Category Archives: Financial Management

Digital Disruption in Automotive

As part of our work with the Future of Cars special edition of Coffee Break with Game-Changers, I sat down with host Bonnie D. Graham and gave my point of view on who were the disruptors and who were being disrupted at the recent Best Practices for Automotive (#BP4Auto) event September 18-20 in Detroit.  Listen to the full cast below, with transcript follows.  For more event reviews, listen to my series re-cap for 2017 live, Tuesday October 10, 2017 at 10AM ET / 7AM PT or on demand here.

Bonnie: Welcome to SAP’s 3rd Annual Best Practices for Automotive Conference. We are bringing together hundreds of professionals in the automotive industry. They’re senior leaders, they’re decision-makers, analysts, super-users, support teams, solution providers, business process owners, we may even have some press and some students and educators there. Why? SAP is sponsoring and hosting a one-of-a-kind experiential event built around  three wonderful factors: learning, innovation, and peer collaboration. Does it get any better than this?

Hello, I’m Bonnie D. Graham, the producer and host of The Future of Cars with Game-Changers radio, presented by SAP. And on the other side of the microphone is, I can say, my good friend, and he has been many times on our radio series. He is now taking over as the owner of the Editorial Calendar for the Future of Cars—It’s William, I’m allowed to call him Bill, Bill Newman, Strategic Industry Advisor, North American Automotive at SAP.

Hi Bill, how are you today?

Bill: I’m good, Bonnie. How are you doing this afternoon?

Bonnie: I am well. I wish I was there with you in Detroit. I heard from David Parrish and Pradeep Amladi and everybody says it’s a great conference. I hear there’s some amazing cars here on the show floor. You want to tell me just for a second what you’ve seen before I get you my questions?

Bill: Yeah, sure. I mean, it’s a great event. We’ve got close to 400 people and we’re all here in Detroit, the hub of the car industry here in North America. We’ve got, I think, over 20 countries represented.

We’ve got a packed house full of great partners and vendors that are with us today, and we had a nice opening earlier today who is Stefan Krauss, who is our Global Head of our Automotive Industry here in Detroit. It’s just been really great to come together.

We were actually walking through the lunch line and I bumped into an old colleague from Volkswagen and we were joking about how this is a bit of a homecoming. Everyone kind of moves around in automotive and really, nobody leaves. It’s a nice intimate environment given so many people so I think everybody’s really got a nice vibe going on today.

Bonnie: That’s a really nice perspective, Bill. Thank you—I wasn’t planning to ask you that but I know that you’re a good on-your-feet talker, if you will. So I really appreciate that. I love the idea that it’s a homecoming of sorts and at the very end of the interview, in a few minutes, I’m going to ask you a question about why people who are listening to us but not there this year should be there next year. So maybe we can drop that word on them once again.

Bill Newman, our listeners are from all overall the world. You know, you’ve been on Game-Changers with me many times. We have a global audience and they’re wondering, what does SAP see as the top trends and/or the top challenges facing the automotive industry today? What’s your POV? What do you see, Bill?

Bill: I think in terms of a digital disruption, everybody’s trying to do it. There’s not an emerging standard or business model that all of the, let’s say, automakers and of course, their suppliers are moving, too. So they’re trying to understand, first of all, what is it that they’re trying to move to? We looked at autonomous shared electrified vehicles. What does that mean for a particular company and everybody’s trying to figure that out. And then as an aggregate, how is the industry going to move there?

You and I spoke very recently on our Future of Cars with Game-Changers show and we were talking about some of the new federal regulations that are going to allow a certain number, I think a couple thousand a hundred thousand vehicles, level three, level four autonomous vehicles over the next five years operate on the road.

Everybody’s trying to figure out, how do we digitize, so that’s operationally, and then how do we monetize? So if you look at some of the work that McKinsey and Roland-Burger and IHS, some of the other auto think tanks that have thought about—they’ve actually suggested that the big upside isn’t the car that you buy and we park it at our garage and it sits there for 70-80% of the time or more when we’re not using it but it’s really the digital services and the consumerization of the automotive is really another device.

Everybody’s trying to figure out where they play in that space and that, according to McKenzie, is going to be a $1.5 trillion dollar marketplace by 2030. So that’s huge. And you’re seeing some of the companies begin to make moves to put their bets on that. Maybe it’s the case of GM pulling out of Europe and selling their operations to Peugeot, PSA, and you’ve got winding down some operations that weren’t really performing particularly well in India and making their bets on high growth, BRAC markets, or the new digital space.

That’s just one example, but again, everybody’s trying to figure out what that means for them and arguably, if I can return to the GM example, that was a big thing. They have been working to become profitable in Europe for decades and finally, arguably achieved that to a point where they decided that they felt comfortable then, carving that out and putting those assets on other bets.

So, you don’t need to be the largest revenue car-producing company, but we want to get a share of the higher margin automotive services, vehicle space, next generation vehicle. Obviously, that’s a big bet that takes a lot of capital investment, so each automaker is sorting that out right now. That’s a really big deal in the industry.

