A quantitative survey analysis of the value of data sharing in a network of trading partners. Research conducted in 2023-2024.
CONTRACT MANUFACTURING THE VALUE OF A NETWORK-BASED APPROACH
2024
Lora Cecere Founder of Supply Chain Insights LLC
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ABSTRACT When companies outsource manufacturing to third parties, it is imperative to automate a supporting network. If not, the organization will struggle to get data at the speed of business to make critical decisions. Today, most networks operate on spreadsheets and email which is an opportunity for all.
Lora Cecere
Founder of Supply Chain Insights
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TABLE OF CONTENTS
ExecutiveSummary . . . . . . . . . . . . . . . . . . . . . . . . . . .............. 5
Capturing the Opportunity . . . . . . . . . . . . . . . . . . . . . . . . ............. 6
What Is A Network? Why Does It Matter? . . . . . . . . . . . . . . . . . . .......... 7
ThePromiseofaNetworkIsMoreThanVisibility . . . . . . . . . . . . . . . . . . . . . . . 9
NetworkAutomation.WhyDoesItMatter?. . . . . . . . . . . . . . . . . . . . . . . . . . .10
Brand-Owner Perspective . . . . . . . . . . . . . . . . . . . . . . . . ............ 12
Network Provider Views . . . . . . . . . . . . . . . . . . . . . . . . ............. 17
Driving Value in a Value Network . . . . . . . . . . . . . . . . . . . . . ........... 18
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . .............. 19
Conclusion.. .. .. .. .. .. .. .. .. .. .. .. .. .. ................ 19
Methodology.. .. .. .. .. .. .. .. .. .. .. .. .. .. ............... 21
Calculating the Bullwhip Effect . . . . . . . . . . . . . . . . . . . . . . ........... 23
AboutSupplyChainInsights...................................25
AboutLoraCecere . . . . . . . . . . . . . . . . . . . . . . . . . . .............. 25
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Executive Summary
Using contract manufacturing by a brand owner to make and ship products averages 32% of total production. Despite the significance, this portion of the supply chain operates primarily on an island between trading partners supported largely by spreadsheets and email. Due to the lack of automation, black holes plague the process. (The data disappears for days at a time.) The automation and synchronization of data flow is an opportunity for all trading partners. Improving outcomes requires an investment in network technologies. In automating supply chain trading partner relationships, many companies attempt to “integrate supply chain data” without understanding that the goal needs to be the improvement of interoperability—the synchronization and harmonization of data flow bi-directionally across multiple supplier/customer interaction tiers. When implemented correctly, the network provides optimization engines, interoperability mechanisms, and a system of record. Each is important. With increased demand and supply variability coupled with reduced order cycles, network investment improves agility and resilience. Yet, the research for this report shows that only 8% of the flows between brand owners, contract manufacturers, and suppliers move through Supply Chain Network Operating systems. Seizing this opportunity is the subject of this report.
______________________________ Trading Partner Definitions
Brand Owner: the company owning a brand to be outsourced for manufacturing/finishing to a third-party. Contract Manufacturer: A provider of manufacturing services to a brand owner to produce, package, and ship a branded product. Supplier: A provider of raw materials or services for use in manufacturing. Trading Partner: An entity participating in the buying and selling of products or services in the extended supply chain. Outcomes Agility: An organization’s ability to deliver the same cost, service, and quality in the face of demand and supply variability. Resilience: Continuity of balance sheet results despite supply chain disruption and variability. ______________________________
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Outsourcing takes many flavors by industry. The reason varies. In consumer products, the products with low volume and high demand variability are outsourced to improve manufacturing efficiency within the enterprise. New products are frequently outsourced for either specialized technology or time to market. In contrast, in high-tech and electronics, contract manufacturing is primarily used to manage overflow capacity. In Figure 1, we share the drivers. Capturing the Opportunity
Figure 1. Reasons for Outsourcing
Specialized technology
59%
Overflow capacity
57%
Reduce cost
49%
Marketing and sales promotional support - displays, special packs, etc.
