One month ago, U.S. oil traders weren’t paying much attention to the healthcare debate in Washington. They were more concerned about refinery operations in the Gulf, growing tension with Syria, and hundreds of other factors that would likely affect oil prices. After all, what were the odds that the U.S. government would actually shut down?
On October 1, everyone found out. Non-essential employees were sent home, projects were put on hold indefinitely, and non-mandatory spending was cut off. Suddenly the world’s largest oil consumer needed a lot less oil. Market participants who hadn’t accounted for the possibility of a shutdown, or come up with a contingency plan, found themselves exposed. And even as the shutdown appears likely to come to a close; uncertainty looms large as traders await the release of inventory data.
It is clear that the only way to succeed in today’s oil markets is to rely on new technology. No series of spreadsheets can account for all of the variables that threaten to dissolve margins and eliminate profits. Triple Point’s energy trading and risk management (ETRM) enterprise software, Commodity XL, stands alone in its ability to mitigate risk by providing comprehensive analysis throughout the oil market value chain. Learn more about Commodity XL for Oil.
I’ll take it as read that you’re all fans of the Prussian military analyst Carl von Clausewitz. Who doesn’t have a copy of his 1837 work, Vom Kriege, on their nightstand?
For those unfamiliar, he coined the term “fog of war”. In his book, he writes “War is an area of uncertainty; three quarters of the things on which all action in War is based are lying in a fog of uncertainty to a greater or lesser extent.”
(Stay with me.)
By fog of war, von Clausewitz is talking about military commanders’ incomplete or inaccurate intelligence about the enemy’s numbers, disposition, and capabilities—and the same about one’s own forces. Limited reconnaissance, deliberate misinformation campaigns, and delays in receiving vital field updates all contribute to the challenge of making accurate tactical and strategic battlefield decisions. If commanders make bad decisions on bad data, they could lose the war.
Anyone responsible for making decisions based on information gathered from the field knows this challenge inside out.
Consider supply chain planning teams. They make critical planning decisions based on their customer forecasts. With the right data from their customers, they have a clear competitive advantage. With the wrong data—or, equally bad, the right data showing up after they’ve had to make their decisions—they’re in trouble. In the supply chain world, this “wrong data” translates to lost profits and lost opportunities.
So, how do you cut through this forecast fog? By leveraging ways to help get more accurate and more frequent data updates.
Triple Point’s Mobile Demand Planner (MDP) is one example of technology that supply chain planning teams can use to gather more accurate data more frequently. If you are on the supply chain side of your business, think of MDP as your field salesperson’s link to the overall demand picture. It allows your field representatives to capture forecast data while meeting face-to-face with your customers. No latency, no errors—just real time updates from the field.
Getting these real-time updates gives you an early-warning indicator to issues that require adjustments to your production and distribution plans. With this up-to-date picture of your changing demand, you are one step closer to being able to stop reactively planning and start proactively planning.
So, remove the fog from your forecast. Learn how you can leverage Mobile Demand Planner (available from iTunes, August 23) and other technologies from Triple Point to maintain a clear picture of your supply chain planning “battlefield”.
Recently, Supply Chain Digest’s (SCD) Editor-in-Chief, Dan Gilmore, shared insights from a joint SCD-Gartner study focused on identifying the top priorities of supply chain professionals. In its sixth year, this study, led by Gartner analysts Dwight Klappich and Chad Eschinger, showed a shift in priorities over the last few years. As the economy ever-so-slowly recovers, it’s becoming apparent that companies are striving to return to “pre-recession volumes and activity without adding back all the supply chain head count and costs”—a trend arguably supported by recent employment numbers.
While the last few years have predictably seen cost-cutting measures holding the top spots on the survey, for 2013, companies have set their sights on using the supply chain to drive business growth as the primary goal, with customer service following a close second and reducing costs at number three. This is further recognition of the supply chain’s journey to the board room table as a key contributor, and now driver, of overall business strategy and development.
So what’s holding companies back from achieving these goals?
