Translating business drivers into technology requirements: How to support today's S&OP and SCM landscape
Good day ladies and gentlemen and welcome to this webcast sponsored by Kinaxis and hosted by us here at RaptureWorld. My name is Oliver Sloane and I'm the managing director of RaptureWorld Ltd. Today's session is entitled Translating business drivers into technology requirements: How to support today's S&OP and SCM landscape. And I am delighted that we have with us today, three notable industry experts to guide us through some of their thoughts and ideas around this interesting topic and to speak from a user perspective and an industry perspective on how companies are driving S&OP and SCM technology to deliver business performance. In terms of a synopsis of a leading EMS provider, Flextronics is no stranger to supply chain pressures, short product life cycles, demand volatility, supply shortages, all of these must be managed within a supply chain that crosses organizations, geographies and time zones. As a result there is a tremendous need for supply chain agility and one of the most fruitful ways to improve agility is to reduce decision latencies throughout the multiple layers of supply chain and throughout the various stages of the S&OP process. From a technology perspective this has created an urgent demand for visibility, collaboration, identification of alerting and ERP agnostic analytics. In this webcast, Flextronics, CIO, Dave Smoley, will discuss the technology capabilities that are required to be a partner in their customer's planning processes and proactive in responding to their changing needs thus avoiding the organizational chaos and business risks of being on the tail end of the bullwhip. To introduce our key speakers today. First of all a man that actually needs very little introduction, Dr. Hau Lee, who is the Thoma Professor of Operations Information and Technology from Stanford Graduate School of Business. Dr. Lee specializes in a number of areas, including supply chain management, information technology, global logistics system design, inventory planning and manufacturing strategies. He is the founding and current director of the Stanford Global Supply Chain Management Forum and industry academic consortium to advance the theory and practice of global supply chain management. Professor Lee has been published widely in many journals and served on the editorial boards of many international articles. This includes the AAA supply chain which was the second place winner of the Kenzie award for the best paper in the Harvard Business Review. Very good day to you Dr. Lee. How are you?
Good day Oliver and hello to everyone.
And we thank you very much for being with us.
Moving on to our keynote speaker today is David Smoley. David is the Senior Vice President and Chief Information Officer at Flextronics; a position he has held since December 2006. Leading IT publication Information Week recently ranked Dave as one of the top 50 global CIO's. IT leaders change in the business world. Prior to Flextronics Dave served as Vice President and Chief Information Officer of Honeywell's Aerospace Electronic systems. His extensive IT career also included management positions with General Electric where he most recently held the position of Director and Chief Information Officer for GE Power Controls in Barcelona, Spain. A very good day to you Dave, and thanks for joining us.
Thanks Oliver and thanks for having me.
And finally, providing commentary and analysis for us today is John Sicard. John is the Executive Vice President of Marketing, Development and Service Operations at Kinaxis. He spent over fifteen years helping build a number of key functional areas within the business having starting as a key contributer to the architecture and the development of Kinaxis' supply chain management solutions in early 1994 he soon went on to hold senior management roles in development, professional services, business consulting and customer support. John oversees the design and development of the Kinaxis ondemand service as well as those responsible for its deployment and support. In the fall of 2009, John's leadership role was further expanded to include the company's corporate product and marketing functions. A very good day to you John.
Hi Oliver, it is a pleasure to be participating. Thank you.
And we thank you all for taking the time out of your busy schedules to be with us today. So without further adieu, Hau if I could turn this over to you let's get started with the presentation.