22%
Time to market
14%
Meet Corporate Social Responsibility (CSR)/ESG goals
3%
Others
8%
Source: Supply Chain Insights 2024 Q14. Why does your company outsource manufacturing?
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What Is A Network? Why Does It Matter?
The discussion on automating trading partner communication in contract manufacturing starts with the clarity of the definition of a network. In the market, there is confusion. Many solutions, irrespective of differing capabilities, call themselves a network. However, as will become crystal clear by reading this report, not all networks are the same . As shown in Table 1, each form of a network solution is different. In this report, we will share insights on the benefits from automating trading partner interaction through a Supply Chain Operating Network. Implementations start with trading partner mapping and onboarding. The deployments can be from one trading partner to another (one-to-one), one trading partner to many suppliers (one-to-many), or multiple trading partners to many suppliers (many-to-many). In addition, the network can be single-tier or multi-tier. The greater the scope of the network, the larger the benefit.
Today, most network deployments are one-to-one or one- to-many, offering single-tier connectivity to improve supply reliability. The concept of business networks enabling many trading partners to inter-operate with many trading partners in multi-tier relationships is quite new. For clarity, in Figure 2, we represent one-to-one, one-to-many, and many-to-many architectures. In the drawing, imagine that each circle is a trading partner and that the lines represent business flows. This research focuses on the importance of nine flows: quality control data, purchase order insights, shipment information status, raw material availability, perpetual inventory status, manufacturing schedule changes, yields, available capacity, and forecast sharing. The greater the number of nodes and variety of flows, the more important it is to map the data and processes from outside-in (market to enterprise).
Table 1. Definitions
Business Network
One-to-one
Closed network based on onboarding permissions
Onboarding Mapping Data Movement Delivery Analytics Onboarding Mapping EDI encryption Data Movement EDI decoding Delivery Analytics
Value-Added Network (VAN)
One-to-one
Closed network requiring authentication
Marketplace
Many-to-many
Open network for sharing across multiple parties Permission-based sharing of data and processes based on trading partner definitions
Catalogs of goods and services in an open market with a focus of buying and selling goods as a transaction Trading Partner Onboarding Mapping Data transformation based on process conicals using a multi-tier data model Data Movement Delivery Analytics
Supply Chain Operating Network
One-to-many or many-to-many
Enterprise Advanced Planning Solutions
Enterprise optimization
Optimization within the enterprise
Four-wall optimization in demand and supply planning
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The functionality of a supply chain operating network simplifies the mapping and onboarding for one-to-many networks. The value proposition is simple. A Supply Chain Operating Network reduces process latency, eliminates black holes, serves as a system of record, and streamlines/improves specific processes like multi-tier sourcing or transportation. In Figure 3, we share an image depicting a Supply Chain Operating Network. Today, 81% of brand owners and contract manufacturers depend on communication through email and spreadsheets. These flows are one-to-one-- focused on sharing a singular flow of information-- lacking a system of record.
Electronic Data Interchange (EDI) is also used. An EDI signal is like old-fashioned mail. EDI, the industry’s workhorse, is expensive and linear (not bi-directional). Each document requires opening before usage. The research shows that 51% of brand owners augment email and spreadsheet communication with EDI processing. Automation is an opportunity. Only 8% of the flow is through an automated Supply Chain Operating Network. Using a Supply Chain Operating Network to synchronize multiple flows through bi-directional communication is an opportunity for over 90% of the relationships currently existing in the industry.