Bonnie: Thank you, Bill. You answered my next question in advance. Let me just read the question. You covered it, but I have a part two to the question. I was going to ask you which of the top trends you’re seeing will spawn or spark, I should say, the most significant new business models in automotive? I think you just talked about that, so let me move to part two, which is, where is SAP in being able to be positioned to help companies realize the value, the benefit, the profitability of those models?

Bill: Well, I’ll go back to part one and tell you where the biggest barrier is right now, which is a question you weren’t going to ask me, so let’s go there. That’s talent management.

Bonnie: Really?

Bill: Absolutely. We’ve got all of these—you keep hearing about it—if you’ve got kids or friends with kids in school and they’re talking about STEM (science, technology, engineering, and math), they’re just not enough of those graduates to go around.

Now, SAP, in conjunction with many of their user groups, both in North America and throughout the world, have excellent qualification and certification programs ready. Graduates coming out of university and four-year colleges [are ready] to take on those positions, but they’re very competitive and other industries outside of automotive are vying for the same talent pool and resource.

Even in engineering and manufacturing practices, we see the lack of talent in those practices actually equating to—and this is the Center of Automotive Research – so this isn’t just something we’re pulling out [of the air] – a 6% capacity gap. Meaning that the whole industry could be operating at a 6% higher volume level rate right now if we had the talent available to do all of the things that we wanted to do, to make cars and to move to digital. So, that’s a pretty big gap. So what’s SAP doing? Certainly, we’ve got a number of functional expertise areas across.

So for example, to address talent management, to address procurement for digital leaders in finance and manufacturing, I think the exciting thing in automotive and in particular, is that we’re addressing three very specific needs in automotive.

The big data, with our large HANA platform and memory platform that’s been in production. We’ve got thousands of consumers, whether it’s analytics or running ERP or moving to a new S/4 platform that are being able to take advantage of that.

I think the second is business networks, so being able to monetize the purchasing power through our Ariba products, to look at time and expenses through Concur that tie back into finance. We’ve got these broad multi-million individual and company networks.

The third area, which I think is the most exciting, is SAP vehicle networks where we are creating apps that actually go into the on-board services of vehicles that our customers are making. And in this way, we truly are an automotive supplier now.

We are putting content and applications, whether it’s figuring out where you’re going to park next to where you can route and then bill your expense report or whether we can do some promotions or some consumer driven services, where you might go out to dinner.

All of those things are being developed now with our great customers and partners and they’re being targeted for use in both the commercial and light passenger vehicle market space. Truly, we can stand up and we can make our claim that SAP is truly an automotive supplier in that sense. I think that’s really exciting.

Bonnie: It’s very exciting. I wasn’t aware of that level of positioning, Bill. I’m still reeling over your comment that there’s a talent challenge, getting kids through the STEM programs and into the automotive industry to bring brilliance, not only in technical skills but probably in the way they think and the visionary qualities of how they approach—

Bill: Indeed.

Bonnie: Yeah, that’s where you cannot have a shortage, especially right now. You know what? This leads me—I think it’s a nice segue, Bill Newman, to my next question. Stefan Krauss, the opening keynote speaker at the conference today, asked the question of the audience, “Are you the disruptor or the disrupted?”

This goes back, I think, to your comment about the talent pool. How do you disrupt if you don’t have a talent pool that is helping you become the disruptor? Meaning you’re not the victim, but you’re on the leading edge. So let me ask you a question, Bill—what do you see at the event in terms of companies—on what end of the spectrum?

They might start out as disrupted and then move toward being the new disruptor and we know we’ve talked on Game-Changers radio that I’ve said, the industry is just layer upon layer of surprising disruptions. It just isn’t settling down anytime soon. Who’s attending? Are they disruptors? Disrupted? Or someone on that continuum?

Bill: Yeah, we’ve been able to see a few of the early breakouts and they’re just excellent, talking about everybody’s journey, whether it’s in people or talent or manufacturing or supply chain, it’s just really exciting. That’s what I like most about this program, in conjunction with our [friends at] Eventful Conferences and ASUG, which is our North American SAP user group. It’s really for SAP customers by SAP customers.

So you’re going to get a little of our teams and our positioning but really, it’s our stories that are coming from the field from colleagues—your own industry colleagues if you’re one of our customers, which I think is great. So I think we’re at a crossroads.

I think there are a lot of people here trying to understand and learn, which is wonderful, about what people are doing. And then you’ve got some digital leaders like Karma Automotive and others who have gone pretty deep into their digital journey with us at SAP. Arguably, Karma—I used to work at Volkswagen when we owned Bentley and Rolls Royce. We used to joke it was a vitamin business. You only had to sell one or two cars a day and everything was fine.

Arguably, Karma – the former Fisker Automotive – is a bit of that same uber-lux market. And they’ve literally invested talent—here we go, talent again—as well as capital assets into creating an uber-lux, not only buying experience for their customers, more of a concierge and thematic experience.

For example, if you feel like you’re fall and you want to go hiking, Karma will be happy to orient the interior the car to that theme, if you will. So it’s really the uber-lux experience. But also to the operations of the manufacturing of their new plant in Southern California. That’s very exciting and of course, it’s still a driver-powered vehicle, but digitized and electrified type of product. That’s really exciting to see.

