By now, most of you have probably heard of, or read, the book entitled Competing on Analytics by Thomas Davenport that demonstrates how some of the most successful organizations in the world have made analytics a core capability and integral to their strategic planning. MIT Sloan has been tracking this phenomenon since 2010 echoing Davenport’s findings. From 2010 to 2012 they indicated that 67% of those surveyed believed that analytics gave their organizations a competitive edge. However, in their last installment of their longitudinal study, something interesting happened. Something that I like to call the ‘Oakland Athletics Effect’.
Findings from the annual MIT analytics study
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, Boston Red Sox
, Brad Pitt
, Competing on Analytics
, competitive edge
, MIT Sloan
, Oakland Athletics
, strategic planning
, The Analytics Mandate
, Thomas Davenport
Choosing the technology for a long-term project is a risky business – this season’s hottest software may be horribly out of fashion a year or two from now. That’s a big problem if you’ve built your supply chain on it; no-one wants to upgrade their software platform very often.
It’s a lot easier with the benefit of 20/20 hindsight. If you were building a new enterprise application today you’d choose a web architecture for maximum flexibility in deployment (i.e. servers either local or in the cloud, clients on any kind of device running a browser). On the server you’d probably choose to build on a software ecosystem like Java since it runs on any hardware and has wide industry support. But a lot of enterprise software vendors chose something else when they began their long-term development projects and are left regretting that now.
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, browser applications
, Delivery Managemente
, Google DART
, information technology
, Martin Fowler
, mobile clients
, native apps
, ThoughtWorks Technology Radar
, Tim Bray
, web architecture
TECSYS develops innovative software products.
Yes, we our a provider of supply chain solutions (and hey, Your Supply Chain Matters!), but underpinning all of that is a team of software development professionals who build our products with the latest technologies and tools. And you, dear blog reader / TECSYS customer / supply chain professional, while assuredly you are interested in our solutions in areas such as demand planning and healthcare point-of-use, I thought you might also want to read something that appeals to your inner software geek!
Because we’re all software geeks these days – software is everywhere. Or as the internet visionary Marc Andreessen says, “Software is eating the world”. His thesis is that the ubiquity of software products and mobile devices has brought our society to a tipping point that will lead to profound change in business, education and healthcare. (Check out this fascinating interview with Andreesen.) The products we build at TECSYS are part of the process that he describes. So in recognition of the significance of software to all we do, I thought I’d tell you some more about our software – how it’s made, and why it’s made that way.
In the next few posts I’m going to write about about the technology and design decisions we are making at TECSYS and the rationale behind these decisions; I’ll describe how we go about developing software and the principles we use to guide our work; and I’ll give you some insights in to the challenges we face and how we overcome them. You will see that our clients and the users of our products are key players in our software development, and you’ll learn how you can influence that development. You’ll also gain a perspective on software development which can help you assess and evaluate all of the software you interact with, whatever its origin.
Software is eating the world; let TECSYS feed your inner software geek.
, demand planning
, inner geek
, Marc Andreessen
, mobile devices
, software development principles
, software development professionals
, software is eating the world
, supply chain solutions
, tipping point
Improved forecast accuracy leads to many downstream improvements in operations and ultimately, on the balance sheet. That is why Gartner, Inc., a highly respected information technology research and advisory firm, puts forecast accuracy at the top of its pyramid of supply chain metrics. In a study published in February 2012, Gartner stated that a 6% forecast improvement could improve the perfect order by 10% and deliver a 10-15% reduction in unnecessary inventory. These are very impressive numbers and a very good reason to work towards improving forecast accuracy.
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, demand planning
, erratic demand
, forecast accuracy
, forecasting model
, Gartner Inc.
, historical data
, low demand volume
, Mean Absolute Deviation
, Mean Absolute Percentage Error
, unnecessary inventory
I was reminded recently that there are really only two ways to improve your organization’s profitability; increase revenues or decrease costs. Arguably, increasing revenues does not necessarily translate into higher profits.Take a moment to think about how much revenue it would take to bring the same amount of dollars to the bottom line as would a 2% decrease in operational costs.