As many might expect, forecast accuracy/demand variability came out on top, followed by an inability to synchronize end-to-end processes, and a lack of enterprise-wide supply chain visibility. Interestingly, these problematic issues are mainstays that supply chain solution providers address with advanced supply chain planning solutions. You’d expect most companies to have solved these issues by leveraging such technologies by now. Yet the study identifies a discrepancy between the desire of companies for supply chain agility, and the flexibility of the supply chain software they currently have. This “agility gap” is large, with some 85% of respondents saying that flexible supply chain applications are critical, but only 42% saying their current software provides that flexibility.
Curious indeed. Triple Point’s Supply Chain Optimization (SCO) solution has been helping companies with these issues for over 25 years. We’ve worked with companies throughout the process industry to achieve flexibility to respond to unplanned events, obtain visibility to see the entire supply chain at a glance, and improve accuracy in forecasting, scheduling, and distribution.
So, what’s happening behind the scenes? Are these companies not recognizing this disconnect? Are they establishing their supply chain priorities without a tangible plan in place to achieve them?
This notable discrepancy makes us agree with Dan’s concluding remarks that “companies should probably raise the flexibility to make needed changes higher up in the selection criteria weighting versus functionality differences that dominate selection processes today.” Well said, Dan. Stay tuned.
We recently returned from sponsoring Logichem Europe where over 250 supply chain planning professionals discussed top industry trends. A topic of particular interest this year was supply chain segmentation.
What is supply chain segmentation? It’s a way to have your physical supply chain support multiple, virtual supply chains—each focusing on a different segment of products or markets with unique production costs, distribution costs, and customer requirements.
For example, companies can use segmentation to have their low margin products follow the most cost-effective paths through the supply chain, isolate unpredictable customers into separately forecasted groups to improve overall accuracy, or give premium service only to their highly profitable customers.
That’s good news for an industry facing extreme volatility and price pressures.
If you were to group your company’s products into different categories having similar expected customer service levels, lead times, and packaging varieties, you’d find that each group places different demands on your supply chain and represents different levels of profitability to your company. So why not treat each group differently with product and service offerings tailored to each group’s unique needs?
Supply chain segmentation allows you to do this.
Mature segmentation strategies extend across several areas of your supply chain, involving differentiated customer replenishment programs, supplier replenishment programs, inventory policies, demand policies, allocation and order promising, and Sales & Operations Planning strategies. With segmentation, you can introduce more stability in your production, leverage more economical distribution, and minimize the impact of volatility.
It’s easy to see why segmentation was a main point of focus at the Logichem conference. At Triple Point, we understand the value of segmentation to our customers, which is why our Supply Chain Optimization solution supports such strategies. Contact us to find out how you can implement a segmentation strategy for your company and begin reducing the impact of today’s volatility.
Whatever you do, don’t collaborate with your supply chain planning peers. No need to share information about inventory levels, customer orders or transportation woes. And definitely don’t try to predict sales out into the future, because there’s just no evidence that it’s a worthwhile endeavor.
OK, I didn’t think you’d agree with that. If nothing else, the previous paragraph was an unexpected swim against the current of overwhelming support for doing the exact opposite. Of course you should be collaborating. Of course you need to share information upon which critical supply chain planning decisions are made. Of course you should be doing everything possible to plan out as far as it is practical with as much accuracy as possible. And of course you should be leveraging advanced planning and optimization technologies to help create highly profitable operating plans. Why? Because it’s your best defense against the supply chain planning risk and unpredictability that is here to stay.
A recent survey from Deloitte shows that global executives are increasingly concerned about the growing risks to their supply chains and costly negative impacts, such as margin erosion and inability to keep up with demand. Of the 600 executives surveyed, most converged on the need for a strong risk management strategy to mitigate the impact of ever-present disruptions. Yet, an alarming 45% of the surveyed executives said their supply chain risk management programs are only somewhat effective or not effective at all. And the number one reason why their supply chain risk management programs are not successful: “lack of acceptable cross-functional collaboration.”
