Excerpts

INTRODUCTION WE ARE IN THE MIDST of a profound shift in the ways of commerce: The economic engines of supply and demand have traded places. The business of buying is shifting from a centuries-old supply-driven model and moving rapidly to a market-driven, customer-centric one. Customers are dictating what they purchase, insisting upon specialized products for unique situations and tastes. Product-line complexity is getting broader, and demand variability per product is growing higher by orders of magnitude. Seemingly excessive service levels and response times are becoming the norm. While sales and operations planning (S&OP) traditionally has been an important operations management process, its design has remained essentially unchanged for more than 40 years. It customarily has been internally focused, with a one-size-fits-all-customers mindset. Today, however, S&OP is being whipped by strong, unrecognized market forces that are increasing inventory and lowering manufacturing and distribution productivity. The forces that drive our economic engines are rapidly changing in the United States and Europe and will spread to all other markets as those markets mature. In today's on-demand economy, demand has come to dominate supply as the driving force. This new circumstance is why the traditional, 40- year-old approach is failing. We have implemented the new market-driven supply chain processes using advanced S&OP in many good companies. In most cases, the share price increases by three to nine times over the course of the few years required for full implementation and realization of benefits. The company's value increases because of the process and increased cash flow, not because of some information technology (IT) system. The market-driven supply chain delivers customer value, defines and delivers competitive advantage, and generates free cash flow. All three of these deliverables are not even considered in operations-driven S&OP or demand-driven supply chains. Studies done by AMR Research, now part of Gartner Group, have found that more than 70 percent of companies are stuck in entry-level S&OP processes, reacting or responding to the winds of change in the market. Traditional approaches are operating two or more steps removed from the market. In order to not only survive but thrive in the new on-demand economy, you must learn how to implement an S&OP process built on market savvy and operating "at the market." The Market-Driven Supply Chain will show you how your business can accomplish this. A revolutionary transformation in business management processes is required to deal with the profound changes emerging and expanding in the world economies. Today, the economy of business has a whole new set of dimensions, as shown in Figure I-1. The figure outlines how an enterprise views the overall planning process, given a supply versus a demand view of the economy. The supply chains of the future must become market-driven rather than operations-driven or even demand-driven. As we describe in Chapter 1, the market-driven supply chain uses a Level IV, or advanced, S&OP. In the market-driven supply chain, the customer's definition of value is the paramount concern. In contrast, in demand- driven or operations-driven supply chains, internal economics and inventory are the drivers. From a supply view, markets are seen as homogeneous; we manufacture a hammer, and everything looks like a nail. Conversely, from a demand perspective, markets are specialized by consumer/customer groups, with different solutions and products required for each group. Prior to the 1970s, in a supply economy, the rate of change was very slow; a product's life cycle was measured in decades. Today, in a demand economy, a product life cycle of even a few years is considered long. In the 1990s, product rationalization was the mantra. Now, an S&OP process tuned to the demand economy enables complexity when it is necessary to address specific customer needs in specialized markets. Segmentation now needs to be done on customer values. In the old supply view, decision making was driven by customers rather than sales or marketing efficiency. In the old economy, with vastly less product complexity and high concentration in distribution, planning models were developed using the assumption that the underlying demand patterns were normally distributed. Today, demand at the product stock-keeping unit (SKU) level is significantly more volatile. Analysis finds most SKUs have random demand patterns. This factor alone necessitates a very profound change in approach. A significantly more dynamic, customer-focused, and forwardthinking S&OP model is needed to achieve success. The market-driven supply chain needs to be managed by an S&OP process with lots of market savvy. To distinguish between the market-driven supply chain and the process managed by it, we refer in this book to market-savvy S&OP as the most advanced and Level IV S&OP process. In the market-driven supply chain, the market--not the manufacturer-- leads, and even dictates, the ways of commerce. A new "market-in" approach to business planning and product production and deployment is essential if a company is to be successful in today's challenging business environment. To win, the enterprise must manage to "at