Figure 2. Types of Business Networks
One-to-One
One-to-Many
Many-to-Many
Figure 3. Definition of a Supply Chain Operating Network for a One to-Many Relationship
PROCESS CANONICAL
TRADING PARTNER
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The Promise of a Network Is More Than Visibility
Network enablement and supply chain visibility concepts may sound interchangeable for a supply chain leader just beginning the journey. The value of a Supply Chain Operating Network is much more than visibility. The network automation enables bi-directional process flow and optimization. However, to understand the concepts, we must first define visibility. As shown in Figure 4, the term “ visibility ” also has many definitions. Supply chain leaders inherently know they need greater visibility, but the conversations between buyers and sellers spin due to a lack of definitional alignment and agreement. Most current visibility solution deployments focus
on singular flows, such as transportation, quality information, or purchase order status. Despite the advancements in business-to-consumer processes, we have made little progress in automating business-to- business interaction between trading partners. Most current systems hang on the backs of 40-year-old versions of Electronic Data Interchange (EDI) processes maintained by gray-haired baby boomers. The implication of retirement and the associated business continuity are issues that few discuss.
Figure 4. Supply Chain Visibility Gaps
3.9
Manufacturing Visibility
3.1
0.8
4.0
Supplier Visibility
2.5
1.5
4.1
Logistics Visibility
2.9
1.2
4.3
Enterprise Visibility
3.0
1.3
Importance
Performance
Gap
Source: Supply Chain Insights LLC, Redefining the Supply Chin Response Study Q23. How effective would you rate your company on visibility? Q24. How important would you rate visibility capabilities for your company?
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Network Automation. Why Does It Matter?
This may lead you to ask, if the value is so compelling, why is only 8% of synchronized communication between trading partners moving through a Supply Chain Network Operating system? The synchronization of multiple flows with a system of
•
QR Code Visibility of Sourcing for the Buyer. Customers of brand owners want to know the origin and processing of materials. Network enablement is required to show where and under what conditions
record will not come from ERP providers, supply portals, EDI exchange methods, or collaborative business data exchanges.
the product was manufactured to accomplish the goal of a QR scan at the shelf. Prevention of Counterfeit Goods. Network enablement and authoritative identifiers help to prevent counterfeit goods. Lineage and track and trace are the cornerstones of the safe and secure supply chain. Improving Time-to-Market for New Products. Improving data flow to contract manufacturers improves
______________________________ Bullwhip Effect The signal distortion of channel requirements as an order moves upstream from the selling channel, through manufacturing to a supply node. In each stage, the requirements increase in amplitude and variability
The answer is focus. Companies are busy with enterprise initiatives. IT organizations consumed with upgrades of existing software have very little time for the topic of building a Supply Chain Operating Network to automate the flows between contract manufacturing and brand owners, so why should you care? Many lack the understanding of the value proposition. For all, it requires rethinking the paradigms, as shown in Figure 5. The reason is more evident when you consider the value propositions stemming from Figure 5: • Multi-tier Order Promising. Improving Order
•
See Appendix for Bullwhip Calculation ______________________________
•
cycles to get products to market.
• Minimizing the Waste from the Bullwhip Effect. In this report, we will share data on how a supply chain operating network improves data latency and reduces the number and severity of black holes. This reduction
Reliability of Shipments. Knowing multi-tier inventory availability improves order promising by better transportation routing/load management. Sensing market shifts quicker and translating the requirements with shorter cycles improves on-time and in-full deliveries, powering growth agendas while reducing the fines/penalties.
in cycle times, with better data accuracy, reduces the supply cycle and the bullwhip impact. This is especially important in delivering Corporate Social Responsibility (CSR) program commitments. Let’s consider the brand owner and contract manufacturing perspectives to better understand the value.
