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ChainLink in the News: Do Advance Planning Systems Deliver Value? New Research Says Yes.

Ann Grackin and her team at ChainLink Research conducted a significant study of several thousand APS implementations over a four-year period (1999-2002), supplemented with more in-depth research of many dozen more projects.

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SCDigest Newsletter 04-01-20
   January 20, 2004

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Developing a Metrics Framework

There's no question that most corporations and supply chains are increasing their focus on performance measurement. Whether you are well down the path, or just beginning to develop a robust scorecarding system, making sure you consider these issues listed below will improve the outcome:

Metrics definition: Key Performance Indicators (KPIs) need to be clear, and drive the desired operational results. Metrics frameworks like SCOR can be a great place to start. Frequent mistake: focusing only on internal performance, and shorting customer-focused metrics; not being clear about how a metric will specifically be calculated (e.g. what is a "perfect order?"), and of course, failing to properly align KPIs with larger objectives.
Thresholds/goals: What level of performance is expected for each KPI? What is the "trigger point" for concern if KPI performance degrades?
Data sources: Where will the required performance data come from? How will data from multiple systems be merged?

Time-phasing: What are the appropriate time buckets in which to consider the KPIs?

Distribution: Who in the organization will get what performance data?
Presentation: How will the KPI information be presented - paper reports, printed charts, on-line? Different presentations, of course, may be appropriate for different constituencies.
Ownership: Who in the organization "owns" responsibility for each KPI?
Root cause analysis: If there are problems with a KPI, how will the root cause of that performance problem be determined?
Compensation Systems: How will performance along KPIs impact individual compensation and performance evaluation? Usual problem - link isn't strong enough.

What are your views on getting performance measurement systems right?

Let us know your thoughts.

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Dan Gilmore

Do Advance Planning Systems Deliver Value?

New Research Says Yes.

We're entering our fourth era of Advance Planning System (APS) applications:

Phase I: Pre-1998: Early adopter phase.
Phase II: 1998-2000: APS hits the big time, explosive growth, frankly some undisciplined buying by many customers during the "technology bubble".
Phase III: 2001-2003: Negativity phase, with a shrinking market (along with the rest of the technology industry), a spate of "bad press," and many observers questioning whether APS can deliver what it promised.

Now we enter Phase IV, with the economy recovering, a new, more mature APS vendor landscape, and a very different, more ROI-driven buying climate.

So, what's the real story - the tremendous promise (and hype) of 1998-2000, or the relative cynicism of the last three years?

Ann Grackin and her team at ChainLink Research conducted a significant study of several thousand APS implementations over a four-year period (1999-2002), supplemented with more in-depth research of many dozen more projects. The results are summarized in a new report from ChainLink Research and SupplyChainDigest, which you can download by clicking here.

There's more in the report than we can condense here, and even more detail behind the summary report is available from ChainLink Research. Here are some of the key findings:

APS implementations did suffer from a period of declining success around the 1999-2000 time frame, due to a variety of factors, many of them related to the overall overheated technology climate in users and vendors during that time. Vendors did over-promise, had more projects than they could really manage, and relied too much on outside consultants. In many cases, users made hasty buying decisions, did not focus their own project teams well, and/or had fuzzy/changing project goals.
Since then, APS module-by-module implementation times among the top vendors have become much more streamline and predictable. This is what the vendors have been saying for a while now - this research supports it.
The roles and engagement of the implementing company's own users and its vision for how the system will be used, remain the key factors for APS deployment success - as it always has and will be.
Most users are driving significant operational benefits from APS implementations.

The survey found 81% were either fully satisfied with their APS implementation, or were planning to purchase more software from their current APS provider. At the end of the day, a company's willingness to keep investing in the solutions they have purchased is the best indicator of value creation.

The data rings true with my own experience. Obviously during the bubble, we had some issues on all sides of the equation (vendors, consultants, users). But my own anecdotal evidence (e.g., recent presentations at the Manugistics user conference), discussions with APS vendor teams, and research such as that we present here, I think paints a much different story than the handful of negative stories over the past few years had many people believing. Implementations are going much faster and more smoothly today. When purchased and deployed smartly, APS delivers results, but like any technology, it has to be done right. More on this topic in the future, of course.