Consider the cost of a shipping error. Shipping errors results in lower customer satisfaction and potentially affect customer retention rates. Customer service personnel can spend hours addressing a shipment error. Warehouse personnel must investigate what happened, potentially restock the wrong item then pick, pack and ship the correct item. A rush delivery further erodes any margins left on the sale. Even cash flow is affected. Accounts receivables staff may need to be notified.
Shipping the wrong item or the wrong quantity of an item is the most common error. Perhaps the wrong unit of measure was picked; say one carton was picked instead of one unit within the carton. Other types of errors include shipping multiple boxes when only one box would have sufficed and also errors in packaging that cause an item to be damaged while in transit.
Part of the problem is that the fulfillment process is often tedious and repetitious. When employees are not paying attention at each and every step, errors will happen. Manually checking every outgoing shipment is too costly. The answer to reducing shipment errors is automation. Studies have shown that automation not only increases inventory accuracy up to 99% and higher but also substantially decreases shipment errors. When automation includes built-in checks and balances such as visual cues and voice confirmation you have both automation and validation. Wow!
Back in the mid-nineties, I attended a conference on business forecasting. The focus was on the science of statistical forecasting, and, well…I may have drifted off during the second half hour of discussions on Winters’ triple exponential smoothing.
Fast forward 20 years to 2015.
I will be attending a business forecasting conference with a focus on the practice of demand planning and forecasting. Topics cover good stuff like organizational alignment against a single forecast and how to engage all functional areas with the forecast development process. In the past, most attendees were from the manufacturing sector. Today, the attendee list includes many distributors and retailers, indicating a broader recognition of the benefits of implementing a demand planning and forecasting practice.
The upcoming conference even includes representation from a large US healthcare organization — not just attending, but also speaking about their demand planning processes. Quite a surprise since healthcare providers have been slow to adopt modern supply chain practices. This is evidence of an emerging awareness most likely fueled by the affordable care act which its changes in reimbursement that threaten to significantly reduce revenues. Kudos to this leading healthcare organization for sharing their story!
Organizations that want to mature their demand planning practice must add value to their statistical forecast and measure their performance in doing so. The added value comes from gathering insights that will impact forecast numbers. For example, planners are no longer working in isolation; they are collaborating internally and even externally with supply chain partners. Because of improved processes, planners are more aware of product lifecycles and of planned marketing and sales initiatives that will impact future demand. Furthering this evolution, organizations that measure forecast accuracy may apply demand shaping strategies in the form of price changes and/or marketing campaigns in order to meet revenue objectives.
The rewards are great! Without compromising desired service levels, companies are able to maintain much lower inventories. In this way they are liberating millions of dollars normally tied up in inventory and refocusing that capital on growth initiatives. This is the promise of demand planning and forecasting. The changes over the last 20 years have been evolutionary and revolutionary – this upcoming conference will have my full attention.
Forecastability is an important word in demand planning. Oddly, the word forecastability is not listed in the Merriam-Webster dictionary nor is it found in Wikipedia. However Wiktionary describes forecastability as “A measure of the degree to which something may be forecast with accuracy”. That something could be an item used in the production of a finished good or the finished good itself.
In healthcare that something could save a life. Prudent healthcare providers must ensure the availability of products that play a critical role in a hospital setting. This is good news for the patient. Unfortunately, the bad news is that the strategy for achieving desired fill rates ties up huge amounts of capital. In fact, there is so much overstock that a company called Hospital Overstock has made a business out of buying excess inventory from hospitals and clinics. Sadly a lot of inventory is lost, damaged, expired or becomes obsolete.
It is estimated that billions of dollars are unnecessarily tied up in inventory not just in healthcare but in inventories everywhere. Demand planning and forecasting is the answer to this problem. The demand planning process helps organizations achieve the right balance between service levels, inventory investment and operating costs. Ideally it is a collaborative process whose output is a shared operational forecast used in production, procurement, logistics and financial planning. The forecast numbers are then monitored for accuracy as plans will need to be adjusted should actual demand be significantly higher or lower than anticipated.