And we do have some industry crossover, so Lockheed Martin spoke earlier this morning, giving a little bit of a story about what they see both from an aerospace as well as a contract vehicle manufacturing journey that they go through. Both very large and very small companies, and again, partners – we have such a fantastic partner ecosystem –  that are able to come in and play those specific roles to help our customers. It’s just really good to see. We’re going to see more over the next two days that we’re together.

Bonnie: Very exciting. You mentioned the word ‘electrified’. I was going to say what you’re telling me, Bill Newman, is electrifying. It’s very exciting. You mean seriously, uber-lux? You’re talking about customizing the interior of a vehicle for the experience you’re about to be taken to? What are you, talking about a wallpaper color or like the color of the floors? So what are you talking about?

Bill: Yeah. So, trims, maybe it’s the type of wood or the color scheme or the feel. Are you a rugged type of person or are you more of a plush person? That’s really the high-end experience. When you’re paying the low to mid six figures for a vehicle, you can begin to enjoy—

Bonnie: Anything you want.

Bill: Pretty much, right? And that’s the whole idea. It’s really a concierge experience and it’s all powered by SAP and our hybrid product suite as well as our S/4 enterprise and our operating environment for ERP. So it’s just really, really fantastic.

Bonnie: Well, that is really exciting. I was going to ask you a question we do at the end of all of our Game-Changers show. Look into the crystal ball and tell me what you predict will be the most dramatic game-changer for automotive between 2020 and 2025, but in my opinion, I think you just told me already. But do you have a different game-changer you want to predict, Bill?

Bill: Well, I think overall, everything is going to change. I think it was Mary Barra, CEO of GM, that said, we’re going to see more change in the next five to ten years in the auto industry than we have seen in the last 50. I think we’ve used this quote on your show before, but that was two years ago. It’s hard to really understand what the car as a vehicle will look like and express.

For those of you listeners who want to learn more, we’ve talked about trucks. We’ve talked about passenger cars. We’ve talked about taxis even most recently, and those shows are all on-demand. But I think it’s really going to be a question of how does the value chain look? So you could argue that the automakers currently, today, could end up being the fleet owners.

We all subscribe and you get a truck on the weekend and a nice passenger vehicle during the week and it rolls up to you and you drop it off or whatever. You buy subscriptions based on your miles and your vehicles come and go as you need them. Well, maybe the automakers don’t want to run that business. Maybe there will be emerging fleet companies.

Maybe the next generation, maybe the Uberized version of the car rental industry as we know it today, maybe they’re going to own the fleet. They’ll manage the maintenance. When you operate a vehicle at 80-90% or higher, there’s a whole different vehicle maintenance model that you have to think about. That’s a cost.

As we figure out how we monetize the vehicle today and into the vehicle tomorrow and we get to that tipping point where you’ve got more autonomous vehicles on the road than you do classic, traditional vehicles, that really becomes an interesting time. That’s the time where we get close to that. That’s when I think people are going to have to commit to certain business models and really take the plunge one way or the other.

So, I think that’s going to be—there are so many things changing that I think fundamentally, who owns the fleet is really going to be the big change that we’ll see over the next ten to twenty years.

Bonnie: Absolutely fascinating. Now I have one last question for you, Mr. Newman. I want you to just give me a one sentence answer because I know you want to get back to the event.

The event takeaway—there are people who are not among the 400 or so people who are there with you and Pradeep and David and Stefan right now. Why should our listeners who did not attend this year—why should they plan to attend next year? What’s the top reason to be there at Best Practices in Automotive in 2018? Bill Newman, one sentence.

Bill: I think it’s a homecoming and you learn so much from your peers. We mentioned it earlier—you just get to be with so many great people, people that we know, people that we work with, and you learn so much from those people and it’s not a pressure situation.

Everybody’s here to learn and engage and to have a good time. And take at least one thing away that they can put to work either in their plan or immediately into their business when they get back to the office. It’s a homecoming for those that want to learn and have fun.

I personally invite everybody to attend in 2018 back in Detroit and hope to see all of your listeners then.

Bonnie: Thank you. Bill Newman, it’s always such a pleasure and I must say, I learned so much from you during our brief time together today. This interview will be posted on our Future of Cars with Game-Changers radio landing page very soon.

I’m going to wish you a great rest of the event, Bill Newman. Can’t wait to hear what you have to say on our upcoming Future of Cars with Game-Changers radio shows. Have a great time and thanks for taking time out of a very busy schedule to meet with me, Bill. All the best.

And to our listeners, I’ll be back with more very soon. Bonnie D. Graham, signing off. Have a great day.


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Filed under Big Data, Business Analytics, Cloud Computing, Cloud Readiness, Enterprise Performance Management, Financial Management, Information Technology, Innovation, Operations, Procurement, Strategy, Supply Chain Management, Technology

Convergence Forces – The Coming Ethics Debate on Predictive Analytics and Location Based Services

One of the big news stories in strategy, innovation and tech circles is the growth and convergence of four key trends from the past two years. These trends – social networking, mobile computing, cloud applications and big data – are not new.  In fact our firm covered these extensively in 2012 and continue to advise clients on how to leverage these trends strategically, both  individually and collectively. What is occurring now as we move into 2014 is the cumulative effect of these trends into force directions of their own.  These so-called convergence forces – or what Gartner Group calls nexus of forces (NOF) – have a tendency to amplify and extend innovation in new and more powerful directions, much like strong winds, lunar position, and seismic disturbances can affect the behavior of ocean tides.

