Sense and Respond Leverage the Digital Advantage

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For decades, supply chain leaders have sought the perfect forecast: the ability to predict supply and demand with 100 percent certainty, which would let them build the leanest possible supply chain. But this perfect forecast has proven as elusive as the “Holy Grail”. The reason is simple: the world is an inherently unpredictable place.

In recent years, we’ve witnessed a rising tide of volatility, which makes forecasting even more complex and even less reliable. A lean and responsive supply chain, then, must be one that balances the ability to predict with the ability to react – a supply chain that seamlessly integrates the ability to sense changing demand with the agile execution of plans.

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In the current business environment, shorter product life cycles, product customization, changing customer demands, and upstream supply fluctuations are contributing to the rise of uncertainty in the supply chain. In fact, 70 percent of executives who responded to an Accenture survey expressed dissatisfaction with their inability to predict future performance in today’s new normal of permanent market volatility and resulting uncertainty. In addition, more than 80 percent of our respondents were worried about the resilience of their supply chains. They have good reason: most companies today are struggling with higher inventories to manage high variability and dropping customer service levels. The traditional model of planning and execution is no longer applicable. The need to move to a demand-driven supply chain model is growing day by day, because of rising uncertainty and the increased complexity of operating a global and distributed supply chain.

In the traditional model, the supply chain plan was usually the best and most timely data available. Therefore, the optimum approach to fulfillment was to refer to the plan and execute. The company that built the most accurate supply chain plan, and executed the best on its plan, came out ahead. For any given date, information about what actually happened in the supply chain would be available only weeks or months later. All anyone could do was plan, and execute that plan.

Today, because the market is so volatile, companies must have a different approach. Planning can’t be the basis for all supply-chain decisions anymore, because today’s supply chain is increasingly difficult to predict. Companies need to monitor the execution of supply chain plans all the time and make adjustments to those plans in real time. Thus, managing today’s supply chains requires sensing the change, then re-planning, re-allocating, and re-prioritizing in real time, and responding

at lightning speed. Unfortunately for many companies, planning and fulfillment are still largely disconnected, hierarchical, serial, and static. This hinders efforts to reduce the latency in the supply chain.

Accenture has identified several key elements of a truly integrated capability that will help organizations formulate and implement an effective strategy. By creating supply chains that can sense and respond in real time, an organization will be able to better navigate the increasingly volatile and unpredictable environment of the future.

Quite simply, having a Sense and Respond capability means: • One plan which the global enterprise

is executing - tailored to distinctive supply/demand characteristics, responsive to evolving demand signals by planning only as far in advance as required, and synchronized with fulfillment by continually planning and re-planning based on real-time data.

• Well-coordinated execution at all points up and down the supply chain that can dynamically respond to changes and conditions more quickly than traditional supply chains.

• Supported by applications that can enable instant or real-time, accurate visibility inside the company, as well as outside its four walls.

• Leveraging flexible and adaptable operating models that can seize opportunities based on real demand, not just perceived demand.

What is a Sense and Respond Capability?

The Traditional Model is Not Working

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Scenario 1 – Inbound ShipmentsWithout Sense and Respond. A large high-tech company with operations headquartered in the U.S. has a majority of its suppliers based out of South Asia. A recent weather incident in South Asia has left one supplier unable to ship microchips for two weeks. Lacking visibility into delayed inbound shipments, and having no other source of microchips, such a disruption at a supplier can result in cancelled orders and direct impact of millions to topline sales.

With Sense and Respond.On the other hand, with a sense and respond capability, the team responsible for planning would be connected in real-time with the team responsible for scheduling the inbound delivery of supplied components. With real time status of production at the microchip supplier, the team is able to anticipate the potential disruption to its production. The planning team then runs simulations to see the impact on key metrics and its customers’ orders. Multiple scenarios are then modeled to minimize revenues at risk. This company eventually executes the identified optimal scenario, which includes re-allocating inventories, and immediately placing orders to other suppliers with short lead time. As a result, the impact of the disruption at a key supplier is minimized.

Scenario 2 - ReplenishmentsWithout Sense and Respond. A consumer electronics corporation having operations across North America has four distribution centers catering to thousands of retail stores. A planning team forecasts demand using historical data, and replenishes short-lifecycle categories such as gaming products, music, and consumer electronics once a week to all major stores. Without near real-time visibility of point-of-sale data, the replenishment is based on pre-defined stocking levels and re-order quantities. Consequently, any stores with higher than forecasted demand results in “out-of-stocks” at the store level, which leads to lost revenue.

