of 40 /40
Ideas & Innovations from i2 Technologies Spring 2006 The Supply Chain Company TM Advanced systems, new business paradigms and new management processes will create unparalleled agility, speed and responsiveness to customer demand 7 Principles of Supply Chain Agility Creating Virtual Verticality in Horizontal Supply Chains A (Software) Platform for the Future Big Is Beautiful at Panasonic Plus: Technology Empowers Hurricane Relief Efforts Impact of RFID Outsourcing Supply Chain Analytics Can Improve Business Results What’s on the Horizon? What’s on the Horizon? Supply Chain Leader Supply Chain Leader

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Page 1: Supply Chain Leader Supply Chain Leader

Ideas & Innovations from i2 Technologies

Spring 2006

The Supply Chain CompanyTM

Advanced systems, new business paradigms and new management processes will create unparalleled agility, speed

and responsiveness to customer demand

7 Principles of Supply Chain Agility

Creating Virtual Verticality in Horizontal Supply Chains

A (Software) Platform for the Future

Big Is Beautiful at Panasonic

Plus:Technology Empowers Hurricane Relief Efforts • Impact of RFID Outsourcing Supply Chain Analytics Can Improve Business Results

What’s on the Horizon?What’s on the Horizon?

Supply Chain LeaderSupply Chain Leader

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Cover storyWhat’s on the Horizon? by John Cummings

Page 10A new generation of supply chain management is at hand. Advanced systems, new business paradigms and processes will create more agility, more speed and greater responsiveness to demand than ever before. Supply chain management will become a competitive differentiator, with supply chains pitted against each other and supply chain clusters challenging today’s leaders.


Case studiesPage 20 A major semiconductor manufacturer wanted to sharply increase its on-time delivery to customer-request dates,

without increasing inventory. i2 Inventory Optimization provided a flexible, demand-driven approach.Page 27 When a major electronics retailer realized its disconnect between Purchasing and Logistics was

costing it customers, it turned to i2 Supply Chain Visibility.

ColumnsPage 29 Collaborative Material Management: New Systems Enable Synchronization Between

Procurement and Material Planning, by Sharmistha DubeyPage 32 Transportation Management: Best Practices in Global Logistics, by Razat Gaurav

DepartmentsPage 3 CEO’s Perspective: Looking to a New Generation of Supply Chain Management, by Michael McGrathPage 4 Interview: Big Is Beautiful at Panasonic, an Interview with Mike Aguilar, by Victoria CooperPage 8 Focus: Outsourcing Supply Chain Analytics Can Improve Business Results, by Amarnath Thombre,

Madhu Rajendran and Lee WilwerdingPage 30 Opinion: What Impact Will Radio Frequency Identification (RFID) Technology Have on

Supply Chain Management? by Michael CohenPage 34 Beyond Business: Technology Empowers Relief Efforts During Hurricane Katrina, by Victoria CooperPage 36 Inside i2: 2005 Recap–Focus on Financial Stability, by Mike Berry

See Supply Chain Leader online at www.i2.com.

The magazine is published three times annually by i2 Technologies, Inc., in spring, fall and winter. This is its inaugural issue.

In this Issue

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Page 15

7 Principles ofSupply ChainAgility by Sanjiv Sidhu

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CreatingVirtual Verticalityin Horizontal Supply Chains by Hiten Varia

Page 24

A Platform for the Future by Emmanuel Sabourinand AdityaSrivastava

Speed alone won’t win the race.Here are seven ways top-performingcompanies are gaining speed and better performance through agility.

New technology is achieving the advantages of vertical supply chains without the costs.

The i2 Agile Business Process Platformoffers big benefits through the power of two technology advances:service-oriented architectures andexpandable workflow/process libraries.

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Supply Chain Leader / Spring 2006 3

Welcome to the premiere issue of Supply Chain Leader.In this inaugural issue, i2 Technologies heralds the nextgeneration of supply chain management solutions andpractices, which will finally allow supply chains to bemanaged cross-functionally for superior performance.

As was the case in all previous generations of improve-ment, new breakthrough technologies—service-orientedarchitectures and business process platforms—are enablingthe practices of this new generation. I predict the impactof this new generation will equal or exceed that of previousgenerations enabled by material resource planning (MRP),enterprise resource planning (ERP) and advanced planning systems (APS):

• The MRP Generation applied the capabilities of large-scale computing to enable companiesto calculate material requirements based on whatwas needed to achieve sales forecasts.

• The ERP Generation enabled the integrationof supply chain transactions across the enterprise,powered by the new client-server technology.

• The APS Generation allowed for functional optimization, using large-memory computing. Thisresulted in dramatic improvements in optimizationof factories, demand and transportation.

But now we’re in a new, faster, more complex andmore demanding world of supply chain management.Globalization has necessitated outsourcing and created a greater need for multi-enterprise planning and risk management, as well as for more dynamic forecasting.

The time has passed when a functional focus alone—on optimizing factory production, transportation manage-ment and demand forecasting—can be competitive.

Yet, the idea that a company can build anywhere and selleverywhere tugs at traditional notions of centralized versusdecentralized organization and governance. It is now necessary to rethink and reorder workflows, processmanagement, partnerships/alliances and business models—all requiring cross-functional supply chain processes.

Over the past five years, i2 has invested in developingthe i2 Agile Business Process Platform, built with a service-oriented architecture and a software library of workflows (i2 Studio). Before the advent of service-oriented architectures, the systems-integration cost toassimilate data from a wide range of applications servingcross-functional processes was prohibitive. But with SOA,applications can be “plugged in” as services. Likewise,until the development of a business process platform

“engine,” the customization of software workflows for anindividual company’s unique supply chain processes wasimpossible. Now, both those hurdles have been overcome.

What are the advantages? The workflows stemmingfrom management processes take advantage of best practicesin different industries, so they have a “built-in” expertise.They’re also adaptable, so companies can customize themto their particular needs. And the combined capabilities of a service-oriented architecture and a platform engineallow data, applications and workflow processes to be integrated not just across one enterprise but across multiple enterprises, encompassing suppliers, channels and other strategic partners.

The opportunities for better supply chain managementfrom these new capabilities are endless. Among the most

significant opportunties are the ability to shape demandand achieve immediate visibility into data, leading to morerelevant and current information, and, consequently,better modeling and forecasting, planning and decision-making. Now, forecasts and plans previously generatedperiodically can be created dynamically using streamingdemand data.

Also, demand can be shaped based on supply chain contingencies engendered by man-made and naturalevents, supply and demand disconnects and competitiveactions. The greatest benefits of these new capabilities will come in increased revenues and gross margins.

At i2, we’re committed to continue our leadership increating innovative, new solutions based on a deep andfocused understanding of supply chain issues and processesand an insistence on pushing the bar upwards in achievingexcellence and competitive superiority in supply chainmanagement. Supply Chain Leader is not just a way for usto share our thought leadership with you; it’s also a way to recognize your company’s supply chain leadership in its own right.

Looking to a New Generation of Supply Chain Management

Michael McGrathis CEO and President of i2 Technologies, the founderof two other software companies and the cofounderof management consultancy PRTM. He has authoredfive books on the subject of high-technology manage-ment. Contact: [email protected].

CEO’s Perspective by Michael McGrath

The emerging generation of solutions and practices will finally allow supplychains to be managed cross-functionally, for superior performance.

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In February, Supply Chain Leader interviewed MikeAguilar, Panasonic’s Senior Vice President of SupplyChain Strategic Initiatives. Aguilar has been with Panasonicfor 29 years, recently moving into this position after leadingthe company’s North American sales operations for fiveyears. The consumer electronics division of Panasonic ispreparing for the conversion to the digital spectrum by theUnited States in February 2009. The question is, how fastand how big will the spike be in sales of high-definitionproducts and which technology will win? To answer presentdemand and build for more, Panasonic is opening its fourthplasma display plant in Amagasaki, Japan. Once it is fullyoperational (expected in 2007), Panasonic will become thelargest plasma manufacturer in the world. The companycommands the largest market share today (hovering at 50percent) of a market expected to reach 10 million units by2009. Plasma TVs currently account for 90 percent of theglobal demand for flat-panel TVs in sizes above 37 inches.

Why were you interested in moving from sales intosupply chain management at Panasonic?

I wasn’t. Our chairman, Yoshi Yamada, asked that I make the move, and I finally saw the wisdom in it.Panasonic wants to maintain its market lead in plasmadisplay sales and that will require changing the basic business paradigm between us and our channel partners.Mr. Yamada thought that someone with a good salesbackground would understand what the channel partnerand the end-consumer need. He understands that theconsumer doesn’t care so much about the technology asthe solution: Is the picture quality good? Can the usershow home movies and still photographs on the screen? Is the audio quality good? Mr. Yamada wanted to changethe marketplace, to enhance demand for larger screen displays, a high-ticket item.

Why is Panasonic betting on large-screen plasmadisplay technology?

We believe it provides the best quality picture anddelivers a superior overall visual experience compared with other formats. It’s also a core technology atPanasonic—one we’ve been investing in and developingfor many years. We’re the leaders in developing high-definition plasma display technologies in all large screensizes, including the world’s largest plasma at 103 inches!We want to take advantage of our lead in this area and makethe most of trends we are seeing in the marketplace formore at-home enjoyment of the “big picture” phenomenon.

It’s actually an interesting phenomenon. If you lookback at the TV business five years ago, you would havebeen hard-pressed to sell anyone a TV over $500 in value.And the largest screen was 36 inches. But, because peoplehave seen the high-definition signal in malls and stores(and recently, the broadcast of the Winter Olympics inTorino, Italy in high definition), and experienced thehigher quality, most are trying to get the largest screenthat can fit in their homes. And prices have been falling,so that has also spurred interest.

Big Is Beautiful at PanasonicThe consumer electronics giant is betting on large-screen plasma TVs as the display technology of the future.

Interview by Victoria CooperP






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What’s at the root of the fascination with big-screen displays?

Mainly, it’s the experience. It’s much more exciting—mesmerizing, actually—to see a sports program or a movieon a large screen with high-definition resolution and color.

It’s interesting to look at the statistics on movie ticketsales in the past few years, too. They’ve been down, andyou have to ask yourself why. I don’t think it’s because of the content. There are simply more people trying toduplicate the movie-theater experience at home and waiting until after the release of new movies to buy theDVD. Or they’re watching through their cable or satellitecompany. While they’re watching at home, they want tohave a similar experience to what they see and hear in thetheater. For that they need surround sound. So we’redesigning home theater audio systems to go with the plasma display screens. In fact, when we look at this business we don’t just look at it as a TV business. We lookat it in three categories: the TV business, the DVD player/recorder business and the digital, still-camera business.Like the cable and satellite suppliers, these last two categories are really going to be providing the content for home entertainment.

The phenomenon has accelerated the furniture, shelvingand wall-mount businesses too, since the big screensbecome the focal point in a room and have to be designedinto the room either with cabinetry, designated spaces orhanging fixtures. And, of course, once consumers can’treceive the digital spectrum on their old, analog-signal TVs,they’ll need to have a converter box to use their sets at all.That will also spur a new category in consumer electronics.

Lastly, there are many competitors on the scene. Upuntil the last couple of years the computer manufacturersdidn’t take up space in this category, but obviously thereare two ways to look at this convergence of technologies.One is that the home will be computer-centric and theother is that the home will be display-centric and have add-on appliances to that display technology. Nobody knowswho the winner is going to be. Obviously, we’re betting onthe display-centric scenario with moveable media.

What is the magnitude of the phenomenon of high-definition plasma TVs, in consumer electronics terms?

We’ve never seen this monstrous spike in a new category. Not with VCRs or CDs or DVDs. The amount of growth and the rapidity of growth in high-definitionTV technologies and displays can’t even be compared with that of other categories.

In HDTV plasma technology, we have a category similar to the computer industry in its price deterioration,except at a much more rapid pace. In this three-year-oldcategory, we’re going through 30–40 percent price deterioration every year. And it’s a price deteriorationbased on products that have an average retail price of$5,000. We’re also entering a market that is going toreplace all of the traditional tube TV business that theaverage consumer has in his home today. So we’re goinginto a new territory. The price deterioration is the result of the extreme competition in this area—among companiesand technologies (liquid crystal display versus plasma,for example).

The curve of adoption of this new technology is alsointeresting. Formerly, in consumer electronics, you wouldintroduce a new technology in a “boutique” channel: Ahigh-end TV or audio system would start in a specialtystore once the concept was established and had caught somemomentum. And then it would move into electronics specialty stores and, finally, mass merchants. There was a lot of cycle time required to develop and improve theproduct because you’d start at the high end and then reintroduce new products at lower prices.

Today, that curve has been totally eliminated. Consumerswant new technology immediately, and they want it in anychannel they choose to buy it in, whether a warehouse club,a Wal-Mart, a Best Buy or a Tweeter.

Supply Chain Leader / Spring 2006 5

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Interview (Continued)

What are the problems this demand has created forthe supply chain?