Photo credit, Cisco Systems.

One of the areas where we are seeing this play out is in the business to consumer pricing strategies of in-store retail.  Location based services – either by way of opt-in applications or mobile browsing cookies – allow known customers to log-in to store applications and view special VIP promotions, to quickly locate where items may be found in the store, and to recommend products which based on sentiment analysis and buying pattern might be of interest to the customer.  Location based predictive analytics can also help retailers determine the best location in a particular store to position items based on customer traffic (using big data to monitor your path via GPS as you actually browse the store or predict where you will go based on history and profile) as well as to dynamically create promotions based on your position and buying status.

Creating special offers and promotions based on an existing relationship is not new in the business to business world.  Suppliers and customers alike receive special treatment and extended services and bundle pricing based on volume of sales, excellent quality, and other relationship management KPIs.  In fact in the world of wealth management and retail banking, customers may find that with particularly large financial institutions the first question they are asked after pleasantries may be “what is your current relationship with us?” While this is hardly endearing to the uninformed, it does grant status to those who may, have for example, several accounts, a loan, a trust and other financial products all aggregated under the same customer portfolio with a particular financial institution.

Where things may run amok in the future is when customers (a) receive deferential pricing based on relationship without permission and (b) when a relationship is implied based on socio-demographic profiling or  when facial recognition technologies are employed.  Let me give two very possible scenarios.  I have an account at a sports and recreation retailer and I walk into the store. As a member I have given them permission to my specific profile information (where I live, what I purchase via history, my demographics) in exchange for an annual dividend at no fee.  The retailer has the ability while I am in-store to make me aware of specific items I might want and key promotions going on at that store on that day.  What the retailer can do is also annotate the base price while I walk through the store.  Meaning that what price I may see before logging in and what price I see after I log-in may be different.  Imagine digital price tags changing and updating dynamically as I walk through the store.  Now in this scenario I am going to assume that the incentive I have to purchase items is a benefit versus a cost so I assume that the store is truly giving me a deal even if they don’t.

Another scenario gets more futuristic but again the convergence forces suggest all plausibility.  I walk into a store that I don’t actively have a relationship with nor have I given permission to share my profile and demographic information.  However due to advances in facial recognition technology (such as what is available in Facebook and other applications commercially), the store can tap into vast image databases and make a best estimate at who I am based on my movements in the store and camera images obtained while I move throughout the store.  This correlation of implied relationship and implied demographics can, under the proper scenario, suggest promotions and product recommendations not aligned to my actual relationship nor my actual demographic and in extreme cases improperly tweak dynamic pricing levels.

While this extreme case is just that, convergence forces already have the attention of retail strategists, ethics experts, media tech publications and even sparked political debate. Earlier this year, U.S. Senator Charles Schumer (D-NY) suggested that analytics companies engaging in such practices without customer knowledge would be “intrusive and unsettling.” prompting the Senator to issue a statement with eight of the key location analytics companies in this space to a new code of conduct which would discourage such practices. Other industry segments have also begun to weigh in on the legitimate and ethical use of predictive analytics including higher education, which can use the technology as a early warning system for right-tracking student performance through degree programs.

Convergence forces in this area have already begun and the debate is reaching the mainstream.  What are your thoughts? And – outside of leaving your phone in the car or forgoing permission to give your profile information to any customer loyalty system or social media site – how do we as consumers protect ourselves from retail profiling when we don’t want it?

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Filed under Big Data, Business Analytics, Cloud Computing, Cloud Readiness, Financial Management, Information Technology, Innovation, Marketing and Social Business, Mobile Society, Operations, Strategy, Technology

Developing a five-part SAP ERM strategy

Organizations have faced an increasing number of challenges with internal processes and external supply chains in recent years, leading to a growing realization among companies that enterprise risk management (ERM) is a necessary business process in its own right. An organization should develop a sound SAP ERM structure using five key elements in the SAP solution suite, including SAP GRC and SAP Business Suite applications.

Examples of supply chain risk over the last five years can be found everywhere. The 2011 tsunami in Japan wreaked havoc on automotive companies worldwide, many of whom depended on vendors in that country. Disney left Bangladesh as a contract manufacturing base after a factory fire, and later a devastating building collapse, which Disney blamed on the government of Bangladesh for lack of regulatory oversight.

Image courtesy of University of California

At the same time, companies are giving more attention to ensuring correct transfer of internal funds internationally (known as SWIFT accounts) to meet increasing financial auditing requirements. Corporate and institutional governance boards are also taking greater steps to reduce the potential for large scale fraud and low probability, high impact risks also known as “fat tail” or “black swan” risks.

The Five Elements

SAP customers often get derailed on how to structure business process audits – such as financial audits – using the vast SAP Business Suite and GRC tools available to them. To make that happen, companies should consider five key elements to successfully build out a strong and cohesive ERM program.