With Sense and Respond. In contrast, integration of planning and fulfillment allows for real-time decisions in dynamically re-planning the replenishments to stores. The organization’s planning team projects the demand, and then recalibrates the forecast in near-real-time as daily or intraday point-of-sale data becomes available. Inventory is re-allocated to stores with higher demand for the scheduled replenishments.

Scenario 3 - Maintenance and Repair OperationsWithout Sense and Respond. A large international energy company is one of the world’s largest net sellers of crude oil and largest exporters of gas to Europe. It is faced with challenges of inefficient and unreliable delivery of maintenance and repair parts, as well as operating supplies. As a result, refinery and terminal operations suffer from higher than industry average levels of unplanned downtime, and operations frequently has to expedite shipments of parts, at premium transportation rates, to get equipment back up and running. Without sense-and-respond capabilities, this company is unable to achieve the predictability, visibility and responsiveness it needs to maximize upstream and downstream up-time and productivity.

With Sense and Respond. On the other hand, it can achieve significantly improved service levels, reduced transportation costs and visibility of supplies by creating a centralized service cell that plans, monitors and executes maintenance and repair operations. Predictive asset maintenance analytics provides the basis for planning spare parts inventory levels. Maintenance and replacement of parts are scheduled proactively. The service cell creates an initial replenishment plan, but when actual demand is different from forecast, they are able to optimize the fulfillment point selection by simultaneously factoring in-transit inventory, MRO supplies in service centers and transportation cost, maximizing uptime and minimizing expediting costs.

To illustrate what a Sense and Respond capability looks like, consider the following scenarios.

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Leading companies have embarked on this sense-and-respond journey, some through point initiatives and others as part of a grander vision. Accenture has identified the strategies that are transforming static supply chains into the supply chains of the future. Those strategies involve three key steps:

1. Getting Control, 2. Creating Adaptable Structures and 3. Agile Execution.

Developing the Competitive Advantage

- Profit, Sales & Operations Planning

- Collaboration

- Technology

Agile Execution

- Supply chain flexibility

Creating Adaptable Structures

- Visibility and cross-enterpise integration

- Advanced analytics and decision support

Getting ControlDriving Forces

More demanding customers

Greater competitive intensity

Shifting channel power

Globalization

Shorter product cycles

Continued merger activity

Need for better information

New technologies

Performance OutcomesReduces cost of risk, enables dynamic risk management

Cost competitiveness

Flexible customer response

Enhanced delivery performance

Shorter order cycles

Increased cash-to-cash velocity

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Getting ControlToday, most organizations are running dispersed supply chains. The single enterprise with few trading partners has given way to the multi-dimensional complex chain-of-value network. As a result, the challenges of aligning the different goals and activities of separate entities in extended supply chains have amplified in recent times. Leading companies have started taking the role of supply chain “orchestrators” – responsible for collaborating, and aligning the different components of supply chain on many levels. This requires a collaborative peer-to-peer value network having visibility and control all the way back to tier 3 (or n) suppliers, contract manufacturers, service providers as well as with downstream customers.

Visibility and Cross-Enterprise IntegrationThough Supply Chain visibility has been consistently sought for most of the last decade, it remains elusive. But today, technologies exist that can accept input from many disparate sources, translate it into a common format, and provide a “single source of truth” to all supply chain partners. Companies have started deploying multi-tenant cloud-based technologies that allow supply chain partners to participate in multiple private networks through a single connection. Leading supply chains are further ramping up their “sense” capabilities by embedding sensors, RFID and GPS to gain greater visibility into the location, condition, timing and accuracy of the events occurring

in their value chains. Whether these events are changes in projected demand, a contract manufacturer’s production-schedule adjustments, or any disruption in shipment plans, leading companies now can sense such events in near real time.

Advanced Analytics and Decision SupportLeading supply chains are leveraging analytics to make sense of the visibility data in monitoring key performance indicators, generating insights, and integrating the insights further into supply chain planning in near real-time. With advanced analytics in place, companies can, for example, proactively analyze the potential impact of change in delivery date on operations, integrate in near real-time the adjustments in contract manufacturers’ production schedule in supply planning, and derive insights from social media data and integrate them into demand planning.