Are APS systems delivering real value? Was the negative hype just a case of the press focusing on a few negative stories and ignoring the many successes? What are your perspectives on what vendors and end users could have done better during the peak years?  Let us know your thoughts.


Interested in RFID? New Bear Stearns Report Has it All

"E-Commerce" Back in Style in Corporate America

OK, So What is a Procurement Service Provider? New Accenture Report Says They Are Growing Rapidly

Summary and comment below.


Supply Chain Investment News

Supply chain stocks enjoyed a strong week overall, led by Manugistics, which was up a remarkable 28% for the week and now 45% for the quarter.  SAP was down, as the weak dollar hurt earnings, but FreeMarkets and Ariba were also up big. Oracle, Agile, Aspentech and Logility were up more than 4%.

Click here to see performance over the past week, month, quarter and year >>

Logistics software, 3PL and transportation stocks were mostly up, led by Manhattan Associates, up almost 9%, and FedEx, up over 7%. Most other stocks in our index were up or down by small percentages, though Descartes Systems continues its recent rise, up more than 30% in the past month.

Click here to see performance over the past week, month, quarter and year >>


Who are the top 5 shoe retailers in the U.S.?  Answer below


Agree or Disagree?  Share a Perspective with Your Peers

Reader feedback from the topics in SupplyChainDigest is growing every week! Keep the comments coming! If you would like to keep your identity or company anonymous, please let us know in your response.

Feedback from our logistics edition last week was fairly light, but included several excellent letters, including our feedback of the week, on the new FMI and GMA standards document on backhauling best practices. The writer is VP of logistics for a major player in the CPG-retail supply chain, but asked to remain anonymous.

As we note above, we understand sometimes feedback can only be given anonymously, and we will of course honor that request if we choose to use your letters. If you are interested in transportation, you'll want to read the letter below.

This kind of dialog is what SC Digest is all about. For more complete comments from readers, click here.



Bear Stearns Produces Most Comprehensive RFID Report to Date

View full article>>

With the flood of RFID information on the market, my perspective was that most of it was fragmented, and difficult for potential users to really get their arms around what was happening. In a market moving this fast, that challenge will always be with us. However, the excellent supply chain analysts at Bear Stearns (Philip Ailing, Ed Wolfe) have just recently released what we believe is the best and more comprehensive RFID report to date. While the report was ultimately developed to support investment guidance for publicly traded technology-related companies that intersect with RFID opportunities, it nonetheless provides a wonderful summary (70+ pages) of the technology, market developments, and vendor solutions that will be of great interest to end users generally.

Some interesting highlights:

Bear Stearns estimates Wal-Mart's top 125 suppliers will spend approximately $500 to meet the retailer's RFID compliance mandates, based on assumptions that it will cost between $200,000 to $250,000 per each of their warehouses to become fully compliant.
In a recent "shippers survey," Bear Stearns found 9% of its survey group had already "decided" to invest in RFID. 35% were "more likely to invest in RFID" due to the Wal-Mart announcement, while 54% said the Wal-Mart announcement would not impact their RFID plans.
Company investment continues to expand. "Our channel checks indicate that significant human resources (including key personnel) are being devoted to RFID within corporations."
Some user updates: Abbot Labs is pilot testing the technology, using starter kits from several different companies; Georgia-Pacific has budgeted a "significant amount of money in 2004 for RFID piloting"; Kraft says it is likely it will roll out RFID first to "radio-frequency friendly" products packaged in paper/cardboard; Nestle will significantly expand pilot activity in 2004, and has been doing testing with Wal-Mart in its pet foods group; the United States Postal Service will begin aggressive testing of RFID to track and sort mail trays in early 2004; Boeing has been testing (albeit with free technology from vendors) RFID on airplane parts.
Bear Stearns believes that Target will be the next major retailer to mandate RFID, though it views current deadlines (i.e., Wal-Mart's plans) as too aggressive.
There is more going on in health care than I realized. In addition to numerous pilots, the FDA is actively involved in work to mandate pharmaceuticals coming in from overseas are RFID tagged, to protect against fraud and counterfeiting. Johnson & Johnson is planning on using anti-counterfeiting RFID technology as early as next year.

