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1managing risk in the global supply chain
Sponsored by
AdvAnced demAnd/Supply IntegrAtIon (dSI) beSt prActIceSWhy S&OP haS largely nOt been effective in laSt fOur decadeS
A white pAper by the globAl Supply chAin inStitute
number one in the Supply chAIn StrAtegy SerIeS
April 2018
2 managing risk in the global supply chain
AdvAnced demAnd/Supply IntegrAtIon (dSI) beSt prActIceS
TAble of ConTenTs
executive Summary 3
introduction 5
basic dSi Practices 17
best Practices 18
case Study 37
Summary 39
3managing risk in the global supply chain
AdvAnced demAnd/Supply IntegrAtIon (dSI) beSt prActIceSWhy S&OP haS largely nOt been effective in laSt fOur decadeS
number One in the supply chain strategy series
Of ut’S glObal SuPPly chain inStitute White PaPerS
April 2018
authors: mark mOOn, Phd
mike POlicaStrO
mike burnette
ConTribuTing ediTors:ted Stank, Phd
Paul dittmann, Phd
4 managing risk in the global supply chain
the globAl Supply chAin inStitute
WhIte pAperS
the technology In the Supply chAIn SerIeS
new supply Chain Technology best practices
the InnovAtIonS SerIeS
platform lifecycle best practices
selecting and Managing a Third party logistics provider best practices
Creating a Transparent supply Chain best practices
Transportation 2025 Megatrends and Current best practices
new product initiative best practices
end-to-end supply Chain Collaboration best practices
the gAme-chAngerS SerIeS
game-Changing Trends in supply Chain
bending the Chain: The surprising Challenges of integrating purchasing and logistics
Managing risk in the global supply Chain
global supply Chains
The AbCs of dCs: distribution Center Management
supply Chain Talent: our Most important resource
these white papers can be downloaded by going to the
publications section at gsci.utk.edu.
5managing risk in the global supply chain
the concept of driving better enterprise performance by operating from a single, integrated business plan surfaced over four decades ago. it was about this time that businesses first started to study and implement systems that could drive
integration, using various titles to describe it: sales and operations planning (S&OP), integrated business planning (ibP), demand/supply integration (dSi), and sales, inventory, and operations planning (Si&OP) are just a few examples. for the purpose of this paper, we will refer to the single-number, integrated business planning process as demand/supply integration (dSi).
at the university of tennessee global Supply chain institute (gSci) we interface with hundreds of supply chains each year. interestingly, while we have found that although an experienced supply chain executive may have been involved in multiple implementations of dSi, it is an exception to find a supply chain that has an existing process that functions in the manner in which it was intended.
as we explored the reasons for such limited effectiveness of these processes, we found that, in general:
n Senior commercial and technical leadership and general management support dSi processes and believe that they improve top and bottom line results;
n the multi-functional organizations charged with implementing them believe that dSi processes create organizational focus and alignment to priorities, and reduce internal conflict and waste;
n the systems and training to support dSi processes are strong;
n the internal/external implementation experts and consultants employed to implement dSi processes are qualified.
if these are generally the case, then why have dSi processes been largely ineffective?
in order to answer this question, the gSci utilized the work of mark moon, a global dSi expert, author, and professor at the university of tennessee, and interviewed multiple companies that have well-functioning dSi processes or perform aspects of them well. these field interviews included
Executive Summary
3executive Summary
The general manager and functional executive leaders
must create and manage a
single, unified number culture.
6 managing risk in the global supply chain
18 benchmark companies spanning cPg, food/beverage, equipment, food service, physical distribution, and 3Pl service companies.
ultimately, the bottom line result of this research revealed that the challenges with dSi are cultural. While most organizations can improve their understanding of system technology, compilation of data/reports, training and organization of process steps, etc., these issues do not typically prevent success.
the benchmark interviews unearthed seven best practices, including the following that focus on creating the right culture and rewards to support business integration systems.
1. business led: the general manager and functional executive leaders must create and manage a single, unified number culture. this includes rewarding the proper behaviors, executive/leadership measurements being consistent with a single-number system (i.e. in bonus structures), and eliminating bias in functional/discipline measures and rewards used historically to manage short-term results. the general manager must communicate clear expectations to the organization overtly and often. Sales, supply chain, and finance executives must overtly own and lead their elements of the integration process.
2. continuous Improvement culture: even the benchmark enterprises rarely start with a perfect system—far from it. the benchmark companies ensure a continuous improvement process to annually improve system efficiency and effectiveness.
this paper provides supply chain leaders with the critical issues limiting S&OP effectiveness in the last four decades and latest, advanced best practices for creating demand/supply integration necessary to manage complex enterprises and supply chains.
executive Summary4
The general manager mustcommunicate clear
expectations to the
organization overtly and
often. Sales, supply chain,
and finance executives
must overtly own and lead
their elements of the
integration process.
7managing risk in the global supply chain
Introduction
F or the purpose of this paper, we will refer to the single-number,
integrated business planning process as demand/supply
integration (DSi).
in his book, Demand and Supply Integration, mark moon reveals a
classic illustration of what can happen when DSi is not part of the fabric of an
organization:
one of the companies that participated in the DSi/forecasting audit research
was a company in the apparel industry. this company, a manufacturer and
marketer of branded casual clothing, had very large retail customers that
contributed a large percentage of overall revenue. understandably, it was
very important to the success of this company that these large retail
customers were kept in stock. if these retailers’ orders could not be filled,
then out-of-stock conditions would result, with not only lost sales as the
consequence, but potential financial penalties for failure to satisfy these
retailers’ stringent fill-rate expectations.
As is the case for many companies in this industry, considerable
manufacturing capacity had been offshored to sewing operations in Asia.
this strategy helped to keep unit costs down, but it also had a negative
impact on responsiveness and flexibility. At the time of our audit, the
research team heard about a communication disconnect between the
supply chain and the sales organizations at this company. A variety of
problems had left the company with significant capacity shortages. while
these problems were solvable in the long run, in the short-term, they were
5intrOductiOn
“We’re out of stockat Walmart, and they’re
signing up new customers!
What the hell is going
on here?”
8 managing risk in the global supply chain
Communication is good, coordination is better,
and collaboration is better yet.
Integration is superior to all
the other conditions.
having significant fill-rate problems with some of their largest, most important
retail customers. Some of their most popular sizes and styles of clothing
were in short supply, and customers were not happy. Supply chain personnel
were working hard to address these problems, but in the short term, there
was little to be done. while these supply chain problems were impacting
their largest, most important customers, personnel from the field sales
organization were being incentivized to open new channels of distribution,
and locate new customers to carry their brands. As one supply chain execu-
tive told this story, she said in exasperation, “we’re out of stock at walmart,
and they’re signing up new customers! what the hell is going on here?”
in this introduction, we will explore the essence of ntegration, place integration in
the context of DSi, and discuss the mechanisms for achieving integration. we
will distinguish DSi from S&op, articulate from a strategic perspective what it
is designed to accomplish, and describe some characteristics of successful DSi
implementations.
DeManD/supply integration
What Is Integration? So what is demand/supply integration? while a more formal definition of DSi will
follow, the basic concept is simple: DSi is a mechanism to take demand information,
match it up against supply capability and financial objectives, and make both
tactical and strategic decisions about what to do in the future.
that sounds straightforward in theory, but it’s far more complicated in practice,
primarily because of a key word in this term DSi: integration. before going forward,
it may be helpful to step back and articulate what integration is and is not. other
terms are often used in this context, such as communication, coordination, and
collaboration, and we usually think of these as being on something of a continuum.
communication is good, coordination is better, and collaboration is better yet.
integration is superior to all the other conditions.
IntegrAtIon: to form, coordinate, or blend into a functioning or unified
whole; to unite with something else; to incorporate into a larger unit.1
this definition focuses on the notion of separate entities becoming single entities.
in a business context, integration suggests creating a single entity out of multiple
entities, or having multiple entities behave as if they were a single entity. this
notion provides the essence of DSi and this discussion: true integration occurs
when multiple organizational entities behave as if they were a single entity, in
order to achieve broad organizational goals.
intrOductiOn6
9managing risk in the global supply chain
this definition of integration can be made more concrete with examples that
illustrate a lack of integration.
n Demand planners often report that when there are perceived production
limitations, salespeople tend to overstate their demand forecasts so there will be
adequate product available if their customers want it. these overstated demand
forecasts can result in production disruptions and bulging inventory levels.
in this example, salespeople are happy because there is now adequate product
available for customers, but the cost incurred infringes on the goals of the
enterprise, even though the goal of only one entity—sales—has been realized.
