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1managing risk in the global supply chain

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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


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


the globAl Supply chAin inStitute

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Creating a Transparent supply Chain best practices

Transportation 2025 Megatrends and Current best practices

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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.


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.


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.


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?”


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


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


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.


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)


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


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.


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.


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


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.


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


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


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.


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.


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


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.


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


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.


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).


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)


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.


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


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.


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


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


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.


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


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 [email protected] O: 865-974-9413 c: 865-368-1836

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310 StOkely management center

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865.974.9413

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