To learn more about the Five Elements of an SAP ERM strategy, read my article in its entirety on

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Filed under Audit and Oversight, Compliance, Financial Management, Operations, Program Management, Risk Management, Strategy, Supply Chain Management, Technology

IXN Thought Leadership Podcast Series: The Integrated and Intelligent Supply Chain

Last week I joined the Intellectual Xchange Network (IXN) sponsored by SAP to speak on the key issues facing the integrated and intelligent supply chain.  Joining host Donna Papacosta and I were fellow guests Robin Smith (Virtual Logics) and Stephanie Gruber (SAP America), and we spoke on key issues facing the supply chain such as data governance, brand management, and value chain transparency.  Stephanie and I worked together on a preview of the SAP Supply Chain Performance Management release 2.0 last year, and I provided a recap to my SCOR 11 review from the Supply Chain Council.  Excerpts of the transcript are posted here, a full podcast recording may be found on iTunes (episode IXN002).

SAP_IXN-Program_Podcast-Artwork_2013Donna Papacosta:

What are the most important issues facing mid-sized to large organizations today when it comes to their supply chains, and how do these issues affect the business in terms of cost and productivity?

William Newman:

From my side, I see a lot of things in the area of brand compliance, which continues to be an issue ranging from cost and quality control to plant safety. Several professional associations and non-governmental agencies have been seeing an increase in the phenomenon that I like to call audit theatrics. And I think we’ve all seen that in the field from time to time, but it seems to be on an uptick. In this case, a large organization, a brand, may sponsor a compliance audit in a contract manufacturer’s facility and the contract manufacturer then has ample time to create day-only improvements and compliance which reverts to what we like to call standard operating procedures, which can oftentimes be subpar. This results in quality control and worker safety issues. So this underscores the issue that we have, due to recent plant fires over the past months and years in Bangladesh and Pakistan, where communication breakdowns between brand manufacturers who lacked sufficient resources to monitor or govern these situations adequately and the contract manufacturers looking to stay in business through continued cost-cutting. This impacts both financial and social performance areas.

Donna Papacosta:

Robin, did you have something to add?

Robin H. Smith:

I think Bill brings up some very good points in his intro around brand compliance. To me, the single biggest issue that I see in the supply chain is actually the optimization of that supply chain. So, really, what does that mean? The efficient flow of information between partners who have a vested interest in an overall outcome with clearly measurable steps along the way, proper audit trails and solid governance, to me, is an optimized supply chain.

A proper risk assessment around that governance is also something I think that needs to be part and parcel of an optimized supply chain. In the past, and we don’t have to go back very far to see the big stick approach work. And in some sectors, retail, I think, is really still the norm. It seems that in a more complex supply chain, there’s a direct correlation between efficiency and partnership. What do I mean by that? In a less complex supply chain, I think the inverse is true. And really what that means is that the partnership, as the supply chain becomes more complex, becomes tighter.

Stephanie Gruber:

I would like to add to what Robin and William said that today’s environment, with the uncertainty and the global pressures, have really added a lot of complexity within the supply chain. So, I believe that a lot of companies also spend a lot of time focused on demand generation versus efficiencies in their supply chain. Sometimes that prime focus on the revenue generation drives the fact that they’re focused on product launches, marketing, branding and trade promotions but they really need to focus on meeting that demand generation. Because if the product’s not in the right place at the right time in good condition and minimum cost, then all of those activities won’t be successful. Without that visibility, a process supply chain and understanding the upstream and downstream impacts, companies cannot react quickly because of their non-visibility to risks and understanding what is truly driving and impacting their supply chain. I think as Robin pointed out, poor data and outdated applications will hinder a company from truly optimizing their supply chains, which often leads to costs.

Donna Papacosta:

Our listeners are probably familiar with the SCOR model, but with SCOR 11’s recent release it might make sense to get an update on what’s new about this iteration. Bill, I know that this is a key area of expertise for you, so what can you tell us about SCOR 11 that we need to know?

William Newman:

newman_thumb_2011-06 (292x392)Sure, Donna. So just for our listeners, the SCOR framework, which is the supply chain operations reference model and it’s sponsored by the Supply Chain Council, or SCC. This past December the Supply Chain Council issued SCOR 11. The SCOR framework has been used for decades as a standard approach to the design and implementation of supply chain practices and business processes, and these are recognized by many leading companies and practitioners around the world. It really does form an operating model framework for many companies that are either manufacturing goods and services or that are in the process of contracting for the manufacturer of goods and services. Given that a recent release of the SCOR framework comes every only two to three years, an update for SCOR 11, the 11th release, is a big deal in operational circles.

The previous versions of SCOR included several process steps, and they defined this as Level 1 in the framework, which include plan, source, make, deliver and return, which is also known as service. Underneath these Level 1 process steps are several Level 2 and Level 3 processes as well. Many companies’ operating models use these process steps and sub-level steps to define their business practices and procedures. In addition, some guidance around cost models based on process activities can also be gleaned from the SCOR framework.