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Figure 5. Shift in Paradigms
Traditional Thinking
Shifts Driving the Digital Transformation
Inside-out Processes
Outside-in Processes
Focus on Efficient Organizational Silos
Design of Value Networks
Use of Multiple Data Forms: • Design of Processes to Enable data to Move at Multiple Speeds • Use of Unstructured and Structured Data • Open Source
Use of Transactional Data with a Focus on History • Batch Processes • ERP Architectures • Linear Optimization
Focus on Response
Sensing to Drive an Intelligent Response
Process Standardization
Autonomous and Localized Processes
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In this research, 67% of the respondents were brand owners. In Figure 6, the industry rates itself as fixed, inside-out, reactive, controlled, and cautious. The greater the volume of outsourcing, the greater the reactivity. Brand-Owner Perspective
Figure 6. Industry Descriptors for Brand Owners
Fixed
3.2
Agile
2.8
8%
19%
27%
35%
11%
11%
35%
27%
19%
8%
Inside-Out
3.5
Outside-in
2.5
5
3
41%
41%
11%
11%
41%
41%
3 5
Reactive
3.5
Proactive
2.5
5
22% 16%
32%
24%
24%
32%
16%
22%
5
Cautious
3.5
Risk-taking
2.5
11%
35%
43%
11%
11%
43%
35%
11%
Uncontrollable
2.8
Controlled
3.2
14%
19%
49%
16% 3
3 16%
49%
19%
14%
Independent Silos
3.1
Aligned
2.9
11%
22%
22%
35%
11%
11%
35%
22%
22%
11%
Insular
2.8
Responsive
3.2
16%
16%
38%
27%
3
3
27%
38%
16% 16%
Room for Improvement
3.6
Working Well
2.4
3 16% 14%
49%
19%
19%
49%
14% 16% 3
Fragile
3.0
Resilient
3.0
14% 19%
27%
38%
3
3
38%
27%
19% 14%
1
2
3
4
5
Source: Supply Chain Insights 2024 Q11. Which set of descriptors best describes your supply chain currently?
In this study, as shown in Figure 7, we studied the trust, accuracy, and importance of nine process flows for brand owners. Companies have the highest trust in purchase orders, but this flow is not the most important. Information on shipments, available capacity, materials on hand, and manufacturing schedule changes are more important to the brand owner.
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Figure 7. The Trust, Accuracy, and Importance of Nine Process Flows for Brand Owner Interaction with Contract Manufacturers
5
4.69
4.67
IMPORTANCE
4.47
4.44
4.40
4.36
4.31
4.26
TRUST
4.26
4.14
4.09
4.06
4.18
4.20
4.00
4.09
4
4.06
ACCURACY
3.75
3.66
3.64
3.50
3.50
3.47
3.45
3.18
3.36
3
2.97
Shipment Information
Quality Control Status
Available Capacity
Materials on Hand
Manufacturing Scheduling Changes
Purchase Orders
Forecast
27+51+5+8+0+8 14+32+24+14+3+13 5+59+16+5+0+14 Perpetual Inventory Signals 3.47 4.06
Yield
73+22+0+3+0+2 54+19+3+19+0+5 35+43+5+11+0+5 4.69 4.14
70+24+0+3+0+3 35+38+14+3+0+9 43+35+8+5+0+8 4.18 4.67
51+43+0+3+0+3 3+46+21+19+0+11 8+46+16+14+3+13 3.36 4.47
59+30+0+8+0+3 30+54+3+5+3+5 27+46+16+3+0+8 4.09 4.44
54+30+5+5+0+5 14+35+8+22+3+16 16+43+11+14+3+13 3.45 4.40
57+30+0+10+0+3 43+35+14+3+0+5 41+36+11+5+0+5 4.26 4.36
51+30+11+5+0+3 8+27+22+30+8+5 5+35+24+24+3+8 2.97 4.31
24+57+8+8+0+3 14+35+16+11+5+19 8+43+14+11+0+24 3.50 4.00
4.09
4.26
3.50
4.06
3.66
4.20
3.18
3.75
3.64
Very Important
Usually Important, it Depends
Neither Important nor Unimportant
Sometimes Important, but Usually Not
Never Important
No Knowledge
Source: Supply Chain Insights 2024 Q11. Which set of descriptors best describes your supply chain currently?