Thank you very much Oliver. Good day. It is my pleasure to be able to introduce to you the section of the very very important subject that our speaker Dave will be talking about. Today's supply chain environment is really typified by major challenges. And these three challenges that I outlined here were not the only challenges but they are the major ones. Increasingly we have found that companies are faced with uncertainties in both demand and supply. And that is a result of the fact that many products whether you are in the high tech or even in the traditional business are more like fast moving fashion. Not just fashion in the sense of apparel but products like XBOX, products like IPOD, IPHONE, they are all like fashion products with very strong competitive forces, the product variety that have means that it is very difficult to give good forecasts. Then we are all vulnerable to external disruptions, disruptions such as a new competitive product coming in or even some external events such as earthquakes, or some of the major disasters that seems to be happening at increasing frequencies these days. At the same time we have shortening product and technology cycles and innovations means that the product life cycles are getting shorter and shorter, while these changes are going on we have a very significant advances in new supply sources, new channels, new markets as well, the new brick countries are coming in, the emerging economies are also new markets. How can we manage change in a dynamic fashion? Finally, which is very important in the sense of electronics, is a very key position in today's supply chain is the increasing use of outsourcing. We are not just outsourcing manufacturing we are outsourcing design, we are outsourcing service, we are outsourcing logistics and information technologies as well. And all these partners need to be coordinated, need to be aligned with their interest, so those are very difficult challenges which is why we are so delighted so have today's speaker to share with us how they have to address these challenges. To me, intelligence as OP and supply chain managements require major innovations. And those innovations, I set them up as stages although they are not exactly in time sequence stage because they can happen simultaneously and some companies can pursue them one at a time or multiple at a time but the most fundamental one is visibility as I mentioned that when you have so many multiple partners working together you need to have good visibility of what's going on. It could be your supply partners, it could be you channel partners, you need demand information, you need inventory information, you need capacity information, promotion plan information. Information sharing .. I should mention that sometimes it's not just between organizations we need to worry about visibility. Sometimes in S&OP visibility amounts different groups within the same organization, in marketing, in sales, in production, in sourcing, they all need to have a good foundational level of information sharing. So that is a lot of the information technology demands onto the overall systems. The second one is that once you have that visibility you need to coordinate with your partners, understanding what the other partners constraints are so that we can come up with a good plan. But all plans are going to have changes, are going to have some unexpected things that are going to happen. So we need to completely monitor the plan to make sure we have control; integrated control, integrated decision. Respectively we need to react promptly. We need to be able to analyze what is the right decision that could address a particular unexpected events that throw you off from your original plan. So that's something that people call sense and response and I think this is exactly what is needed. To show this in a more dramatic way, this diagram shows why you need downstream demand visibility because that information runs upstream would become useful information to help you to resolve some of the uncertainty, to have some forward advance information to allow you to respond by re-planning, fixing new executions and ultimately improve the performance, in the same way the supply visibility allows you to have the same thing in a different direction. So now how can we do this well? And I am going to borrow this wonderful concept that people have come up with initially in quality control but now it is very much like a management philosophy of the six sigma process. To fix process for management is also equally applicable in S&OP and supply chain planning, and I call that the Six Sigma Supply Chain. If you look at a Six Sigma Supply Chain they often times start saying that you need to track and measure and I think in supply chain, the same thing. We need to measure so that we can have the visibility. We need to identify with the right alerts so that if something goes wrong we will be able to identify perhaps what's wrong and also the diagnostic ability to understand what caused it, so root cause analysis is to try to understand exactly what went wrong and what could be the possible remedies but there are many remedies and our speaker will share with us how they face with these type of situations and how they then utilize technologies to analyze the impact of different actions and ultimately pick the right one. And when you execute of course you have to execute it responsively, promptly, and the final thing is that we must obtain feedback to try to understand whether the actions resulted in the desired outcome and use that as a way to update the system, so this is like a look, the sense and response is a look, it is a six sigma look which we have to continuously monitor. Now it is easy for me to describe this at a conceptual level but I think in reality it is usually a very difficult thing to do it well. So I am delighted to have both John and Dave to share with us both the perspective from the technology side so that 11:36 technologies, so that this is something you cannot do by brute force and also how to make it happen in a very big organization like Flextronics with multiple customers and suppliers and how Flextronics was able to manage this very extended supply chain, so I am very excited to be able to give this introduction to hear from both John and Dave about how to make things happen in the real world. Now back to you John.
Thank you Hau. And Oliver thank you again for providing this unique learning platform. For those listening in for the first time this is a great service and a great opportunity for people in the supply chain looking for business improvements, looking to gain insight through the experiences of other leaders, so I really appreciate the platform. And Hau, let me just say it is a great pleasure and honor to be presenting with you again. I was going to say that we've got to stop meeting this way but then again that wouldn't be the truth, so seriously, these are great and relevant discussions to be having and I sincerely appreciate being part of them. I think the last time you and I presented Hau, we talked at length about sense and response and if my memory serves me correctly, you had provided great detail on the definition of what you coined as sensible sensing and responsive response and that six sigma diagram that you describe and track and measure is extremely relevant. So here we are almost one year later and suprise, suprise, the velocity of uncertainty appears to be maintained the same level of momentum we talked about way back then. It might even be accelerating, especially as you stated Hau, for industries like fashion, or fashionable high tech electronics. I am particularly interested in how the conditions of the supply chain environment that you mentioned, demand and supply uncertainties short product and technology cycles and the fact that manufacturers outsource some or all of the elements of their manufacturing not only how it affects supply chain management but how they are beginning to affect sales and operations planning. Most organizations have yet to unify those two processes and the processes between supply chain management and S&OP and while supply chain management processes have matured with the help of specific technologies and solutions, S&OP processes still tend to be built from informal systems like spreadsheets and access databases, so the one Aha moment that I have been able to garner from this and previous discussions with you, the path to breakthrough performance is not only about establishing a culture and a competency, sensing and responding to change, it is about getting the individuals involved in supply chain management and the individuals involved in sales and operations planning working together around one table and hopefully around an integrated technology, and I think we'll learn a little bit about integration from Dave. Now it is a great pleasure, obviously to have Dave Smoley with us today to provide not only a CIO's perspective on modern day supply chain management and S&OP challenges but also the technologies involved in tackling them. Essentially, the interest with the perspective coming from a leader in global contract manufacturing I think it is going to be really relevant. You might even say that contract manufacturers were first to feel the spike in supply chain volatility and likely first to adapt to the new terrain. All that to say that Dave I'm sure has been thinking about this for a very very long time and leading the technology decisions required to thrive under the new supply chain landscape so without further delay, let me step out of the way and have Dave pick it up from here. Dave?