There’s no longer the luxury of taking a long develop-ment time in a product cycle; the product cycle has to bemarried to a huge vertical launch, all at the same timewith a massive amount of retailers. So the supply chainhas become extremely important in ensuring that all ofthe retailers can supply all of the potential consumers atthe same time.

Because of the size and vulnerability of the plasmascreens, there are also special problems associated withpacking, moving and storage. Plasma screens take up a lotof room on trucks and in warehouses. You can only fit 150screens in a 53-foot semi, for example. For that reason,retailers were stocking small volumes, and with thespikes in demand of the past year or so, that has been aproblem. Because these are high-priced items, it becameobvious to us that for forecasting and planning purposeswe needed to have closer knowledge of demand signals at the point of sale (POS).

So we’ve had to transition from being a “sell-in”company to being a “sell-through” company. The real sale doesn’t take place when we sell “in” to our retailers;it occurs when the retailer sells “through” to its customers.We needed to become much more cognizant of what theretailers own and to look at end-to-end supply, which wenever did earlier.

How are you getting at that information you need—the data from the consumer end?

Our traditional methodology was to collect POSinformation from our retailers once a week. And we collected it on a national level. But to really understandwhat is happening in the market, we’ve had to switch toonce a day and to gather data from each individual store.So, in the case of our largest retail partners, we are collect-ing information from thousands of stores every day. Thisis a huge amount of information to process, and it isregional and local-store information, allowing us to adjustour marketing and promotions at that granular level.

The result is that the channels have had to change theway they do business with us. We asked them to make alarge investment in their IT infrastructure to share POSinformation with us. Traditionally, we had a buy/sell relationship with the retailers, and then it evolved into a collaborative planning, forecasting and replenishment(CPFR) relationship. But we have now taken that a stepfurther and asked our retailers to let us help choose whatmerchandise to put into their distribution centers on aweekly basis.

Why do you think you can do this better than your retailers can?

Ah, that’s a good question. The short answer is that we are looking at the data more carefully and with moreprecision than they can, because we have engaged in apartnership with i2 Technologies to do so. Let me explain.When we took on the project of shifting our emphasisfrom supply to demand and shifting our forecasting to a POS forecasting system, we had two choices. We couldgo through the traditional process of buying software andinstalling it inside our company. (This would be a very

Supply Chain Leader / Spring 20066

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Supply Chain Leader / Spring 2006 7

long process—up to two years—and it would entail hiringmany more forecasting analysts than we have on staff.) If we had chosen this route, we would have missed a hugepart of the growth curve that’s taking place right now.

The second choice was to have i2, which has extensivesoftware development and consulting services in India,perform the data capture and analysis for us. We decidedto “rent” both the software and i2’s expertise in forecastinganalysis. We made several trips to India and were able toget this project going in just a few months rather than afew years. Essentially, just as we are embedding ourselvesin our channel partners’ supply chain operations, we areembedding i2 into our forecasting operations. We look atthis as a kind of insourcing.

The partnership is really among Panasonic Japan,Panasonic USA, and i2 Technologies and is working outwell because of the advantages created by the time differences. We’re essentially cutting out a day from ourforecasting process, because although our channel partners’weeks end on either Friday or Saturday, the information is in India on Sunday (their Monday). They work on it all day and deliver it to our desktops on our Monday.In this way, we’re able to operate 24/7.

Another help has come from a shift in our focus fromsupply-side management to POS-managed inventory.To do this, we’ve brought in POS analysts, whom we have never had before, and demand analysts that are concentrating on this project. We’re assigning analysts toeach of our key channel partners so we have people whoare specialists dedicated to a product in a channel partner.They are not generalists taking a global view of a category,but rather gauging a slim slice of what each channel partneris up to. They are becoming experts in what is happeningat the retail end.

You have to have a strong plan to make the forecastgood. Any new planning methodology?

We have a sales budget for every one of our channelpartners for every week of the year. So we have to be veryflexible and agile with our factories in order to changeproduction to be in sync with what’s happening on thedemand side. In an earlier time, when the focus was all on supply rather than demand, you would try to lock yourchannel partners into specific quantities. But now youhave to be flexible enough to say, “There’s risk on bothsides; we’re both going to take that risk, and, as the market changes, we both have to change as quickly as it’schanging.” So it’s a very different system than operatingwith a locked-in production number.

You’re doing a lot to ensure that you maintain yourlead. What about budgets? Do you have a massivebudget for advertising?

We’ve doubled our advertising budget every year inthis three-year stretch so far. It has become an enormousamount of money we’re spending for two reasons: tomaintain and grow our market share and to enhance ourbrand image. We believe that, especially with high-priceditems, people buy the brand as well as the product features.

Panasonic is noted for its product innovation. Butyou also hold onto your manufacturing capability.Why is that?

We’ve always been strong in both product innovationand manufacturing. We outsource very little, because webelieve our brand image is only as good as the quality of the product we make. For that reason we make most of our components. Once you start outsourcing the quality of your product, you are risking your brand on someoneelse’s production capabilities.

What excites you most about supply chain management today?

It plays an extraordinarily important role now. It’s the key focus of all of our management at Panasonic.Everybody realizes that the only way to take cost out ofthe system now is on the supply chain side; every otherarea has been attacked already. In addition to that, supplychain is the key to making sure you have the right productat the right place at the right time: the traditional quandary.

What I think excites everyone here, including me, isnot just trying to figure out how to take time out of theproduction cycle, but also how to rapidly supply our dealers.Instead of making them wait 11–18 days for a delivery,how can we get it to them in 1–3 days? So, we’re viewingsupply chain management not just from the productionand supply side but from the perspective of fully integratingthe logistics picture. As a result, we’re now repositioningour warehouse facilities as close to our channel partnersas possible. If you think about it, the more inventory youhave with them, the less flexible they are. And it’s difficultfor a large channel partner to transfer merchandise backand forth. But it’s easy for a supplier to nimbly move thatmerchandise to where it’s needed as rapidly as possible.By offering rapid replenishment to retailers, we can helpthem keep their inventory at a low level and increase theircash flow rapidly. We’ll all profit from that.

See Mike Aguilar at i2 Planet in Las Vegas May 10–12.

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Many companies in a wide range of industries haverealized major cost savings by outsourcing and offshoringback-room functions, call centers, IT and business processes.As the expertise of outsourcing providers has improved—and confidence in their expertise has grown—companieshave begun to outsource increasingly sophisticated functions, such as specialty design and manufacturing.

Now, a handful of forward-looking companies are off-shoring the analysis of supply chain data to help make betteroperating decisions. By tapping into the analytical skills oflower-cost countries with a well-educated workforce—suchas India—companies are getting valuable insights from datathat had once been too voluminous or too complex to dealwith quickly and in a cost-effective manner in-house.

Unlike traditional outsourcing and offshoring, whichalways carry a degree of operational and financial risk—and in some cases, disappointing results—outsourcingsupply chain analytics is virtually risk-free. It’s relativelyeasy to implement, requiring no exchange of people,processes or systems. It’s also flexible. Instead of beinglocked into multi-year contracts, most companies simplysubscribe to a data-analytics service on an as-needed basis.Outsourcing providers in India are able to spread one highlyskilled, low-cost expert across three or four accounts, for far greater leverage than an individual company couldachieve on its own.

Better demand forecasting and inventory managementManaged supply chain services can rapidly improve

business results, especially in the closely aligned areasof demand management and inventory optimization.By collecting and analyzing point-of-sale data, along withdata on inventory levels throughout the supply chain,product seasonality, the effect of promotions in differentregions and competitive data, companies can managedemand far more effectively by quickly reacting to marketchanges and competitive actions to increase revenue.The insights gained can help companies target promo-tional spending to “shape” demand and make better decisions about when and how to replenish inventory.

A flexible demand forecasting model that regularlytunes itself to changing market conditions gives companiesbetter guidance on how much inventory to keep and whichchannels and regions to distribute it to, based on buying

patterns in the marketplace. These insights, in turn, helpcompanies maintain the right—that is, minimum—level of inventory throughout the supply chain, for major costsavings. Also, focusing on the right inventory strategy can have a huge impact on service levels or availability,affecting revenue and market share.

These insights can be especially valuable for companieswith a large number of SKUs. For instance, one large manufacturer in the high-tech industry offered 10,000 different types of components. Keeping the right numberavailable to meet changing customer needs was an ongoingnightmare. But by outsourcing analysis of its sales data,the company discovered that 10 percent of its products—dubbed the A products—resulted in 90 percent of its ship-ments. Another group of products—C products—wasrarely ordered at all. Also, the ordering patterns variedwidely by customers. Certain customers gave four to sixweeks of lead time for delivery, while others wanted ship-ment within three days of placing an order. Based on theseinsights, the company decided to focus on keeping thehigh-demand components in stock at all times.

The manufacturer also decided to follow an inventorydeployment strategy that aligned with customer order leadtimes—for shorter lead times, following a make-to-stockmodel, and for longer lead-time demand, adopting a build-to-order model with periodic inventory target recommen-dations. Customer-service levels on these high-demandproducts soared. By contrast, C components were only finished and shipped when a specific customer order camein. This segmentation strategy led to enormous cost savingsand greatly simplified inventory management—benefits thatthe company wouldn’t have realized without outsourcing.

Better data analysis can also pinpoint problems thatmight have gone unresolved before. One consumer elec-tronics company had just started selling a new TV model ina discount store chain. The company shipped five weeks ofinventory to the store’s distribution network, then sat backand waited for the revenue to roll in. But sales were farlower than expected. Working with data on sales per store,per region, the outsourcer discovered that in the two regionsthat usually had the highest sales, the TVs had only reachedthe discount store’s distribution centers, not the storesthemselves. In fact, the retailer had an undiscovered execu-tion issue. When the service provider showed the retailerthe analytics that revealed the log jam, the store quickly corrected the problem. Sales doubled in those regions over the next three weeks. This level of analysis—andthe speed with which it was done—would have beenimpossible with the company’s existing staff and expertise.

Outsourcing Supply Chain Analytics

Focus by Amarnath Thombre, Madhu Rajendran and Lee Wilwerding

Managed supply chain services can rapidly improve business results, especially in demand management andinventory optimization.

Supply Chain Leader / Spring 20068

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Getting started With shrinking product life cycles, ongoing cost

pressures and growing variability in customer demand,the supply chain must be more agile and effective thanever before. Yet many companies have been disappointedin their supply chain software, often after making majorinvestments in time and money. Add to this the fact thatthe granularity and frequency of information are increasingfrom such sources as POS data capture, market research,the Internet and RFID. Subscription outsourcing is a wayto improve supply chain planning and effectiveness quickly,at a reasonable cost. Getting started can take as little astwo months, so time-to-results is far faster and less costlythan implementing yet another software program ordeveloping the needed skills in-house, which takes evenlonger because of the steep learning curve involved.

Outsourcing supply chain analytics usually starts with a needs-analysis stage, where the service provider seeks to understand the company, its supply chain and its data.Based on its findings, the service provider creates a customized data-analysis program designed to meet thecompany’s needs. Typically, the program focuses on a specific problem or goal, such as preventing lost sales,increasing inventory turns or improving promotionaleffectiveness. These goals are then linked to improvement

in a specific supply chain competency, such as more accurate forecasting or better inventory management.Then, the provider integrates with the customer’s datasources and determines how often to receive data, in whatformat and so forth. This process takes about two months.Then, the data-analysis service is up and running, and newinsights begin to accrue.

Although starting up a data-analysis program is relatively straightforward, a company may find that gettingits employees to trust and use the findings will be a challenge. Changing the way people work is always hard.Strong executive sponsorship is usually needed to ensurethat the new insights are acted on. Another hurdle forsome companies is becoming comfortable giving out proprietary data. However, most service providershave strong security measures in place and will signnon-disclosure agreements upfront.

At some point, many companies elect to bring thedata-analysis service in-house in a “co-sourcing” arrange-ment, where the outsourcing team integrates with the clientteam and teaches them the needed data-analysis skills.

Outsourcing data analysis holds great promise forcompanies that want to reach the next level of supplychain effectiveness quickly, at a relatively low cost.By supporting better planning, demand forecasting and inventory management, this new category of out-sourcing is delivering major returns to the companiesthat have tried it.

Request more information at: [email protected].

A more accurate demand forecastingmodel offers better guidance on howmuch inventory to keep and which channels and regions to distribute it to.

Supply Chain Leader / Spring 2006 9

Can Improve Business Results

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What’s on the Horizon?by John Cummings

What’s on the Horizon?

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Eight predictions of things to come encompassingbusiness processes, information management andfinancial models in supply chain management.

synchronize hierarchies of suppliers and distributors by deploying money and information through efficientcommand-and-control networks. Their rivals will have fewoptions but to set aside short-term competitive concerns,organizing into supply chain teams to compete. They won’tbe able to catch up otherwise.

Even if the time is right, can it happen? It has workedin the bricks-and-mortar world, when complementarycompanies have self-organized into geographic clusters:leather goods around Florence, electronics around SantaClara, for example. Global, multi-enterprise supply chains are clusters’ natural successors––electronically organized and coordinated to compete with one another and with hierarchical giants, supply chain against supply chain.

