a redprairie white paper - distribution group · a redprairie white paper creating the demand- ......
TRANSCRIPT
EXECUTIVE SUMMARY
As the 21st century is beginning to hit its stride,
a tectonic shift has occurred in supply chain man-
agement. The factory-based push economy of
the 20th century that made the U.S. a world pow-
erhouse has given way to a retailer-focused pull
economy where customer demand is the dominant
force in shaping supply chain operations.
Fueling this shift have been significant improve-
ments in communications and transportation, most
notably the internet and containerized shipping,
as well as the opening of China as both a supply
base and huge potential market. The resulting glo-
balization of supply and demand has substantially
increased the complexity and variability of supply
chain operations. To support this shift, traditional
supply chain practices must be supplanted by
a new approach where responding quickly and
profitably to customer demand is the guiding prin-
ciple. Enter the Demand-Driven Supply Network
(DDSN).
DDSN is a term coined by AMR Research to define
the practice of designing supply chains, or net-
works, around the imperatives of sensing, shaping
and responding to customer demand. (Other ana-
lyst firms describe this process with slightly differ-
ent terminology, but the same basic framework.)
According to AMR, companies fully deploying
DDSN “have 15% less inventory, a 17% better per-
fect order performance, and a 35% shorter cash-to-
cash cycle time.” More importantly, “DDSN lead-
ers have 10% higher revenue and 5% to 7% better
profit margins than their competitors.”1
Despite these impressive results, however, there is
a missing link in the DDSN framework that could
significantly increase savings and profit margins.
When analysts discuss the supply side of the
equation, they focus on manufacturing and inven-
tory, perhaps a vestige of the factory-based push
mentality. Their theory is that basing manufactur-
ing and inventory planning on customer demand
through disciplines like sales and operations plan-
ning (S&OP) will better tailor supply to demand,
producing higher revenues at lower cost.
What is missing is the connection between cus-
tomer demand and the supply of human resources
needed to execute distribution functions. Since
labor represents 50 to 70 percent of the cost of
distribution operations for most companies, bet-
ter aligning supply and demand for this variable
resource through demand-based planning and
scheduling can significantly impact bottom line
results.
This white paper will explain how tying workforce
planning and allocation into DDSN programs will
create a Demand-Driven WorkforceSM for improved
efficiency, customer service, quality and safety.
THE CUSTOMER DEMAND IMPERATIVE
You can hardly pick up a paper or business jour-
nal today without reading about Wal*Mart, the
world’s largest company. By its sheer size and buy-
ing power, Wal*Mart can dictate purchase terms
with manufacturing behemoths such as Procter &
Gamble, Unilever and Kimberly Clark, as exempli-
fied by their recent mandate for EPC/RFID compli-
ance.
Gone are the days when large manufacturers could
develop new products, create demand for them
through sophisticated marketing programs, and
1 Lora Cecere, Debra Hofman, Roddy Martin, and Laura Preslan, “The handbook for Becoming Demand Driven,” AMR Research, July 1 Lora Cecere, Debra Hofman, Roddy Martin, and Laura Preslan, “The handbook for Becoming Demand Driven,” AMR Research, July 1
19, 2005
then set price points and delivery schedules to
maximize the value of manufacturing and distribu-
tion operations. Now mega-retailers like Wal*Mart,
Target, Tesco, Albertson’s and Home Depot create
demand and dictate price through massive retail
operations, as well as requiring additional services
such as store-ready pallets, special packaging and
labeling, and other value-added services. Thus,
“pull” has replaced “push” as the dominant sup-
ply chain dynamic, shrinking the latitude suppliers
have to manage production and distribution, and
putting a premium on efficiency and agility.
Another key market force impacting suppliers is
consumerism. To satisfy varying and changeable
consumer tastes, products have greatly prolifer-
ated. This product explosion has commoditized
products, shortening product lifecycles and elevat-
ing the importance of successful new product
development initiatives (NPDI). More products with
shorter lifecycles and the uncertainty of NPDI suc-
cess greatly complicate distribution planning and
operations for both suppliers and retailers.
Adding fuel to the fire and giving operations man-
agement even more headaches is the globaliza-
tion and personalization of supply and demand.
Today a buyer sitting at their PC in Frankfurt or
Johannesburg or Sydney can order a product
made in China online from a supplier in Cleveland.
