Management Insight Quarterly
Vol 1, Issue
2 April
2003
In This Issue
The Business Intelligence Software You Already Own
Business Intelligence is a hot new IT trend which allows companies to
gain true management insight from all the data they have been
collecting. The good news is, most companies already own the
software needed to start gaining benefits from Business Intelligence.
Don't Overlook the Other Side of Supply Chain Management
Understanding and managing customer demand is critical to a company's
Supply Chain strategy. However, many companies focus the bulk of
their improvement efforts on internal production issues.
Practical Definitions
Useful Links Feedback
The Business Intelligence Software You Already Own
Use existing software for immediate results
Brian Springman, Springman Consulting LLC
Business Intelligence (BI) is predicted to be the next great IT trend
of 2003. A recent Forrester Research survey found that disaster
recovery and Business Intelligence top company's IT spending plans for
this year. But before you groan about another IT fad looking for
a business problem, listen to some good news: most companies already
own all the software they need to begin realizing benefits from
Business Intelligence.
First of all, let's define Business Intelligence. The brutally
honest person might describe BI as: taking all the data the computer
systems collect and performing useful analysis to support management
decisions. That's it. It's not really very different from
what is done today in generating the various standard management
reports except for one subtle difference: BI implies the ability for
the business management to run their own more customized analysis to
answer specific questions. Which product or region accounted for
the greatest sales downturn? Did a particular customer segment
cause the recent spike in sales?
Business management being able to run their own custom reports?
What a goofy idea. IT has always been protective of
allowing reports to be run because they drained precious resources and
could slow system response times. But in a BI solution, IT sets
up a separate library of data and let's the business folks go crazy.
Its kind of like the padded cell at the asylum, a lot of crazy
things can go on in there but it isn't going to hurt anything.
Now these separate ‘libraries' (databases) of data can get complicated
based on how quickly you want reports run and how often you want the
data updated. The more complicated ones are called ‘Data
Warehouses' and may have multi-dimensional ‘cubes'. But don't let
that concern you. You can start a Business Intelligence
program by simply dumping your raw order data into a database once a
week. You can worry about improving the system (and spending
money) once you've been able to experiment a bit.
Now the good news. If you own Microsoft ExcelTM you already own a
pretty powerful Business Intelligence tool. The ‘Pivot Table'
tool in Excel can be tied right to your data to perform analysis.
If your data is organized into a ‘cube', the speed and ability to
slice and dice the data becomes even more impressive. Better yet,
once the pivot table report is created it can be displayed either as a
table of data or in chart form. Other users can easily interact
with the pivot table report to adjust the report for their needs, such
as, to drill down in more detail or filter out unnecessary data.
Collaboration with customers and suppliers is also a hot trend.
Believe it or not, with a click of a button (literally) you can
post these interactive Excel reports directly to a web page to give
customers or suppliers access to relevant information. Maybe
you'd like your supplier to be able to review your measures of their
performance?
For all of you still using that 20 year old version of VisCalc, I'm
sorry but you're out of luck. However, to all of you currently
using Excel…Congratulations, you already own some trendy Business
Intelligence software.
Don't Overlook the Other Side of Supply Chain Management
Optimization starts with clearly understanding your demand
Brian Springman, Springman Consulting LLC
Theoretical supply chain efficiency is a matter of balancing supply
against demand. Often, when companies begin initiatives to improve
their supply chains, they focus their efforts internally on production
issues (supply). Focusing on internal production issues is
understandable because this is an area where a company has direct
control. Also, many companies assume they cannot influence their
customer's demand. However, focusing entirely on the supply side
may result in unnecessary capital expenditures and sub-optimal
solutions. To best optimize the Supply Chain, companies need to
have a detailed understanding of their customer's demand and then must
manage this demand.
The first step is to understand your customer's demand patterns.
You will want to measure the average and standard deviation of
demand at an individual product level for the key supply points in your
supply chain. These supply points would be: the manufacturing
plant, the warehouse and the customer's shipping location. Also
measure the time between customer order and final delivery (order lead
time) by customer and specific product. Analysis of this data
should begin to raise some questions and potential opportunities.
