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