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Without network automation, getting shipment and quality information takes 1.5 days, insights on materials on hand and manufacturing schedule changes take longer (two days on average). Getting information for perpetual inventory changes is even longer (2.5 days on average). We show gaps in information in these network black holes in Figure 8. When brand owners invest in a supply chain operating network to manage contract manufacturing, they get the critical data on these nine flows 85% faster. The availability of information faster to make decisions quicker and more accurately through a trading partner network also reduces 1.5 days of inventory on average. In addition, the network serves as a system of record to ensure that trading partners across multiple tiers are working on the same information.
Without a network, the time to get the data is a supply chain blackhole. The longer the time, the greater the impact on customer service, transportation costs, working capital, and manufacturing decisions. Network automation also helps to align multiple stakeholders within the brand owner’s organization. This is critical in managing new product launches and facilitating discussions between the new product launch team, marketing, and distribution/customer service. This lack of alignment makes it difficult to decide on the timing and volume of second production runs after the product is launched into the channel.
Figure 8. Frequency of Data Exchange without the Investment in Network Automation
Shipment Information Quality Control Status Yield Materials on Hand Manufacturing Schedule Changes Perpetual Inventory Signals Forecast Purchase Orders Available Capacity
22%
43%
16%
14%
5%
16%
38%
27%
3%
16%
11%
22%
27%
11%
30%
22%
24%
32%
5%
16%
14%
22%
30%
22%
14%
3%
38%
16%
16%
27%
22%
11%
11%
57%
22%
24%
22%
5%
27%
5%
16%
16%
5%
57%
Multiple Times / Day
Within 2 Days
Greater than 3 Days
Daily
Next Day
Source: Supply Chain Insights 2024 Q24. How long does it take you to get information?
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Figure 9. Organizational Alignment for the Brand Owner
Supply Chain Planning & Manufacturing Manufacturing and Procurement Sales & Marketing Supply Chain Planning and Procurement Supply Chain Planning and Finance Finance & Operations (Make, source, and deliver teams) Sales & Operations (Make, source, deliver) Sales and Finance Operations and IT Finance and IT Marketing and Finance Marketing and IT Sales and IT Corp. Social Responsibility(CSR)/Environmental Social Governance (ESG) & Operations New Product Development & Distribution
22%
24%
22%
16%
14%
3% 5.2
19%
24%
24%
16%
5%
11%
5.0
8%
32%
22%
30%
3% 5%
5.0
16%
14%
38%
16%
11%
5%
4.9
8%
27%
19%
38%
8%
4.9
3%
35%
24%
19%
11%
8%
4.8
14%
19%
27%
19%
8%
11%
3%
4.7
3%
30%
24%
19%
19%
5%
4.6
8%
24%
27%
19%
8%
8% 5%
4.6
5%
22%
22%
35%
11%
5%
4.6
24%
32%
16%
14%
8%
5%
4.4
22%
14%
38%
14%
8%
5%
4.1
19%
24%
27%
11%
14%
5%
4.1
19%
16%
30%
16%
5%
14%
3.9
24%
14%
14%
24%
19%
14%
3.8
Extremely Important
7
6
5
4
3
2
1
Not at all Important
Source: Supply Chain Insights 2024 Q13. How aligned do you believe that these same pairs of teams are at your company today?
To highlight the importance of a system of record for a network, the average company purchase order changes 3.5 times. Without a system of record and the blackhole effect of 2.3 days, it is hard for the parties to align. The difficulty in coordination is illustrated in Figure 10. Here, we depict the demand for a new product launch as a river. When a role is clear on the demand flow, the river is depicted as blue,
but the organization is unclear when the river turns brown. New product launch distribution is especially problematic due to high demand and supply variability, usually coupled with low volume flow. The syndicated data sources—IRI and Nielsen for consumer products—are of little use due to the data latency issues. There is no substitute for the use of channel data and network automation.