Thanks John. It's great to be here and certainly appreciate the opportunity to share our experiences with everyone. What I'd like to do is start with a brief video. It gives a good sense of breadth and scope of Flextronics, so if we can roll that video please.
Flextronics – Using Technology to Accelerate Supply Chain Collaboration
Flextronics – Design, Build, Ship, Service
What happens when global brand names partner with Flextronics? Amazing results. Together they bring consumers millions of mobile phones, tens of thousands of DVD kiosks, millions of high definition TVs, tens of millions of blood glucose meters, tens of millions of gaming consoles, hundreds of thousands of network equipment, millions of computer notebooks, more than one hundred million computer peripherals, hundreds of thousands of automotive LED lighting. How does Flextronics serve its customers? Scale – 20,000 employees, 30 countries, four continents. Breadth – Integrated solutions and services. High Volume/Low Mix, Low Volume, High Mix, Customer Segments – Computing, Industrial, Infrastructure, Mobile & Consumer, Medical. Business Units – Multek, VistaPoint Technologies, Flexpower, Services. Stability – Leader in Six Sigma Operations. What Drives Flextronics? Vision – Limitless scale, Repeatable execution. Our commitment to creating value that increases customer competitiveness. How do we deliver around the world? Altrofen, Austria – Medical devices, Bluetooth hearing aids, photovoltaic printers, GPS and Care Infotainment Units. Ausin, USA – Data Management, storage area networks & ATM fabric switch, Networking Enterprise Routers & Gigabit Switch Router, Office PBX/IT Telephony, High resolution teleconferencing equipement. Budapest, Hungary – Infrastructure test, debug & process verification, hard disk drive testing & screening, desktop & laptop repair. Charlotte, USA – Test equipment. Creedmoor, USA – Telecom/Carrier Network Equipment. Johor, Malaysia – Clean Tech Supersite, High-efficiency solar modules, panel and systems. Juarez, Mexico – High definition TVs. Shanghai, China – POS terminals. Suzhou, China – Automotive wireless modules. Venray, Netherlands – Completion & Logistics, Printers, Notebooks, Computer Peripherals. Zala, Hungary – Marine navigation & rudder device, automotive components, smartphones. Zhuhai, China – Computers & Servers.
The Results? Just ask our customers. They have awarded us for excellence in service and quality creating value that helps them compete.
$30 Billion Revenue, 200,000 employees, 130 locations, 30 countries, 27 million manufacturing sq ft.
Great thanks. That video gets me pumped up every time I watch it to be honest. It is truly a great opportunity to be able to share with you some of the experiences that we have with such an incredibly broad and diverse company operating around the world in so many different locations and with over 30 billion in revenue. It is not just the building and shipping we actually have more than 2000 design engineers working upfront to design products. Our largest manufacturing campuses have more than 40,000 employees who ship literally billions of orders every year and on the service side this is a new area we've been pushing into where we are actually doing reverse logistics, repair and service parts business as well; lots of challenges from a supply chain perspective.
The fact is there is no single best supply chain strategy. There are a lot of different pieces that go into determining the right supply chain strategy, the products and components that you are actually attempting to build and to manage, there is the go to market strategy whether you are going through a sort of replenishment process direct to stores or perhaps even direct to the end customers, the end users through online or the more traditional; working directing with OEMs and enterprises. All these and the scope of the different processes being addressed boil down to the company strategy. And really the company strategy can be decomposed even further into individual business units or in Flextronic's case, sometimes even decomposed down to individual customers, so when we talk about our supply chain strategy at Flextronics, it is really a portfolio of supply chain strategies that change and are determined by very different criteria according to the business units and the customers.