This globalization of both supply and demand,
facilitated by technologies such as the internet,
satellite communications and containerized ship-
ping, has substantially increased the complexity
and variability of supply chain operations.
Faced with many and varied demands from retail-
ers and consumers, together with shorter product
lifecycles teamed with longer, more complex sup-
ply chains, what are suppliers and distributors to
do? The only viable option is to build more agile,
adaptable supply networks tuned to ever-chang-
ing customer demand. This approach has been
dubbed the demand-driven supply network, or
DDSN.
Leading supply chain analyst firms have written
extensively on this topic and it is not the intention
of this paper to duplicate that work. Rather, this
paper will fill a gap in the research pertaining to
the human resources, that is, distribution workers,
who are so critical to executing DDSN strategies.
In order for an agile, adaptive DDSN to function
effectively in meeting customer demand, the distri-
bution workforce that executes the plan must also
be agile and adaptive. This has several implications
for operations management which will be dis-
cussed in this paper. Most notably it will be shown
how two currently separate disciplines, workforce
management and labor management, must come
together through the auspices of sales and opera-
tions planning (S&OP) to create a single, demand-
sensing execution capability called the Demand-
Driven WorkforceSM (DDW).
NEVER THE TWO SHALL MEET…UNTIL NOW
Two separate workforce systems have developed
over time to meet the differing needs of manu-
facturing and distribution operations. To serve the
needs of the factory-based push model of the 20th
century, workforce management systems were cre-
ated to take input from manufacturing execution
systems (MES) and order management systems to
produce workforce plans and schedules. These are
sometimes augmented with time and attendance
(T&A) systems to ensure workers are available to
fulfill the schedules. More recently, these systems
have been adapted to meet the scheduling needs
of highly variable retail operations.
2
During the same timeframe a parallel set of work-
force systems have been developed for distribution
labor management. These solutions employ indus-
trial engineering principles to design the optimal
way to perform distribution tasks and to develop
engineered standards on which to measure perfor-
mance. They then use performance monitoring and
reporting software to evaluate results. The engi-
neered standards also form the basis for modeling
near-term workforce staffing requirements.
Unfortunately, these to two types of systems, com-
ing from different disciplines and having different
objectives, have never been integrated to leverage
their respective strengths to form a single view
of workforce performance management. Further,
neither system has previously been tied into the
S&OP process to match supply and demand for
this variable and expensive resource.
A significant benefit of labor management is
attributable to the development of engineered
standards for specific distribution operations.
These standards are developed by evaluating sub-
processes or tasks with industrial engineering dis-
cipline, such as precisely where to place a tote or
position a fork-lift to minimize pick time. The engi-
neering model provides the discrete baseline data
for estimating everything from schedules and work
plans to assessing the impact of changes in ware-
house layout, process or slotting configuration.
This detailed baseline data could be immensely
useful in predicting future resource needs. But the
lack of integration prevents the schedule optimiza-
tion capabilities of workforce management from
leveraging the deep engineering model of labor
management. Combined they could provide a
more detailed and accurate plan for resource
scheduling and allocation across the operation.
The advantages of an integrated approach
become more important in light of recent research
by AMR that indicates “a high demand for work-
force planning and scheduling in the distribution
center” and also that this capability is where the
gap between perceived value and current perfor-
mance is the greatest. Furthermore, as “business
processes in the supply chain gain in complexity,
there is likewise a greater need to manage the
effect they have on labor resources.”2
As will be discussed later in this paper, workforce
planning and scheduling is now coming together
with labor management through a new generation
of workforce performance management solutions.
Furthermore, these disciplines are being attuned
to demand signals through their inclusion in the
S&OP process.
THE IMPORTANCE OF PLANNING
Meeting customer demand has never been
more complex and variable than it is today. With
global supply and demand networks fueled by 3
2 Greg Aimi and Mark Atwood, “Looking Ahead in Distribution Labor Management,” AMR Research, August 2005
mega-retailers, product proliferation with shorter
lifecycles, and the increased emphasis on new
product initiatives, correctly sensing and profitably
responding to customer demand has never been
more important.