A localized goal has been achieved at the expense of a global goal.
conversely, demand planners also report that salespeople often sandbag their demand
forecasts, hoping to influence their targets for future periods. when sales levels then
exceed the forecasts, high costs are incurred to produce product at levels beyond
what was forecasted. Again, salespeople are happy—their goals are exceeded,
bonuses are awarded—but the result does not benefit the enterprise as a whole.
n in some companies, decisions are made to move operations to low labor cost
countries, and this may limit the company’s ability to respond quickly to
changes in the marketplace. in this case, unit cost goals being pursued by
a procurement team may be met or exceeded, but enterprise goals of
responsiveness to customers might suffer. Again, this could be seen as a case
of local goals interfering with the achievement of global goals.
n in the realm of new product initiatives (npi), examples abound of over
optimism on the size of the market and acceptance of new product offerings,
and the result is overstated demand forecasts for these new offerings. these
optimistic forecasts often lead to new product launches that ultimately prove
to be unsuccessful. in this case, the npi organization wins in the short-run, but
the enterprise loses long term.
these examples illustrate what occurs when integration is not present, and why
integration lies at the end of the continuum of communication, coordination,
collaboration, integration. multiple units may be in communication, coordination,
and collaboration, but until they behave as one they are not integrated. integrated
units form a single entity and that single entity pursues a single set of goals.
Where can Integration occur?enterprises consist of multiple entities, frequently defined by functions: sales,
marketing, demand planning, supply chain, finance, senior leadership, etc.
integration happens when all those entities act in the pursuit of a common set
of goals, rather than solely in pursuit of a sales goal or supply chain. Figure 1
illustrates one context in which business integration can occur, which we refer to
as intra-enterprise integration.
True integration occurs when multiple
organizational entities behave
as if they were a single entity,
in order to achieve broad
organizational goals.
7intrOductiOn
10 managing risk in the global supply chain
intra-enterprise integration can and should occur within the boundaries of a
single organization. As illustrated in the figure, an enterprise consists of demand
functions, supply functions, and other supporting functions such as finance and
human resources. integration should occur both between and within these
functions, as illustrated by the myriad red arrows in the figure representing
opportunities for integration.
overall demand for goods and services needs to be balanced with the ability to
supply goods and services. the financial needs of the firm must weigh-in during
this balancing, as should the human needs of employees as represented by
human resources. Senior leadership needs to be in tune with the balance from
both tactical and strategic perspectives.
integration is also necessary within the broad functional categories. For example,
in many cpg companies the activities of the sales organization—care and feeding
of retail partners—is often not well aligned with the activities of the marketing
function—care and feeding of final consumers. new product development,
intrOductiOn8
Figure 1
intra-enterprise integration
finance
demand supply
senior leadership Hr
intra-enterprise integration
organizational structureprocessculture
r&d operationsMarketing logisticssales procurement
11managing risk in the global supply chain 9intrOductiOn
Three mechanismsserve to help bring integration to
fruition—process, organizational
structure, and culture.
which may be housed in r&D, often does not align with sales or marketing.
on the supply side, procurement may be pursuing lowest unit cost raw materials
or components, which may be found in low labor cost areas of the globe, while
logistics may be striving to reduce transportation spend and maximize agility.
how does Integration occur?Accomplishing the ideal of integration, especially in a complex, potentially global
business, challenges many enterprises. it is unlikely that functional entities
will disappear, particularly in large, complex organizations. Sales people will
continue to pursue revenue targets, marketing people will pursue market share
targets, supply chain people will pursue inventory and cost targets, and finance
people will pursue margin and profitability targets. how can all these specialists
work in an integrated way, in pursuit of common goals?
three mechanisms serve to help bring integration to fruition—process,
organizational structure, and culture. the easiest, and least likely to work in
isolation, is organizational structure. the most difficult to influence, but the one
most likely to lead to true integration, is culture. however, the first mechanism
that enterprises tend to focus on to achieve integration is process.
Integrative processesthe first mechanism that companies use to achieve integration is process.
processes are the often highly complex, very formal, and hopefully very
disciplined set of steps, performed in a pre-determined sequence, that guide the
organization through the work that needs to be done to take demand information,
match it up against supply capability and financial objectives, and make both tactical
and strategic decisions about what to do in the future. these processes are given
different labels in different companies, such as: S&op (Sales and operations
planning), Si&op (Sales, inventory and operations planning), ibp (integrated
business planning), DSi (Demand/Supply integration), and other variations.
12 managing risk in the global supply chainintrOductiOn10
the difference between dSI and S&optrue DSi stands apart from most of these monikers, especially the most common
term used to describe the processes, S&op. First, S&op processes are often
tactical in nature. they focus on balancing demand with supply in the short run,
and turn into exercises in flexing the supply chain, either up or down, to respond
to sudden and unexpected changes in demand. the planning horizon often fails to
extend beyond the current fiscal quarter. with such a tactical focus, organizations
can miss out on the chance to make strategic decisions about both supply
capability and demand generation that extend further into the future, which can
better position them to be proactive about pursuing market opportunities.
Second, supply chain groups often initiate and manage the organization’s S&op
process. these business-planning processes are put into place because supply
chain executives are blamed for failure to meet customer demand in a cost-
effective way. inventory piles up, expediting costs grow out of control, and fill
rates decline, causing a focus on supply chain performance; supply chain managers
then tend to blame performance on the “poor forecasts” that come out of sales
and marketing. the ceo gets excited, S&op is hailed as the way to get demand
and supply in balance, and the senior supply chain executive is tasked with
putting this process in place. where the disconnect often takes place is with lack
of engagement from the sales and marketing functions in the organization—
the owners of customers and the drivers of demand. nothing can make S&op
processes fail faster than having sales and marketing be non-participants. in
many companies, people describe S&op as “&op”—sales is not involved.
third, the very name S&op carries with it a tactical aura. many more functions
besides sales and operations must be involved in order for effective business
planning to take place. without engagement from marketing, logistics,
procurement, and particularly finance and senior leadership, attempts at
integrated business planning are doomed to be tactical and disappointing.
the goals of S&op are not incompatible with the goals of DSi, but S&op’s
execution often falls short. in addition, in many companies S&op carries the
baggage of failed implementations and years of frustration. DSi provides
an alternative label and a new method to achieve integrated, strategic
business planning.
Nothing can make S&OP processes fail faster
than having sales and
marketing be non-participants.
13managing risk in the global supply chain 11intrOductiOn
the Ideal picture of demand/Supply integrationFigure 2 represents an ideal state of DSi.
in Figure 2, circles represent functional areas of the organization, the rectangle
represents the super-process of DSi, red arrows leading into the DSi process
represent inputs to the process, and purple arrows leading out of DSi represent
outputs of the process.
it all begins with the two red arrows labeled “Demand Forecast” and “capacity
Forecast.” the Demand Forecast is the firm’s best guess about what customer
demand will consist of and should be emphasized as a guess. Short of having a
magic crystal ball, there is uncertainty around an estimate of future demand.
of course, the further into the future a business estimates demand, the more
uncertainty will exist. Similarly, the capacity Forecast represents the best guess
about what future supply capability will be, and if there is uncertainty around
any estimate of supply capability. raw material or component parts availability,
labor availability, machine efficiency, and other supply chain variables introduce
uncertainty into estimates of future capacity levels.
normally when these two forecasts are created, demand and supply are not in
balance. DSi processes are designed to answer what organizations should do
Figure 2
DeManD/supply integration: the iDeal state
DeManDsales
and Marketing, downstream Channel
partners
senior leaDership Finance
Supplyproduction,
logistics, etc., and upstream
suppliers
DeManD/supply
integration
demandforecast
Alignment
to strategy
financ
ial
plan
Capacity forecast
(including inventory)
demandplan
strategic
direction
financ
ial g
oal
operational plan (supply & inventory)
14 managing risk in the global supply chain
An unconstrained forecast of actual demand is
matched up against the
forecasted capacity to deliver
products or services. The
DSI process is comprised of
meetings where decisions
are made.
intrOductiOn12
when they are not in balance. proper action depends on the costs of each
alternative and on the strategic desirability of each alternative. because each
situation will be unique, with different possible alternatives that carry with them
different cost and strategic profiles, it is necessary to put these available
alternatives in front of knowledgeable decision-makers who can determine
which is the best course of action.
this is the purpose of the rectangle labeled in Figure 2 as “Demand/Supply
integration.” the arrow labeled “Financial goal” captures financial implications for
each alternative. the arrow labeled “Strategic Direction” captures the strategic
implications of each alternative. All the information from each different source—
the demand forecast, the capacity forecast, the financial goal, and strategic
direction—must be considered in order to make the best possible decisions about
what to do when demand and supply are not in balance.
to start the DSi process, an unconstrained forecast of actual demand is matched
up against the forecasted capacity to deliver products or services. the DSi
process is comprised of meetings where decisions are made including decisions
about how to bring demand and supply into balance both in a tactical, short-term
context and in a strategic, long-term context. Finance provides financial
implications for each alternative and senior leadership provides strategic direction.