So when we design the value chain strategy for a given situation, there is five areas that we consider. First of all and most importantly these days is the lowest end to end cost; thinking about the material costs, the labor costs, the transportation, even things like taxes and tax treatments. Secondly you've got the whole service level factor. What service level is the customer requiring, what types of service levels, what types of availability, what types of cycle times. Those determine what types of strategy you take. Third, the whole flexibility piece, which Dr. Lee emphasized and John as well. It seems to be that speed is increasing, the expectations around speed, the expectations around being flexible and agile and changing to whether its to unplanned situations like commodity price changes, exchange rates, supplier issues or in some cases, from our perspective where outsourcing used to be a fairly major event in a company's life, it is now being managed much more tactically and much more dynamically, which means it changes a lot; individual strategies for a company.
Fourth, the whole use of assets, whether it's million dollar pieces of capital equipment or millions and millions of dollars of inventory, raw whip, finished goods, that sort of thing. And then the last piece which is becoming increasingly more important is the environment. There are really challenging laws coming up all around the world in terms of hazardous materials and often shipments coming from China to the Netherlands for example, companies are required to report exactly what went in from a green perspective, from a carbon perspective to each of the components in that shipment and then being accountable and then in some cases being financially accountable for that.
The value chain design for Flex really boils down to two key strategies, two key pieces and that is first of all the decision making; the ability to take data and transform that into usable intelligence that can actually give us speed around decision making. The speed to the decision is one of the metrics that we drive for, whether it is forecast changes, available to promise, engineering change orders, that is a key component and that comprises the analytical backbone of our supply chain and then the foundation below that is the operational piece that says once we've made a decision, how can we execute on that decision with six sigma precision, how can we do it without a whole lot of variance with speed, but also recognizing that you have to have flexibility, the ability to innovate and the ability to adapt. Those two pieces are key elements of our supply design.
Let's talk a little bit about technology because that is what I really want to focus on is how technology enables the supply chain. There are three key areas I want to emphasize here. The most important one and this is sort of a classic across all functional areas of IT and that is that the process in the organization have to come first. We are not in the business of deploying IT tools to drive our supply chain, we are really in the business of partnering with our supply chain folks with the operations folks, with the procurement folks to make sure that we are aligned with what their business goals are, what they have to achieve. We want to be proactive, we want to be a part of the design but the reality is that the rules, the people, the roles and responsibilities have to come first and that process has to be defined both within the company and also between our company and our partners whether it is suppliers or customers. Those pieces of the puzzle need to be defined and decided upon with technology being a part of that decision making process and a part of the design but not at all driving the design and so our top priority here really is how do we use technology to enable speed and agility.
The second of the three pieces that govern how we use technology is we have chosen to follow a best of breed approach with a standard set of tools. This is always a debate. There are companies that follow best of breed, there are companies that may go with more of a monolithic supplier and try to drive along one particular vendor strategy but what we've found in order to achieve agility and in order to achieve speed with the breadth of products, with the breadth of customers, and the breadth of processes and locations that we have, we have to follow a best of breed portfolio, because these tools make a toolbox and whenever you are doing a job with your toolbox you want to be able to pick the right tools and it may change depending on the job, in fact it does so we have created a toolbox and these tools are able to be put together or broken apart and that gives us the ability to span different sites, countries and regions because each customer, each product is a different situation and so we've got to be able to handle different currencies, different languages, different compliance challenges and we have to be able to adjust because those are all things that change often in terms of what the customer is requiring, in terms of what the government is requiring. And the other part about this portfolio tools is they have to be easy to deploy and easy to use and learn because one of the biggest challenges in IT is user adoption. Obviously, many of the S&OP processes are manualled historically but the easier the tools are to use the more familiar people are with the tools then the more they are going to be adopted, and the more they are adopted then the more you move away from unstructured collaboration, unstructured supply chain sharing to a more structured supply chain sharing. We found that a standard set of tools, we have a finite set tools in IT that we are using and we try to focus on those and what that does, that means that when you go from site to site within Flextronics, you will find people that are familiar with the tools at the different sites, even though scope of which tools are being used may vary slightly, when it comes to a particular problem to be solved, 99% of the time it will be the same tool, site over site and that gives us a tremendous amount of confidence and reusability across the organization. The second thing we have done in this area really is we have dedicated teams of people around the world around this portfolio. We have deployment teams that focus exclusively on deploying these tools in new locations or with new customers. We have development teams that work on any configuration or customizations that are required and we have support teams that share a 24/7 single ticketing system single process for incident management and problem management that allows us to react quickly so that we have two IT measurements, one that is the mean time to repair and the other is the mean time between failure and this is how we measure our up time because I think that the more the systems are up, if the systems are down they are not helping the supply chain. We work very hard on being very quick to identifying incidents, resolve them and then for recurring incidents look at what the problem is to figure out if we need additional, deeper analysis and repairs. That is the second piece, having standard tools that are the best in their category making sure that they are easy to deploy, that people are familiar with them no matter what country, no matter what site.