2. Global process improvement will replace “business as usual”

Of course, building strong, collaborative supply chains

over the last third of the 20th century,supply chain management has been veryimportant to global commerce. Today’shigh-performance supply chains span the globe.

Changes in business processes,information flows, technology and financialmodels will transform the world further in the next decade. These changes haveeverything to do with paradigm-changingbusiness models. The next generation insupply chain and business management is at hand.

Supply Chain Leader / Spring 2006 11

Eight predictions of things to come encompassingbusiness processes, information management andfinancial models in supply chain management.

Changes in process management1. The multi-enterprise supply chain problem

will be solvedThere are few vertically integrated companies left in

today’s world. Modern supply chains cross multiple enter-prises, accumulating value from multiple tiers of suppliers,some of them half a world away. Synchronizing activitiesalong these multi-enterprise supply chains is the next greattask of supply chain management. In short, it will require ascope of collaboration never before seen in modern business.

While collaboration is an evergreen topic in supply chainjournals, many real-world initiatives in this realm have fallenflat. Disciplines like collaborative planning, forecasting andreplenishment (CPFR) are constantly undercut by unilateralservice-level agreements, information-hoarding by channelmasters and defensive and retaliatory behavior from partners.What kind of motivation can overcome bad habits practicedover decades?

The answer is “survival.” Today’s toughest competitors

takes more than motivation. Optimizing one companydoesn’t transform a supply chain any more than optimizingone machine transforms a factory. To enable global supplychains, next-generation supply chain management willexpand cross-functionally, without stopping at enterpriseboundaries. Optimization will be based on a greater businessneed, not simply on the needs of an individual, functionalsilo. Continuous process improvement on a global scale will emerge as a fundamental requirement for business success and a core competency among business leaders.

The key to these next-generation processes is demand-supply synchronization, with “demand” in front and in charge.Real-time demand, integrated across customers and customers’customers, will provide suppliers, and their suppliers, withcomplete supply and demand visibility up and down thesupply chain. And since demand and supply are fast-movingand interdependent, supply initiatives will merge with cross-enterprise Total Quality Management and Six-Sigma initiativesin a continuous cycle of improvement. Deming’s “plan-do-check-act” cycles will flow as a continuous, real-time process.

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3. Agile supply chains will replace static hierarchies Today’s collaborative supply chains are high velocity.

End-to-end visibility and strong enterprise-spanning business processes accelerate inventory management, productintroduction and ordering and fulfillment cycles, forincreased competitiveness throughout the chain. As collaborative supply chains compete with hierarchical rivals and one another, victory will go to the most agileteams (see article, page 15).

Why? Because demand is never static. Even when itslevel stays put, demand mix shifts across products with different costs, production constraints and cycle times, fromone geographic region to another, and among customers as their requirements and demands shift. To meet thechallenge of dynamic demand, supply chains must contin-uously adapt planning and execution processes, organizations,sourcing strategies and networks––even the configuration of

New models for information flow and decision-making

4. Rich data from smart devices will demand and empower new management practicesNew information management models are already

driving end-to-end visibility, supply chain agility and continuous process improvement across global, multi-enterprise supply chains. And the sheer volume of it will make the 1990s Internet bubble look like a trickle.Radio Frequency Identification (RFID), continuousdemand signals from mobile consumer communicationsand smart devices built into every imaginable product willextend supply chain visibility down to the unit level andthroughout product life cycles.

Automobiles, airplanes and consumer electronics will continuously report operational and usage information

The process of dynamically changing the parametersof the supply chain will happen instantaneouslyand continuously.

The process of dynamically changing the parametersof the supply chain will happen instantaneouslyand continuously.

the parameters. The process of dynamically changing thesupply chain will happen instantaneously and continuously.Essentially, the supply chain will be tuned as it is managed.The supply chains that keep up––agile in the short run,adaptive in the long run––will lead their industries.

Hierarchies, with static, top-down management structures and redundant organizational overhead will be at a disadvantage in this new environment. Uncooperativepractices, like hoarding information or pushing risk ontosuppliers and distributors, undermine the trust that allows a supply chain team to function as a single, efficient unit.And yesterday’s static tools, incapable of looking beyondfunctional boundaries, will prove no match for the visionand reach of new supply chain competitors. The best of thegiants understand these dynamics. Toyota, for example, isrenowned for both its collaborative approach with supplychain partners and its nimble response to market changes.A decade from now, no one will see that combination as rare.

upstream in the supply chain, enabling precision sales ofupgrades and replacements, continuous monitoring of con-sumption habits, predictive targeting of maintenance andrepair, and, inevitably, a thousand new operations that can’tbe seen from today’s frame of reference. Millions of devicesand readers—each with its own Web address—will stay in continuous contact with supply chain hubs up and down the chain. This new, rich information will be the raw material for synchronization at every point along the chain, each member using whatever information is needed to optimize its contribution to the chain’s business effectiveness.

To compete effectively, multi-enterprise supply chainsmust develop new ways of absorbing, managing and usingall of this information. New systems must not just managean avalanche of information, but dynamically updateparameters and reconfigure themselves, invisibly andinstantaneously taking advantage of the trends they identify.

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Evolution, change and adaptation will be the hallmarks of any system that connects dynamic supply and demand in an information-rich environment.

Supply Chain Leader / Spring 2006 13

Evolution, change and adaptation will be the hallmarks of any system that connects dynamic supply and demand in an information-rich environment.

As complex as all this sounds, there’s hope for managingthe complexity. With every new source of information comes a new point of leverage and a chance for the agilesupply chain to meet or shape consumer demand.

5. Supply chains will know what an individual consumer’s needs are as the consumer doesWhat will supply chains do with all of this information?

The same thing they’ve always done: use it to align supplywith customer demand. Monitoring moment-to-momentneeds of individual consumers has the power to transformthe way business has been done in the past. Visibility letssupply chain partners align supply and demand along the entire chain at once, instead of functional area by functional area.

A product development example: e-commerce has already raised the velocity with which products are

E-commerce has changed the relationships betweenbuyers and sellers. Buyers can select between feature-richproducts available later or at higher prices and standardproducts available right now for less. This demand-shapingapproach will become widespread in many industries.

Technology advancements

6. Dynamic technology will compressinformation latencyWhat kind of technology will be available in the future

to help interpret and manage all of this information?Supply chain management will move beyond the bordersof the enterprise, and solutions will follow.

Evolution, change and adaptation will be the hallmarksof any system that connects dynamic supply and demand in an information-rich environment. As markets emerge,

introduced and phased through life cycles. Fashion companies—always at the forefront in product life cyclemanagement—are already working on rapid adaptation of product introductions to demand signals, down toindividual customization. A few leaders have cut somuch time from the demand-to-delivery cycle thatthey’re repatriating manufacturing, because transporttime costs them more than offshoring saves.

Customization may take place at many stages in the supply chain, not just during manufacturing. Withthoughtful product design, a wide variety of industrialand consumer products are candidates for “postponement”strategies—already widespread in high-tech industry—putting off late-stage manufacturing, assembly and configuration until firm demand signals appear from consumers, smart devices and supply chain intermediaries.Alignment with demand is possible even after parts havebeen manufactured.

grow and change, supply chains will reconfigure and adapt,adding new partners, information and business processes as necessary to deliver what the market has asked for.

Tomorrow’s supply chain management solutions willcompress the latency of information to an absolute mini-mum, enabling instant global execution and visibility. Moreimportant, they will reduce time-to-act to the point wheresynchronization of supply and demand seems instantaneous.

These systems will scarcely be recognizable from the per-spective of today’s ownership-focused, enterprise-constrained,enterprise resource planning systems. As a practical matter,they will empower supply chain leaders to accept orders, bidout production and distribution across a global network ofpartners and promise a delivery date, all as the customer’scursor leaves the “buy it now” button. “Pay-on-scan” businessmodels are likely to have the entire supply chain sharing in therisks, right up to the moment of sale to the end-customer.

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Contact: John Cummings is i2’s Chief Marketing Officer([email protected]).

7. Advanced simulation tools will accelerate a business’s ability to reconfigure rapidlyThe complexity and speed of tomorrow’s markets

won’t be contained within static analytical tools. Businessmanagers will use continuous process modeling and simulation tools at new levels of granularity, instead ofstatic measurements, quarterly reports and deterministicspreadsheets, to model and simulate multi-enterprisesupply chains.

Business process design, rapid prototyping, testing and validation will all be accomplished in the simulatedbusiness environment, before rolling them out in the market environment. Powerful supply chain competitorswill not have just a few tricks up their sleeves, but entirelynew business models—prepared, tested and ready todeploy when market conditions are right.

Examples of simulation-driven, rapid prototyping of business models exist today. Cutting-edge portfoliocompanies prototype, assemble and operate entirely newsupply chains, built from manufacturing, distribution andbusiness-service partners in much the same way that fundmanagers design, build and manage stock portfolios today.

Finally, modeling and simulation tools will acceleratecontinuous process improvement by providing a rapid,risk-free way to test and tune business processes and scenarios before rolling them out in the real world.

Changes in financial models8. Cash versus cost: financial models will catch up

with new business modelsToday’s financial models for supply chain processes

are based primarily on activity-based costing. While this is an improvement over its cost-accounting predecessors,the tension between dynamic supply chain businessprocesses and activity-based costing is already apparent.Supply chain decisions using cash as the basis result in a significantly different outcome than those focused solelyon cost. Conversion to cash-flow decision-making willreveal the actual value-contribution of supply chains,and the real business impact of any disruptions.

It’s a little surprising that the financial side of the supply chain transaction stream has received so littleattention. Look for this oversight to be corrected soon, ascompanies realize the value of cash-flow-based supplychain operations.

Beyond even cash-flow and value metrics, a milestonein the evolution of financial models will come as manyindustries adopt pay-on-scan compensation for supplychain partners.

Summing upTaken individually, none of these trends

may seem revolutionary. Supply chaincoordination will continue to spread fromits origins on the factory floor throughoutglobal, multi-enterprise, supply chain net-works. Collaboration, business processesand process-improvement disciplines willgrow to match supply chains’ own scaleand speed. Rich data will come fromeverywhere, all the time, and systems willemerge to catch up with and even pullahead of events, using modeling and simu-lation. Supply chains, and the systems thatcoordinate them, will accelerate insightand action, response and adaptation.Financial models will emerge to enablenew ways of doing business, deliveringever-increasing value to consumers andfair, and evenly shared, compensation to the supply chains that serve them.

In the future, the world will be trans-formed by new business paradigms,brought on by the convergence of technology and management processes and a newly empowered customer base.

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7 principles ofsupply chain agility

by Sanjiv Sidhu

Supply Chain Leader / Spring 2006 15

n today’s fiercely competitive global economy, almostevery company faces the challenges of ever-increasing supply chain complexity. In the past, a typical companyoffered a limited number of products through a singlechannel, using one shipping method. No more. Now,companies face an explosion of SKUs, channels, suppliersand delivery options, along with more sophisticated,demanding customers and changing governmental regulations. Keeping up—while maintaining competitivecosts and satisfied customers—is getting harder, especiallybecause supply and demand variables are changing morerapidly than ever before.

Despite these challenges, a handful of companies succeed year after year, consistently producing strongrevenue and profit growth—companies like Wal-Mart and Dell, whose supply chain excellence is legendary.What’s their secret? Market leaders exhibit a commoncharacteristic: agility—an exceptional nimbleness andunparalleled ability to respond rapidly and appropriatelyto changing market conditions. Simply put, supply chainagility underlies the success of these companies. The following principles outline the multiple capabilities thatcompanies with agile supply chains exhibit.

1. Agile organizationHow can companies organize to enable agile supply

chains? An agile supply chain is the result of synchronized,inter-organizational processes, designed to enable a rapidresponse to shifts in demand or supply. Processes and systems facilitate the real-time transfer of informationand plans among multiple departments. Cross-functionalsynchronization is especially critical, with shared goals and metrics that support agility. The following capabilitiesallow multiple enterprises and organizations within onecompany to act as one:

Synchronized planning: The primary tool thatcoordinates different organizations is a synchronized planthat optimizes company performance—not just depart-mental performance. Once departments and groups withina company agree to a shared plan, individual organizationscan synchronize their sub-plans with corporate objectivesand goals. Then, different functional areas or cross-functionalgroups are given the responsibility and authority to deliveron their sub-plans with the understanding that not delivering on an individual sub-plan can compromise theoverall plan and hurt the efficiency of the entire company.In this regard, agile companies live and die by their plans.

Fast escalation: In a dynamic world, variability alwayspresents new threats and opportunities beyond the boundsof any plan. When these threats and opportunities arise,agile companies can respond quickly if they have “processplaybooks” in place. These playbooks operate in much the same way that football playbooks do: predeterminedactions are taken when particular situations are identifiedon the playing field.

Playbooks are effective because they’re built on thereality that most situations recur frequently. And, often,pulling the appropriate course of action from a playbook is easier, faster and just as effective, if not more so, thaninventing something new on the fly.