Figure 2 also contains arrows that designate outputs from the DSi process. these
outputs should be seen as business plans: demand plans, operational plans, and
financial plans. Demand plans represent the decisions that emerge from the
DSi process.
operational plans represent the decisions from the DSi process that will affect
the supply chain. examples of these operational plans are production schedules,
inventory planning guidelines, signals to procurement that drive orders for raw
materials and component parts, signals to transportation planning that drive
orders for both inbound and outbound logistics requirements, and the dozens
and dozens of other tactical and strategic activities that need to be executed in
order to deliver goods and services to customers.
Financial plans represent signals back into the financial planning processes of
the organization based on the anticipated revenue and cost figures agreed upon
during the DSi process. whether it is financial reporting to the investment community
or acquisition of working capital to finance ongoing operations, the financial arm
of the enterprise has executable activities that are dependent upon the decisions
made in the DSi process about how demand and supply will be balanced. the
last elements of the process are the signals back to senior leadership that the
decisions reached are in alignment with the strategic direction of the firm.
thus, in its ideal state DSi is a business planning process that takes in information
about demand in the marketplace, supply capabilities, financial goals, and the
strategic direction of the business, and makes clear decisions about what to do
15managing risk in the global supply chain 13intrOductiOn
True integration seldom occurs just because
organizational structure
changes.
in the future. unfortunately, in many instances the costly and time-consuming
implementation of these processes fail, and they usually fail because the
organizational structure is not right or because the culture is not in place to
support the integration goals.
organizational Structure A matrix organizational structure is the simplest way that companies use
organizational structure in an attempt to drive integration. For example, a company
organizes its demand planning function so that it reports to both supply chain
and sales. many companies recognize that demand planning needs to be part of
the sales organization, since demand comes from customers, and no one is closer
to the customers than sales. At the same time, many companies feel that the
analytical expertise required for effective demand planning is more likely resident
in supply chain and/or that sales organizations will introduce bias into the
demand forecasts. Since there are good reasons for demand planning to reside
in both sales and supply chain, the matrix strategy having demand planning
organizationally attached to both is a straightforward response.
companies often implement a similar solution using a dotted line approach,
where demand planning officially resides in the supply chain but demand planners
have a “dotted line” reporting relationship to sales. individual demand planners
assigned to specific customers or customer segments execute this strategy and
are often physically housed with their counterparts in the sales organization. For
example, a cpg company might assign demand planners to be responsible for
forecasting demand at a single large customer (e.g. walmart), and those demand
planners might be physically located in bentonville, working side-by-side with
the salespeople on the walmart team. yet these individuals would still report up
through the supply chain function of their company.
16 managing risk in the global supply chain
matrix and dotted-line have conceptual appeal, but both may be fraught with
peril. in the case of the matrix approach, because two functional areas might
have very different cultures with different approaches to measurement and reward
structures and with personnel who come from very different backgrounds,
those in demand planning often feel conflicted and forced to serve two masters.
in the case of the dotted-line approach, the influence of the dotted line can
be negligible, with the demand planners far more receptive to their solid line
reporting relationship. A sales group’s physical proximity can be helpful, and
these strategies can enhance communication, coordination, and collaboration.
but without paying significant attention to creating an integrative culture, simple
organizational fix strategies like these fall short of achieving the goal of true
integration. true integration seldom occurs just because organizational structure
changes. even when combined with a well-conceived integrative process,
organizational structure is unlikely to lead to effective integration.
organizational culture easily the most difficult—and certainly the most important—way to achieve
integration is through influencing the organizational culture. much has been
written about organizational culture, both by academic and practitioner authors.
culture: the set of shared attitudes, values, goals, and practices that
characterizes an institution or organization.2
An organization’s culture is influenced by the norms of behavior and attitude
that are present in a company. how people think, how they interact with others,
what they find important, how hard they work, how they dress—all of these and
countless others define an organization’s culture.
Some organizational cultures support integration and some resist it. cultures
resistant to integration are characterized by each functional group having its own
unique culture, with people being distrustful, or even disdainful, of other functional
groups’ cultures. cultures that promote integration promote the pursuit of
common goals, regardless of the functional area in which personnel work. to
create that integration-friendly culture or transform an integration-unfriendly
culture requires two approaches, both of which must be addressed: top-down
and bottom up change.
top-down culture change both academic research and practical observation lead any careful observer
to the conclusion that leadership matters. the signals that people receive from
those who are above them in an organization really do influence their behaviors
intrOductiOn14
Easily the most difficult—and certainly the most
important—way to achieve
integration is through influencing
the organizational culture.
17managing risk in the global supply chain
Even withthe most committed senior
leaders on board, without
attitude and behavior change
by front-line employees,
integration will not be
achieved.
15intrOductiOn
and their attitudes. what this means is that business leaders must send very clear,
consistent signals that integration is a business imperative, and that everyone
must behave in this way. it is critical that all four key enterprise leaders—ceo,
chief demand officer (might be a combination of the head of sales and the head
of marketing), chief supply officer (might be a combination of head of supply
chain and head of manufacturing), and the cFo—must communicate through
their words and actions that integrative behavior is expected. leadership has
to be willing to expend resources to get the right tools and people in place to
support the integrative business processes. they have to examine current
measurement and incentive systems to ensure that integrative behaviors are
rewarded. And, these executives have to model those behaviors. they have to
regularly attend and engage in DSi meetings and show willingness to sometimes
sacrifice their own functional objectives in order to reach common goals.
the chief demand officer must exhibit these behaviors above all others. the
most common cause of DSi failure is lack of engagement from the demand side
of the enterprise—sales, or marketing, or both. the chief supply officer is usually
the driver of these integrative processes, so the greatest challenge to creating a
top-down culture change is convincing both the ceo and chief demand officer
that integrative processes must be put in place and supported with committed
behaviors from leadership.
bottom-up culture change even with the most committed senior leaders on board, without attitude and
behavior change by front-line employees, integration will not be achieved.
integration does not come about just because the ceo wants it to happen. So,
what can be done? two areas require focus to drive integrative attitudes and
behaviors in the people actually doing the work: incentive and measurement
strategies and education and training.
Almost every business professional has heard the axiom, “what gets measured
gets rewarded, and what gets rewarded gets done.” For example, leadership
establishes that it is important to have members of the sales team spend
adequate time and attention helping the demand planners to do a better job
of forecasting demand. this is a logical goal, since no one in an organization is
better positioned to understand customer demand than those who interact with
customers every day. in many organizations, however, salespeople are expected
to perform such work, but they are neither measured nor rewarded for their
contribution to demand forecasting. Sales management commonly fails to
acknowledge salespeople’s contribution to demand forecasting in either
compensation structures or performance plans. it is not surprising then if
salespeople either spend very little time on the task or intentionally provide bad
information to advance a different agenda.
18 managing risk in the global supply chainintrOductiOn16
in many cases, non-integrative metrics dominate compensation structures and
performance plans for salespeople. when salespeople are measured and rewarded
exclusively for revenue generation, then there is no incentive for them to engage
in integrative behaviors. An example of an integrative metric is for sales personnel
to have finished goods inventory levels be factored into their performance plans.
when such a metric is salient, integrative behaviors such as quality contribution
to demand forecasting are far more likely. bottom-up cultural change can be
initiated and reinforced by closely examining the way all people are measured
and rewarded. Senior leaders need to look carefully at what drives individual
decision-making and find ways to measure and reward integrative action.
education and training is the second way that bottom-up culture change can
take place. it is most impactful when individuals from multiple functional silos
participate in a training session together and gain an appreciation for what
people in the other functions do, especially when people from sales, marketing,
logistics, procurement, operations, finance, and demand planning are all in the
same training class. Simulations help people understand the complexities of
balancing demand with supply and gain an empathy for the roles of other activities.