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Figure 10. Evaluating New Product Launch in a River of Demand Framework
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Network Provider Views
In the study, 33% of respondents were contract manufacturers/ suppliers. Contract manufacturers are more aligned within their organization than their brand owners. Brand owners may also operate as contract manufacturers. In the study, 37% of brand owners also provided contract manufacturing services. The most important flow for a contract manufacturer is manufacturing schedule change information. The second
most important are forecasts, and the third most important is purchase orders. The most accurate information currently is quality control status and shipping information. Not only is there an accuracy issue, but also one of data latency. Manufacturing schedule changes happen frequently, often many times a day, but have a black hole due to the use of spreadsheets and email of 1.5 days.
Figure 11. Accuracy and Importance of Data Signals at a Contract Packer
ACCURACY
Quality Control Status
4.08
42%
33%
17%
8%
Shipment Information Manufacturing Schedule Changes Materials on Hand
4.00
25%
67%
8%
4.00
50%
25%
8%
8%
8%
3.92
25%
50%
17%
8%
Purchase Orders
3.92
33%
33%
25%
8%
Yield
3.75
25%
42%
17%
17%
Available Capacity Perpetual Inventory Signals
3.75
42%
25%
8%
17%
8%
3.00
8%
25%
17%
42%
8%
Forecast
2.83
33%
33%
17%
17%
IMPORTANCE
Manufacturing Schedule Changes Forecast
4.75
83%
8%
8%
4.67
75%
17%
8%
Purchase Orders
4.67
75%
17%
8%
Materials on Hand
4.58
67%
25%
8%
Shipment Information
4.50
67%
17%
17%
Available Capacity
4.50
58%
33%
8%
Yield Perpetual Inventory Signals Quality Control Status
4.42
67%
17%
8%
8%
4.36
58%
8%
25%
8%
4.17
58%
25%
8%
8%
Source: Supply Chain Insights 2024 Q48. Accuracy: How would you rate the accuracy of the information shared? Q49. Importance: How would you rate the importance of the information shared with your organization?
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Driving Value in a Value Network
This report has shared why techniques like control towers, portals, collaboration hubs, and EDI are insufficient. These current approaches result in black hole automation and bullwhip amplification. The approaches add waste and increase risk when companies believe they are investing in solutions to do the opposite. To drive improvements, companies need to address the need for a system of record and the exchange of information effectively multiple times a day. Most companies attempt to “integrate supply chain data” without accounting for the data latency in the black hole or the distortion from the bullwhip impact. The slower the product velocity through the channel and the more nodes, the greater the bullwhip effect. The higher the dependency on outsourcing and complex IT infrastructure, the
greater the number of black holes. To understand the value, ask the questions: • When did you know it was an issue? With a network, when could you have known about the issue? • What was the distortion? What is the impact of the amplification and distortion on inventory and cost? Was data latency an issue?
Measure the Bullwhip Effect by measuring the ratio of the coefficient of variation by decision node, as shown in Figure 12.