How does a company construct such playbooks? They’rethe result of contingency planning. For example, a companycan outline the steps that should be taken if sales are down

1. Agile organization2. Keeping commitments via

closed-loop plan management3. Customer intimacy via closed-loop

demand management4. Supplier intimacy via closed-loop

supply management5. Efficient delivery via closed-loop

fulfillment management6. Rapid business reconfiguration7. Agile IT systems

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because of the weather, supply issues, shifts in marketdemand, or a competitor’s pricing, promotions or productadvantages. On the other hand, if sales are stronger thanexpected, a playbook can help a company capitalize on the opportunity and increase production to take advantageof the situation, as well as direct products to regions withthe strongest demand. If there’s a weakness in supply at acompetitor, a playbook can help a company move quicklyto fill the gap, winning new customers along the way.

Measurement of performance to synchronized plans:One of the biggest obstacles to taking appropriateactions when unforeseen variables appear is adherenceto “local” metrics. For example, factory managers maykeep making product that the market is not buying,reasoning that higher quantities decrease unit costs.Or Sales may promote a product to meet revenue objectives, despite the fact that delivering that product is causing huge supply chain inefficiencies and eating into profitability margins. Agile companiescorrelate each group’s performance to the achievementof synchronized plan objectives. Did the sub-plan aid and abet achievement of the overall plan? If not,no points are scored.

2. Keeping commitments via closed-loopplan managementIn typical companies, most plans are “dead on arrival”:

they’re out of sync with demand conditions, or violatesupply constraints. Agile companies implement closed-loopplan management principles that involve rapid formulationof a realistic synchronized plan and continuous monitoringof plan execution. In other words, they focus on makingthe plan happen. Every area commits to its own sub-planand provides early warning if deviations occur, enablingcorrective actions that are rapidly executed and coordinated.In this way, the plan is globally optimized, and plan management becomes a local focus.

Plan execution is rarely a straight path. Agile companiesunderstand that it’s an ongoing cycle of planning, doing,checking and taking corrective actions. This “plan-do-check-act” cycle is applied to closed-loop plan management, acornerstone of agility. Closed-loop plan management ismade up of the following capabilities:

Constraint-optimized planning: The typical processfollowed when generating a plan is unidirectional, startingwith a financial plan and followed by a sales plan, aninventory plan and a supply plan, and so on. The processis constraint-insensitive and slow. By the time the plan isgenerated, too many things have changed.

Agile companies have the ability to use the latestinformation on constraints in the planning process and toconsider multiple alternatives to arrive at realistic, optimalplans—fast. The rule of thumb is to create a plan in one-tenth of the time it will take to execute it; e.g., a 30-dayplan should take no more that 3 days to create, review and roll out.

Proactive monitoring and analysis of threats: Once a plan is rolled out, it is subject to threats. For example,if the plan was to sell 300 units for the month at a rate of10 per day, it’s useful to check point-of-sale data to see ifthe expected sales are occurring. If 5 units were sold onthe first day, it’s helpful to understand the root causes ofthe shortfall in order to take appropriate actions to recover.If sales are down due to supply issues, the corrective actionwill be different, for instance, than if a competitor’s pricediscounts are causing the slowdown.

Corrective actions: Plan owners are expected to takequick corrective actions to ensure that their commitmentto the synchronized plan holds. Preferred actions arethose that can be taken unilaterally; e.g., sales teamscan take pricing and promotion actions to reverse salesshortfalls. Such actions reduce the element of surpriseand variability for the rest of the business. Of course,sometimes a plan has to change—say, by reducing the plan by a certain number of units. When this happens, it’s important to collaborate and communicatequickly with all involved parties, such as Procurement and Production.

Agility is an exceptional nimblenessand unparalleled ability to respond rapidly andappropriately to changingmarket conditions.

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Post-mortems and performance management: A rigorouspost-mortem of each plan period helps companiesunderstand the root causes of deviations and the reasons for corrective actions. This post-mortem can help improve the planning process and hold teamsaccountable for executing on plans. Such accountabilitygreatly decreases the level of “gaming” the system byunder- or over-forecasting. Emphasis also shifts fromasking the question, “why did this miss occur?” to asking, “when did you first know about this and what actions did you take?”

3. Customer intimacy via closed-loopdemand managementAlthough a forecast is undeniably important, at best

it’s an educated guess of what might happen. The plan’sthe thing to focus on. Many companies confuse the twoand thereby create limited accountability. While the fore-cast is often “owned” by an analyst, the plan is owned by a manager with a commitment to making the demandplan happen, despite variability. This process of making a demand plan happen is called “closed-loop demandmanagement,” where the plan-do-check-act process is applied to demand management. It involves thefollowing capabilities:

Dynamic demand planning: While some companiesfocus on historic information to formulate their plans, it’s

more important in a dynamic market to focus on markettrends, competitive position, customer collaboration andpoint-of-sale data analysis. Agile companies understand theleading indicators of demand better than the competition.In the semiconductor or consumer electronics industry,for example, demand depends on channel inventory. Suchdata become a key input to the demand planning process.Increased rigor in demand planning yields not just betterunderstanding of what will be sold but also a far superiorunderstanding of actions required for winning in the market.

Proactive monitoring and analysis of threats: Agilecompanies monitor sales data at their door and at thechannel outlets on a frequent—often, daily—basis. Theyknow immediately if only 5 units sold on day one, whenthe plan called for 10. Staying alert to shifts in customerdemand or buying patterns can also present opportunities.If 15 orders are coming in daily, when the plan was to sell10 units, agile companies will immediately begin researchto find out why. If it turns out that a competitor’s productionline is broken, agile companies can quickly capitalize onthis revenue opportunity. Working closely with theirchannel partners, these companies have already establishedorganizational structures, management processes and IT

systems to quickly transfer the information critical foranalysis and decision-making.

Corrective actions: Sales groups can react to plan devia-tions with many tactics, including promotions and pricing.But the problem is, such actions may come too late to beeffective. A lack of processes and tools for examining andreacting to variability may prevent speedy and appropriatecorrective actions. Or there may be a cumbersome approvalprocess to overcome. Here is where the process playbookdescribed earlier is useful. It helps agile companies takerequired actions fast. An example is markdowns. If smallermarkdowns are made earlier—before the product getsstale—the overall lost revenue may be lower than if largermarkdowns have to be made later in the product life cycle.

Post-mortems and performance management: Theemphasis here is on understanding what data could havebetter predicted the deviations from the demand plan,and what actions should have been taken that were somehow missed.

4. Supplier intimacy via closed-loop supply managementSupply management includes internal and external

sources of supply. As suppliers vie to increase their returnon assets, they actively reduce their excess capacity andinventory. The timely and accurate exchange of plansbetween manufacturers and suppliers helps suppliersmaintain their responsiveness to variability. Agile companiesdeploy “closed-loop supply management,” where the plan-do-check-act cycle is applied to supply management.The following are key capabilities in this cycle:

Supply planning: Typically, companies take weeks toconvert demand plans to supply plans. Despite this care-fulness, supply plans often fail because of an inability tocorrectly account for capacity, material and other logisticalconstraints in supply lines. How do agile companies takecare of this conundrum? They implement fast supplyplanning processes that allow time for many iterations.The result is constraint-optimized plans. To support thisplanning process, agile companies expect their suppliers torespond to different planning requests in a matter of min-utes. In doing so, they are able to see the supplier’s abilityto fulfill different demand requests and can quickly choosethe optimal path. The different parties involved then receivetheir marching orders, which they commit to fulfilling.

Proactive monitoring and analysis of threats: Somesuppliers will take all orders, whether or not they have thecapacity and materials to fulfill the order on time, resultingin poor customer service. Agile companies expect bothinternal and external suppliers to notify them promptly ifthey are unable to keep commitments made in the planningphase. Similarly, they inform their suppliers as soon as possible if their own orders will be smaller than expectedbecause of changes in demand.

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Order fulfillment is where the rubber meets the road in supply chain management.

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Corrective actions: Managing supply means findingand fixing supply problems promptly. If a supplier callsand says it will only be able to meet 50 percent of commit-ment, an agile company quickly determines other sourcesof supply and analyzes the economics of quicker modes oftransport—air freight, for example. It may even have to passup customer orders if the margin doesn’t look promisingagainst additional costs. When scenarios change, thecompany’s ability to perform “what-if ” analyses is critical.The typical questions here are: “If I can’t supply it, what’sthe cost to my company in lost sales? If we go into crisismode to find alternative suppliers, will those costs enableprofitability or not?” All plans must be assessed in relationto corporate objectives.

Post-mortems and performance management:Obviously, the critical factors in a supplier’s ability todeliver to plan are keeping commitments and providingearly warnings when problems arise. The flexibility andstrength of the supplier’s own supply management processenable both of these capabilities, so companies need toprobe their suppliers’ visibility into constraints and abilityto rapidly respond to variability. Here, again, the criticalquestion is not “why did this miss occur?” but “when didyou first know about this, what actions did you take andhow will you improve your plan management process such that this will not happen again?”

5. Efficient delivery via closed-loop fulfillment managementOrder fulfillment is where the rubber meets the road

in supply chain management. Can the supply chain deliverorders reliably to customers’ expectations and promises?What is the optimal path to fulfill the order? Typical orderfulfillment paths are rigid: If a product is manufactured inChina, it will travel from the Chinese factory to the U.S.warehouse and from there to the channel’s distributioncenter and then to the retail store. But, increasingly,customers are demanding “direct ship” from the factory.One way that companies address this quandary is byresponding to customer requests with commitments basedon a firm, optimized execution plan. Agile companiesdeploy “closed-loop fulfillment management,” where theplan-do-check-act process is applied to fulfilling customerorders. This process involves the following capabilities:

Fulfillment planning: There are multiple paths companies can take to fulfill orders. For instance, differentinventory locations can be tapped, and different transpor-tation modes can be deployed. The pathway may be morecomplex when multiple line-items are requested, or whena sequence of multiple activities must be performed tomeet the request. Agile companies are able to respond to complex order requests within seconds.

The fulfillment planning process takes into accountmany factors—current inventories, latest supply plans,

existing customer orders, allocation rules, transportationtimes and cost factors to determine an optimal deliveryplan for each request. Based on this constraint-sensitivefulfillment plan, companies can then issue execution ordersto different players and make a commitment to the customer.

Proactive monitoring and analysis of threats: Agilecompanies continuously monitor the execution of the different actions required to deliver the customer order.By doing so, they are able to maintain real-time visibilityinto order status and generate alarms when any of themilestones are missed.

Corrective actions: When there is potential for delay,options such as using air freight, replacing the order withan upgrade or allocating inventory differently are evaluated.

Post-mortems and performance management: Agilecompanies evaluate historical fulfillment data to find newways of speeding customer fulfillment while optimizingfulfillment costs. Such data analysis helps them createmore effective corrective actions in the future and helps to reconfigure their supply chain management processesfor greater customer satisfaction and loyalty.

6. Rapid business reconfigurationTo move at the speed of business, agile companies

reconfigure their processes as well as their physical plantsand human resources. As the market changes, they mightcontinuously reconfigure their supply networks, inventorystrategy, fulfillment strategy, product designs and manymore contributors to their success.

How do they do this? Consider supply network designas an example. Agile companies establish a small group of experts whose full-time job is to evaluate alternativeconfigurations. Typically, this group uses computer-basedmodels of the network and continuously updates thedata—such as fuel costs—that support the network.They then run optimization routines to determine the ideal network to meet corporate objectives.

Agile companies strategize how best to manage productdesign and production, too. For example, printing on labelsrather than directly onto bottles allows companies withglobal operations to hold off deciding which market to sendproducts to—and which language to print on the label—until demand trends become clear. Agile companies aggres-sively deploy such postponement strategies to gain moreflexibility. They tune their supply networks, inventory strategy,fulfillment strategy, product designs and other associatedpolicies sometimes 10 times as often as less agile companies.

7. Agile IT systemsThe processes described above need IT capabilities

that are beyond what is typical in today’s corporations.They’re the processes of an agile company, integrating andsynchronizing cross-functional capabilities across differentorganizations and partners.

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The obstacles to this integration and synchronizationare well-known in industry: Data critical for decision-making often do not reside within the four walls of onecompany. It’s difficult, for example, to gain visibility intothe data that show the status of one’s own inventory, notto mention that of the competition in the same channel.Even data that reside within one company are usuallyresiding in different systems, with different formats and at different levels of aggregation.

Moreover, because IT systems have not been helpful toplanning processes in the past, the spreadsheet is still thenumber one planning tool used in industry. But spread-sheets cannot be optimized globally, making the plan-do-check-act cycle overly cumbersome and error-prone.

Yet, today’s requirements for synchronization andintegration call for systems and solutions that override theshortfalls of multiple systems owned by different partnersin the supply chain. The traditional approach of replacinglegacy systems with one new, centralized system is also nolonger practical in terms of timeline or costs. Traditionalapproaches for data integration are also falling short of the current need for process synchronization.