market" demand and manage the customer's demand for valuable services. If your present S&OP has an uncommitted top management, is mired in detail, or lacks strong marketing and sales leadership, you must change the culture starting here and now. If your process does not have strategic vision or consists of interdepartmental rifts and disconnects, your move to a new S&OP process is critical. This book will help you create a market-savvy S&OP that is built on strong cross-functional collaboration and market insights. A market-savvy S&OP becomes a competitive weapon, designed to achieve market share growth and positive cash flow. The robust process empowers and multiplies the strengths of individual executives in a collegial culture. In this book, you will learn how to make a successful transformation, both in management process to operate "at market" and in the company's culture, to move to a customer-centric approach that generates remarkable business results. You will not only see how your business can compete but how it can dominate in its markets. The major benefits your company accrues from implementing market-savvy S&OP will be free cash-flow generation and market share gains. These are the serious objectives most boards of directors require of senior management. Achieving these benefits will have direct impact on the company's stock price and will create value for shareholders. You will also learn about a powerful new management process that will bring about full organizational collaboration and be highly effective in implementing your company's strategy. The need for full crossfunctional collaboration in planning and execution has never been greater, and the need is growing. The issues are far more complex than can be effectively handled by individual functional areas operating independently. You will learn as well how being market-driven is practical and mirrors reality, despite initially seeming to be counterintuitive. Becoming market-driven may appear to be a daunting task, but in the end, it is not difficult to achieve with the tools described in this book--tools for the transformation of the culture, tools for the design of new processes, and tools for the accomplishment of the transition to the new S&OP. Many in business have long desired and even attempted to have cross-functional collaborative management, to develop processes that drive market-share growth, and to generate free cash flow. Only a few have succeeded. This is often because of two factors: the lack of a compelling reason for change, particularly when people are operating inside individual functional areas, and a less-than-rigorous change management process. Individuals who have studied, labored, and stressed over achieving change in enterprise culture in many different arenas--from public to private, in both social and industrial organizations--know that change comes only when the whole organization desires it. Change cannot be forced or dictated, nor can it be accomplished by IT installations. The CEO must be a role model for change, envisioning increased cash flow and market share, then cultivating the desire to change through communication and education. The CEO must recognize change has three distinct aspects: vision, behavior, and process. A transition to the new vision, with new behavior and new processes, is required. A change in culture is implemented through a disciplined change management process articulating the vision, accentuating the behavior, and adopting the process. This book is structured to demonstrate how to apply these three aspects of change to create a winning market-savvy S&OP process. We will show you, step by step, how to make the supply chain a strong and successful competitive weapon. The overarching framework for the book is shown in Figure I-2, with the associated relevant chapters. Part I, "Creating Vision," focuses on the first management change required to implement a market-savvy S&OP process. Vision in this context means to correctly define customer values and needs and to determine what strategies you will use to satisfy these needs. Part I has two chapters. Chapter 1, "Seeing Anew from a Market- Savvy Perspective," establishes what it means to be market-driven and market-savvy. It describes market-savvy S&OP and explains how to conduct this type of planning in a way that is fundamentally different from what you are now doing. The chapter also examines value segmentation and describes in detail how to perform it, leading to the development of a go-to-market strategy, which is the statement of how each functional area within the organization will accomplish the goal or strategy of the business. Chapter 2, "Competing on Time and Customer Connectivity," describes the time advantage and customer connectivity strategies that hold the potential for desirable performance improvement when a market-savvy S&OP is implemented. Part II, "Changing Behavior," looks at the second aspect of change management. The two chapters in this part explore the driving aspects of changed behavior in an S&OP context: robust analytics and a customer-centric culture. Chapter 3, "Managing by Analytics," discusses the critical requirement of replacing conventional wisdom based on past behavior with facts and market-savvy, which look into the