My sense from reading this report, in addition to simply enjoying having so much information in one place, is that the "chicken and egg" cycle that has always characterized the market ("we'd use more technology if the price/performance was much better"; "the price/performance would get better if only user volumes would increase") is starting to change, or at least that cycle is accelerating rapidly. That, of course, is what Wal-Mart is betting on, as they know the price/performance equation is untenable today.

But, Bear Stearns notes risks that could seriously impact RFID market growth. These include: Wal-Mart and/or the DoD delaying their mandates; RFID technology performance in the short term just isn't good enough; and that the expected ROI just doesn't materialize, in part because the job of integrating and using all the RFID data is bigger and more expensive than expected.

One last thought: Whatever the infrastructure costs for Wal-Mart's suppliers, the job of Target and other retailers will be much easier as they piggyback off this initial investment.

You can get the entire report by clicking on the link above.

What do you see as the biggest risks to RFID technology really taking off? Are Wal-Mart's expectations too aggressive (remember, we'll keep your comments anonymous if requested)? Let us know your thoughts.

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CFO Magazine Article Says E-Commerce is Back in Style
View full article>>

CFO magazine notes this month that quietly but consistently, e-commerce and even "dot coms" have been making a solid market comeback, to the point that " finance executives [should be] revisiting their dot-com strategies. Odd as it may sound, investing in Internet projects may make sense again."


The story notes that for the first time since the bubble burst, dot com companies can be seen actively advertising their services again.


What's happening? Well, a second wave of dot comers (e.g.,, RedEnvelop, Netflix) are having significant - and real - market success. Customers and businesses are becoming increasingly comfortable with on-line transactions - web-based consumer and business purchases continue their strong rise every quarter. The strong growth of consumer broadband and increased network bandwidth in corporations make the net experience more positive.


Suddenly, we're seeing strong growth again in dot com start-ups - and venture capital money is starting to come back in to support to them. Meanwhile, probably of most impact to the SCDigest audience, larger companies are again starting to look at emulating successful e-commerce models. For example, rumors out of Bentonville are that Wal-Mart will begin offering a web-based video rental service to compete with Netflix.


The article concludes with the following thoughts: "Certainly, there's growing evidence that E-commerce is on the cusp of a new era, one of innovation tempered by experience and rational expectations. 'There is no question that what was in place two or three years ago was flawed," says Nick Vidnovic [of Mellon Financial]. "But there were also a number of ideas that were pretty darn good.'"

Well, the reality is that corporate companies have been continuing to invest in web-based connectivity to trading partners even as the bubble burst, though with less fanfare. What is changing, I think, is that as the article notes, a combination of factors are leading to improved models for success in the consumer sector. What's clear is that e-commerce will continue to have a significant impact on supply chain processes and technology - and that again, as has really always been true, those companies that get it right and early will have competitive advantage. There will be Dell's in every industry.

Is e-commerce back in style? Did it really ever go away in B2B? What will a resurgence in e-commerce investment mean for supply chain management? Let us know your thoughts.

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Accenture Report Says More Companies are Outsourcing Procurement Functions
View full report >>

According to a new report from Accenture, " Businesses are increasingly outsourcing part - or all - of their procurement functions to a growing number of third-party organizations known as procurement service providers, or PSPs."

So, what is a PSP? It's a services firm that integrates procurement technologies with product, sourcing, and supply management expertise, to provide outsourced procurement solutions. A PSP serves as an extension of an organization's existing procurement infrastructure, managing the processes and spending categories and procurement processes that the organization feels it has opportunities for improvement but lacks the internal expertise to manage effectively.