With hundreds of items to manage, it is essential for planners to rate their assigned items. Along with rating items based on their forecastability, planners must rate items based on their importance as well. What are the costs and/or consequences in the event of a shortage? High value or high impact items have a higher level of importance than low value or low impact items. More effort should be invested on important items with a low degree of forecastability and much less effort on items of lower importance and a high degree of forecastability.
Nobody can ever accurately predict the future yet planning for the future is essential. When conditions remain unchanged, the future demand for an item will probably be very similar to its past demand. However nothing stays the same for long in today’s world therefore both the importance and forecastability of an item must be periodically reassessed.
A famous American author wrote “No sensible decision can be made any longer without taking into account not only the world as it is, but the world as it will be.” Never have these words been more relevant.
In the movie Big, Tom Hanks plays a child trapped in the body of a 30-year-old who challenges the status quo at a toy manufacturer. To the audience it all makes sense as the movie progresses – think like a kid when selling stuff to kids. How revolutionary! Yet the audience also relates to the adults who pretend to know what kids like.
For me, the big thinking in this movie is demonstrated by the creativity of a child whose mind is unencumbered by preconceptions.
Dr. David Schwartz, the author of a book entitled The Magic of Big Thinking, attempts to define big thinking. He explains that visualization adds value to everything and that thinking big means training oneself to see not just what is, but what can be. Author Malcolm Gladwell writes, “A visionary is a person that takes a white piece of paper and re-imagines the world”. The Internet is full of success stories of such visionaries.
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, Dr. David Schwartz
, Malcolm Gladwell
, patient care
, The Magic of Big Thinking
, thinking big
In my last blog post, I mentioned the three forms of value in a commercial transaction: Technical, Organizational and Personal.
This trilogy of values reminds me of one of my favorite books, The Discipline of Market Leaders by Michael Treacy and Fred Wieserma. The big message in this book is that no company can succeed by trying to be all things to all people. A company must find the unique value that it can provide to their chosen market either through product leadership, operational excellence or customer intimacy — a simple rule to follow, yet an achievement few can boast of.
Mr. Treacy writes, “Companies that push the boundaries of one value discipline while meeting industry standards in the other two, gain such a lead that competitors find it hard to catch up.” To beat out the competition, companies must not only innovate but truly understand the market they have chosen to serve.
I love the story behind GoPro, a company that manufactures small, waterproof digital cameras. This product solves a unique problem in a niche market. Nicholas Woodman, creator and CEO of GoPro, looked to satisfy the needs of the active photographer. An avid surfer with a passion for photography, Woodman wrote the initial patent draft while on a three month surfing trip in California — in an old VW van no less! Not only had he experienced the problem first hand, Woodman did some extensive research and found that quite a lot of people want to take pictures while performing a difficult task.
Today, GoPro is a great example of achieving product leadership by solving a specific problem within a niche market that had been overlooked. Now like all manufacturers and distributors, GoPro must tackle the challenge of sourcing and moving their product while meeting customer expectations and generating profits. Having established product leadership in their chosen market niche, they must meet industry standards in the other two disciplines: operational and personal (customer intimacy).
Tags: customer intimacy
, operational excellence
, product leadership
, The Discipline of Market Leaders
, value discipline
In 2013, Gartner conducted a survey on Big Data Adoption in Supply Chain Industries and found that adoption has been flat and is lagging behind the overall adoption rate of other industries such as banking, insurance, and retail to name a few. Gartner ascertained that these characteristics pertaining to the Supply Chain industry are attributable to an inherent lack of understanding of what Big Data truly is and a fundamental lack of the required skill sets. This, in essence, is the challenge facing the Supply Chain industry.
In parts one, two and three of this four part series on Big Data, we looked at what makes data “big”, how it can benefit organizations that apply the right analytics, and the implications of doing so, respectively. In the closing segment of this series, we focus our attention on examples of how elements of Big Data can be leveraged. The challenges identified by Gartner translate to opportunities regardless of your organization’s analytical maturity level.
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