The third piece then is around the unstructured part of the collaboration and sharing so that the standard tools really helped us structure data, the third part is the unstructured data and yet this is the most important part probably and is becoming increasingly important as the speed accelerates in the supply chain. And these are tools that have been around for a long time however they are becoming more and more powerful as the bandwidth around the world increases and as Moore's law continues to drive us to more powerful tools, more powerful routers and switching equipment and desktops. We find that desktop videos are widely used. This is the ability to over the internet, instantly connect with people in various locations to share information. As I was preparing for this meeting I chatted with one of our VP of Operations about which tools and of course I was pretty focused on some of the structured tools, the ERP tools and the analysis and planning tools and he said, Dave, one of the most important tools for me is Microsoft office Communicator because when I had an issue in Guadalahara, I get everybody on line at 8:00 o'clock in the morning and we have a 15 minute video call no matter where they are, they can be in an airport they can be sitting in their office and that is the way that I look them in the eye and hold them accountable and know that the actions they have told me that they are going to take are being acted upon and followed up. So desktop video, instant chat, these sorts of things are very powerful. Meetingplace, we use webex and it is kind of simple but we have the ability through outlook to go in and launch a meeting, invite people to it both inside and outside of the company instantly, 800 numbers dialled and you can share slides and it is very powerful for making sure that everybody is looking at the same data, sharing the same information or in some cases looking each other in the eye real time. So that gives us a lot of speed to decision making. And of course the ability to share files whether it is STP or even by Sharepoint which is how we run our global internet sharing and then increasingly we are becoming more and more dependent on high definition video conferencing so we have leveraged some of the Cisco teleprograms capabilities which are the immersion rooms where you literally feel like you are sitting across the table from someone even though they are half way around the world and we have extended that from those big meeting rooms with immersion down into smaller, less costly, less complicated meeting rooms all around the country where we literally have close to 100 that are in the process of being set up and running today and then all the way down to the desktop video which I talked about, so our goal here is really to enable anyone to be able to connect within and without of the company to address issues in the global environment.
I talked over and over about our best of breed portfolios of tools and this is the highlights. This is not to say that they aren't some other tools in here, but these are really the workhorses; these are the ones that we use over and over again. Baan is our ERP. We use if for factories, MRP for the financials for purchase orders and customer orders and it has been very very effective for us. It is very fast, we are very rapidly able to deploy it, it is stable and very effective and we will continue to use Baan successfully and these other tools compliment it for example SAP. We do not use SAP as a core ERP but we use certain parts of SAP for sourcing, for procurement management. Our supplier portal SFP is based on SAP technology and it's been a huge enabler in terms of moving from unstructured sharing and collaboration to more structured sharing and collaboration particularly for the suppliers that are less sophisticated, less capable and may not be able to do actual EDI and BDB. RedPrairie is a relatively new tool for us. We added this about two years ago and it has been a very positive addition to the portfolio when it gets to the more complicated warehousing, logistics and service challenges. Kinaxis is a tool we use on demand management supply side planning, a very powerful and allows us to take large quantities of data and do what-if analysis very rapidly. Serus we use on the demand side to calculate re- order points and look at other sorts of demand issues. WebMethods is used within our company for application to application and as an enterprise service is also used to manage our business to business EDI, file sharing and data sharing. Simplex is a very powerful tool that allows us to model and to plan our supply chain when we are dealing with new customers and we can use this to model and even in some cases to do dashboards and execution. Xelus is a tool we recently added in the service parts area so it allows us to take large quantities of parts with demand with forecast what the inventory should be going forward. And then Salesforce just to talk about the integration between ops and sales, Salesforce is the tool we use on the frontend. It's our pipeline, it is our customer management tool and increasingly we are finding the teams are using it as part of our S&OP process.
So let me take those tools and give you kind of a real world example. This is somewhat generalized but it will help you understand how we are using those tools today. If you think about customer collaboration, supplier collaboration with Flextronics in the middle the demand planning side with reorder point and safety stock with online customer collaboration and so on, this is typically a process we do using Serus as a tool, on the supply side then this is where we are trying to rapidly regenerate MRPs, not MRPs that might run for six hours as they often to in ERP overnight, but simulations that are almost real time, loading in, all the same parts, all the same constraints and running rapidly what-if analysis which then allows you to manage the ERP and the MRP part better from an execution standpoint. This helps us particularly in forecasting our ability to meet customer commitments. And the part in the middle of course is how you take the demand management and the supply management and you put it together and figure out how you are going to execute primarily using Baan with planning and fulfillment and procurement. And then of course we've got the B to B part, web methods and our portals, customer portals, and FSP which is the supplier portal. And then of course as I mentioned, there is the unstructured piece which is throughout this there are conversations going on over the phone, over chat, over Webex, over OCS, over Meetingplace, whatever, where internal groups are talking and internal folks are talking with external folks and that is really the part that is key to making us achieve the speed.
