How Much Supply Chain Optimization Do We Really Need? - Part 1

My recent series on how to plan and manage in uncertainty and volatility (which conditions have become the “new normal” in many sectors and industries) has generated much interest and many comments. As mentioned in the series, the inspiration came from Kinaxis customers’ case studies presented during the Kinexions 2011 user conference.

Ottawa (Canada)-based Kinaxis has been experiencing a renaissance of sorts lately in these days of dispersed complex supply networks and outsourced and offshore manufacturing (with so-called brand owners and their vast network of suppliers). After over 25 years in existence, and some name changes for both the company and its products since the inception, it is not exactly easy to explain what Kinaxis offers (or even better, where its capabilities start and end in the realm of supply chain management [SCM]).

In a nutshell, the vendor delivers a multi-enterprise supply network planning and fast-acting "what-if" simulation solution for achieving best possible fulfillment decisions  within the order-to-delivery lead time. The solution’s current name is RapidResponse Control Tower, which can be offered either on-premise or as an on-demand subscription service. Many customers use Kinaxis to solve issues outside of the lead time, but they gain a lot of agility and flexibility by using RapidResponse within the lead time.

Kinaxis customers use this scalable in-memory (or memory-resident) solution for both longer-term and tactical (near real-time) demand and supply balancing. Based on a number of fast-acting deterministic algorithms, the RapidResponse product provides personal alerts, multi-site visibility, and collaborative analysis functions to help businesses with forecasting, planning, and supply chain performance improvement. The company primarily markets to original equipment manufacturer (OEM) clients in industries with sophisticated supply chains such as the aerospace & defense (A&D), automotive, consumer products, industrial equipment, life sciences, and high-tech sectors.

Many large discrete manufacturing companies with complex supply chain networks and volatile business environments rely on RapidResponse for collaborative planning, continuous performance management, and coordinated response to plan variances across multiple areas of the business. These functional areas include supply chain planning (SCP), demand management, sales and operations planning (S&OP), collaborative planning, forecasting and replenishment (CPFR), project management, workforce optimization, and profitability management. By transcending and replacing disparate planning and performance management tools, Kinaxis customers can realize significant operations performance breakthroughs, because from a single system (control tower, if you will), they can make decisions quickly, collaboratively, and in line with the shared business objectives of multiple stakeholders (trading partners).

These enterprises value the ability to analyze alternative response actions before making a decision about a major trade-off. By proactively modeling and scoring different response alternatives, brand owners can communicate a well-understood and optimal action to their suppliers or contract manufacturers. Some high-profile customers of Kinaxis include Cisco Systems, Honeywell, Toshiba, Avaya, Nikon, Qualcomm, Jabil Circuit, and Raytheon.

Market Validation, at Long Last

Kinaxis is currently growing rapidly (no pun intended) in terms of international expansion, adding new customers (or its existing customers  expanding their deployment of RapidResponse to new application areas and adding more sites and users in the process), aggressive hiring, rumors of going public, etc. The company’s blog and related supply chain community have been replete with great discussions in the realm of general SCM themes, and not only about the Response Management niche. There is simply an air of confidence, if not cockiness, around Kinaxis, as noted in Lora Cecere’s Supply Chain Shaman blog post on Kinexions 2011.

But, it hasn’t always been a smooth ride for Kinaxis, or whatever its previous name was during those difficult times in the early 2000s. The reasons for tougher times were multiple, starting with the company’s difficulty in carving out an acknowledged niche in the SCM space.

For a long time, Kinaxis (or Webplan as it was known at that time) was eclipsed by the once “all the rage” advanced planning and scheduling (APS) systems and solutions by former Manugistics (whose former staffers now privately admit to me that Kinaxis was giving a run for its money to their former NetWORKS Planning product line, now part of JDA Demand Planner) and i2 Technologies. Ironically, many ex-i2 and ex-Manugistics employees are now working at Kinaxis.

The difficult times in the high-tech sector in the early 2000s (after the Internet bubble) were an additional hurdle. The roots of the initial adopters of RapidResponse lie in the high-tech, consumer electronics, and contract manufacturing sectors, where forecasts are hardly ever accurate and change is a daily occurrence. Kinaxis was eventually able to successfully build on these capabilities and penetrate other industrial verticals or organizations with similar characteristics (e.g., A&D).