So, in the new version of SCOR … What’s new? In the new version, the Council review team comprised of supply chain practitioners who walk the walk and talk the talk, as we like to say, noticed that a common Level 2 process, enable, was worthy of elevating this to a Level 1 status. This is really a big deal. Previous to SCOR 11, the framework considered a more linear, what I’ll call “waterfall flow” of activities associated with classical process mapping. So with SCOR 11 the Enable Level 1 process essentially provides guidance on how to support the original five process steps with best practices. This change, you might find, creates a closed-loop model similar to the current ISO 9000 models built on the classic Deming Plan-Do-Check-Act feedback cycle.

Now, an interesting point is that the SCOR model as of yet is silent on many take-back areas such as design for disassembly, or what we call DFD; the various kinds of recycling, upcycling, downcycling, and other cradle-to-cradle approaches. Specifically returns in the SCOR model means more of a service return of a product rather than a material return for these downcycling or recyclings. These areas are driving additional costs into organizations implementing these approaches, which are not accounted for in the current SCOR 11 model, but will be under consideration in the future.

Stephanie Gruber:

I would just like to go ahead and add on SCOR from the standpoint that we really consider it an industry best practice, because they’ve brought so many points of views from companies, industries and other experts. So it’s just not one company’s point of view how a supply chain should be measured. I would just recommend to companies to really look at that SCOR because it gives them a good start on how they can monitor their supply chain and also look at their processes. For example, often when I work with customers when they’re doing a supply chain transformation, I ask them to review SCOR and see what SCOR would recommend. Because from that perspective, the company does not start with a blank sheet of paper. They are looking at performance measurements and how the industry is measuring them. Then they can decide as a company what they want to adopt. But they also know that they can benchmark from those measurements. So from that standpoint, I would highly recommend that companies take this approach when really looking at how to to optimize their supply chain.

Donna Papacosta:

A little earlier you did touch on costs. So here’s a question for you. In a report in 2011, the Supply Chain Council said supply chain costs account for 60% to 90% of overall expenses. That seems high. It goes on to say that a 5% reduction in supply chain spending can increase net income by more than 40%. Now of course the SCC is a reputable organization. I’m not questioning this data. But if I were a CFO seeing these numbers, how would I go about uncovering these costs?

Robin H. Smith:

That’s a good question, Donna. Part of the process of looking at costs is to look at what are those costs are actually incurring throughout the supply chain. And it speaks back to optimization. Are the costs coming out of inefficient systems because those systems are outdated? Are those costs associated with things such as those that William raised earlier related to audit issues? Or are they related to the kinds of things that Stephanie raised?

William Newman:

newman_thumb_2011-06 (292x392)Robin, to your point, the SCC has several operating models that address the plan through the different stages of the product life cycle and associated risks and costs in those stages. These can be significant based on the complexity of product or services delivered. Now having said that, performance-tuning the various stages of the SCOR model for costs and other practices is definitely a leverage benefit. We’ve seen reports that significantly show an uptick in margin to a reasonably modest investment in supply chain processes by the Supply Chain Council. So there are certainly components of supply chain distribution processes, for example, where a relatively low reduction in process cycle time can yield huge incremental margin gains.

One of the areas that we often talk about in performance management situations, such as the SAP supply chain performance management solution, it really can quickly uncover the spend patterns that deviate from norms. The classic case is expedited delivery, and I think we’ve all seen this before. The make process bogs down or there are issues with the sourcing component into the make process so the final customer product needs to be shipped using expensive expediting methods, and these can be extremely cost prohibitive over time. So while the overall supply chain distribution budget may be on track, these expedited shipments appear as blips on the performance management dashboard.

And using these solutions and tools and dashboards, you can drill down into these anomalies and quickly uncover problems in specific plant locations, for example, or operating units. Working backwards, then, you can uncover the root cause of the issue, like saving additional costs during the make cycle, and other upstream places in the supply chain process. That’s real bottom-line money, particularly for company executives who are trying to increase their margins. As well, those funds can be used for new product development, research and other shareholder returns.

Stephanie Gruber:

So just to re-emphasize some of those points, I think it was interesting that one of our supply chain performance management customers wrote an article that stated an organizations that’s really wanting to seek to improve their supply chain need to incorporate key performance indicators, to actually measure their progress against it. I really appreciated the quote when they said: “Otherwise a report is just a report that fails to provide information that can be acted on.” So what’s the point of it? It’s also important to note that the visibility to data is only one component. Really understanding that data and what is driving the numbers are also important, and that’s the reason why SAP uses the SCOR model as the foundation for the supply chain performance management application. It focuses on those relationships between KPI’s and metrics and it also helps the company to analyze them, so they can make better decisions for the future.

Donna Papacosta:

OK. I think you’ve made it clear that SCOR can help CFOs and supply chain managers and operation staff put in place these best practices around supply chain management, but let’s talk a bit about, well, the elephant in the room, and that’s whether all data is being gathered and used productively throughout the supply chain, not to mention that the data has to be timely and accurate and all those good things. Robin, you’re working with companies who are integrating systems and automating supply chain processes. What are you seeing in the market that concerns you about companies and their supply chains when it comes to this data and integration?