Fortunately, there is a new class of systems that israpidly becoming available. These new systems overlayexisting systems and provide support for the plan-do-check-act functionality required in today’s global business climate.They also provide the flexibility to rapidly reconfigurebusiness processes. Here are the primary capabilities ofthese new, agile systems:

Visibility across multiple systems: Agile companiesknow how important it is to be able to read and interpretcritical data in different ways. Whether involved in plan-ning, monitoring execution or analyzing root causes ofconstraints and other variability factors, they strive torefresh their data continuously. Potentially valuable datamay come from a wide range of internal and externalsources—point-of-sale systems, the Internet, pricingsheets, research companies, a company’s own databasesand internal systems—and may come in forms rangingfrom SKU numbers and product categories to specificproduct names. Modern visibility tools that overlay existingdata sources enable supply chain executives to tap intomultiple data sources, and then convert data to formatsthat are helpful in analysis.

Event management: A flood of data is difficult tohandle, however. So an agile IT system acts like an intel-ligent assistant, evaluating what events call for action fromdifferent levels of management at a company. Such “events”might be a change in a competitor’s pricing or a rise in thecost of a key component. Agile systems create a checklistof factors to monitor on a regular basis, such as the weather,competitive pricing or the price of oil. The timely notifi-cation of events that have the potential to impact businessallows for more rapid correction.

Root-cause analysis: The ability to determine thecauses of problems is a critical prerequisite for deliveringon commitments. But how does this work? Let’s say salesare falling short of the demand plan. A process playbookto determine the cause may include the following steps:check to see if there was adequate inventory, then checksales of similar items, then check competitor pricing, andso on. IT support to flexibly implement such workflows is a key enabler of rapid analysis.

Planning and optimization: To achieve desired businessresults, plans must be continuously updated with currentknowledge of market demand and supply constraints.Because plan synchronization across multiple entitiesrequires a collaborative, iterative process among multipleparties, it’s essential to have IT that supports flexible planning workflows. Optimization tools that evaluatemultiple scenarios and suggest ways to minimize theimpact of constraints are key to responding rapidly to changing conditions and creating high-quality plans.

Distribution of plan-execution tasks: We’ve discussedthe importance of making the plan happen. Often, thisexecution function is distributed among different organi-zations and enterprises, requiring time-sensitive coordination.Consider, for example, the customer order that containsmultiple line-items that need to be sourced from differentsuppliers and merged in transit to deliver a single shipment.The execution plan for this order will be handled by multipleparties—calling for solutions that can monitor and trackprogress across multiple systems.

SummaryThe concept of a closed-loop, plan-do-check-act cycle

is simple, yet powerful, and companies have embraced itin theory since W. Edwards Deming’s articulation of theconcept. But change is another matter. Creating a changemanagement process to bring about a new corporate culture focused on agility requires a big commitment.Such commitments and the steps companies make to support them are not foreign to industry. When facedwith a challenge of variability in product quality in the 1980s, companies adopted a systematic approach tobring about process and attitude changes—Total QualityManagement.

Similarly, now faced with huge inefficiencies caused byvariability in business operations, companies must make a similar commitment to applying closed-loop principlesto the process of generating and executing business plans.For most companies, the increased agility delivered bysuch a program will yield more return on investment thanany other program to improve efficiency.

(See related CASE STUDY on next page.)

Supply Chain Leader / Spring 2006 19

Contact: Sanjiv Sidhu is Cofounder of i2 Technologies, Inc. andChairman of the Board ([email protected]).

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The revenues of a global leader in semiconductor manufacturing had stalled over the last decade. The company wanted to increase its market share, especially in the area of high-volume logic chips. One way to dothis was by improving its ability to deliver chips morequickly than the competition. Explains Pallab Chatterjee,chief delivery officer at i2 Technologies, “In the high-volume semiconductor market, the ability to deliver the right chip when the customer wants it is key to getting the order and gaining market share.”

This was no easy task, however. The company madetens of thousands of different varieties of logic chips, anddemand was hard to predict, since few customers providedforecasts. A customer might suddenly request 1 millionchips—and want them delivered in two days. In the past,the company had negotiated delivery times, counter-offering five days instead of two, for instance. It had alwaysbeen a leader in on-time delivery for these negotiated,deliver-to-promise dates, but now the goal was to sharplyincrease on-time delivery to customer-request dates,without increasing inventory. Performance in this areastood at almost 80 percent—not bad, but not goodenough to gain a more dominant market share.

i2’s analysis revealed that while the overall volume ofdemand was quite predictable, constant changes in howdemand was distributed among products and regions challenged the company’s forecasting efforts. For instance,changes in the demand mix meant shifting to productswith different costs, production constraints or cycle times.Or demand shifts among regions rendered previous stockingdecisions hopelessly outdated. The changes themselveswere often small—perhaps a customer wanted a differentpart version, or to have more items delivered to one locationthan another—but keeping up with these many smallchanges was too much for the semiconductor manufacturer’splanning and inventory management capabilities.

Taking a demand-driven approach to inventory management

i2 quickly understood the root of the problem: that nofixed plan can accommodate dynamic demand. Manuallycorrecting mistakes as demand fluctuated, however quickly,was not a viable, long-term solution. Instead, this companyneeded a more flexible, demand-driven approach toinventory management that would continuously updatethe plan. i2 worked with the company to put in place aninventory management system that would automaticallyadapt to changing customer demand on a continuousbasis—not just once a year. i2 analysis showed that the semi-conductor manufacturer’s delivery performance was satis-factory on fixed, predictable customer orders, but buildingto stock—for inventory or in anticipation of demand—

was a different story. Here, any forecasts were quickly out-dated, resulting in unavailability of needed parts. Despitethe complexity of the company’s business, its inventory control depended on just two main factors: the stage ofcompletion to which products were built, and the locationswhere they were stocked.

Adopting a postponement strategyThe solution was to postpone the last stages of product

manufacturing so that the company could delay makingdecisions about the final form of work-in-process productsuntil demand trends were clearer. There are trade-offs tothis strategy, however. Postponement is a compromisesolution. While it is quicker than build-to-order, it hashigher inventory costs. It is also cheaper than build-to-stock, but not as fast on order fulfillment. Moreover,postponement puts limits on the second inventory-control factor—stocking location. While finished goods may beshipped to distribution centers near customers, “postpone”work-in-process must be assembled and tested at upstreamfacilities that are usually farther away, adding shippingcosts and slowing delivery performance.

Despite these drawbacks, the postponement strategywould provide far greater flexibility and bring the companycloser to an optimal, demand-driven approach to inventorymanagement. After implementing i2 Inventory Optimization,the company was able to calculate the many complex factorsinvolved in managing its inventory. Working closely, i2and this manufacturer simulated different postponementand stocking strategies. This involved segmenting productsin different ways—ranging from manufacturing constraintsto demand profiles—until the company found an inventorymanagement approach that optimized these factors.Mindful that any performance gains would evaporate assoon as demand shifted, the company scheduled weeklycheck-ups and adjustments to the strategy to ensure thatsegmentation always tracked current demand.

Results exceeded expectations. Delivery performancesurged by 25 percent, almost double the simulation’s estimatefor one-time gains. Notes Chatterjee, “The original processhad them negotiating with customers on delivery dates.Today, the semiconductor manufacturer is able to meet thecustomer request date without negotiation more than 90 percent of the time, without increasing inventory levels.”Better still, the gains were immediate—unmistakableafter one month—and reached new steady states onlyfour months later. Success metrics were off the charts.Inventory savings alone made the project’s ROI virtuallyincalculable. Inventory Optimization delivered thespeed and agility the company needed to keep up withchanging customer demand.

–– Martha Craumer


Managing Dynamic Demand in Electronics

Supply Chain Leader / Spring 200620

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To understand the advantages of virtual verticalityand why it is key to the next generation of supply chainmanagement, it’s important to look at what was desirableabout a vertical supply chain, and what disadvantagesdrove supply chains toward the horizontal model.

In the vertical supply chain that was the rule in theearly 20th century, a typical manufacturing companyowned the assets required for acquiring and processingraw material into a finished product. Most often, thesefirms delivered the finished product directly to the waitingcustomer. Take, for example, a tire manufacturer. Typically,it owned the rubber plantations and facilities where thesap was converted into a product used in the tire factories.It also owned the ships, the overland transportation and the warehouses on the docks. This single owner-ship created a vertical supply chain, lock-solid in itsreliability for getting rubber to the factories. Oncemanufactured, the tires were sold through company-owned and operated stores.

Because the manufacturer had its finger in everyupstream and downstream activity, it had total supplychain control. But a vertically integrated company like thispaid a huge price for control. The depth of investmentnecessary to run each link in the chain meant there wasless likelihood of extra financial resources for new productdevelopment. And the time and energy it took to run allthe activities—managing the rubber plantation labor, the

shipping firms, the warehouse and overland transporta-tion—meant attention was diverted from designing andmanufacturing tires as efficiently as possible.

The shift from vertical to horizontalAs the century progressed, most manufacturers divested

themselves of non-core upstream and downstream activities.Shipping, warehousing and transportation services werecontracted from specialists. Dealers and distributors handledthe downstream activities for the manufacturer. In short,the supply chain shifted from vertical to horizontal.

Organizations focused on performing their core activitiesas efficiently as possible. Information began to take the placeof assets. This new way of doing business became importantin the early 1950s, when the first commercial computerswere delivered. Coordinating the easy flow of goods andservices in the supply chain using the unprecedented powerof computers increased efficiencies many-fold.

As information technology advanced, and client-serverarchitecture took the place of the mainframe, the use of computers proliferated exponentially. PCs became as ubiquitous as the clipboard had been. Information systemscould now enhance operational efficiencies and controls infunctional areas.

Management innovation marked the 1980s with TotalQuality Management and continuous process improvement.Michael E. Porter’s innovative concept of the value chain

Creating Virtual Verticality in HorizontalSupply Chains

Now, new technology is achieving the advantagesof vertical supply chains without the costs.

by Hiten Varia

CreatingVirtual Verticality in HorizontalSupply Chains

Supply Chain Leader / Spring 200622

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and tightly coupled. Efficiencies began approaching the upstream predictability present in the vertical supplychains of old, yet without the extra assets.

The next evolutionary step lay in using these techno-logical advances to manage business processes. MRP, ERPand APS became part of the most revolutionary aspectof supply chain management in the last century: businessprocess management. The key to managing the supplychain had more to do with controlling process than withchasing new software solutions. Although numerous toolsand solutions were developed to leverage new technology,what was lacking was an approach to leverage the newtools. It was no longer enough to have supply chaindata locked into unmalleable business processes, spreadacross heterogeneous systems.

Rising customer expectations drive innovationBesides the growing complexity of managing the links

in a global, horizontal supply chain, rising customerexpectations, due to improved customer satisfaction, droveinnovation. The lightning speed of processors and the“get-it-now” nature of the Internet have raised consumerexpectations to a level where only the swiftest and mostagile can compete. The New Economy has been replacedby the Now Economy, as Max More said in The Real-TimeEnterprise’s foreword.

In the next generation of supply chain management,the business process is beginning to be recognized forwhat it truly is: a living system that must change inresponse to the world around it. And now the tools andsystems for sensing and reacting in real time are at hand.For the first time ever, the technology exists to take time-based competition to a level it has never been.

Using extensible markup language (XML), Webservices and service-oriented architecture (SOA), supplychains can move at the speed of business, not the speed of software development. Hallmarking the next generationis a new tier on the IT stack, a single platform that canleverage vertical solutions, third-party applications, ERPsystems, legacy systems, componentized services and common platforms. That platform is under developmentnow at leading software companies in the supply chainspace. At i2 it exists today as the i2 Agile Business ProcessPlatform (see page 24).

The technology now exists to take time-based competition to a level it has never been.

spurred companies to look at their value-adding activities,such as logistics, production, sales and marketing andsupport. Add to the equation the introduction of Stern,Stewart & Co.’s economic value-added approach anddiscounted cash flow, and companies began seeking waysto cut assets and improve valuation in the stock markets.This focus on value sparked the outsourcing trend as a way to reduce capital-draining assets.

New technology enabled shorter cycle timesIn conjunction with these new management strategies,

materials resource planning tools (MRP and MRP II)were developed that enabled companies for the first timeto compute material requirements based on what wasneeded to achieve sales forecasts. Just-in-time inventoryfurther helped organizations offload assets and decreaseinventory. The expanded use of electronic data inter-change (EDI) helped shorten cycle time even more by integrating trading partners through shared networks.Enterprise resource planning (ERP) systems helped integrate supply chain transactions with the enterprise.Advanced planning systems (APS) addressed the shortcomings of MRP and ERP through functional optimization, resulting in dramatic improvements in supply chain efficiency and productivity. Based on the theory of constraints, APS allowed accurate supply chainmodeling and rapid concurrent planning—leading to thedesign of specific data models and planning engines.

Enter the World Wide Web and another exponentialadvancement in supply chain management. Though heralded as an unprecedented panacea for commerce,the Internet lost face with many when the dot-com bustcame. But visionaries were quick to note that it wasn’t the beginning of the end for e-commerce, but rather the end of the beginning. The bust signaled the experimentalstage was over.

