should evaluate JDA as a prospective S&OP and CPFR solution. While I concur with that assertion, Logility, Demand Solutions, Oracle Value Chain Planning (VCP), Kinaxis, Jonova, and Steelwedge would also be some other viable alternatives.
I would suggest that JDA (and other vendors for that matter) needs to offer tailored approaches to each vertical sector. The user is different, the sophistication of the user is different, and the problem is different on the planning side between retail and CPG manufacturing. What I think is key though for JDA (and other aspiring vendors) to publish common frameworks and syntaxes defining the areas where the two camps intersect so that proper collaboration can take place, and so both camps can maximize each other’s info – CPG gets repeated store consumption data, the retailer gets real-time supply info.
Dear readers, what are your views, comments, opinions, etc. about the S&OP and CPFR software and services market in general? We would also be interested in your experiences with this software category (if you are an existing user) or with your current (possibly ineffective) practices, and your general interest to evaluate these solutions as prospective customers. For more information, see TEC’s executive brief on how best to select an S&OP solution.
I enjoyed reading your post about how retailers and manufacturers do not always have a happy relationship. Product assortment and advanced planogramming with category captains I think would definitely help this problem and move towards better reconciliation. Over estimating the supply and demand could be because the information required from the brilliant planogram level employees who makes all the difference. Replenishing cycles depend on how well these people perform, and report back to management. Thus happier the customers will be when they get the products they came to the store to buy. I have been looking for this type of blog for a while now and this type of particular information. I will be back to check more of types of posts on this website. Cheers!