Robin H. Smith:

I love the term “elephant in the room,” because it really is the elephant in the room. I look at it from two perspectives. One is poor quality integration, and what I mean by that is often custom-built stuff where somebody’s tried to build a program and also the single-silo approach, where data is viewed from a silo perspective. The other elephant in the room is bad data. Bad data is really the bane of any supply chain. Things fall down because data is poor, it’s inconsistent or there are issues with the overall quality of that information. It’s not timely.

Stephanie Gruber:

And I would just completely support what Robin said because managing data in large quantities are presenting challenges. We’ve actually seen that with the whole introduction of the SAP HANA technology. This technology enables the ability to build and handle a large amount of data, but it also needs to be combined with a data strategy and data governance practices so that it provides meaningful information and analytics. Especially when a company is combining these different sources, a strong data strategy and strong data governance practices are imperative. Otherwise you just have a lot of data.

William Newman:

Stephanie, that’s a great point. I think it’s important to know that HANA, as a in-memory platform, can accept a number of different data sets from many different types, fields and locations. It’s a great opportunity for brand organizations who are trying to get transparency to the data that their contract manufacturing and low-level supply chain are working with, to bring that into the fold and make that a real-time part of their operational data governance strategy and HANA completely supports that approach.

Donna Papacosta:

This is really an interesting discussion, and the topic of this podcast is the intelligent and integrated supply chain. Let’s look at what this “ideal” supply chain would look like. And I wonder if I could paint this picture. Number 1, it integrates suppliers and data seamlessly with little or no friction. Number 2, it’s modeled on best practices and mature, efficient and effective processes. And number 3, the information coming from supply chain transactions and processes is rolled up into performance metrics and dashboards. And of course, these help the CFOs and purchasing organizations to manage costs, predict supply and demand, and get those insights they need to help them make better decisions. Is this vision that I painted a pipe dream? And if not, what real-world examples can you describe where companies use people, processes and technologies to better manage the performance of their supply chains.

William Newman:

newman_thumb_2011-06 (292x392)Well, Donna, many organizations in manufacturing and retail are doing this today. They’re taking advantage of real-time dashboards, analytics, transparency throughout their value chain. And this is really separating the leaders from the laggards. Examples can range from basic order fulfillment and manufacturing cycles to even in-field mobile technologies with advanced mobile analytics really putting the information you need anytime, anywhere in the palm of your hand, which is great. These are all supported across the SAP ecosystem so that no matter what the data source or the process an organization may consider, the essential building blocks can be put together in a seamless information anywhere, anytime approach to managing and operating the business. Again, leading clients and manufacturing organizations are doing this today. I think the real opportunity is how they’re able to drill down into the transparency of their supply chain.

Donna Papacosta:

OK. So it is possible.

Robin H. Smith:

Yes, Donna, I completely agree with William. I think it is absolutely possible. I like the description of the forward thinkers and the laggards. I think for those laggards, the key element here is that they have to have a data strategy. If they don’t have a data strategy around how they’re going to integrate and how they’re going to use data, they’re going to continue to be in that space. Data cleanliness, it’s a huge risk to enterprises. I’m a big advocate, actually, that companies really need to have a chief data officer. That data officer, given that our world is so interconnected today and we trade, really, on the value of the data that we transmit back and forth, this I think is going to become increasingly important.

To listen to the podcast in its entirety, please download the episode for free on iTunes.

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Filed under Big Data, Business Analytics, Compliance, Financial Management, Global Trade, Information Technology, Operations, Procurement, Supply Chain Management, Sustainability, Technology

A New Study Examines Engagement of the Entire C-suite in Sustainability Strategy

As a follow-on to my recent article “Why Sustainability isn’t Sticking with the CXO,” Newport Consulting Group colleague Cindy Jennings challenges us to open up to the honest challenge that there is an “engagement gap” with the CXO.  Rather than to simply state the obvious, Cindy calls upon us to ask the brutally honest questions as to why this is so and what can we as both colleagues in the C-suite and as staff members and stakeholders do to change direction.

Many surveys studying the attitudes and leadership of various C-level executives have been conducted over the years. A new CXO Engagement Study conducted by the University of Oregon and Newport Consulting will examine the leadership engagement and influence, motivations and engagement tools of the entire C-suite.  Cindy provides some additional context in her open letter on Sustainable Industries Magazine:

What is driving the CXO “Engagement Gap?” (photo credit:

For years I’ve been reading and quoting surveys about CEOs and chief marketing officers (CMOs) to various clients and those interested enough to listen. More recently, stories and studies about the need for higher-level engagement of chief information officer (CIO) or chief technology officer (CTO) and the chief human resources officer (CHO) are also giving sound reasoning. The Wall Street Journal covered the Deloitte “ReSources 2012” study that outlined opportunities for CIO leadership in energy management systems – one of the most consistently measured performance indicators. Andy Savitz, author of “Talent, Transformation and the Triple Bottom Line: How Companies Can Leverage Human Resources to Achieve Sustainable Growth,” makes the connection for companies on how to leverage their employees — and their HR departments — to achieve their sustainability goals.

There is also speculation that we have reached “peak sustainability” in that chief sustainability officer position creation is on the decline. Within that speculation is whether or not sustainability is starting to be adopted as a standard business strategy that no longer needs a specific champion, or if it is being absorbed by the existing c-Suite. Read the “State of Green Business 2013” for more on that subject.