Figure 12. Bullwhip Effect
Supplier
Manufacturer
Wholesaler
Retailer
Customer
Customers
Manufacturer
Bullwhip = COV of channel sales / COV of retail replenishment orders
Bullwhip = COV of retail replenishment orders / wholesale distribution orders
Bullwhip = COV of wholesale distribution orders / COV manufacturing orders
Bullwhip = COV of planned orders / COV of purchase orders
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Recommendations
As a business leader, ask the right questions. Supplier reliability and the bi-directional flow of data at the speed of business improve agility and decrease the issues with having the wrong inventory or aligning transportation inbound logistics with manufacturing scheduling. Armed with the knowledge in this report, take the next steps. Here we share some recommendations: • Invest in the Use of Channel Data. Most companies have channel data that they do not use. Redefine planning architectures to focus on channel flow. (In the process, minimize the use of synchronized channel data due to two-to-three-week data latency.) Connect insights from the flow to the network. • Reduce Data Latency in Networks. Automate networks with bi-directional multi-tier flow. Wean your organization off the use of spreadsheets and email. Educate the organization on the issues of demand, data, and process data latency. Map and reduce black holes. • Understand and Reduce Supply Variability in Planning Through Network Investments. Build a supply planning master data layer to capture supply variability of inbound receipts, conversion rates, yield, run rates, and other variables. Use this data as input to safety stock calculations, procurement decisions, and production planning. • Automation Requires the Understanding of a Messy Market. Today, there is no network capable of connecting sourcing, logistics, manufacturing, and distribution in the market. Make interoperability a priority and push the network providers to drive information across networks. In the short term,
automate the flows of contract manufacturers to brand owners through solutions like Nulogy. • The Devil Is In The Details. Gain insights into how quickly data moves through the network and the inherent latency of data conversion. A Value-Added Network operates on batch jobs, and as a result, the data is not as current as a Supply Chain Operating Network. • Invest in Multi-Tier Process Capabilities. In the investment of network automation, the ERP architecture is largely irrelevant. The goal is to connect trading partners in meaningful ways to unleash higher levels of value. Focus on interoperability between systems using NoSQL, Software Robots, and Graph- based Insights. • Build Talent. Organizational talent to build networks is scattered in the organization. The baby boomers who built EDI networks are retiring, and the digital transformational teams lack an understanding of what it takes. Form cross-functional teams and focus on building value. • Use Standards. Understand the standards available and maximize the use of GS1 and ISO8000 standards. With the increase in contactless shopping, increased security and piracy, and the shift to last-mile delivery, standards matter more than ever, but they are not a panacea. • Leverage Industry Clout. Form a guiding coalition with other trading companies. Stop the slide. Social responsibility and supplier reliability in uncertain times require it. The industry will only move forward if business leaders take action..
Automating Brand Owner and Contract Manufacturing trading partner flows is an opportunity to eliminate 1-2 days from cycles and improve outcomes. With only 8% of flow moving bi-directionally through a Supply Chain Operating Network, it is an opportunity for all to improve the time to know, reduce cost and inventory and improve customer service. Conclusion
APPENDIX
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This research was designed and executed using followers of Supply Chain Insights on LinkedIn as a panel group. We based the report’s findings on the results of a quantitative study followed by a series of qualitative interviews with brand owners. Most of the respondents worked for large brand owners based in North America. Methodology
Figure A. Industry Representation of Respondents
High-tech and Electronics
21%
12% 12% 12%
Consumer Packaged Goods Food and Beverage Medical Devices Aerospace and Defense Automotive Consumer Durables Industrial Manufacturing Pharmaceuticals / Bio-Technology Apparel – Fashion Chemical – Specialty Oil and Gas Others
9%
6% 6% 6% 6%
3% 3% 3% 3%
Source: Supply Chain Insights 2024 Q9. Which industry grouping best defines your company?
Figure B. Geography
North America (US & Canada)
60%
Western Europe (UK, France, Germany, Greece, Norway, etc.)
25%
Asia (China, India, Japan, etc.)
9%
Central/Middle America (Mexico, Guatemala, Costa Rica, etc.)
2%
Eastern Europe (Russia, Hungary, Poland, Czech Republic, Romania, etc.)
2%
2%
ANZ (Australia, New Zealand, etc.)
2%
Others
Source: Supply Chain Insights 2024 Q73. In what region of the world are you personally based (physically located) at this time?
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Figure C. Revenue
32%
25%
12%
11%
11%
9%
2%
Less than $250 million
$250M - $499M
$500M - $999M
$1 billion - $4.9B
$5 billion - $9.9B
$10 billion or more
Don’t Know
Source: Supply Chain Insights 2024 Q74. Finally, approximately, what was the last fiscal year revenue for your entire company?
Figure D. Most Familiar Role
Brand Owner. Companies that advertise and sell a branded product. The product may be manufactured by the brand owner or a third-party (or a combination of both).