For example, assigning salespeople to work in logistics roles in the simulation or
procurement people in marketing roles enables them to become familiar with the
pressures and concerns that players from different functions face. when people
experience the effects of their non-integrative behaviors firsthand they more fully
understand the detriment of such behaviors to their organizations.
Integration Summary the primary takeaways from this discussion of DSi are:
n integration can be thought of as multiple entities behaving as if they were
a single entity in pursuit of common organizational goals.
n DSi in particular is a set of activities that are designed to take demand
information, match it up against supply capability and financial objectives,
and make both tactical and strategic decisions about what to do in the
future.
n business integration is achieved through multiple mechanisms including
integrative processes, organizational structure, and organizational culture.
of these, culture is by far the most important yet the most difficult to put
into effect.
n organizational culture can, and must, be driven both from the top down
and the bottom up.
Organizational culture can, and must, be driven
both from the top down and
the bottom up.
19managing risk in the global supply chain 17baSic dSi PracticeS
Basic DSI Practices
a bove, we have reviewed DSi and the issues that have contributed
to integration processes delivering less than effective results
in most enterprises over the last four decades. there are
exceptions to this general statement; benchmark enterprises
have successfully implemented the basic DSi concepts/capabilities, and have
pushed forward in developing advanced DSi best practices. prior to reviewing
the advanced best practices, supply chain leaders are wise to ensure that the
basic DSi concepts are in place and effective. these are summarized below:
1. single-number business plan – DSi focuses on creating a single-
number business plan that all functions execute with excellence
regardless of sub-optimized functional goals and rewards.
2. demand plans are based on unconstrained demand and supply plans are based on demonstrated capacity.
3. leadership owns the plans within dsi – Demand (sales officer),
Supply (supply officer), Finance (finance officer), and business plans
(general manager) are visibly owned by top leadership.
4. dsi is a decision-making process – A process without a focus on
decision-making is not DSi.
5. dsi is a disciplined, drumbeat process – the DSi work occurs across
virtually all levels of the organization. the process has a regular
drumbeat that includes: accessing data/results, development of
demand/supply plans, development of options/decision issue sheets,
decision-making meeting with leadership, and downloading the
decisions into the system.
DSI is a disciplined, drumbeat process.
20 managing risk in the global supply chainbeSt PracticeS18
Adoptingprofitable growth objectives
puts greater emphasis on
operational excellence and
therefore DSI excellence.
Best Practices
in developing this demand/supply integration best practices summary, we
conducted field interviews with 18 benchmark companies. these companies
spanned Fmcg, equipment, food service, physical distribution, and 3pl
service companies.
most examples focused on how companies were driving DSi best practices in
north America, but many companies also shared best practices developed
from their global operations. because of the breadth of the topic, the industries
sampled, and the different stages of maturity, benchmark company focuses
were also broad. over 140 best practices came to light, which we grouped into
nearly 20 areas. we have chosen the top seven of these to discuss and share
in greater detail below. not only did these seven represent the most advanced
best practices, they were also often cited as areas of continued opportunity by
many of the benchmark companies. we have also included headlines on some
of the top 20 practices that we judged to be of high interest.
Dsi Best practices
1. business-led dsi
2. Continuous improvement Culture
3. demand planning excellence
4. digitally enabled dsi
5. sustained dsi Mastery
6. focus on business intelligence
7. supply planning excellence
21managing risk in the global supply chain
1. business-led dSIVirtually all benchmark supply chains cited DSi’s role in delivering business
objectives. it is no surprise then that those with the most advanced DSi
capabilities cited the role of their top leadership in making the process successful.
many companies have adopted a business objective of profitable growth after
years with goals of either sales at any cost or profit via cost cutting. Adopting
profitable growth objectives puts greater emphasis on operational excellence
and therefore DSi excellence. As market growth slows, competition increases,
and customers and channels segment, many ceos and gms are leveraging
DSi to penetrate market dynamics, hone operating strategies, and effectively
execute business decisions in a more timely and sustainable fashion.
most benchmark companies highlighted what a critical role senior leadership
engagement plays in DSi and how DSi is seen as a business-led process and a
key enabler of profitable growth. while ownership of the DSi process often rests
with the supply chain function, in benchmark companies it is not regarded as a
supply chain initiative but an initiative of the entire business.
benchmark companies see DSi as providing critical business intelligence about
what is happening in the dynamic market place as well as within the value chain
from an operational execution point of view. it allows the organization to make
better decisions to optimize assets and profitability, leading to growth. this
viewpoint also places a premium on quality documentation and gap analysis
of forecast building blocks. these insights enable effective actions to be taken
and keep business leadership in touch with reality as it pursues breakthrough
profitable growth objectives.
many ceos and DSi process leaders leverage a lead division or business unit to
elevate how much other divisions have adopted DSi best practices. Showcasing
19beSt PracticeS
Many CEOsand GMs are leveraging
DSI to penetrate market
dynamics, hone operating
strategies, and effectively
execute business decisions
in a more timely and
sustainable fashion.
22 managing risk in the global supply chain
an experienced general manager (gm) who knows how to run a business unit
drives learning across the organization by providing a role model for other
business leaders.
nothing speeds adoption like strong results. So when the senior leadership
credits top business results to gm-led DSi, other business unit managers are
fast to adopt best practices such as: a culture of high multifunctional ownership
and accountability, strong control over the product innovation portfolio, high
sales ownership of forecast, supply chain accountability to improve agility
and service, decision-making based on quality of data and documented
assumptions, and a single-number business culture.
profitable growth is enabled by a ‘single-number plan’ business culture. Although
they often noted it as a source of tension, benchmark companies cited the
importance of having plans made against a one-number-volume scenario—the
number deemed as most likely, or the current reality by the business leader,
following heavy multifunctional engagement.
leadership models and rewards the importance of this one number plan culture
and behavior. getting all functions executing towards a common plan and using
predefined operating strategies gets the entire organization literally on the same
page and enables quality conversations regarding current reality opportunities
and risks against budget and growth targets. most importantly, leadership can
then make choices to address specific gaps versus these targets because
minimal resources are being wasted pursuing different plans or functional
priorities. the one-number culture also reduces risks of further gaps, given a
multifunctional ownership and commitment. A one-number plan can also be
called the 50/50 plan (i.e. 50 percent probability of exceeding, 50 percent
chance of under-delivering).
Significant shortfalls to targets are discussed and work is chartered offline to
develop solid gap closing plans—but only once these have been vetted are they
integrated into the firm business plans. Senior leadership may decide to protect
for upside opportunities, but they do so with the foresight of likely p/l and cash
flow implications. the focus on profitable growth, not growth at any cost, is
what enables this culture. the outcome is optimized assets and profitability, all
leading to sustained, profitable growth.
this culture of executional excellence can sometimes be tested during periods
of market downturns. however, DSi excellence typically has the greatest impact
on business results during these periods. when resources are scarcer, the risk
of a misstep is greater, rework or misalignment within the organization is
even less affordable, and timely decision-making is at a premium. many of the
beSt PracticeS20
Many of thebenchmark companies made
great strides on DSI excellence
under these conditions
because their CEOs and
GMs recognized the business
imperative for execution
excellence, rewarding this
behavior and strengthening
their DSI processes, support
resources, and standards.