Starting with point-to-point and two-way communi-cation, partner portals and expanded opportunities for partner collaboration, the Internet also linked trading partners. The horizontal supply chain became integrated

Supply Chain Leader / Spring 2006 23

Contact: Hiten Varia is i2’s Chief Customer Officer and Executive Vice President of its Greater Asia-Pacific Business Unit([email protected]).

SCM Generations

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APlatformfor theFuture

By Emmanuel Sabourin and Aditya Srivastava

APlatformfor theFuture

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The process-based platform and modular componentsdeliver the results that leading-edge businesses demand:maximized profits and minimized costs. In addition, thereal-time or agile enterprise proactively identifies obstaclesand optimizes new business opportunities.

Leveraging nearly 20 years of best-of-breed innovationfor evolving supply chain management business require-ments, i2 is ushering in the next generation with its platform.According to Gartner, “i2 is the only vendor in theapplication market—not just the SCM market—that has all of the architectural components needed to provideBPP (business process platform) capabilities to users.”(“Vendor Rating: i2 Technologies Is Positioned for SupplyChain Leadership,” 11 August, 2005.)

The Agile Business Process Platform expands beyond a basic technological and integration focus to offer the fullbenefits of a platform. Creating a technical platform of commonstandards, tools, practices and components is not a new idea.But until now, the scope of such a platform only incorpo-rated data management and integration. The evolution andmaturity of supply chain management solutions and relatedbusiness requirements have dramatically expanded this scope.The platform performs not just data or process integrationbut the actual hosting and running of overall businessprocesses, including integration with external applications.

Creating virtual verticality in the supply chainThrough the use of business-oriented components and

integration services, the Agile Business Process Platform istransforming the integrated, horizontal supply chain into a virtually vertical one (see article, page 22). Even withmultiple trading partners, collaborators and enterprises, theentire business process can now be built and managed onone platform with a single user interface. Unlike traditionalintegrated development environments, where several tech-nologically mismatched modules must be used, the i2 plat-form uses a single technology base, so it blends easily witha heterogeneous IT environment and existing applications.

i2 customers are already seeing the benefits of the AgileBusiness Process Platform. One retailer reduced expeditedfreight by 20–30 percent and reduced annual carrying costsby 2–3 percent. The entire solution was implemented injust 10 weeks. A multi-billion-dollar consumer-packaged-

A massive reshaping of the global business landscapeis under way, driven by the combination of three

key forces:• Globalization, particularly the integration of large,

low-cost economies into the world’s supply-and-demand equation

• Technology, combined with the exploitation of thenetworking and communications infrastructure created in the late 1990s

• Economic liberalizationCompanies that hope to thrive in this new landscape

have only one alternative—to adopt a new generation of business process management practices and solutionsthat enable them to manage their supply chains with flexibility and speed.

Such innovative processes and systems have becomethe defining feature of competitive advantage. What aresome of the characteristics of next-generation solutions?This article discusses the i2 Agile Business ProcessPlatform with a focus on its benefits: visibility into trans-actions and events in real time, and responsiveness with an adaptiveness and agility never seen before. These areno longer luxuries, but necessities as business process cycletimes are shrinking from days to minutes and the scope of supply chain processes has grown from a single operation to the entire extended supply chain.

Agility at the speed of businessNext-generation software that enables real-time enter-

prises is built with two key features: a standards-friendly and process-based platform, and modular, reusable com-ponents that can be tailored quickly into customizedworkflows that fit the specific business needs of anyorganization. The need for agility has caused global supply chain management processes to reach a thresholdthat can no longer be held within single engines. Thestand-alone engines of the last generation, responsible forrunning basic processes, have become “componentized”assets that are incorporated into a platform designed with service-oriented architecture—business functionalitythat is extracted, or componentized, from underlyingexisting applications as services that can be reused to build new applications.

Supply Chain Leader / Spring 2006 25

The i2 Agile Business Process Platform blends with a heterogeneous IT environment and existing applications.

The i2 Agile Business Process Platform blends with a heterogeneous IT environment and existing applications.

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goods company received $25 million in benefits by eliminating stockouts and invoice disputes between manufacturers and retailers, increased speed-to-shelf fornew products and reduced checkout errors in storesthrough real-time data synchronization.

Speed, quality and low-cost production A powerful engine and visual design are provided for

the assembly of business workflows. These tools allow thedesign, modeling, execution and debugging of workflowsfrom a single environment. By constructing a library ofbusiness workflows on top of the Agile Business ProcessPlatform, i2 solutions take components and libraries fromthe technical level to the business-process level. Years ofindustry experience have allowed i2 to crystallize patternsfound in mature supply chain management practices andto transform them into basic, logical workflows, whichpermit streamlined assembly and reuse.

A fundamental aspect of next-generation supply chainsolutions is their focus on users. User interfaces (UI) mustshow richness, flexibility and ease of use. The i2 platformprovides an environment for developing a rich and flexibleUI, so users receive the right UI for the right job. The UIsare easily customizable to address diverse business problems;they are not “one size fits all.” For example, Excel can beleveraged for interactive planning and reporting. WinFormcan be used for transactional systems, and a Web browser canbe employed by casual users or users with limited access. TheUI services are easily extendable by customers and partners(including business users), before implementation or after.

Another fundamental aspect of next-generation supplychain solutions is their ability to blend and integrate intoexisting heterogeneous application landscapes. For example,within the context of a supply chain fulfillment solution,a company may already handle order capture through an enterprise resource planning (ERP) module and a Web-based sales application. With componentization, it’s possibleto leverage existing order-capture mechanisms. In thatperspective, i2’s integration services on the platform aredesigned with a double objective in mind: to simplifydeployment and to ensure that any evolution of an organi-zation’s IT landscape, whether adding a new applicationor changing middleware, will occur with ease and speed.Applying a service-oriented architecture for integrationand infrastructure components ensures flexibility for futurechanges and makes new environments quicker to deployand less expensive to develop and support.

Seamless technology using integration services is lever-aged both for external application integration, for example toan ERP system, and for plugging in existing i2 solvers andoptimizers. Integration with ERP systems such as SAP andOracle is provided out-of-the-box. Since there is no tech-

nology difference introduced between external and internalfunctionality, everything is managed from a common UI.

i2 Studio offers a single interface One of the most advanced features of the platform is i2

Studio. It provides an integrated development environmentfor modeling, testing, deployment and maintenance,allowing for top-down business process design as well asfor bottom–up development and deployment of specificcomponents, such as UI screens and business rules. Studiogives an integrated visual environment for managing datamodels, business logic, workflows and user interaction. Ina nutshell, it offers a single interface for i2 solutions andfacilitates knowledge management across all systems.

Building applications in Studio ensures a high level oftransparency and ease of configuration through no-codeprogramming and configuration, and change managementduring and after the implementation. Studio can be usedfor data modeling and data-related workflows such asmaster data management solutions as well as for rapidprototyping of a solution.

Speed, agility, quality and low-cost production arecritical for real-time IT success. Together, the combinationof a business process platform and out-of–the-box componentized business content streamlines the deliveryand adaptation of supply chain management solutions.The end result is a platform that acts like a sophisticateddevelopment “factory” with standardized raw materialsand processes, leading to virtual verticality, competitivepricing and high-quality services.

Contact: Emmanuel Sabourin is a senior member of i2’s Solutions

Strategy Group. Aditya Srivastava is Senior Vice President of

Research and Development ([email protected]).

Next-Generation SCM Processes

Core Services

Data Services

Integration Services

Business Workflows








Instantiate& Adapt


Integrate withExternal


EnrichWorkflow withi2 Optimizers







Customer OrderFulfillment


VMI/CMI ModuleDemand ManagerReplenishment PlannerDemand Fulfillment

Deployment of i2 Agile Business Process Platform

Supply Chain Leader / Spring 200626

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In spite of growing sales, a rise in the number of storeopenings and steadily increasing revenues, a major electronics retailer was not satisfied with its supply chainperformance. In a company with hundreds of stores in theUnited States and Canada and with multi-billion-dollarannual revenues, it is not surprising that there was roomfor business process improvement. And with a 40 percentincrease in Internet sales, as well as growing customersophistication, inefficiencies did not just mean lost revenue.They also spelled the potential for lost customers.

With a complex, global supply chain, it was takingLogistics an unacceptably long time to track order-statusrequests from Purchasing. Part of the problem was thateach department was using systems that didn’t communi-cate with each other. When Purchasing asked about thestatus of an order number, Logistics needed the manifestnumber to track it.

The cost of lost revenue and the added expense causedby these mismatched systems could be calculated—butthe cost of customer dissatisfaction was immeasurable.The disconnect was forcing the company to order andstock more inventory “just-in-case,” and to unnecessarilyexpedite shipping when there was inventory already available. A study on logistics collaboration showed that, on average, expedited freight comprises one fifth of a company’s transportation costs. Through improved visibilityand process and event management, this was clearly acost that could be reduced.

Creating visibility and automating some communicationsi2 analysts found that frustrating and ineffective

communications between Shipping and Logistics couldactually be measured in man-hours. On average, 25 e-mailsor calls were exchanged per day regarding shipment status.Each call generated 60 to 90 minutes of logistics research.Because data were spread across multiple silos—eachfocused on a unique part of the company—analysts had to navigate through multiple systems, e-mails and spread-sheets to track order and shipment status. Unsynchronizeddata meant decisions were made from outdated information.

i2 analysts determined that the retailer needed a next-generation solution with active monitoring, providing a “right-now” picture that could track all milestones anddetect plan deviations. This solution would have to enabletimely responses to current and potential deviations fromthe plan, and include the capability to automaticallyinvoke resolution workflows based on business rules.

In addition, to turn problems into useful information, thecompany needed to discern trends based on past performance.

Introducing a rich solution built on a powerful platformBecause of the growing volume of its product offerings,

the retailer needed a solution that was scalable, powerfuland visible to multiple functions across the organization. Itneeded to support more than 300 potential users, hundredsof thousands of active SKUs, nearly 50 distribution centers,2,000 carriers, and thousands more vendors. With 3,000purchase orders and 5,000 loads being tracked daily, theretailer required a solution that could leverage disparatesystems in transactional mode and in real time.

To accomplish this, i2 designed a solution using i2Supply Chain Visibility, a comprehensive business applica-tion that makes orders, shipments and inventory visiblefrom a central interface. The application correlates supplychain activities with out-of-bounds conditions that needaction. And because the solution is built on the i2 AgileBusiness Process Platform, i2 was able to quickly leveragethe platform’s flexibility to reconfigure solution workflowsand access existing data.

According to i2 Director of Solutions Strategy RajatBhargav, “Other [competitive] available solutions are justtechnology platforms right now. None of them has supplychain solutions pre-built on them. To enhance businesscompetitiveness, organizations need a flexible system architecture along with a library of workflows that leverage intelligent supply chain services.”

Using i2 Studio, the platform’s toolkit, i2 analystsworked with the company to model its processes.Supply Chain Visibility had the rich data models and modules that represented the retailer’s supply chainoperations and functions. It also provided complete visibility through the pipeline—from vendor to distribu-tion center. With the platform’s integration services,the retailer could easily navigate multiple data sourcesacross silos. It could customize best-of-breed workflowsfrom the platform’s business-content library to respondto specific needs. Because it was built on a platform, thebusiness-process visualization, user interfaces, configura-tion and execution were unified and easy to manage.

Monitoring and managing exceptionsi2 built exception management into the solution. The

exception management was across the entire purchase-order life cycle—from the creation of a purchase order to

Supply Chain Leader / Spring 2006 27

Business Process Platform Helps Major Retailer Stay Competitive


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C A S E S T U D Y ( c o n t i n u e d )



Manage constant change. Meet high expectations. Control costs. Support core business strategies. Be more responsive.Innovate. How can you build an On Demand Business to continuously outperform and differentiate you from competitors?

Enter IBM. With a unique combination of Industrial and Distribution Sector industry expertise, business insights andproven technology, IBM can help align your company’s IT infrastructure with business processes to meet core objectives.With accountability at the project management and results level, we can help deliver results, create an operating environment that optimizes IT investments, drive innovation and enable productivity and growth. To find out how youcan build a resilient and flexible foundation for your On Demand Business, visit ibm.com/ondemand






































































delivery at the distribution center—and across the entireshipment life cycle for the collect and pre-paid fulfillmentprocesses. The platform enabled near real-time monitoringacross the supply chain, supporting the business needs of the inventory, logistics and distribution-centeroperations. A large library of predefined events that coverthe purchase order, load and advance-ship-notice life cyclewas further expanded to meet the company’s needs.