Enterprise resource planning (ERP) vendors were not much of help to Kinaxis, and were not allies either, even though RapidResponse complements their solutions nicely in the realm of operational (re)planning and execution. Most likely, these vendors did not want to admit their limited operational planning and execution capabilities, especially in a multi-enterprise setup (and Kinaxis was also partly to blame for putting down ERP systems instead of trying to build a win-win situation). In any case, RapidResponse is now able to layer on top of virtually any most commonly used ERP system and emulate its materials requirements planning (MRP) logic and re-ordering policies (to a less than two percent discrepancy), and then act as a multi-enterprise brain and produce multi-enterprise master production schedule (MPS), available to promise (ATP), capable to promise (CTP), line balancing, etc., all with incredibly fast re-planning capabilities.

SAP Relationship (NOT)

Not surprisingly, many of Kinaxis’ customers are SAP ERP customers too, but that hasn’t apparently been a good enough reason for the two vendors to have a strategic relationship. For a long time, SAP was touting its well-known SAP Advanced Planner and Optimizer (SAP APO) product suite as the panacea for these situations. As some background, SAP introduced APO in the late 1990s as the counterpart APS offering to then thriving i2 and Manugistics. For more information on the scope of SAP APO, see TEC’s article from 1999 entitled “SAP APO: Will it Fill the Gap?”

However, there have been numerous dissatisfied SAP APO customers who have had to do a lot of manual tweaking to quickly generate a feasible plan and determine order priorities, inventory allocations, and commitments. A number of these customers, who are operating in highly volatile demand arenas (and with inaccurate forecasts from the word go) and deal with many trading partners, are seriously looking at adopting response management capabilities, rather than APS.

Generally speaking, the key capabilities that are required for so-called “Response Management” offerings are the following: multi-user input and collaboration, multi-scenario creation and comparison, and high-speed analytics. These capabilities are essential for companies to quickly react to unexpected events such as a rush order from a very important customer (or, conversely, a major last minute order cancellation), a product quality issue, a supply shortage, or a production line breakdown. SAP APO does not support many of these capabilities, so SAP has had to look for a partner to satisfy these key business needs.

Since November 2010, SAP has been distributing a supply chain solution by a lesser know German vendor ICON as SAP Supply Chain Response Management (SAP SCRM) by ICON, a solution extension to its own SCM suite, SAP SCM (look for TEC’s upcoming article entitled “SAP SCM – Stepping out of Obscurity”). SAP had investigated several options to satisfy this role, and presumably one of those options might have been Kinaxis. For its part, Oracle released its internally designed standalone product called Oracle Rapid Planner in 2009, which can be layered on top of Oracle’s ERP products and other ERP products.

SAP chose ICON over Kinaxis on the grounds that is has better finite resources optimization capabilities, but I find this line of thinking hard to swallow in its entirety. Kinaxis has been a Response Management pioneer of sorts, and--not to knock ICON’s benefits and capabilities--it’s tough to believe anyone could best the “plan, monitor, and respond” approach and scalability that Kinaxis has been promoting so successfully. In addition, isn’t “optimization” part of the SAP APO name, and if so then why have a separate SCRM solution?

Also, given that SAP HANA in-memory capabilities are embedded in almost everything within SAP (see TEC’s article entitled “SAP HANA - One Technology to Watch in 2012"), why not use HANA for responses management as well? Kinaxis’ take here is that columnar in-memory databases (IMDBs) like HANA are not necessarily the best design for handling concurrent what-if scenarios by thousands of users. Instead, nearly three decades ago Kinaxis opted for its proprietary hierarchical IMDB,  which is an imbedded component of RapidResponse Control Tower, whose presentation layer emulates a traditional relational database behavior. Reporting outputs are typically insightful end-to-end pegging and planning reports.

It seems we may be talking about different kinds of optimization. Maybe in certain situations it’s more appropriate to use one kind of optimization versus the other. Part 2 will try to draw some demarcation lines between APS and Response Management by using SAP's solutions applicability (i.e., APO vs. SCRM).

In the meantime, your views, comments, opinions, etc. about the APS and Response Management software are welcome as usual. We would also be interested in your experiences with these software categories (if you are an existing user) or with your current (possibly ineffective) practices, and your general interest to evaluate these solutions as prospective customers.
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