For example, General Motors’ popular employee-
pricing program increased sales 47 percent in June
2005. More recently, the introduction of Microsoft’s
XBOX 360 game console raised far more demand
than their supply chain could immediately support.
As a consequence, operations managers now
more than ever need accurate demand data that is
understood, up to date, and available in real time
to support their operational planning needs. The
good news is that companies are beginning to
take a new and more realistic approach to planning
as defined within the discipline of S&OP. Supply
Chain Planning (SCP) applications are emerging
from several years of disillusionment and are now
more scalable and functional.
The major gap in these systems, however, contin-
ues to be the failure to translate customer demand
into workforce demand. This inability to translate
inventory requirements into labor requirements
creates a barrier to fully optimizing overall opera-
tions, thus leaving readily available money on the
table.
EMERGENCE OF WORKFORCE PLANNING
As companies focus on becoming demand-driven,
the S&OP process becomes central to sensing,
shaping and profitably responding to customer
demand. AMR Research defines S&OP as “the
translation of upstream demand data into an
actionable operational plan” and that “rapid prod-
uct commoditization, shorter product lifecycles,
higher product mix, and higher product volatility
are all putting pressure on margins and accelerat-
ing the importance of S&OP processes.”3
Yet, the key workforce ingredient in profitably
responding to demand is seldom included in the
S&OP process. Thus, operational plans created
under this process are not as efficient as they could
be. This is partly a systems problem, since supply
chain planning, workforce management, and labor
management systems are not integrated, and part-
ly a process problem, because management has
not generally perceived the connection between
workforce demand response and profitability in
distribution.
Clearly, the answer is to integrate the planning
and scheduling of workforce management with the
engineering model of labor management, and tie
the resulting capability into the S&OP process as
shown below for both manufacturing and distribu-
tion environment. This integrated process can add
significant additional value to DDSN initiatives.
WORKFORCE PERFORMANCE MANAGEMENT
The first step is to marry workforce planning and
scheduling with labor management. This is being
accomplished through the emergence of a new
class of labor management technology called
Workforce Performance Management (WPM) that
mirrors and supports the integrated workforce per-
formance management process.
Under this definition, the workforce performance
management process consists of:
• First, applying industrial engineering principles to
create an environment under which the workforce
can be most productive
4
3 Lora Cecere, Debra Hofman and Guy Dunkerley, “Sales and Operations Planning: A Cornerstone to DDSN Leadership,” AMR Re-search, July 18, 2005
• Using the engineering model plus demand sig-
nals to plan and allocate human resources across
distribution operations
• Tracking time & attendance information to pro-
vide a total picture of on-site performance from
the time they clock in until they clock out
• Employing real-time performance measurement
technology to monitor and evaluate performance
against standards
• Providing rewards, incentives or discipline based
on the above results
The fact that workforce performance management
has evolved into a single integrated business pro-
cess provides a sound foundation for integrating
the two types of business applications, workforce
and labor management, to create an integrated
WPM solution. Not only does an integrated solu-
tion better support the integrated WPM process, it
allows the deep engineering model and standards
data of labor management to be leveraged for
more accurate workforce planning and scheduling.
However, to fully fulfill the promise of the demand-
driven workforce, the integrated workforce perfor-
mance management process and solution must
also be directly linked to S&OP. This is where
DDSN and the demand-driven workforce come
together to produce the most optimal results.
THE DEMAND-DRIVEN WORKFORCE
At the heart of most S&OP processes are planning
systems that focus primarily on balancing esti-
mated demand with the appropriate supply. This
involves translating estimated sales into a manu-
facturing plan that subsequently feeds manufactur-
ing execution systems.
The problem is that supply chain execution sys-
tems, such as warehouse management, transporta-
tion management and labor management, don’t
receive this forecast and have little to no visibility
to the planned flow of inventory into the ware-
house from either outside suppliers or manufac-
turing, or to plans for new product introductions,
special promotions or other forecasted changes in
demand. Without this information, there is no way
for operations management to efficiently plan for
and allocate the human resources necessary to ful-
fill this fluctuating demand.
With no clear visibility into what is coming into
the warehouse or DC, operations managers must
be reactive and plan for the worst case scenario.
In other words, how many people do I need
to ensure that I can get all orders out on time?
Without adequate upstream visibility and discrete
standards data, operations managers can only
use gross historical benchmarks to estimate what
resources may be required.