The platform’s event-administration capabilities allowedthe company to define and configure exceptions and toler-ance, providing alerts targeted at the users’ “care-abouts.”In addition, the platform’s event-management capabilitiescreated support for “what-if ”scenarios, including full support for escalation, forwarding, event chaining andexpiration. Supply events can be such instances as bottle-necks in production, unforeseen delays in fulfillment or even a supplier shorting on an original commitment.Or they can be demand events, such as customer ordersthat are greater than forecasts or changes to orders thathave already been placed. The solution manages thesetypes of events and influences and orchestrates execution.A personalized, Web-based dashboard gives the users a central work-planning portal.

Real-time resultsBecause of the i2 Agile Business Process Platform’s

process-modeling framework, service-oriented architecture,plug-and-play components and ability to leverage and integrate existing applications, it took only 30 days toidentify the key requirements, specify a pilot scope andmodel the process. After an additional 60 days, the pilotimplementation was fully deployed.

The platform-based solution for this retailer was coreto its ability to improve customer-service levels and todeliver products on time to customers, resulting in astronger competitive advantage. The retailer reducedcosts through lower safety stocks and freight expenses.Breaking down organizational boundaries and integratingdata in different silos enabled rapid changes to businessprocesses. The platform’s flexibility allows for continualprocess improvement as new problems are discoveredand solved. Now there is a single source for the mostcurrent execution status for buyers, logistics analystsand distribution operations staff.

And time-to-results? Only 90 days.

— John Kadlecek

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In most large companies, the purchasing and materialplanning functions are done by completely separate organizations, reporting to different executives and usingdifferent metrics to measure performance. The process thatlinks the two functions is sequential, moving in a one-wayline from silo to silo. The process is like preparing a package,tossing it over the wall and never hearing anything moreabout it. What’s needed to meet the demands of a global supply chain is a more collaborative approach.

i2 Collaborative Material Management is a solution thatmanages both procurement and material planning,merging the two organizations and their roles. In this collaborative scenario, individuals involved in the processare aware of all the other steps along the way, and canadjust their expectations based on real-time informationabout the changing geography ahead.

What makes collaboration necessary? Variability ofsupply. Today, when outsourcing global sourcing and globalfulfillment are common in any large business, the supplychain is subject to many more vagaries and challengesthan in previous years. When a change occurs in the supplychain, managers need to know about it immediately. Theyhave to know how these changes will impact the wholesupply chain and what alternative sources of supply theyhave available. How quickly they can respond to changesmakes the difference between being competitive and being left behind.

Tying in supply and demandMaterial managers need to have a clear window into

every aspect of how both supply and demand may change,so they can make a determination on the fly when a problem develops. Expedite? Be late? Find anothersource? Or are there other alternatives? A fixed planbased on historical forecasts isn’t flexible enough torespond quickly to change. Managers need constant andimmediate feedback, showing them where changes areoccurring and what parts of the supply chain will beaffected. What product is this a component of? Whichcustomer does it affect? Without visibility into everyaspect of the supply chain, the answers to these questionscome late, if they come at all. The result is significant costand a perceived lack of responsiveness.

Collaborative Material Management applies “what-if ”analyses to the practical consequences of any supplychange: projected stock-outs, material shortages

or late orders, for example. Knowing what the alternativescenarios might be, and knowing how the customerswould be affected by each, make possible a more agileresponse to inevitable change.

How the technology worksThe technology behind Collaborative Material

Management combines current planning applications with the i2 Agile Business Process Platform, so that different generations of technology can function togetherin a synchronous workflow. The solution is designed towork with multiple procurement systems, such as enterpriseresource planning or e-procurement systems, and withdifferent kinds of systems from different vendors.

Collaborative Material Management takes the data from these potentially diverse sources and automaticallyprocesses and converts them to requisitions and purchaseorders. Changes in forecasting can be reflected quickly in the actual workflow. This is a continuous process.Although some companies update their forecasts on a weekly basis, others may do it every couple of hours.With visibility and constant feedback, changes percolateupstream, where they alter supply and demand planning.All of the information needed to make these changes is provided. The level of automation is configurable,depending on a company’s business-process maturity.

Suppliers communicate through a supplier collaborationinterface. A lightweight planning engine allows for scenarioplanning and fast incremental planning in order to respondto changes. In this way, the platform solution constructs a continually updated global view of the whole supplychain, and also the specific routes through the systemthat individual products take. Collaborative MaterialManagement correlates demand with the supply of eachcomponent and sub-component, and shows managerswhich customer orders will be affected by a particularchange, and what the effect will be. This is most usefulto companies that have a broad supply base and seevariability in that base as a significant risk.

New Systems Enable Synchronization Between Procurement and Material Planning

Collaborative Material Managementby Sharmistha Dubey

Sharmistha Dubeyis a director in i2’s Solutions Marketing group.Contact: [email protected].

Supply Chain Leader / Spring 2006 29

This solution applies “what-if” analysesto the consequences of any supply change.

Collaborative Material Management is part of the

i2 Collaborative Supply Execution suite.

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The RFID supply chain market,for the most part, has moved past thescience-experiment stage, and manycompanies are in active discoverymode of the business benefits ofapplying RFID to their supply chains.We’re in a healthy period, focused onidentifying the best applications ofRFID technology and proving ROI.

The hype in the marketplace andthe mandates by Wal-Mart, theDepartment of Defense and othershave succeeded in reducing the cost of radio frequency tags and readersand in pushing through the Gen 2standard very rapidly. Those have been important developments.

RFID adoption rates have beenaccelerated due to the mandates. Manycompanies that normally would belaggards in adopting a new technologyare now being forced to be earlyadopters. Some of those would-be laggards continue to take a wait-and-see approach and implement onlywhat they have to. But our experienceis that the top 20–40 percent of RFIDearly adopters are moving aggressivelyto make use of the new data to fundamentally change the performanceof key processes, and, by extension,the efficiency of their supply chains.

Consumer product companies, forexample, are clearly leading, and we

see a lot of interest in using RFID toenhance promotion execution and newproduct introduction. These are twoareas that always attract a lot of invest-ment by consumer product companies,and before RFID, there was no way toefficiently measure their execution.But now, the RFID technology and

the systems that use the data providean excellent foundation for applicationsthat many thought were unreachablefor years into the future.

We are also seeing a lot of supplier-retailer collaboration around RFID in these areas of promotion executionand new product introduction, as wellas for automated receiving. Some ofour consumer electronics customers arealready having their suppliers tag com-ponent parts in consumer electronicsand are tracking the movement ofproducts from Asia to the UnitedStates now that many shipping andtransportation companies are startingto offer RFID-enabled services. It’sclear that the cross-enterprise, multi-echelon RFID supply chain market isemerging today where the businesscase for it is clear. Over the next severalyears it should grow dramatically.

The largest benefit of RFID atWal-Mart remains improving the in-stock availability of products andthe efficiency with which we move themerchandise to the shelf.

A recent study from the Universityof Arkansas documented in great detail how our RFID systems and theelectronic product code (EPC) datathey use improved our in-stocks.Overall, total out-of-stocks in the 12RFID test stores were reduced by 16percent. And the items tagged withEPCs were replenished three timesfaster than comparable items usingstandard bar-code technology. That’san undeniable advantage.

We achieved these impressive resultswith our initial system enhancementsthat took advantage of the new dataRFID readers collect, and we havemany more refinements planned thatwill significantly improve our business.

We’re planning software enhance-ments that will improve our ability tomove and manage merchandise; andwe’ll see increased efficiencies fromgreater use of RFID readers. That meansinstalling readers in more stores, andadding new processes or enhancingexisting ones for using EPC data. Forexample, later this year we will bedeploying hand-held RFID readers tohelp our associates locate products in

What Impact Will Radio Frequency IdHave on Supply Chain Management?

Marc OsofskyVice President of Marketing and Product Management,OATSystems, a leading supplier of RFID framework operating systems

Simon Langford

Opinion by Michael Cohen

Early adopters are moving aggressively.

Supply Chain Leader / Spring 200630

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the back rooms of our stores. We willalso be enhancing software to bettermanage promotional merchandise.

Eventually, we believe RFID willimprove all parts of our supply chain.Today, our suppliers have visibility intoall RFID-read data for their products.We show suppliers every read as a casepasses a read point. This happens with-in 30 minutes. Through our onlinecommunications system, suppliers have visibility not only into RFID databut also into many other data points and information—such as sales andinventory data at each store—abouttheir products. Many are using thedata, but in different ways, dependingon the business problem they are tryingto solve or the visibility they desire.

Over time, we believe the avail-ability of these data and the visibilityacross the supply chain will yield significant benefits for our suppliers,ourselves and, more importantly, ourcustomers. That’s why Wal-Martremains firmly committed to the continued roll-out and enhancement of our RFID systems and the supplychain management decision processesthey enable. We recognize, however,that to achieve improvements in someareas, we’ll need to reach a critical massof tagged product flowing though thesystem. That will take time.

What RFID will do, and is doingin certain sectors, is create the data-rich supply chain (see cover story, page10). Today we’re operating at the SKU-quantity level—we have 100 of anitem on a pallet. That’s how softwareviews the world. But with RFID, wecan see and capture data on each indi-vidual item, and even the componentsof that item.

So the richness of the data is impor-tant for tracking and documenting thehistory and movement of a specificcomponent. That’s how aerospace anddefense companies operate—they haveto know everything about every part intheir products. Today, no other indus-tries need to do that in their supplychains, but that is changing.

In Europe, for example, we’re see-ing legislation that will mandate the“field-to-plate” standard for the foodsupply chain. Companies will have to be able to trace every piece of food people eat to the factory, farm,and even the specific animal that itcame from. In the high-tech industry,environmental regulations will have a similar impact for companies thatwill need to trace and document thesource and ultimate destination of allof the components of their products.RFID is the perfect vehicle to handlethose mandates.

Right now, the biggest investmentin RFID is in the consumer productsindustry. It has been a labor play,because with RFID, as opposed tobarcode scanning, you don’t have toactually touch or see each case or pallet of merchandise. So it’s savinglabor costs. And of course Wal-Mart is seeing significant gains in reducingout-of-stocks by using RFID readersin their stores and their distributioncenters to manage inventory.

Other retailers are following thatlead. Instead of relying on point-of-saledata, RFID gives these companies visi-bility from the shelf to their distributioncenter, even back to some suppliers, sothey can better manage their inventoryand their in-transit merchandise.

At i2 we see the opportunity todevelop applications that help companiesaggregate that data and improve theirsupply chains. That’s an area we’re working on today. The future aspectsof RFID extend further, across compa-nies, back through the tiers of suppliers,giving everyone full visibility into theentire chain.

John Cummings Chief Marketing Officer,i2 Technologies, Inc.

Supply Chain Leader / Spring 2006 31

Opinion interviews were conducted byMichael Cohen, a contributing writer toSupply Chain Leader. If you would like to addyour comments to this discussion, pleasesend them to [email protected].

Manager of Global RFID Strategy,Wal-Mart

entification (RFID) Technology

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The modern business landscape is marked by increasinglevels of global sourcing—particularly from low-costcountries. While many companies across a variety ofindustries achieve cost savings through this sourcingstrategy, the benefits are often offset by complexitiesassociated with global logistics management.

Even though total supply chain costs may be reducedby global sourcing, typically, transportation and logisticscosts have been rising as a percentage of the cost-of-goods-sold (COGS). This has occurred as a result of rising fuelprices, the intrinsic costs of long-distance flow of goodsand transportation capacity imbalances—both for domestictransportation in regions like North America, and forinternational ocean and air freight from countries like China.

Supply lead times often have a high degree of variability,which can lead to poor on-time delivery performance, aswell as unavailable products, components and merchandise.The variability in lead times stems from many factors.The global flow of goods requires multiple handoffs—including various carriers, customs and port authorities,and consolidators. And these handoffs increase the probability of unexpected events. Growing import volumes,particularly from Asia, combined with important securityconcerns, have led to severe port congestion in NorthAmerica and Europe. As companies conduct business inmore countries, and as countries continuously change theirregulatory and customs-clearance processes, delays occurduring document compliance assessment and processing.

Leading companies are leveraging several strategies torespond to the complexity of global logistics managementin an effort to reduce transportation costs and improveservice levels while still focusing on the “buy anywhere,sell everywhere” business model. As a result, logistics isbecoming a more strategic business function at companieswhere it has not traditionally been a core competency.

Here are some key best practices for managing global logistics:

1. Evaluate and determine the right global logistics operating modelCompanies achieving success in global logistics are

assessing and determining the right logistics operatingmodel, including identifying which logistics functions to

outsource and which to keep in-house. They’re askingthemselves: Is it strategic to develop in-house competenciesrelated to logistics network design, logistics sourcing andmanagement, transportation capacity planning, globalshipment planning, visibility and event management?Should companies be outsourcing some logistics executionfunctions, such as conducting pre-booking and bookingconfirmation in ocean transportation, managing export/import customs clearance and document compliance,and warehousing and storage? Additionally, global multi-divisional companies are creating a shared-services organizational structure to procure, plan, execute, monitorand measure global freight movements. Global logisticsorganizations are evolving into “internal 4PL” businessmodels to effectively manage and service the needs acrossvarious lines of business and regions.