23managing risk in the global supply chain 21beSt PracticeS
Profitable growthis enabled by a ‘single-
number plan’ business
culture.
benchmark companies made great strides on DSi excellence under these
conditions because their ceos and gms recognized the business imperative
for execution excellence, rewarding this behavior and strengthening their DSi
processes, support resources, and standards.
benchmark companies said senior business leadership sponsorship was critical
to DSi excellence. when the ceo or president deploys their expectation that
all functions use DSi, the DSi process owners are able to influence their
co-workers to adopt best practices and deliver the expected benefits faster.
business leadership does not diminish its drive for creative, urgent growth, but
encourages its pursuit in a more effective and efficient manner, making the best
use of resources and business intelligence/data.
operating strategies that span the end-to-end value chain enable DSi
excellence. Defining, aligning, and integrating operating strategies across
the end-to-end value chain enable companies to balance functional
operations with overall value chain objectives. operating strategies are
how the organization chooses to manage areas such as:
• frequency, lead time, and the number of product initiatives
• granularity of forecasts
• supply capacities relative to expected demand
• supply sourcing
• service levels
• inventory levels by type of inventory
• planning to actual demand or forecast
• where to hold inventories
• how to manage product lifecycle
• supplier strategies
• what product lines will be scaled
• product tiering strategies
• customer segmentation
• go to market strategies.
operAtIng StrAtegIeS — hoW a critical dSi leadership ingredient
24 managing risk in the global supply chainbeSt PracticeS22
At their core, operating strategies are how the company chooses to
achieve its business strategy and deliver its objectives.
benchmark companies continuously adjust operating strategies given
market and enterprise/value chain dynamics. the DSi process plays a key
role in managing these changes. likewise, engaging all value chain
members in creating end-to-end operating strategies results in shared
ownership for the health of DSi inputs and processes.
Supply chain operating strategies not fully integrated into the DSi
process often result in supply chain capabilities and customer demand
not being synchronized, constant firefighting, or sales objectives being
pursued at the expense of profit or cash flow objectives. examples of
missing or misaligned operating strategies include:
• material lead times too long to respond to changing
production needs
• production cycles so long that they require plants to break
cycle to respond to customer demand
• excessive cycle inventories
• fixed and firm planning time fences too long to match
demand variation
• product initiative decision-making out of synch with demand
or supply planning capabilities.
For each of the areas covered by the operating strategy, not only should
the strategies be documented, but the desired performance targets
defined, with escalation triggers predefined. unrealistic expectations on
forecast accuracy can drive a lot of wrong behaviors and result in
functional silos. in a normal case where the forecast is wrong but still
within a manageable and realistic tolerance, there should be no
improvement action planning. wrong triggers set by management in
this area absorb precious resources in artificial root causing and take the
time away from sufficiency analysis and better business understanding.
operAtIng StrAtegIeS — WhAt a critical dSi leadership ingredient
25managing risk in the global supply chain 23beSt PracticeS
2. continuous Improvement culturemost benchmark companies found that constantly assessing the DSi process
and adapting it was important to delivering results in an ever-changing
environment. while almost counterintuitive, adhering to a disciplined DSi
process directly relates to effective, continuous improvement and process
simplification.
A learning culture within multifunctional leadership teams enables multifunctional
ownership of the DSi and promotes its effectiveness. implementing and learning
the DSi process together, nurturing the new behaviors together, overcoming
challenges together, and experiencing the results together, creates a strong
collective commitment to continuously improve it. when each employee has
invested collectively in bringing DSi process to life, they understand how to
adapt it to changing conditions instead of discarding it. when companies
combine a continuous improvement culture with Vp/gm and leadership
continuity and continuity in critical DSi roles (e.g. demand management,
finance, supply planning), the principles and values that support effective
DSi become part of the business unit’s culture.
in most benchmark companies, flexible DSi design has been critical to its
success. many large companies have a diverse portfolio across a broad range
of markets—with some business units relatively self-sufficient and others heavily
dependent on shared assets. to allow for this, each unit tailors the DSi to its
own bu structure while retaining common sub-DSi processes, standards, and
definitions. the intent is to have a globally standard process that accommodates
differences in business structures and requirements.
the S&op design drives common principles, processes, roles, and behaviors
while also incorporating differences between businesses and regions. typically
the scope covered by some of the sub-processes changes as well as whether
they are dedicated or shared across business units. however, some principles
apply across the board, for example, the gm, with their leadership team, owns
the overall consensus process and decision-making. while some companies
adopt an overly simplistic, cookie-cutter approach, this flexibility in DSi design,
with empowered DSi process owner oversight, encourages greater adoption
and improved business benefits.
best-in-class DSi organizations continuously simplify DSi design and tailor training
to match general management and key stakeholder language and behaviors.
while the supply chain discipline typically owns the DSi process—because of
its technical/detailed process orientation—the execution should be simplified
Best-in-class DSIorganizations continuously
simplify DSI design and
tailor training to match
general management and
key stakeholder language
and behaviors.
26 managing risk in the global supply chainbeSt PracticeS24
as much as possible to ensure adoption and ownership by the business and
commercial leadership. the emphasis should be on the intent and principles
of DSi such as understanding trends, effective decision-making, and assessing
and closing sufficiency gaps. Detailed rigor, analysis, and daily management
support the entire DSi process, but always with an eye towards simplification.
online training at all levels, including the gm, supports the process, as well as a
standard meeting calendar, decision models, participation, agenda, and decision
sheet templates.
true DSi excellence means understanding how to fully leverage it in both growth
and recession cycles. how to leverage DSi and the challenges it faces, are very
different during periods of expansion and contraction. Different processes rise
to critical levels and leadership behaviors must adapt alongside them. the most
effective gms and leadership teams have lived through DSi during growth
and recession business cycles. they adjust well-defined operating strategies to
reflect the different dynamics of market contraction or market expansion.
best-in-class companies have a purposeful, pragmatic, and relevant focus to
adapt DSi processes and digital systems and operating strategies to the
dynamic nature of business strategies, mergers and acquisitions, business
organization designs, and market environments. this flexibility requires
continuously engaging practitioners and stakeholders, soliciting feedback
and incorporating changes in a disciplined manner.
27managing risk in the global supply chain 25beSt PracticeS
The DSI processenables companies to
extract value from matrixed
organizations by optimizing
and balancing functional
priorities (vertical) and value
chain (horizontal) objectives.
the DSi process enables companies to extract value from matrixed
organizations by optimizing and balancing functional priorities (vertical)
and value chain (horizontal) objectives. the DSi process bridges different
areas of the matrix, driving role clarity while also increasing awareness
across functions and processes. it achieves a balance between vertical
operational p/l and customer/channel-centric value creation. many
benchmark companies cited holistic organization design work as a key
enabler to an effective DSi culture.
using organization design models (e.g. galbraith’s Star model, hanna’s
high performance organization model, etc.) can help identify key barriers
and enablers for DSi to flourish and deliver its full potential/business
benefits. often, benchmark companies did this as part of a corporate
transformation, merger, or restructuring and it enabled some longstanding
barriers—like unclear decision-making rights, misaligned functional rewards,
or overly complex processes—to be addressed in a multifunctional manner,
driven by common business objectives and leadership’s commitment to
higher levels of organization performance.
most companies consolidate end-to-end supply chain structure under
supply chain leaders accountable to business unit gms to enable DSi
excellence. having all of the Sc disciplines (procurement, planning/
logistics/service, engineering, manufacturing, QA, and initiative program
management) integrated at this level—not just at the corporate Sc officer
level—drives common objectives and integration of operating strategies
across Sc disciplines. these supply chain operating strategies, while
informed by functional expertise, are focused increasingly against
segmented channels and customer needs. this same approach drives
collaboration between supply chain and r&D with shared ownership for
material, product, technology, and supply platform menus. this organization
design helps integrate activities from design through delivery across the
DSi process and the enterprise.
leArnIng hoW to eXtrAct vAlue From compleX, mAtrIXed orgAnIZAtIon
28 managing risk in the global supply chain
3. demand planning excellencein our interviews, demand planning surfaced as both the area most benefitted
by DSi progress and one of the areas still ripe with opportunities for the
benchmarked companies. overall though, most companies said their demand
planning improved with more disciplined forecasting processes, digital technology,
advanced analytical service providers, leadership pursuing operational
excellence, and adopting a one-number-plan culture.
leading-edge companies have shifted from chasing forecast accuracy targets
to better documenting and gapping versus forecast building blocks. this leads
to more granular building blocks and sustained improvement in demand forecasts.
Virtually all of the benchmarked companies have very good capabilities to
segment demand by channel, customer, category, market, turn versus seasonal,
promoted versus every day low price, product lifecycle stage, etc. they enable
this by not only off-the-shelf integrated business plans, demand planning,
and enterprise resource planning solutions, but also by some more tailored
advanced analytical tools (discussed in the Digitally enabled DSi section of this
paper). Some companies are investing in-house for these advanced analytics,
while others are using 3pl providers that bring advanced analytics, big data
forecast capabilities, and planning expertise.
companies attributed improved sales forecasting to broader stakeholder
engagement in a demand consensus forecast coupled with in-house professional
planners who are technically masterful and wired for continuous improvement
being either imbedded in sales or part of the supply chain function. the emphasis
put on profitable growth and a one-number-plan culture puts more scrutiny on
eliminating forecast bias and a reducing management overrides in pursuit of
sales targets.
while supply chain can benefit from the demand forecast in volume (units), the
quality of work to monetize the demand plan deeply impacts leadership’s ability
to understand gaps versus objectives and take appropriate activities. benchmark
companies recognize that monetizing the demand forecast requires high quality
finance engagement and is a critical DSi sub-process to maximize value creation
from demand planning data.