So just to wrap up let me talk for just a moment about where we see the future going. I think there are five key changes; five key trends that are happening right now that will continue to accelerate and will continue to drive change into the supply chain and into how technology is used. The first one increasing use of social networking tools, facebook is a phenomena that we are all aware of; for sure anyone with kids or grandkids is aware of; many of us in IT are searching for that holy grail, where is that facebook for the enterprise? I know there are a number of companies out there that are offering tools that are beginning to look more and more viable and more and more interesting. Cisco is one of them, Google on the consumer side. Salesforce recently launched chatter which is their facebook application and particularly if you are already up Salesforce on sales side or CRM for service, it's a very very interesting tool, one that we are using right now on a pilot basis and are going to be expanding. These social tools, if you are familiar with facebook what it is, is that it is a gathering place with people of common interests where you can share information, whether it is photos, videos, other links rapidly and so it's just a natural thing that we are going to have that same sort of tool and capability for supply chain groups so when you have a group that is a contract manufacturer, a customer and some key suppliers and they have the ability to get into a space and share files and chat on an instantaneous basis, that's going to be very very powerful so it is just a matter of time until the right tools begin to hit the market and become adopted and then of course they will also be driven by younger workers coming into the workforce who now think email is old school and can't imagine living without twitter and facebook and some of these other tools.
The second big trend for the future I think is Saas/cloud and virtualization where appropriate because it is not going to be everywhere but if you look at just in the space of what we are talking about today, Kinaxis, SalesForce.com, Sirus, these are all tools that are available in the cloud. They are all on demand which means when you implement them you don't have to buy millions of dollars of servers and you typically don't have to pay a third party, millions of dollars to come and install and buy the licenses and put them on the shelf. It means that you consume and pay for how ever much you use. So if you are going to put it into one factory you buy enough to use in that one factory, the hardware, the technical infrastructure, that's all managed by the company, and what that means is, it's a lot simpler, the IT required to support that organizationally and cost wise is much lighter, much less. So it gives you speed, it's easier, and it's cheaper. And we've found this in supply chains, we have found it in spades with other areas, for example in HR and I think that it's just a matter of time before the staff application and the cloud enablement is going to increase in the supply chain area, and we have a number of very large, complex, legacy applications out there that over time there is not going to be a whole lot of investment, I don't think, in continuing to grow these tools and over time people are going to begin to look at how are we going to dismantle these in a way that saves us money and gives us speed and I think Saas and cloud is going to be the solution to do that.
The third area is in-memory processing, so this is the area Kinaxis has done very very well by allowing you to process in-memory you can load large quantities of data and you can actually run very very fast simulations. SAP recently announced that this has been a big push for them so further endorsing the importance of that space, and so again it is more what drives us to faster and larger and cheaper memory we are just going to find that more and more of what we do runs in memory which is going to enable us to analyze larger quantities of data faster.
Fourth is the whole B to B piece. As we are analyzing data internally faster the need to get data in and out of the organization and across and between customers and suppliers is increasing as well and so the web enables that, increased bandwidths enables that, open architectures enables that as well. We do over 8 million B to B transactions a month at Flextronics and B to B used to be a very rigid sort of a process; it required dedicated teams to map in a way that was often slow and cumbersome and as we deal with multiple customers, often where we get slowed down the most is in the speed of certain IT organizations to react to EDI which is almost looked at as an administrative task. This is changing with the open tools, with more and more standards, it is becoming typical that larger volumes of data are being moved and the speed with which it takes to get from B to B is faster and much less time and that's just going to get greater and greater.
And then the last piece to talk about, kind of a combination of all these pieces which is then extending the supply chain upstream and downstream by technology so no longer is it going to be enough to just understand your customer's demand but you'll want to know what your customer's customers demand is all the way through to the end user and have that visibility and be able to see that real time and share and collaborate so the same is on the supplier side. It's not just the suppliers, it's really your supplier's suppliers. And so extending the supply chain from the next plus one minus one all the way to plus two minus two and beyond is going to be a key part and that sort of control tower concept I think is a critical part of what we are doing at Flextronics and I think it is very close and is reality for some of our customers today. Just to re-emphasize some of the points Dr. Lee made, the future is bright in this area, technology is going to help us with visibility for sure, it's going to help us with coordination both within our organizations and between organizations, and lastly it is for sure going to help us with integration and we integrate systems and data across these organizations to get the speed and agility in the supply chain that we need.
