i2 Technologies celebrates its 20th anniversary this year, and in honor of that milestone - and the magazine's theme this issue, "Getting Results Faster" - I've thought about what our value proposition was at the start and how it has evolved.With that in mind, I'll try to summarize some of our innovations and where we think the supply chain management discipline is going.
Twenty years ago the predominant methodology to keep the supply chain under control was MRP (material resource planning). MRP is essentially unidirectional planning, where you start from a forecast and a distribution plan and continue on to develop a master production plan, which enables you to issue purchase orders to suppliers. You factor in the inventory you have on hand, subtract it from what you think is your demand, and then figure out what you need to produce, generally on a weekly basis. Another way to look at this approach is that you start with demand requirements and work your way back to supply requirements. The managers who used this approach achieved a fair amount of supply chain discipline.
The problem was, despite using this approach, companies found their inventory levels remained too high. The limitation of MRP was that the constraint calculation was sequential. First you calculated what your material needs were, then you calculated your capacity needs. There was limited intelligence for looking at all of your supply chain constraints simultaneously and therefore limited opportunity to optimize what needed to be done in the presence of all constraints.
Addressing delivery to promise
MRP also did not solve the problem of customer delivery to promise, because there was no visibility into supply availability or supplier activity. So manufacturers depended on having inventory on hand to keep their delivery promises.
Around this time - the 1970s - the Just-in-Time movement to create what became known as lean manufacturing became popular. Japanese manufacturers - especially in the automotive industry - were using mechanical techniques like kanban (use one, pull one) to control inventory. This mentality worked well where you had high-volume, streamlined production. But it didn't work in constraintsensitive areas, such as semiconductors (where there could be a shortage of raw materials) and steel factories (making a wide mix of products). In other words, it wasn't so effective in low-volume, high-mix environments. It also fell short in environments such as high tech and electronics, where the product mix changed rapidly as a result of customer demand changing rapidly. In such environments, customer lead times are higher than supplier lead times.
It was in this environment that Ken Sharma and I founded i2 in 1988.We were interested in supply chain management for several reasons, not the least of which was that we saw the immense potential in this area for enhanced efficiencies from software capabilities.
Our first product was called Factory Planner. It had many innovations. Foremost, it allowed manufacturers to plan in a multidirectional way. If you had a supply constraint, you could determine the best mix to produce given this material constraint, or, likewise, if you had a capacity constraint, you could determine what to do. Maybe you had a constraint in the middle of the supply chain. If so, you could figure out what your plans should be upstream and downstream from that constraint.
Factory Planner also allowed you to deal with multiple constraints simultaneously, instead of sequentially. A third innovation was that the software was the first commercial planning software that resided in the computer's memory mode (RAM). So it could run up to 100 times faster than traditional MRP.
Lastly, Factory Planner introduced the concept of depicting plans graphically.We used emerging technologies in this area to create user-friendly graphical interfaces that suited managers' need to get the big picture about problems and solutions quickly and clearly, without wading through marshes of data.
Extended supply chains
Our second-generation product was Supply Chain Planner. It applied the same principles to larger supply chains - not just the factory, but multiple factories. It also accommodated distribution planning, and we were able to optimize distribution in ways that traditional products could not, by using memory-resident software, as we had with Factory Planner. The capabilities in speed and accessibility we gained in memory mode allowed us to perform more iterations, more "what-if " analyses, faster. Now we could represent real-world contingencies much more accurately, helping our customers understand the implications of choosing certain capacities or parts in their supply chain.
We became very good at advanced planning and scheduling and continued to broaden the scope of what we offered, adding highly differentiated demand planning and transportation planning software.We were constantly bringing new capabilities to the market.
Twenty years later, global supply chains provide more complex challenges, calling for ever more inventive and comprehensive solutions.With the help of our software, many of our customers can now respond to new orders with promise dates in less than one second. If material is not in inventory, the software's full visibility into the entire supply chain can help planners determine how long it will take to produce it, taking into account all of the other activities in the chain currently using the same material and capacity.
Our innovations have not been confined to software development.We have continued to build on our fundamental mission: to help companies achieve their targeted business results by optimizing their supply chain efficiencies and using the supply chain as a competitive lever. In the early days, CIOs wanted us to depend on their MRP systems for core data. But we realized over the years that the quality of data and the kind of data needed to optimize the supply chain aren't in ERP (enterprise resource planning) systems. The data maintained there supports the company's financials, not its supply chain. The resultant bill of materials does not have enough information about alternative materials, for instance; nor are capacity and supply lead times represented well, if at all.
In the last few years, we have built our own master data management system. It augments the weaknesses inherent in ERP systems, just as our earlier software augmented MRP systems. This consistent approach of augmenting - and not ripping and replacing - represents our partnership philosophy with the companies we serve.
In the networked world of today, a lot of data important to running an integrated supply chain do not exist within the four walls of a company. Such data are related to supplier inventories, point-of-sale (POS) data from the customer interface, channel sources and other aspects of modern supply chain management. This is the kind of data needed to create operational efficiencies.
Closing the loop through PDCA
Another shortcoming of ERP systems, from the supply chain perspective, was that, although they could issue work, purchase and customer orders, they did not have the intelligence to analyze what was going wrong with a plan. In the plan-do-check-act loop (PDCA), the "do" and "check" elements were absent. In recent years, we have continued to strengthen our software's capability to close that loop. The software can figure out what's going wrong with a plan, through root-cause analysis, early enough that remedial actions can be initiated to "make the plan happen."
To close the loop on our history to date, I'll summarize by saying we started out as a planning company, focusing on the process first and then providing tools to support or facilitate that process. Improvements in process methodology have played an immense role in increasing operational efficiencies in supply chain management. What we've done is embed the processes in the software.
Reflecting on the journey we've taken, I realize now that one of our chief contributions has been in compressing the time to results. I believe this will become a matter of days rather than weeks or months in the future.We introduced the concept of daily planning, and now a company like Dell, for instance, is planning not just daily but three times a day.
One caveat should be mentioned. No matter how advanced and capable the tools are, without realigning their organizations and processes and identifying the metrics that are critical to meeting business goals, companies will fail to realize the benefits and capabilities inherent in today's software solutions.
After the great ride of the past 20 years, I remain committed to the journey ahead. Fundamentally, I believe supply chain management is a "green" discipline. If the inefficiencies and overruns in the supply chain can be addressed, the environmental impact is huge, with less waste and more efficient use of resources and energy. Because today's supply chains are global, the decisions around sourcing of materials, building to order, and collaboration with channel partners, suppliers, and customers to create a tighter, more robust supply chain quite possibly could have more impact than many other green initiatives.
by Sanjiv Sidhu
|
Sanjiv Sidhu is the cofounder of i2 and the chairman of the board. For more information, contact supply_chain_leader@i2.com. |
|
|