Some key data from the report, which was developed from surveys with companies in many industries and global geographies, include:

While more companies today use PSPs for indirect materials than direct (production) materials (20% for indirect, 9% for indirect), 22% of manufacturers are considering PSP for direct goods.
Which procurement functions are being outsourced to PSPs? In order of popularity: hosting of procurement technology solutions (e-procurement, auctions), execution of "procure to pay" processes, inventory management, and strategic sourcing.
The biggest drivers of corporate use/consideration of PSPs? Allowing more time to focus on strategic sourcing, and to reduce transaction costs.
Companies only use PSPs after gaining experience from outsourcing other functions (IT, logistics, manufacturing, etc.). No one starts with PSPs.
Companies with experience with PSPs are generally satisfied, and plan to expand the scope of services their PSPs perform over the next few years.

Well, there's nothing that can't and won't be outsourced today. As few companies view procurement of indirect materials as a core competency, it's not surprising that many would consider outsourcing associated functions. Procurement of direct materials seems more tricky, in part because it's always been difficult to measure procurement effectiveness. Also, one wonders whether supplier integration, so fundamental to supply chain excellence, can be easily achieved when outsourcing procurement functions. I can easily see, however, companies striking strategic sourcing contracts internally, then using PSPs to execute the purchase order transactions.

Will we see more companies outsourcing procurement functions, especially for direct materials? What are the pros and cons of PSP? Does your company have experience? Let us know your thoughts.

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Feedback of the week - "On Backhauling Best Practices"

This is a subject near and dear to my heart. Inbound freight management is a core staple of my business unit and we look to continue to increase the management of inbound freight. My business unit is also a 3PL company, servicing organizations outside of our own businesses where we have deployed our inbound best practices and strategies for those organizations as well. I applaud the efforts of these groups [FMI and GMA] to bring more collaboration and understanding to inbound freight management.

My team manages roughly 70% of inbound loads into our network and has done so for over seven years. Nearly 23% of this volume is managed as a true backhaul using our private fleet, and the balance is managed with a core contract carrier team. We currently manage inbound freight using many of the recommended processes and with "term and notices" obligations such as a one- year term of management with a 30-day notice for conversion. This process allows for ample time to source carriers, reposition equipment and meet delivery requirements. We also set an annual standard bid for all high volume lanes, and work this along with the supplier so not to de-leverage individual lanes, better known as "Cherry Picking".

We would prefer to take the entire ship-from location volume than to abandon less than desirable lanes, leaving that burden for the supplier to manage. Given that this is not a perfect world, we do have situations that arise forcing us to vary from these strategies, but overall, this process is the basis deployed for the vast majority of our system. I maintain that our success has come from a very open book, collaborative approach and am excited to see materials being published that support these strategies.

To answer your three points noted: Do shippers and customers need to make it easier to facilitate customer pick-ups? Should "lowest total landed cost" be the key metric in making this decision across parties? Do we need new technology to make this work better? Yes, Yes and perhaps. We already use Internet-native, state of the art TMS technology that significantly improves our process and ability to manage this business, over 72% of our inbound freight is "un-embedded" and many of our customers benefit from a lower landed cost with our services.

Vice President of Logistics

Major Food Distributor
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On "Is your supply chain long or short?":

Was interested in your comments about whether a company's supply chains are long or short. It's an interesting way to think about the issues - as you suggest, at one level obvious, at another not the way I think most companies evaluate their needs.

Most companies, I would argue, have both long and short supply chains. We are a high tech company in the network equipment area. Many of our products are manufactured overseas, and have long lead times, with the large number of players and hand-offs you suggest. For us, visibility to these moves and inventory is key.

However, we buffer much of this complexity by a "short supply chain" using a supplier logistics center near our U.S. plants. From a plant's perspective, we have a very short supply chain - the SLC delivers components on a "just-in-time" basis based on actual production requirements.

But I am going to consider how we can use the "long and short" supply chain thinking to our advantage - thanks for the idea!

Director of Operations

Major networking equipment manufacturer
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Who are the top 5 shoe retailers in the U.S.?


This is one category for which Wal-Mart is not (yet) number 1 (but close). In order: Payless Shoes, Wal-Mart, Kmart, JCPenney, Kohl's

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