Companies are increasingly deploying “Supply Chain Control Towers” for visibility, predictive analytics and decision-making, and improving business performance on a continuous basis. In a world that is constantly looking for synergies, the Control Tower connects different business units, regions, and legal entities, and gives companies the flexibility to plug in new processes and technologies as the need changes.

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Area Flexibility Type Are you prepared?Capacity Volume & Mix Are you able to effectively increase or decrease manufacturing

volumes, mixes and venues in a short time span?

Partners Supply Are you able to find multiple sources for critical products with varying lead times and define supply contingency measures with preferred suppliers?

Contract Do you have flexible contracts to allow order adjustments at short notice?

Processes Planning Cycles Are you able to adapt changes in your plans based on real time or near real time information?

Order Fulfillment Are you able to satisfy customer demands using alternate methods or quickly change the mode of delivery?

People Multi skilling & labor Are you able to train multi-skilled staff and introduce flexible staffing across departments?

Shared Services/Competence Centers Are you shifting away from single function centers to multi-functional SSCs?

Strategy Insource / outsource models Do you consider flexibility in your decisions on what to insource and what to outsource? Are your outsourcing contracts structured to enable ramping up or down volumes on short horizons?

Flexibility points Are you able to identify key flexibility points e.g., where to buffer inventory and capacity (and how much)?

Capacity

Partners

Processes

People

Strategy

Creating Adaptable StructuresTrue sense and respond capabilities require an adaptable supply chain structure - building flexibility into the operating models that allow for adjustments to changing market conditions. By having operational flexibility, companies can quickly respond and recover fast in case of any engineering change or disruption.

Supply Chain FlexibilityAccenture sees flexibility as a multi-dimensional construct, which can best be described as combination of 5 key pillars or components:

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Agile ExecutionGreater visibility, control and flexibility into the systems, processes, and people across the supply and demand chains are the building blocks to provide you with seamlessly integrated capabilities. And, the greatest value comes from agile execution—leveraging visibility and flexibility to rapidly respond to frequent changes that could negatively impact the business if mismanaged or left unattended. Agile execution is enabled by the following key components:

Profit, Sales & Operations PlanningFor most of the companies, PS&OP remains the primary integration point between different functions. Unfortunately, to support the PS&OP process many companies rely on spreadsheets and manual data collection, which increases the lead time in effective decision making. Outdated operational data may result in

sub-optimum outcomes. In addition, the typical periodic PS&OP limits effectiveness because our increasingly interconnected and interdependent world is changing more quickly than ever. It therefore makes sense that PS&OP processes must be able to accommodate rapid change. The monthly PS&OP process remains valid, but it is more important than ever before to have ad hoc or event-based PS&OP in order to react to unpredicted events (for example, significant supply disruptions, unexpected demand shifts, deviations in financial targets, etc.). With advanced tools and much needed supply chain visibility, responding to such events can be done in hours and help companies react, re-plan and take corrective measures to enhance supply chain performance.

CollaborationTrue sense-and-respond capabilities require collaboration between trading partners in near real time. It’s all about compressing the response time through better

collaboration and this “need for speed” is driving companies to collaborate with their value chain partners in new and different ways. By connecting more closely with customers and suppliers through visibility platforms and social media, leading companies are designing, redesigning, and modifying products in short span of time. Suppliers, through transparency-in-demand signals, are now repositioning their supplies based on dynamic information.

Better collaboration is permitting companies to do a better job of lining up real-time supply with real-time demand. More and more, successful companies are orchestrating value chain networks, integrating inside and outside of the four walls with the extended enterprise. This extensive connectivity with all supply chain partners has enabled the entirety of their supply chain network to collaboratively plan and execute decisions.

Old way

CooperationNew way

Collaboration

- Limited sharing of consumer insights Product Development- Collaborative customer insights - Joint product development & introduction - Joint sourcing

- Limited CPFR Planning- Integrated planning - Cross-enterprise inventory optimization - Joint forecast measurement

- Vendor managed inventory Distribution - Shared warehouse and transportation - Collaborating for backhaul opportunities

- Transactional communication (ASNs) Information - Transparency into the value chain across enterprises

- EDI Technology - Cloud based computing

- Single point of contact between companies Relationships - Collaboration between functions

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TechnologyWith the proliferation of advanced technology solutions, tailored closely to the current needs of global, distributed, and complex supply chains, technology is front-and-center in today’s supply chains. There is a new wave of global supply chain visibility solutions and advanced analytics solutions that are fundamentally changing the way supply chains plan and respond.