future. Chapter 4, "Establishing a Customer-Centric Culture, " covers the drivers of collegiality and a foundation for open and productive collaboration across, up, and down the organization, all of which are vital for achieving a customer-centric culture. Chapters 1 through 4 set the stage by creating and communicating the need for change and outlining the behavior needed to accomplish the change to a market-savvy S&OP. Part III, "Designing New Processes," is the third and final phase of the change management process. The processes fall into three major areas: (1) the monthly collaborative planning processes, (2) the ratebased planning processes in operations, and (3) the sustaining culture processes of audits and continuous improvement. Each area is discussed in its own chapter. Together, they reach the overarching goals of gaining and sustaining competitive advantage and free cash flow. Chapter 5, "Designing and Implementing Collaborative Planning (Segment-Level S&OP)," describes the monthly planning processes for managing demand and becoming customer-centric that are led by senior management, with ownership and significant participation by the organization's business units. Chapter 6, "Designing a Rate-Based Planning Process," covers weekly execution of the rate-based planning processes for demand fulfillment at the operational level. These processes enable the organization to become market-driven in inventory replenishment, procure- ment, and production. You will learn that rate-based processes replace MRP (material requirements planning) and work hand in glove with lean manufacturing initiatives. And, finally, Chapter 7, "Transitioning to a New Culture of Market-Driven Supply Chain," discusses sustaining processes for continuing and increasing competitive advantage, including the establishment of process clubs. Using the principles you will learn in this book, you will be able to successfully implement a new and highly productive S&OP in your company. The new processes will have a profound impact on the business and on your career. The companies that have implemented market-savvy S&OP now dominate their industries, some by further strengthening and most by revolutionizing their impact on the industry. Seven Guiding Principles of the Design of Market-Savvy S&OP Seven guiding principles or design principles are described in the book, one for each chapter. The seven principles provide a useful overview of what you will be learning: 1. Market In 2. Segment Level 3. Management by Analytics 4. Organize Around Customers 5. Process Heavy, People Light 6. Rate-Based 7. Change Culture The journey begins with creating a vision. You will learn about this exciting new approach in Chapter 1. Excerpted from The Market-Driven Supply Chain: A Revolutionary Model for Sales and Operations Planning in the New On-Demand Economy by Robert P. Burrows, Robert P. Burrows III All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.

Gregory P. Hackett, The Hackett GroupLora Cecere, Supply Chain Insights LLC

Foreword	p. ix
Foreword	p. xi
Acknowledgments	p. xiii
Introduction	p. 1
Seven Guiding Principles of the Design of Market-Savvy S&OP	p. 8
Part I Creating Vision
Chapter 1 Seeing Anew from a Market-Savvy
Perspective	p. 11
Market-Savvy S&OP Defined	p. 13
IBP Provides the Strategy	p. 16
Value Segmentation: The Preferred Method	p. 26
Looking Back	p. 44
Case Study: Sports Uniform Manufacturer	p. 45
Chapter 2 Competing on Time and Customer
Connectivity	p. 51
The Five Fundamentals of a Value-Segment Strategy	p. 53
Portfolio Versus Segment Strategies	p. 55
Segment-Level Strategies for Value Chains	p. 62
Four Traditional Value-Segment Strategy Options	p. 64
New Segment Strategies	p. 75
Looking Back	p. 86
Case Study: VTech	p. 87
Part II Changing Behavior
Chapter 3 Managing by Analytics	p. 91
The 7 Characteristics of Strong Teams	p. 92
The 7 Characteristics of a Proper Analytic	p. 100
Market-Savvy S&OP, 70 Percent Analytics	p. 109
Looking Back	p. 121
Case Study: Frozen Food Producer	p. 122
Chapter 4 Establishing a Customer-Centric Culture	p. 127
Developing a Customer-Facing Organization	p. 128
Establishing Collaboration	p. 133
Driving Collegiality	p. 139
Designing Horizontal Management Processes	p. 145
Appointing Leaders with Passion	p. 154
Looking Back	p. 157
Case Study: Goodyear North American Tire (NAT) Consumer	p. 158
Part III Designing New Processes
Chapter 5 Designing and Implementing
Collaborative Planning (Segment-Level S&OP)	p. 165
Design Starts with Education	p. 167
Design to Implement Strategy	p. 171
Design to Align All Planning Processes	p. 175
Design with Interlocking Cycles	p. 187
Design with Collaborative Goals	p. 193
Looking Back	p. 196
Case Study: Wright Medical Technology	p. 197
Chapter 6 Designing a Rate-Based Planning Process	p. 202
RBP Applicability	p. 203
RBP Versus Traditional Scheduling Methods	p. 204
RBP Scheduling Strategy	p. 210
Cycle Planning	p. 218
Inventory Standards	p. 223
Rate-Mix Planning	p. 226
Looking Back	p. 230
Case Study: Canned Food Manufacturer	p. 231
Chapter 7 Transitioning to a New Culture of Market-Driven Supply Chain	p. 237
The Transition Plan	p. 237
Instituting the Audits and Recognizing the Team Responsible	p. 247
Looking Back	p. 257
Case Study: Medical Technology Company	p. 258
Time to Start	p. 260
Index	p. 263