All of these improvements in demand planning contribute to better DSi analysis,
more strategic DSi conversations, and enable leadership to be more disciplined
in closing gaps between specific issues in the forecast.
beSt PracticeS26
Leading-edge companieshave shifted from chasing
forecast accuracy targets to
better documenting and
gapping versus forecast
building blocks.
29managing risk in the global supply chain 27beSt PracticeS
while many companies now have the agility to replenish actual customer
demand inside the monthly, formal DSi cycle, benchmark enterprises use
concurrent planning. in concurrent planning, actual point-of-sales data
triggers production and forecasted demand triggers longer-time horizon
business intelligence and gap-filling plans.
the stability and discipline that DSi enables can at times seem too rules-
oriented and not responsive to market volatility or agile enough to fully
leverage innovation. Stability and agility are both necessary. the DSi
process needs to support longer-term operating strategy and strategic
decision-making while still supporting hourly and daily decision making
to respond to actual demand. rather than seeing these as competing
processes, best-in-class DSi processes clearly call them out as existing
within the same DSi eco-system. the key enablers for this concurrent
planning are digitally connected end-to-end value chains, active use of
living operating strategies, and pre-aligned parameters, tolerances, and
escalation points.
concurrent plAnnIng leverAgeS reAl tIme plAnnIng And Structured decISIon mAKIng
30 managing risk in the global supply chainbeSt PracticeS28
4. digitally enabled dSIAdvances in digital capabilities are enabling DSi improvements. while there was
broad diversity across the benchmark firms in both the technologies that were
having the greatest impact (applied Ai, machine learning, Vr, intelligent apps)
and the specific planning systems being utilized (SAp, JDA, logility, oracle,
ibm), in all cases these digital capabilities improved the quality of decision
making and the productivity of DSi planners.
benchmark companies credited digital tools with far better data collection,
integration, reporting, and modeling/simulation as opposed to previous
semi-manual approaches. Forecasting accuracy and inventory management
received the greatest improvement from digital technologies. these technologies
help reinforce structure and collaboration across functions and supply chain
nodes, enabling more accurate data and management of capacities/constraints
versus time-phased demand and elevating interdependencies across functional
operations. with scenario planning now easier, planners are becoming more
aware of their key constraints and able to develop end-to-end supply chain
contingency plans. control tower dashboards are being used instead of manually
prepared reports, enabling significant productivity improvements by eliminating
paperwork and information-sharing meetings.
in addition to the improvements already described in the demand-planning
excellence section of this paper, demand sensing technology should supplement
traditional consensus forecasting processes. rather than basing the forecast on
past events and assumptions, demand sensing uses a broad range of demand
stimuli and advanced algorithms to anticipate demand in the near-to mid-term.
these planning algorithms might analyze existing consensus forecast data,
customer orders, shipments, and other factors such as weather, trade
promotions, etc. benchmark companies credit them with improvements to
both forecast performance and negative bias.
leveraging digital tools also increases adoption of lean principles or DSi best
practices. in the past, work process owners would sometimes struggle with
compliance in this area. but with so much work now digital, organizations
benefit from more standard work processes, scientific inventory and planning
parameters, and documented operating strategies, since these are usually
prerequisites to digitization.
Benchmark companiescredited digital tools with
far better data collection,
integration, reporting, and
modeling/simulation as
opposed to previous
semi-manual approaches.
31managing risk in the global supply chain 29beSt PracticeS
Leveraging digitaltools also increases adoption
of Lean principles or DSI
best practices.
Digital technologies are also encouraging DSi best practices such as:
n bias for decision making (less time spent just collecting and
debating the data)
n monetizing decision making (planning tools are linked to
cost-to-serve models)
n longer time horizons (improved scenario and what-if planning
capabilities)
n a continuous improvement culture (assumptions tracking and
gap analysis can be done digitally)
n elimination of forecast bias (inventories and capacities are based
on trusted scientific parameters)
n adoption of a one-number-plan culture (systems are integrated
across functions and supply chain nodes).
32 managing risk in the global supply chain
While the conceptof cost of change curve has
been broadly understood
since the early 1970s when
published by Barry Boehm,
many DSI process owners
still struggle to define the
sweet spot where decision
making can have its greatest
impact, balancing cost of
changes against influence,
risk and uncertainty.
beSt PracticeS30
Selecting the appropriate time horizon for the DSi process—and its sub-processes—
is key to maximizing its value. while the concept of cost of change curve has been
broadly understood since the early 1970s when published by barry boehm, many
DSi process owners still struggle to define the sweet spot where decision making
can have its greatest impact, balancing cost of changes against influence, risk,
and uncertainty (see example below). the cost of change concept is a useful way
to engage leadership on the time horizon during their DSi leadership meetings.
this is an important discussion when designing the DSi process, as enterprises can
have very different levels of forecasting capabilities, costs of change, initiative
speed to market, levels of organizational and supply chain agility, capacity lead times,
and consumer, market and competitive dynamics. Still, most benchmark companies
report that when DSi leadership makes decisions beyond the next few months
(usually in the nine- to 18-month timeframe) they can do effective scenario planning,
make resource investments, adjust to changing market dynamics, and deliver
against financial objectives, all with maximum efficiency and effectiveness.
there are daily, weekly, and monthly processes to analyze data and adjust plans,
forecasting to manage service and inventory. but the DSi process is always seeking
the sweet spot where leadership can predict what will happen in time to react or
even shape the market for competitive benefit. leadership time should not be spent
on detailed gap analysis debates but rather on the findings or changes proposed
based on pre-worked gap analysis of sufficiency versus target. many benchmark
companies indicated they use the real time control towers to enable discussions for
shorter term issues and use the monthly DSi process for longer time horizon
discussions.
pIcKIng the ApproprIAte dSI proceSS tIme horIZon
stakeholder influence, risk, and uncertainty
Cost of changeslow
High
project time
deg
ree
impact of variables based on project time (project Management institute 2008)
33managing risk in the global supply chain 31beSt PracticeS
Most benchmarkcompanies stated that a
company culture which values
continuous improvement,
operational excellence,
multifunctional collaboration,
and forward-looking strate-
gic decision making enables
sustained DSI mastery.
5. Sustained dSI masterybenchmark companies saw being able to sustain DSi mastery as key to
maintaining its excellence. this usually becomes a function of a company’s
culture, human resources, DSi processes, and leadership.
most benchmark companies stated that a company culture which values
continuous improvement, operational excellence, multifunctional collaboration,
and forward-looking strategic decision making enables sustained DSi mastery.
As documented earlier in this paper, leadership engagement is usually greatest
in these types of companies. An empowered process leader tracking and
overseeing DSi health that has strong support at the most senior executive
level of the company ensures continuous improvement.
in benchmark enterprises, senior management has access to the DSi scorecard
and based on it completes a robust, standard, DSi assessment process. this
calibrates what DSi excellence looks like and typically assesses the health of the
DSi process, leadership, and results. by encouraging multifunctional participation
in such assessments, organizations identify barriers and inefficiencies and
address them. this not only ensures DSi is delivering on its intent, but recognizes
and addresses the changes that come from personnel turnover, business or
operating strategy changes, and market dynamics.
often a network of local process owners and subject matter experts support
the overall DSi process leader. these experts ensure there are well-documented
processes, standards, and guidelines for all business unit profit centers. while
DSi design can be adjusted to best meet regional and market design differences,
there is typically a standard demand, supply, and financial planning process in
place across all business units. this enables sharing of best practices, scaled
digital solutions, and elevates the overall level of DSi adoption and performance
across business units.
talent development that fosters cross-functional experience enables DSi
excellence. this is true for gm, commercial, and technical roles. As developing
leaders work up and down the end-to-end value chain, they develop a better
understanding of upstream and downstream implications of their decisions.
end-to-end data visibility, plan integration, and multifunctional collaboration
come more naturally to these leaders than those who have limited breadth
of experience.
today and tomorrow’s integrated planning work demands a different skill level
and talent profile. As planning becomes more concurrent and end-to-end across
the value chain network, business acumen and supplier/customer engagement
skills become more important to optimizing the value chain and delivering
customer solutions, not just product, to the customers. these skills are in short
34 managing risk in the global supply chain32 beSt PracticeS
supply but benchmark companies are investing in recruiting and developing
them. this is also where 3pl service providers are stepping in and some
companies are outsourcing these advanced skills.