2. Establish strategic relations with logistics service providers and get alignment on performance metricsGiven global transportation capacity issues and the

need for logistics service providers (LSPs) to provide highlevels of service, leading companies are elevating theirrelationships with the service providers to a more strategiclevel. “LSP-friendly” programs are being developed toadopt more collaborative rate negotiation and biddingprocesses, provide forward visibility into logistics capacityneeds and develop packaging that allows for easier handling.To streamline their customs clearance processes, top-performing companies are leveraging customs brokers,freight forwarders and other third parties. They’re forminglong-term relationships with customs officials. Localknowledge can serve as an important lever in avoidingdelays and ensuring proper document compliance. Robustsets of global logistics metrics and key performance indicators (KPIs) are being developed and implemented to score-card LSP performance and continuously monitorperformance, as well as align payment terms to these metrics.

Best Practices in Global Logistics

Transportation Managementby Razat Gaurav

Razat Gaurav is Vice President of i2’s GlobalTransportation and Distribution Industry Group Contact: [email protected].

Logistics is becoming a more strategicbusiness function at companies where it has not traditionally been a core competency.

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3. Deploy global visibility and exception- management processes and systemsVisibility into order and shipment life cycles is as

critical as third-party partnerships in dealing with thecomplexities related to global logistics execution. Byachieving early visibility into exceptions and proactivelyalerting appropriate parties involved, companies can mitigate the negative impacts of handoffs and otherpotentially delaying processes in global logistics. This visibility and exception-management infrastructure needsto extend across the various legs and milestones involvedin the global flow of goods. Visibility by itself is not a silver bullet in solving all complexities related to globallogistics. Yet, when combined with intelligent exceptionmanagement, logistics planning and execution workflows,this layer of global visibility can be a very powerful weaponin managing variability in the global flow of goods.

4. Optimize the global flow of goods through intelligent routing and consolidationCompanies that have large shipment volumes in

specific regions are taking greater control of internationaltransportation planning processes. Traditionally, mostcompanies have had fixed business rules to determinerouting for specific countries of origin and destination.

Given the need to deal with transportation capacity issuesas well as to maximize utilization of containers, they’renow moving toward a more dynamic process—one inwhich they can make decisions on ports and inland modesand carriers, and look for consolidation opportunitiesacross their international shipment volumes. Leadingcompanies are dynamically evaluating options for doingmerge-in-transit, leveraging hubs for pool distribution,doing trans-loading, and diverting-in-transit when appropriate to reduce cycle times and costs.

5. Institute a continuous process for ongoing logistics network design and scenario analysisTo fully leverage the benefits of global logistics,

companies must continuously evaluate their global logistics network and assess factors such as physical distribution networks, lane structures, mode strategies and capacity requirements. In the past, such exerciseswere typically done annually or once every two or three years. However, the rapid pace of modern global business dictates a more frequent assessment of logisticsnetwork design. With scenario planning, “what-if ”analysis and management, today’s companies can reap the full benefits and minimize the risks associated with global sourcing.

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In 2005 the Aidmatrix Foundation, a spinoff of thei2 Foundation, touched more than 50 million people glo-bally with $1 billion in aid. That aid was delivered notjust in dollars, but in products and services and volunteertime. One of its biggest impacts was during HurricaneKatrina, as well as during the tsunami relief effort earlierin the year, and in other U.S. hurricanes after Katrina.

“Aidmatrix is an example,” says CEO Scott McCallum,former governor of Wisconsin, “of what can happen whenyou combine technology with real-time connection andcaring. And it’s a new way of thinking about giving forcompanies: giving better and faster, and not just in dollars.”

The benefit can surprisingly go both ways. As AidmatrixCOO-Global Amy Luz, a veteran fundraiser and develop-ment officer of such entities as the National MultipleSclerosis Society, the National Jewish Medical & ResearchCenter, and the Henry Ford Health System, explains:“Our job is not just to provide technology and expertise,but to catalyze an understanding among companies,foundations, and non-governmental and governmentalentities about what can be done. We provide a bridgebetween the giving organizations and the recipients,but we’re really in the business of providing hope. Andemployees of all sorts of organizations connect with that.We know that companies not only want to give but needto give. They want their employees to be proud of themand to know that they’re contributing as both communityand global citizens. It’s not just about the tax write-offs and operational efficiencies.”

Still, those count, and Aidmatrix also teaches companieshow to think of their donations of products as an exten-sion of their supply chain. “We show manufacturers thebenefit that can come from donating their distressed andobsolete or surplus inventory to aid efforts,” saysAidmatrix CTO and COO Keith Thode. How so?“When we partner with a company, and Kraft is a goodexample, we help them optimize the donation process flow,making it better for them to donate product than to throwit away. Now Kraft effectively has a button on its supplychain system that says ‘donate’ as one of its options.”

Adaptability of systemsBecause Aidmatrix partners with charitable organiza-

tions that are key relief agencies, such as America’s Second

Harvest and Adventist Community Services, it could hookinto a network of food banks during Hurricane Katrina toensure that donated foodstuffs from Kraft and similarcompanies got to warehouses predestined for disaster reliefefforts and to the communities designated by the donors.And when some of these warehouses were washed away,it could send staff to establish new systems in new ware-house spaces.

“The thing about disaster relief efforts is, despite howmuch you plan or think you’re prepared, the catastrophe

can be so great that you need to make decisions on the ground and adjust your plan on the fly,” says Thode. SixAidmatrix staff traveled to Louisiana when the Food Bankof New Orleans washed away and set up a new central-ized warehouse with Internet connectivity and Aidmatrix’swarehouse management solutions. The Aidmatrix staffcollaborated with agency partnerships that were in placebefore the hurricane hit and used new, customized andenhanced software developed to incorporate the learningsfrom Hurricane Andrew more than a decade earlier.

Laptops and offline versions of critical software andInternet and cellular phone connectivity enabled the setups.But it wasn’t just the hardware and systems that made thewarehouses work. It was the learning about relief processesthat has been ongoing over the past decade. How was thenewly established warehouse going to operate? Who wasgoing to train volunteers? Who would interface with trucking companies? Who would pay for transport?

“Relief systems have to incorporate these processes andbe very easy to learn and operate,” says Thode. “We testeda new system on the ground in New Orleans; there wasno time for review. The system showed great improvementover what was in place at the time of Hurricane Andrew.”Then, in 1993, six people from America’s Second Harvestspent the majority of their time managing donations offood and consumer products into the area, thereby taking

Technology Empowers Relief Efforts

Beyond Business by Victoria Cooper

Aidmatrix’s job is not just to providetechnology and expertise, but to catalyze an understanding about what can be done.

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themselves out of the loop for other hunger-reliefoperations. In recent Florida hurricanes, these sameprocesses were handled by only one person (250 truckloadsof product going to 17 locations) because of improvedprocesses and systems.

Handling volumeThese customized systems are valuable because they

have a high capacity for data and data crunching and theyoffer relief workers visibility into processes that need to be

implemented and actions that need to be taken. It’s likehaving the instruction manual open to the right page andthe instructor nearby for guidance. The warehouse solu-tion employed during Katrina could also track productand report back to donors in a matter of hours ratherthan days or weeks, showing that targeted donations hadreached their destinations.

Since Katrina, the Aidmatrix warehouse managementtool has orchestrated more than 1.7 million pounds ofhumanitarian-aid goods in Louisiana and Texas.Aidmatrix has mobilized millions of dollars through its virtual-aid drives at companies, some of which was raised through a special portal set up by the U.S.Chamber of Commerce. The solutions have orchestratedmore than 30 million pounds of food aid for distributionby food banks in 34 Gulf Coast communities affected by Katrina and Rita. More than 16 new corporate donors are utilizing Aidmatrix’s Relief Exchange appli-cation to transform unneeded supplies from what wouldhave been land-fill to life-affirming humanitarian aid.

Advanced systems and improved processes in these efforts free up the people resources on the ground to focus on making judgments and decisions as circumstances change, one of the critical capabilities still under scrutiny and development in disaster relief.

For a list of Aidmatrix partners—both giving andreceiving—see www.aidmatrix.org. Toexplore how to become a partner, please contactMelis Jones, Vice President for Business Development,at [email protected].

Aidmatrix Offers More than Disaster Relief

Founded in October 2000, Aidmatrix has developed

several software platforms to help companies and relief

agencies interact more efficiently and effectively

in medical emergencies, hunger epidemics and

natural disasters.

Its systems enable:

• Donations Management

• Relief Exchange

• Warehouse Management

• Fundraising Management

Aidmatrix’s product/service array includes a volunteer

clearinghouse, product donations exchanges and clearing-

houses, and corporate employee and customer virtual-

aid drives.

The foundation has partnered with several

corporations to create these systems and processes

for relief of human suffering, its avowed mission.

While i2 has donated supply chain software solutions,

Sun Microsystems has offered its database technology

and hardware, Macromedia has offered its platform

for fundraising development, ColdFusion has powered

some of the applications and Accenture has provided

some of the funding needed. As CTO/COO Keith

Thode explains, one of the success factors of Aidmatrix

is that “it has good source product from leading

industry players, and our developers either customize

or configure those products to the needs of the relief

efforts we focus on.”

Supply Chain Leader / Spring 2006 35

During Hurricane Katrina

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i2 had a very busy year in 2005, with one of its key initiatives to improve financial stability. The companyclosed 2005 with a much stronger balance sheet andrenewed confidence in its financial future. It executed its financial and business turnaround in three quarters,improving its capital structure and easing fears surrounding its financial viability.

The turnaround got its start with a 1-for-25 reverse splitof i2’s common stock in February. The reverse split helpedmeet the requirements for re-listing on the NASDAQNational Market, and i2’s stock was re-listed under thesymbol ITWO on July 21, 2005.

In the second half of the year, i2 divested two non-corebusiness units, Trade Service Corporation and Contentand Data Services. Although these were both good busi-nesses, they were no longer strategic to i2’s plans to be theleader in next-generation supply chain management solu-tions. There was some minor dilution in i2’s earningsstream, but additional cash proceeds of approximately $32 million were realized as a result of these divestitures.

Some of the biggest changes to i2’s balance sheetrevolved around the restructuring of our capital structure.During the second half of 2005, i2 redeemed $285 millionof the remaining $310 million of its 5.25 percent convertiblesubordinated notes and $6.8 million promissory note.This was critical because these notes are due on December 15, 2006.

By the end of 2005, i2 had recorded three consecutivequarters of solid operating profit. Despite cutting operatingexpenses by approximately $80 million over 2004, totaloperating revenue grew 2 percent year-over-year. The primary driver of this growth was from i2’s software solutions revenue, which increased 67 percent over that of 2004.

All of these events were critical to i2’s enhanced liquidityposition. At the end of 2005, total cash balances, includingrestricted cash, were $117.7 million. This cash balance isgreater than total debt by $17 million. Of current debtbalances, only $25 million is due by the end of 2006, andthe remaining debt is due in 2015.

What a difference a year makes! While there are stillchallenges, i2 starts 2006 with a solid financial position,including a new capital structure, consecutive quarters ofoperating profitability, positive operating cash flow in thelast quarter and a streamlined cost structure.

In 2006 i2 will continue to focus on operational excel-lence, increasing market share and becoming the leader innext-generation supply chain management solutions. i2will seek continued efficiency in selling and strategic waysto grow the business, so that we can continue to deliverresults that our customers, partners and employees deserve.

2005 Recap: Focus on Financial Stability

Contact: Mike Berry is i2’s Chief Financial Officer ([email protected]).

Inside i2 by Mike Berry

i2 Director of Corporate CommunicationsAmy Craven

Founding EditorVictoria Cooper

Art DirectorPeter Klabunde

Contributing WritersJohn BerryLauren BossersMichael CohenMartha CraumerJohn KadlecekPatrick Mulvanny

ResearchersKalaiselvi SaravananSreeharsha GopalakrishnaJayanthi Chander

Production ArtistTheresa Reilly

Editorial Advisory BoardSanjiv Sidhu –

Founder and Chairman of the Board

Michael McGrath – Chief Executive Officer and President

Barbara Stinnett –Executive Vice President andChief Customer Officer

Pallab Chatterjee – Executive Vice President,Solutions Operations, and Chief Delivery Officer

Hiten Varia – Executive Vice President,Greater Asia Pacific Region, and Chief Customer Officer

John Cummings – Chief Marketing Officer

Jim Caudill – Vice President, Solutions Marketing

Aditya Srivastava – Senior Vice President, Research and Development

Vasu Rangadass –Vice President, Development

Kelly Thomas –Senior Vice President andGeneral Manager, Automotive,Aerospace and Defense,Industrial, and Metals groups

Beth Elkin – Public Relations Director

Tom Smithyman –Senior Director, Customer Programs

Copyright 2006 i2 Technologies, Inc. Also available at www.i2.com.No portion of this magazine may be reproduced or republished in whole or inpart without written permission from theDirector of Corporate Communications

([email protected]).

Vol. 1 No. 1 Spring 2006

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11701 Luna Road • Dallas, Texas 75234www.i2.com • 1-877-926-9286 • 1-469-357-1000