Thank you very much. Those are the comments I have and I'll pass it over to you Oliver.
Thank you Dave, for some very interesting, thought provoking and practical insights into how you are set up at Flex and some of the work you are doing around sensing and responding and adopting all of these wonderful technologies to drive your business processes and be more competitive and of course thank you to Dr. Lee and John for observations and Dr. Lee, your keynote introduction. We do have a number of questions, that have come in here, a mix of strategy and technology focused questions, so I'll just work through these, and Dave, perhaps if we could start with you on this one. The question is .. there are still those individuals that are relying heavily on legacy approaches offered by incumbent ERP providers and so forth, for example you mentioned SAP and they position APO, what have you learned about those approaches in terms of things that you might like to share with other IT leaders and other business and supply chain leaders listening today.
The legacy approach to ERP works very well for some companies. It really depends on like the slide where I said there is no single best supply chain strategy so the reality is that the ERP providers of the legacy approaches have developed very robust systems, often very complex and often very rigid and so when you are in an environment, when you are in a supply chain where there is not much changing and you want repeatability, you want to just be able to continue to crank with very little risk of variation, then I think those tools are going to be a good fit. We found at Flex that we have got to have more speed and agility and that is why we've gone with this best of breed approach, now in some cases we've got tools like SAP which are from a traditional provider however we've picked the best pieces of those and we're deploying them in a portfolio with other tools so it is really about the ability to couple and decouple and integrate or run stand alone the different pieces depending on what you need for your supply chain.
Great, and thanks for that Dave, and actually if I could stay with you on this one and then maybe we'll come to Hau and John for comments as well, and obviously you guys are operating in specific verticals, high tech being a major part of that. What are some of the lessons here for companies operating in other industries, these principles presumably are applicable to any company seeing high volatility in demand and supply and very short product shelf lives and high product values. Is that a fair comment, or is there something specific to your sector?
I can't think of why. I've worked in traditional industrial manufacturing, worked in aerospace and defence and I've worked in consumer 51:01. I can't see any reasons why these principles wouldn't apply across industries. I think that again it really goes back to what the demand is in your industry for speed and agility and how much things are changing and I think perhaps there are still industries where things are not changing as fast where it's important to have a consistent process for a long period of time without change. Most industries, for sure that I have been in are changing rapidly, at least parts of them are changing rapidly, and I think the reality is that technology and the internet is creating new supply chain opportunities for all industries which is driving increased changes in factories and suppliers, so I think these tools, if not all of them or parts of them can be applied across multiple industries.
Interesting and thank you Dave. And John, your thoughts .. I know that you folks do a lot of work with companies in other sectors particularly, and I know recently that you have been doing a lot of work in Pharma, how are you seeing some of these principles translated into other industry verticals and what were some of the benefits that those kinds of verticals and organizations are seeing?
It's a great question and yes, we are absolutely seeing it across sector that manufacturers are looking to gain that competency in responding and if you make something and you sell it then knowing when, where, why change happens and knowing who needs to adjust, that becomes a generalized competency and it's not to say that a traditional approach isn't necessary; people are saying, yes we have to have a plan, we have to have a wish for what actually happens but then we also have to have on the back side of that, the ability to respond when what you plan to have happen doesn't. I have to say, what Dave was talking about, the changes that we are seeing with Facebook and other social sites like that, I'm starting to wonder what's going to happen when my son joins the rest of the planet and becomes the buying force of the economy; they are thinking about the economy differently than we do. I think a lot of that is changing across industries, changing the need for building a high end supply chain and so I think the pharma industry, while you might look at what's influencing them and that could be patent clips that they are seeing and they are starting to recognize their ability to perform well is directly related to how quickly they can respond to what is actually happening in the world. Quite interesting, they are working with us because of what's happening in high tech. At least in Kinaxis we started out working primarily in high tech, aerospace and defence and now into the life sciences. They look at companies like Flextronics as being the experts in supply chain and so they are learning a lot from what high tech electronics are doing in this area.
Interesting and thanks for that John. And Hau, in terms of your experiences, you spend a lot of your time working with leading companies across different industries. Would I be right in saying that there has been almost (I wouldn't say a revival) but an upsurge in interest across businesses in S&OP in fully integrated S&OP over the last eighteen months and if so why do you think that's been more of a focus than perhaps it has been in the past?