DSi mastery extends beyond DSi process owners or planning experts and
includes strong functional leadership from gms, sales, supply chain, and finance.
when describing their most effective leaders, benchmark companies highlighted
gms who often had a typically broad experience base working across the
value chain. these gms were adept in leveraging the DSi process, understood
the upstream and downstream implications of their decisions, and valued
multifunctional collaboration.
often, to enable this gm capability, benchmark companies staff DSi process
owner roles and demand and supply planner roles with their most senior
personnel possessing strong operations and multifunctional leadership
backgrounds. they staff planners with usually twenty or more years of supply
chain planning experience to interface with gms. these planners quickly build
trust with their gms, who often do not have planning experience or have
churned through multiple businesses. once this trusting relationship is
established, the planners are able to grow the gm’s understanding of market
dynamics, supply chain implications, and how to leverage the DSi process to
grow the business.
of course, ongoing efforts to simplify the DSi process, training, and language—
and ensure faster understanding and adoption across all functions—also enable
gm understanding and result in more effective S&op inputs and behaviors.
giving DSi process key roles to functions that have a natural link between DSi
and a functional rewards/profile, such as planning and finance, ensures mastery
and continuity.
we cannot overstate finance’s role in achieving and sustaining DSi excellence.
A high degree of finance engagement and ownership in DSi makes the process
far more relevant for gms, replaces judgment with data, improves quality of
decision making, and influences longer term strategic decision making. Strong
finance support and leadership in DSi elevates the quality of decision making
and preparation throughout the S&op process. Finance takes an active role in
ensuring data accuracy and broad awareness of each decision’s financial
implications. this keeps focus on the overall financial objectives of the company
and has a knock-on effect that all functions participate in the key input meetings
versus just pursuing functional rewards and priorities.
A high degreeof finance engagement and
ownership in DSI makes the
process far more relevant
for GMs, replaces judgment
with data, improves quality
of decision making, and
influences longer term
strategic decision making.
35managing risk in the global supply chain 33beSt PracticeS
Benchmark companies see culture
fostered by DSI as a means
to help attract a higher
level of talent that is more
interested in end-to-end
objectives and collaboration.
benchmark companies cite an interesting side benefit of DSi excellence:
its impact on the work environment and employee morale. they credited
DSi creating a more aspirational, fulfilling organization culture. employees
list the principles that DSi fosters—cross-functional collaboration, shared
problem solving, end-to-end value chain visibility, shared common
business and value chain objectives—as positives in their organization
health and job satisfaction. this is particularly true for younger
generations who tend to find aspirational, team-oriented work more
fulfilling than narrowly defined or silo-focused work. benchmark
companies see culture fostered by DSi as a means to help attract a
higher level of talent that is more interested in end-to-end objectives
and collaboration.
Similarly, talent development and career path planning systems that
foster cross-functional, horizontal experience are enablers for DSi
excellence and talent retention. As developing leaders work up and
down the end-to-end value chain they cultivate a better understanding
of upstream and downstream implications of their decisions. end-to-end
data visibility, integration of plans, and multifunctional collaboration come
more naturally to these leaders than those who have limited breadth
of experience. gms who leverage the disciplined, forward-looking
decision making of the DSi process are often seen as more effective,
motivational leaders by their organizations. Further, the well-defined
roles, responsibilities, processes, operating strategies, and trigger/
escalation limits, are very consistent with high performance organization
design principles, which also positively impact organization morale
and productivity.
dSI eXcellence AS A morAle And productIvIty drIver
36 managing risk in the global supply chainbeSt PracticeS34
In today’s knowledge economy,recognizing that DSI can be a
source of business intelligence
unleashes significant value
creation and can be a key
enabler of profitable growth.
6. Focus on business IntelligenceSeeing the DSi process as a source of business intelligence is a powerful
motivator for multifunctional leadership engagement and sponsorship of DSi.
in today’s knowledge economy, recognizing that DSi can be a source of
business intelligence unleashes significant value creation and can be a key
enabler of profitable growth. when business intelligence is an expected
outcome from the DSi process, data analysis and forward-looking planning take
on a different significance.
For example, demand planning is sometimes seen as merely an exercise in
understanding which forecast building blocks were incorrect, in order to
improve the next month’s forecast. but when gap analysis is done with an eye
for better understanding market dynamics, consumer behaviors, executional
gaps, planning gaps, or unexpected competitive activities, business intelligence
emerges which can be used to improve the quality of future planning and
execution. these can better inform needed changes to operating strategies,
new product design and delivery, company capabilities, business strategies,
financial plans, and even marketing strategies.
benchmark companies stated that when leadership overtly asked questions
regarding what new insights this analysis generated or the repercussions if a
trend continues, the business unit was far less prone to be defensive or siloed in
its behavior. instead, a learning culture replaced a blame culture, wherein each
DSi cycle created greater insights and course corrections, doing so on a time
horizon that enabled executional excellence. while a cliché, the culture of failing
fast enables continuous improvements to plans based on business intelligence
harvested from DSi data.
As discussed in the digitally enabled DSi section of this white paper, seeking
this business intelligence from the DSi process also causes benchmark
companies to invest in, or partner with, 3pl service providers to apply advanced
analytics, machine learning, and big data mining to detect trends at very
granular levels in real time. this allows companies to do what-if scenario planning
or develop operating strategy changes ahead of events occurring. because
of the cost to change curve, when these DSi discussions, decisions, and
preparations are done in the context of a forward-looking time horizon, they
can be completed at a fraction of the typical costs incurred when a company
has been caught off guard and has no contingency planning.
DSi data becomes business intelligence when key DSi data is analyzed, key
learnings are documented, these insights influence decision making, and future
plans reflect multiple scenarios. this elevates the strategic importance of the
DSi process from not only a means of delivering short term business results
but also a way to maximize the long-term value creation and success of an
enterprise.
37managing risk in the global supply chain 35beSt PracticeS
A key enabler for breakthrough profitable growth is management
recognizing the need to focus on new product initiative excellence. this
typically includes a disciplined stage gate process, clear success criteria
and scope adherence, well-defined commercial, technical and financial
readiness systems, heavy supply chain and manufacturing engagement
in the innovation process, long-term visibility of the portfolio via
master planning, and solid building block assumptions behind product
initiative volumes (we detail this more in the new product initiative best
practice white paper).3 All of these elements have a significant positive
impact on demand, supply, and financial in-process metrics and output
results. when overall DSi health assessments incorporate the health of
new product initiative systems, and new product initiative processes are
fully integrated in the DSi cycle, progress toward new product initiative
excellence accelerates.
when benchmark companies have made new product initiative
excellence interventions, they have seen:
• marked improvement in new product initiative success rates
• innovation resource productivity
• dramatic reductions in non-value-added complexity
• productivity and cost benefits from scaled platforms
• improved SKU profitability
• service improvements
• scrap and obsolescence reductions
• cost and inventory savings across the end-to-end supply chain.
the case study later in this white paper further explores how new
product initiative processes benefit from analysis and generate valuable
business intelligence.
InveStIng In neW product InItIAtIve eXcellence
38 managing risk in the global supply chainbeSt PracticeS36
As supply planning progresses from transaction-
based to exception-based to
algorithm-based to predictive-
based, supply planners need
more operations research and
data science skills.
7. Supply planning excellenceSupply planning capabilities are typically a good predictor of overall DSi health
and results. benchmark companies referenced strong planning mastery and
credibility as critical to empowering DSi process owners to influence and coach
both general management and multifunctional leadership on DSi best practices.
in most companies, demand planners—even if reporting into the sales function—
had a planning background and training that originated in supply planning.
benchmark companies highlighted that solid supply planning capabilities
contribute to eliminating demand forecast bias, as poor service or supply
reliability often motivates inflated demand in order to hold sufficient product
in reserve to maintain customer service or supply on the high side for new
product initiatives. Sufficient supply chain reliability and agility eliminated these
drivers of forecast bias.