For example, you may find that some customers are ordering far in
advance which will allow you to fill these orders through make-to-order
policies or utilize lower cost transportation options. Perhaps
when setting stock inventory levels you need to only account for the
short lead time customers. You may also find that certain
customers have wild fluctuations in demand which is causing cost
overruns in your plants.
The next question to ask is: how can I influence the customer behavior
to help improve my supply chain? Not possible? Think you
don't have any control over your customer demand? Let's examine
some examples where companies were able to influence customer demand
both negatively and positively.
One company had a large customer which distributed orders between the
company and several other competitors. The customer purchased the
product on annual contracts with complex minimum order agreements. The
customer had difficulty managing their obligations under these
contracts and was erratically distributing orders between the vendors.
The company addressed the problem by building a simple tool to
assist the customer in distributing orders between their vendors.
The customer was pleased because it made it easier to comply with
their contracts. The supplying company benefited because the tool
was also designed to stabilize the customer's order patterns.
Price is often used to influence customer behavior. A grocery
chain had spent a lot of time planning the distribution of Thanksgiving
turkeys in order to minimize transportation and warehousing costs.
However, at the last minute marketing decided to boost sales by
promoting the turkeys at a rock bottom price. Demand skyrocketed
and store freezers couldn't be stocked fast enough. Of course,
the low cost transportation plans went out the window.
Pricing can encourage customers to place orders with longer lead times.
We are all familiar with time-based pricing in the airline
industry. Wait to the last minute to purchase a ticket and your
fare may quadruple. Manufacturers can impose price penalties for
customers placing rush orders. Adding a premium price for expedited
orders can give the customer an incentive to provide reasonable notice
for orders.
Don't forget the advantages of supplying customer demand from fewer
sources. You may not be able to change the individual customer
demand patterns but you can influence the demand pattern experienced by
a supply point. By consolidating from four warehouses to one, you
will smooth the demand experienced by the warehouse and allow a 50%
reduction in safety stocks.
Collaboration with customers to share order data more frequently can
effectively increase your customer's order lead times. A
company's foreign division was placing replenishment orders once a
month with short lead times. As a result, the U.S. plant
supplying the foreign division was forced to either stock inventory or
pay expedited transportation costs. A simple switch to weekly
replenishment orders effectively added two weeks of lead time, allowing
the U.S. division to make-to-order a higher percentage of product and
avoid expedited shipments.
In summary, customer demand patterns drive the design and efficiency of
the supply chain. Don't overlook the opportunity to influence
these demand patterns to your advantage.
Practical Definitions
Business Intelligence (BI) – Reporting with a main distinction:
BI implies that business users are able to generate customized
reports and perform detailed analysis on their own without direct
support from the IT department.
Customer Demand – Simply how much product a customer orders.
It is measured as the average quantity ordered and by how much
the quantity varies from order to order.
Data Warehouse or Data Mart – Simply libraries of data which store
copies of data drawn from multiple systems within the company.
This serves as the centralized source of data for reporting or BI
systems.
Multi-Dimensional Cube – A database that is cross-referenced and
organized to allow the easy and fast summation of data (otherwise know
as, ‘slicing and dicing').
Supply Chain – Consultantese for everything a company does which
is directly involved in delivering a product. Otherwise commonly
referred to as: Operations. This typically includes: Purchasing,
Customer Service, Manufacturing, Distribution and Logistics.
Useful Links
www.plcmc.lib.nc.us/
– Mecklenburg library. Access all of the library's research
materials from your desk. All you need is a library card.
www.supplychaintoday.com - Good listing of useful supply chain links, organized by topics of interest.
www.supplychainbrain.com
– Web site for Global Logistics & Supply Chain Strategies.
A free monthly SC magazine which is a must read for the SC
professional.
www.ceoexpress.com – One source of useful links for the busy executive.
www.pbs.org/wgbh/pages/frontline/
- Web site of PBS's documentary news program ‘Frontline'. View
past episodes and get in-depth coverage of important current events.
Feedback is Appreciated
Management Insight Quarterly is edited by Brian Springman of Springman
Consulting LLC. It is distributed quarterly by post and e-mail.
Subscriptions are free. Submission of articles is
appreciated and encouraged.
Please forward comments and inquiries to the editor at:
Brian Springman
5301 Kuykendall Rd
Charlotte, NC 28270
bspringman@carolina.rr.com
(704) 847 - 7595