Very much so Oliver. Indeed, as product life cycles get shorter and shorter so we are seeing more situations where a product is ramping down and new products are ramping up and sometimes we have to do special promotions as the product enters perhaps into the closer to the end of life phase, and all these are going on without sometimes a good understanding between the sales marketing group versus the group that is doing the operations and the supply management and that lack of visibility and coordination can lead to chaos, for example, you don't want to promote a product when you have a constraint in production or you have a bottleneck in capacity 55:54. You do not want to be fooled by some of the data that you get from sales without knowing that the sales were high particularly because there is a promotion going on, or the sales were exceptionally low because it was the end of the promotion period. And without having that understanding then you take data at face value and that is what I called sense and responsibility without the sense, and I think John mentioned earlier is that I am promoting the idea of sensible sense is to understand much better data, and I was delighted to see what Dave mentioned, that when they have this web of IT together it's not just purely for simple level of information exchange but to enable them to dive into S&OP process to try to understand what's going on behind the scene and how to analyze the root causes of many of the events that are happening and that is what is needed, and I think that there is a renewed interest simply because product life cycles are shorter and shorter and companies are deploying more and more different ways to move products using promotions and special pricing strategies which necessitates the importance of S&OP planning.
Thank you Hau. And Dave, it we could come back to you on this one. It is more of a question in terms of people and culture. As you pointed out earlier in the presentation, Flextronics clearly has a massive footprint with people spanning every corner of the world, in terms of user adoption. How are you actually managing that and how are you leveraging and learning across the different geographies that you are operating in?
That is a big challenge and especially in some parts of the world, Asia and China in particular and India where our factories are 20% and higher, so there's this constant churn with your planners and buyers at the factory level and so it's very important that as new people come on they are able to learn the tools quickly and easily and understand the right way and not re-invent or work around the different processes and then of course it's important for the folks that are there for a long time, that they use the tools and not look around. So we do that through a couple of different ways and I think one is to simply make it a priority so we actually measure what we call asset utilization, now for the factory guys, asset utilization is how many hours are our PCBA lines up as opposed to down. For in IT we measure asset utilization around the software so if we are going to have a portfolio tools we are constantly measuring and evaluating how effective these tools are and one way of measuring that is actually what is the usage of people using it, or is it sitting there idle? And so we look at when we find a tool that is not being utilized effectively then we go deeper to understand why is that? Is it because of the lack of training or is it that the tool is actually missing some critical functionality, some capability, in which case we can go and either, perhaps it is a configuration issue, perhaps a customization issue, or perhaps it is a training issue. And then the other thing I would say is that the knock against best of breed in the past has been integration and then also proliferation and I think that's why it's critical. First of all integration is just not an issue the way it was ten years ago. These tools are all 59:54, and with the ability to link quickly and in fact with many of these tools they come without the box links between them and so integration is not an issue as it was in the past and I think that proliferation is just a simple governance matter and that's where we do best of breed but it's not best of breed at infinitum, it is actually clearly defined in particular areas and if we pick up a new tool it is usually because we're retiring an old tool and we are taking it out of service and so by keeping the portfolio tools to a manageable number then the planners and the buyers and the folks working the S&OP process are able to be familiar with those tools and when they move from factory to factory, or from business unit to business unit or they take over a new customer account then they can bring that knowledge and share it with other folks that have a similar knowledge and familiarity with the tools and so that drives user adoptability and asset utilization from a software standpoint.
Thanks Dave. I think that we are reaching the top of the hour here. John, if you had a couple of points in terms of the summary just to give folks key one or two key takeaways in terms of differentiate a winning S&OP and supply chain strategy from one that's not perhaps quite up there in the leaders quadrant today. Your thoughts today to wrap today's session up would be very appropriate.
Thanks Oliver and I'll try to be brief. I know you think that's going to be tough for me, but I'm going to try. If people believe that the velocity of change is increasing in their business then the sooner they can sense it, the sooner they know what it means, and the sooner they know who needs the respond, the better they will be, and that statement pretty well sums up where the next break through will come.
Excellent, I think that's a perfect note to leave it on so all that remains for me to say is a very big thank you to Dr. Hau Lee and for your time today. Thank you. My pleasure. And of course to our keynote speaker today Dave Smoley from Flextronics. Thanks so much for taking the time Dave. Thank you. And finally of course to John and all of the folks at Kinaxis, the sponsor of this webinar. Thank you so much for taking part. Thank you Oliver, and Dr. Lee and Dave. It was a distinct pleasure. Thank you to all of our attendees listening out there today and for those of you that would like copies of the slides or copies of the recording you can email as you see on the screen there at info@kinaxis.com. If you have any additional questions or comments or any dialogue you'd like to start with the folks that you've seen here today again same email address, info@kinaxis.com and that conversation can be taken up. A very big thank you to everyone involved today and we are now shutting down the event.
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