I agree with my colleague William Newman in his article “3 reasons sustainability isn’t sticking” when he writes “Many [CXOs] are able to ‘talk the talk’ but only a minority are able to ‘walk the walk.’ The survey seeks to help leaders better walk the walk by determining which C-level executive or mix of executives are able to effectively lead and influence triple bottom line strategy for their company, and how they do it.

Visit Sustainable Industries Magazine to read Cindy’s full article.  The survey is live and will run through April 26, 2013. The findings will be shared complimentary with those sharing their own viewpoints on the topic.  You may participate in the study by visiting the University of Oregon survey site.

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Filed under Audit and Oversight, Change Management and Leadership, Communication Planning, Community and Municipal Outreach, Compliance, Financial Management, Marketing and Social Business, Operations, Procurement, Risk Management, Strategy, Sustainability

Why Sustainability Isn’t Sticking with the CXO Office

Over the next three months, I will be working with the University of Oregon Sustainability Leadership Program and Sustainable Industries to prepare for the online launch of new nationwide courses for the UO program.  In addition, SI, UO and Newport Consulting are partnering on a study of CXO sentiment around the topic of sustainability and executive engagement.  My article, the first of a series of three as part of this partnership also featuring colleague and Newport Consulting Principal Cindy Jennings, focuses on the issues facing the CXO office.  Cindy’s offering will suggest a hypothesis for why CXO behavior seems counter to triple bottom-line decision making.

Many CXOs survived a near-death experience during the Great Recession. Can they move from bottom-line thinking to triple bottom-line decision making?

It was the winter of 2009. Some would call it the “winter of our discontent” in the Motor City. As history would show, the U.S. automotive industry was hours away from stopping – not due to a major labor strike or natural disaster, but caused by a meltdown of the liquidity market.

I was meeting with a CXO who was affable and open to new ideas and conversations. We had met earlier at a local economic lunch and exchanged pleasantries. Now, in his C-level offices of a multi-billion dollar automotive supplier, his candor was striking.

“We just survived a near-death experience,” he summarized slowly and purposefully, as if he had given the answer a thousand times before to his employees. “As far as the triple-bottom line goes, we are going to focus on the bottom line for the next three to four years.”

And that was that. Sustainability and the thought of strategically embracing the triple-bottom line was off the table.

Fast forward those three to four years. While gains have been made to move executive thinking on the topic of sustainability and triple-bottom line decision making, little has changed in the psyche of CXO executives in many global organizations. Why?

No doubt the issue of sustainability is on the minds of executives. Countless studies confirm this. The now-infamousUN Global Compact Survey (2010) indicated 93% of global executives believed sustainability would have an impact or a profound impact on their operations. Striking in those figures was an improbably 100% affirmative response from automotive executives like the same CXO who scoffed at my overtures. A more recent study by Deloitte, CFOs Are Coming to the Table (2012), illustrates that spend on sustainability has risen commensurate with an increase in sustainability activities inside the organization. But the same study admits only 39% feel that it is important to communicate the value of sustainability to their employees.

If so many CXOs believe there is a strategic importance to move towards sustainable business models and triple-bottom line decision making, then why is it that a minority of those same executives feel the need to engage employees by communicating the importance of these business practices? I submit that there is an “engagement gap” among the majority of top executives when it comes to sustainability. Many are able to “talk the talk” but only a minority is able to “walk the walk.” I suggest three key areas to consider as possible reasons why this gap exists.

You can read the full article on the Sustainable Industries UO page.  Stay tuned for the next article in the series and an invitation to participate in our CXO Engagement Survey.

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Filed under Audit and Oversight, Change Management and Leadership, Compliance, Financial Management, Millennial Worker Shift, Operations, Risk Management, Sustainability

[INFOGRAPH] Mobile Strategies Transform Finance

Tomorrow I will join SAP Experts editor Scott Wallask (@BI_ScottWIS) for a FREE 1-HOUR WEBINAR “Strategies to use Mobility for Effective Data Analysis and Data Governance.” The premise is that by effective use of mobile technologies, companies can make more accurate data and information more accessible and more transparent throughout the organization.

Mobile Transforms Finance (source: SAP America)

Mobile Transforms Finance (source: SAP America)

One of the areas where this has received great attention is the transformation enabled in various financial management processes.  Long gone are the days when expense reports and travel requests were approved in the backseat of the taxi or sedan on the way to the airport.  Nowadays, controllers and CFOs are taking advantage of fully-rendered, native spreadsheet environments on tablets and smartphones – buoyed by in-flight WiFi services – to review and approve financial close and other key processes whenever and wherever they want.

As the attached infograph details, some of the value statements are pretty heady.  While each organization is unique to their potential financial and cycle time benefit, there are some compelling reasons to target the finance organization for operational efficiencies as well as greater value-added tasks (for example, due diligence to M&A transactions, opening new global markets, and other expansion and growth efforts).

The double-edged sword to this effect is the fact that you CAN work just about anywhere, so consider a fully-unplugged tropical vacation at sea.  Particularly in the February peak of the winter season ….

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February 27, 2013 · 2:17 pm