Leading solutions such as GTNexus and Kinaxis are helping to unify supply chain planning and execution, enabling rapid response and coordination across global business networks.

Cloud and “Software as a Service” models together with leading technologies have developed into an irresistible force, which makes application integration efforts easier. Accenture has partnered with leading solutions vendors to offer new capabilities through “as a service” model to break the barriers created by high initial investments for new technologies and the global talent shortage. Companies no longer need to spend a fortune and wait years to build or install software systems in order to get the required capabilities.

GT Nexus cloud-based Supply Chain Visibility solution provides a high-resolution look at supply chain activity, from sourcing to customer delivery. Trading partners access a single source of truth on where inventory is across the globe—they use it to quickly adapt their logistics plans to current demand and combat supply chain risk due to disruptions and supply chain complexity.

The world is changing and so is your supply chain, with every minute and every second. Change of that magnitude cannot be ignored. Leaders will be those who will not let the change disrupt their supply chains but instead leverage the vast flow of data through next-generation technologies that enable integration of both planning and fulfillment with true sense-and-respond capabilities.

Kinaxis RapidResponse® fuels key supply chain management (SCM) and sales and operations planning (S&OP) processes, as well as other associated business functions. As these processes are brought together under a single cloud service, companies achieve a control tower solution that drives overall orchestration of an enterprise’s operations. The end goal is to compress the time to identify a variety of plan deviations, and more importantly, dramatically collapse the time to make profitable course corrections in response.

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Case-in-point: LoblawLoblaw Companies Limited, Canada’s largest food retailer and a leading provider of drugstore, general merchandise, and financial products and services, recently concluded that inadequacies within its existing supply chain capabilities were taking a toll on its ability to effectively serve its customers and deliver value to shareholders. Inventory levels tended to be elevated, while its consumer shelf availability was lower than desired. This misalignment made it difficult for the retailer to maintain the service levels and product freshness its customers desired.

In the course of its work with Loblaw to address these challenges, Accenture helped the firm replace its old fulfillment system—which relied on warehouse shipment data to plan for demand and replenish inventories—with a robust Integrated Planning, Forecasting and Replenishment (IPFR) solution. The result was a storage system that was oriented toward an improved customer experience, rather than just storing items.

Making it HappenThe old models of fixed cost and long implementation time are no longer applicable in today’s dynamic world. On-demand implementation approaches (e.g. “as a service”, gain sharing, pay as you use) are providing the impetus to kick-start major transformation programs and give the required flexibility and elasticity to do course correction, if required.

ConclusionIn the future, supply chain functions won’t be sequential with gaps between plan and operational reality. Instead, companies will orchestrate their supply-chain network into functions that can sense, in real time, the changes in the business environment and those that respond, based on the dynamic data flow. No organization can afford to ignore this trend, and those that get ahead of it will find they have an edge in a volatile world.

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About the AuthorsJeanne Dailey is a Senior Principal in the Accenture’s Strategy – Operations practice. Jeanne has more than 26 years of experience and has worked with clients across a variety of consumer-intensive industries, helping them to achieve adaptive supply chains while minimizing the pain from major operational changes. She specializes in global logistics, operations, business requirements, solution design, freight sourcing, organization design, contract negotiations, implementation and the deployment of large scale business transformation programs. Based in Denver, she can be reached at jeanne.a.dailey@accenture.com.

Derek Jones leads is a Senior Manager in the Accenture’s Strategy – Operations practice and leads Offering Development for Accenture’s Supply Chain Services. He has more than 20 years of experience in logistics and planning projects with clients across a number of industries. Based in Tampa, he can be reached at derek.m.jones@accenture.com.

Shashank Gupta is a Manager in the in the Accenture’s Strategy – Operations practice. He has extensive industry and consulting experience in supply chain planning and fulfillment areas across retail, consumer goods and life sciences industries. Based in New Delhi, he can be reached at shashank.b.gupta@accenture.com.

About AccentureAccenture is a global management consulting, technology services and outsourcing company, with approximately 289,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$28.6 billion for the fiscal year ended Aug. 31, 2013. Its home page is www.accenture.com.

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