65%
Contract Manufacturer. Companies or individuals that produce, assemble or package prodcuts for brand owners. These services are contracted by the brand owner through third-party suppliers.
21%
Supplier. Companies servicing brand owners and contract manufacturers with materials, services, or other suppliers
14%
Source: Supply Chain Insights 2024 Q3. If you participate in multiple roles, select the one that you are the most familiar with.
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What is the bullwhip effect? It is the phenomenon where slight variations in demand at the point of sale can cause large amplifications to upstream supply nodes. Since the definition, the concept has been taught through games like the Beer Game. Yet, no technology has incorporated the calculation into supply chain planning, and there is no clear definition of how to use the bullwhip factor in decision-making. A high bullwhip translates into bullwhip risk and waste. The first step is visibility. The second is calculation. In the Journal of Business Logistics (2015) Masking the Bullwhip Effect in Retail: The Influence of Data Aggregation outlines the most common calculation highlighted in the research was the coefficient of variation (CV) as measured in “T” periods: Calculating the Bullwhip Effect
graph). Let the formulas in Excel (“STDEV,” “GEOMEAN”) be your friend! Coefficient of Variation (Sales) “ X ”: Measures the variability of POS sales over time. Standard deviation of POS Mean of POS Coefficient of Variation (Ordered Shipments) “ Y ”: Measures the variability of ordered shipments over time. Standard deviation of ordered shipments Mean of ordered shipments Step 3: Calculate the bullwhip amplification factor . A measure of the extent to which changes in POS are amplified in shipments from the manufacturer to a distributor’s DCs. Utilize “ X ” and “ Y ” from step 2 above. (Y-X) X You now have a straightforward way to calculate how variability at the point of demand is amplified in your upstream orders. Like many KPIs of a business, the most crucial point is to start the measurement process and then work on continuous improvement initiatives to improve the metric over time. Also, take note of aggregation and seasonality effects. As Waller et al. (2015) highlighted, “ data aggregation can mask the extent of the bullwhip effect, and that seasonality in the data has a dampening effect..” After defining your bullwhip impact, your focus should shift to possible countermeasures to reduce the bullwhip impact and associated waste.
ikt ) × ] ikt ) × ] 1 T 1 T
S ( O ikt ) / [Σ S ( D ikt ) / [Σ
T ( O t=1
CV
=
'
T ( D t=1
A simple but less accurate calculation is to compare the Coefficient of Variation of channel point of sales to customer orders and customer orders to planning orders (an output of the supply plan) and the comparison of planned orders to purchase orders. Step 1: Create a simple table and chart to show actual demand on an upstream supply node. This example could be a customer DC supplying a set of retail stores. Alternatively, a digital fulfillment center could provide individual digital orders directly to consumers. Simply drawing this picture will often shock companies at their lack of inventory synchronization to actual demand. Step 2: Calculate the coefficient of variation for sales and orders at the bottom of your data set within Excel (See step 1 table and
Calculating the Bullwhip Effect, Fred Baumann, Linkedin Post , December 17, 2020
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About Supply Chain Insights
Founded in February 2012 by Lora Cecere, LLC aims to deliver independent, actionable, and objective advice for supply chain leaders. With ongoing research using the over 330,000 followers on LinkedIn, the goal is to publish actionable insights to help leaders understand supply chain trends, evolving technologies, and which metrics matter.
About Lora Cecere
Lora Cecere (Twitter ID @lcecere) is the Founder of Supply Chain Insights LLC and the author of the popular enterprise software blog Supply Chain Shaman. She also writes as a LinkedIn Influencer and as a contributor to Forbes. Using her research, she penned twelve books to help business leaders. With over twenty-two years as a research analyst (AMR Research, Altimeter Group, and Gartner Group) and now as the Founder of Supply Chain Insights, Lora is recognized as a global supply chain expert and is a frequent speaker on the evolution of supply chain processes and technologies.
www.supplychaininsights.com
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