Despite strong evidence from all corners of supply chain outlining the benefits of collaboration, including increased visibility, flexibility and control, many companies continue to struggle to achieve an effective level of collaboration across the enterprise. They continue to operate in an array of information silos, preventing the creation of a true picture of the current state and future outcome of the current supply chain operating plan. Look deeper into the Deloitte survey results and you’ll find that “current tools and limited adoption of advanced technologies are often constraining companies’ ability to understand and mitigate today’s evolving supply chain risks. Although many of the surveyed executives report using a wide range of tools to manage risk, only 36% use predictive modeling and less than one-third (29%) use risk sensing data, worst case scenario modeling, or business simulation—tools that can help drive more proactive management of supply chain risk.”
With many advancements in supply chain software over the last decade, it is surprising that companies continue to struggle in these areas. Triple Point’s Supply Chain Optimization solution has been helping process manufacturers achieve enterprise-wide collaboration enabling tactical and strategic supply chain planning for over twenty years.
As you read this, Triple Point headquarters is emerging from the second of two headline-grabbing storms to wreak havoc on the northeastern United States. Winter storm Nemo dumped 40 inches of snow on New England, cutting power to 650,000 customers across eight states and paralyzing air, rail and road networks. And while recovery should not take too long this time, that was not the case with Hurricane Sandy last October whose 110 mph winds caused $74 billion in damages in a swath from the Caribbean to Cape Cod.
If your job is managing the distribution of materials across a supply chain, storms like these mean big headaches.
When transportation lines are cut, product does not move. Customer orders are delayed or canceled. Raw materials are not delivered. Production assets are offline. You must respond with supply chain planning and scheduling revisions that somehow accommodate your customers while avoiding impact to margins.
The complexity of revising integrated supply chain production and distribution schedules cannot be overstated. Maintaining balance during plan revisions is virtually impossible without accurate, timely data from across your enterprise. Creating and evaluating feasible recovery scenarios is equally impossible if attempted using inadequate planning technologies. Simply put, you need supply chain software that gives you clearly-defined options and lets you make planning decisions that help you quickly get your supply chain back on track.
When 100-year storms start occurring every six months, supply chain professionals trade their spreadsheets for advanced supply chain planning solutions that deliver enterprise-wide visibility and enable optimal plan revision. Triple Point’s Supply Chain Optimization solution lets you maintain optimized plans and schedules in the face of such disruptions. Learn more.
It should come as no surprise that the commodity industry is predicting a continuation of 2012’s market volatility and slow economic growth for the balance of 2013. Regional economies that were thought to be in recovery are now slipping back into recession. Major commodity price fluctuations are expected to persist, and global demand for oil is expected to rise only 0.8% to 90.4 million barrels per day this year. Volatility will continue to be influenced by the euro-zone debt crisis, fluctuating demand in Asia, and continued political unrest in the Middle East.
Commodity-consuming companies are challenged to respond to this volatility with supply chain strategies that drive top line performance while protecting the bottom line. A strong pricing risk management strategy is essential to remain competitive. However, it is not the only strategy that must be considered. The profitability advantages gained from insightful commodity purchasing and trading decisions can be obliterated by a poor volume management strategy that quickly erodes margins by causing costly mistakes such as expedited shipments, lost orders, missed sales opportunities, poor inventory staging, stock-outs and overruns.
Global volatility only adds to the planning challenge. The importance of maintaining an accurate volume demand forecast, production schedule, distribution schedule, and inventory management strategy should not be lost on anyone.
Triple Point’s Supply Chain Optimization (SCO) solutions help you address your risk mitigation strategy from a volume point of view. Triple Point SCO integrates your data silos into a single planning database, allowing everyone to collaborate on one set of numbers to arrive at a highly accurate volume demand plan. This plan then drives more efficient downstream production planning and scheduling decisions which translates to higher utilization, higher service levels and reduced inventory costs. Learn more.