Thus, the challenge in planning and allocating
the workforce is getting meaningful upstream
demand data and then translating that data into
an actionable operational plan. This is precisely
what the S&OP process should be providing. The
key to doing this is to understand the impact that
demand data has on the workforce. Translating 5
demand data into a workforce plan requires an
understanding of the relationship between opera-
tional activities and the required labor elements
to support those activities. This is most readily
achieved through an engineering model that exam-
ines discrete activities and applies a standard or
time increment to each.
By establishing new discrete engineering baselines,
operations managers can quickly and accurately
translate demand information into workforce
requirements. Long-term demand can be used for
staffing plans to adjust workforce size to fluctuating
needs. Shorter term demand can be used to iden-
tify required skill sets and create work schedules.
As a result, the proper number of workers and skill
sets are available when needed to ensure timely
customer service without overstaffing or unneces-
sary overtime or temporary employment.
THE DEMAND-DRIVEN WORKFORCE
By leveraging the discrete engineered standards
of labor management in workforce planning and
scheduling driven by a proven demand planning
process, companies can more accurately forecast
and allocate their distribution workforce. This
makes operations more predictable and efficient.
AMR Research states that typical efficiency gains
when deploying labor management systems
“include a rise in productivity of 20% or more
for warehouse operations. At a CP company we
interviewed with seven warehouses and a $22.5M
distribution payroll, the productivity gains in opera-
tions yielded a savings of $13M over three years.
Companies that have as little as a $2M to $3M dis-
tribution payroll can still take advantage of these
benefits.”4
Similarly, a study of RedPrairie Workforce
Performance Management customers conducted
by ARC Advisory Group found “40 percent of
respondents received between 5 and 15 percent
improvement in productivity with another 40 per-
cent receiving greater than 15 percent improvement
in productivity.”5
The good news is these benefits are additive to
the benefits of DDSN. Leveraging the discrete
engineering model of labor management in work-
force planning and scheduling provides the vehicle
through which the demand visibility of the S&OP
process can drive even greater DDSN efficiency. In
other words, the agile, adaptive Demand-Driven
Workforce enables DDSN to be more agile, adap-
tive and profitable in responding to customer
demand.
An additional benefit of the demand-driven work-
force is the best practices approach inherent in the
engineering model creates consistent processes.
This improves quality and safety, and simplifies and
standardizes training. The result is reduced train-
ing and distribution costs, and improved customer
service.
SUMMARY
The transformation to a pull economy and the
emergence of China as a major supplier and mar-
ket, have greatly increased the complexity and vari-
ability of supply chain networks. Companies must
find ways to quickly sense, shape and profitably
respond to fast-changing customer demand. The
Demand-Driven Supply Network has proven to be a
viable approach to accomplish this.
But the current framework for DDSN leaves out an
important and potentially lucrative source of sav-
ings and efficiency – the distribution workforce.
Advances in Workforce Performance Management
solutions that leverage rich engineering models
from labor management in workforce planning and
scheduling, and which respond to demand signals
through S&OP processes, are providing the miss-
ing link to create the Demand-Driven Workforce.
By providing operations managers with visibility 4 Greg Aimi and Mark Atwood, “Looking Ahead in Distribution Labor Management,” AMR Research, August 20055 Steve Banker, “Reducing Distribution Costs: The Value of RedPrairie’s Productivity Management Solution – Customer Survey,” ARC Advisory Group, March 2003
to upstream demand and the tools to convert that
demand into workforce plans and schedules, the
Demand-Driven Workforce enhances DDSN effec-
tiveness and makes all organizations, whether they
adopt DDSN or not, more agile, efficient and com-
petitive.
About RedPrairie Corporation
For over 30 years RedPrairie has enabled leading
global companies to create competitive advantage
through supply chain excellence. RedPrairie’s com-
prehensive technology solutions provide rapid and
sustainable return on investment by optimizing the
performance of people, places and processes.
RedPrairie provides industry-tailored solutions for
diverse markets, including consumer goods, retail,
food and beverage, building products, high tech /
electronics, third party logistics, industrial / whole-
sale, automotive and service parts, and pharmaceu-
ticals.
For additional information, call 1.877.733.7724, or
access www.RedPrairie.com.