Supply planning excellence also drives quality, forward-looking contingency
planning and timely capacity investment decision making. Strong supply
planning foundations are a prerequisite for more efficient produce-to-demand
supply chains. the shift to demand-driven supply chains is a key contributor
to service improvement, inventory reduction, and the agility to take advantage
of unforeseen promotional volumes. while demand forecasts continue to be
important for upstream material and capacity planning, forecast error affects
day-to-day production less when supply planning has incorporated produce-
to-demand operating strategies.
Supply planning mastery is also critical to fully leveraging the latest digital
technologies. As supply planning progresses from transaction-based to
exception-based to algorithm-based to predictive-based, supply planners need
more operations research and data science skills. organizations with strong
capability-building and training systems are able to continuously increase these
skills and harvest the productivity, cash, service, and agility benefits enabled
by these digital tools.
Finally, these strong supply planning capabilities are resulting in shorter,
more synchronized supply chains. with less inventory and shorter lead times,
benchmark companies are able to respond more quickly to emerging market
trends or opportunities. this is a critical capability to profitable growth
strategies.
39managing risk in the global supply chain 37caSe Study
Case Study
a n advanced supply chain analytics service provider, hAVi,4 worked
with its client, the client’s customers, and the client’s key supply
chain and marketing partners to implement an integrated
business planning process. this integrated business planning pilot
aligned topline sales projections to the bottom-up forecasts to the marketing
plans and the supply chain. with supply chain expertise and advanced analytics,
all key functions could focus on the activities that truly impact results.
A critical first step was getting the unit demand forecasts at a retail level that
drives the supply chain and monetizing those forecasts into a market level view
of projected monthly sales. the quality of this monetizing process was critical in
order to produce meaningful data and analysis. these were then compared to
the business and marketing expectations for the year to align on a bottom up
view of annual revenue.
using a monthly view of this revenue plan, hAVi identified very specific gaps
between the forecast and the goals. these were analyzed across every product
line and most retail locations. this use of retail/consumer data and advanced
analytical tools lead to automation of demand-driven insights which, in turn,
enabled category marketing and business leadership to determine areas of focus.
this forward-looking, proactive gap identification, coupled with precise data,
allowed hypotheses to be rigorously analyzed and confirmed, countermeasures
developed, and implementation tracked—all much more quickly than manual
processes.
this gap-closing work included detailed analysis of promotions and limited time
offers, optimal pricing, and sales and operations planning resource and financial
decision-making. it also enabled appropriate contingency planning against areas
of risk identified through this process.
in addition to providing a much deeper understanding of market dynamics,
the forward-looking use of big data and advanced analytics helped category
marketing develop consumer insights and incorporate those in marketing and
initiative plans far sooner than the backward-looking orientation previously
40 managing risk in the global supply chain
common at this client. in essence, an important output of the best-in-class
demand planning and integrated business planning process was business
intelligence.
because the forward-looking data and analytics was an input to the integrated
business planning process and erp systems, it enabled upstream suppliers
to have increased visibility to trends and to right-size product and promotion
plans. this provided end-to-end supply chains opportunities to reduce waste,
better manage relationships, and adjust operating strategies.
this application of best practice analytics and integrated business planning
processes should improve new item forecasting as well as the success of new
initiatives. new item forecast error was reduced by 50 percent as a result of
forecasting models being trained using real data and machine learning.
the elements that are difficult to read such as seasonality, market, category,
item pricing, and marketing campaigns, could all be fed into lift modeling
algorithms. these can be coupled with real, live test markets to produce
insights on how to maximize new item success—with far less cost and
investment than traditional launch models. Analytics automation allows faster
new product learning and cheaper failures. new insights were generated on
how to minimize cannibalism and maximize halo.
one of the clients close to this pilot described the difference in approaches as
backward-looking data crunching versus forward-looking business intelligence
creation. backward-looking analysis just gave them data, forward-looking
predictive modeling generated new consumer insights. in the client’s words,
“historical data is just data, but forward-looking consumer insights equals
growth.”
this coupling of advanced analytics and integrated business planning can
sometimes require changes to internal culture, which may resist the move to fail
fast innovation and use of predictive modeling. Also, depending on the time
horizon of the new product innovation process lifecycle, the return on investment
may not always meet company roi needs. but clearly, as hAVi has demonstrated
in working with clients, the upsides of integrated business planning, enabled
by advanced analytics, can be significant and can be a source of competitive
advantage in today’s increasingly dynamic and segmented markets.
caSe Study38
In the client’swords,“Historical data is
just data, but forward-looking
consumer insights equals
growth.”
41managing risk in the global supply chain 39Summary
Summary
supply chain leaders often complain about inaccurate forecasts
because they cause customer service issues, high inventory, and
operational rework. hopefully, after reviewing the objectives of DSi
and the best practices for its successful operationalization, supply
chain leaders will focus on the continuous improvement (or even creation if
absent) of effective single-number, integrated business plans.
many of the benchmark companies we interviewed made great strides on
DSi excellence as their ceos and gms recognized the business imperative for
execution excellence and rewarded this behavior by strengthening their DSi
processes, support resources, and standards. best-in-class DSi organizations
pursue continuous simplification of DSi design and tailor training to match
general management and key stakeholder language and behaviors.
the primary challenge to DSi excellence is building a culture that thrives in
a single-number business plan environment. Supply chain executives must join
with general managers, sales, and finance executives to jointly lead this critical
work for the enterprise.
leadership is critical to success. leaders must model and reward the importance
of this single-number-plan culture and behavior. this approach will drive top
and bottom line improvement while gaining the desired demand and supply
alignment for operating within an integrated business plan.
42 managing risk in the global supply chain
End Notes
1 “integrate.” Merriam-Webster.com, merriam-webster, www.merriam-webster.
com/dictionary/integrate. Accessed Jan. 2018.
2 “culture.” Merriam-Webster.com, merriam-webster, www.merriam-webster.
com/dictionary/culture. Accessed mar. 2018.
3 mike burnette, ted Stank, J. Scott meline, ”new product initiative best practices”
(white paper, university of tennessee’s haslam college of business, 2017)
4 hAVi is a global, privately owned company focused on innovating, optimizing, and managing the supply chains of
leading brands. offering services in marketing analytics, packaging, supply chain management, and logistics, hAVi
partners with companies to address challenges big and small across the supply chain, from commodity to customer.
Founded in 1974, hAVi employs more than 10,000 people and serves customers in more than 100 countries. hAVi’s
supply chain services are complemented by the customer engagement services offered by our affiliated company
the marketing Store. For more information, please visit hAVi.com.
40
Acknowledgementwe would like to acknowledge our global Supply chain institute sponsors, more
than sixty corporations representing over $1.7 trillion in annual revenue, and our
advisory board, forty senior executive supply chain officers, for their proactive
support, including networking, benchmarking, coaching, financial, and project
partnerships. these leading companies are dedicated to delivering world-class
supply chain innovation.
Global Supply Chain Institutethe global Supply chain institute provides relevant research and practical
educational services to enable highly effective supply chains. these include:
WhIte pAperS: applied research and benchmarking papers on current,
impactful topics
Supply chAIn AudItS: coaching for supply chains working to improve based
on an extensive collection of current supply chain best practices
eXecutIve mbA And educAtIonAl courSeS: programs to create a
continuous, long term learning process for supply chain leaders
Supply chAIn Forum: the nation’s largest academic forum for supply chain
leaders, focused on networking, benchmarking, and leadership
43managing risk in the global supply chain
A finAl noTeWe hope you have found the material in this white paper helpful and useful. We at the university of tennessee’s haslam college of business are committed to translating our top-ranked position in academic research into information useful for practitioners. We believe the real world of industry is our laboratory. it’s why we have the largest Supply chain forum in the academic world, with over sixty sponsoring companies. We are always looking for industry partners to assist us in this journey. let us know if you are interested in being one of our valued partners.
J. Paul dittmann, Phdexecutive director, the global Supply chain institutethe university of tennessee’s haslam college of businessjdittman@utk.edu O: 865-974-9413 c: 865-368-1836
Supply chAInd
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InAtIo
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Int
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reliable/predictable
common values/leadership/talent
end-to-end
michael burnette, llc
competitive advantage
co
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Ab
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Syn
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gsci.utk.edu
44 managing risk in the global supply chain
310 StOkely management center
knOxville, tn 37996
865.974.9413
gloBalsupplychaininstitute.utk.eDu
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