Relationships Do Affect Sourcing Decisions

Regardless of who is involved in the process of selecting a supplier, an impartial and fair process is what matters most.

The creation of robust relationships is an intrinsic element of conducting business in the supplier management field. To build strong alliances there must be a foundation of trust and respect. Preservation of supplier confidence and trust is strengthened through a sound sourcing process.

All potential suppliers must believe that they have a bona fide opportunity to win the bid, even if the incumbent has already established relationships inside the company. Complications can occur when procurement personnel have existing friendships with the suppliers involved in the sourcing event.

One of procurement’s primary roles is to establish decision criteria that achieve an equitable supplier selection process. A balanced decision process should determine which supplier relationship will have the best impact on the business.

Most companies have established conduct policies involving the ethical standards of supplier interaction that clearly delineate conflicts of interest. ISM’s first principle of supply management states that one must “avoid the intent and appearance of unethical or compromising practice in relationships, activities, and communications.” Even if you are the only person who knows of the potential for conflict, but you must take precautionary actions to avoid it.

Situations may arise in which a close friend of an employee works for a supplier participating in the bid. Several specific steps can help you remain impartial if your friend works for a supplier.

If you are a part of the sourcing event, it is essential to recuse yourself from the selection process. Additionally, the person leading the event needs to know about the relationship with your friend. Finally, if your friend asks you specifics about the bid, you need to state clearly how important it is to remain outside of the process entirely.

If your friend’s job is at stake, remaining unbiased can be extremely complicated. You may feel pressured to sustain your relationship by providing information about pricing or a chance for your friend’s company to re-bid. By trying to help your friend, you may actually jeopardize your own credibility, compromise your company’s ethical standards, and put your own position at risk. No matter how strong the temptation, the requirements of the business take precedence.

Because most companies run sourcing events regularly, managing an impartial process is essential to maintaining credibility with all of the prospective suppliers. Sourcing events involve several companies and individuals. The supplier selection process must transcend any single individual’s role. As Mr. Spock told Captain Kirk in Star Trek 2, “The needs of the many outweigh the needs of the few.”


Michael A Massetti is a high technology supply chain executive who has managed procurement, quality, supply chain planning, customer operations, distribution/logistics, operations engineering, and more.

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Show Me The Money! Get What You Deserve – Contract or Not

Supplier Remuneration – Sometimes You Just Have to Ask: Recouping Losses Due to Supplier Error Without Strong Contractual Protection

Warranty Handshake

This is a true story about a supplier issue that led to a massive field return issue – but actually improved the relationship. “Why is this an issue?” you might ask. Well, not all supplier relationships are governed by strong, broad-based agreements. Sometimes, without appropriate coverage or protection, especially in a sole-sourced situation, you just have to ask for a remedy and hope for the best.

How did we get to this point? 

The relationship between the supplier and us was solid. The companies worked together long before I arrived. For the most part, things were going well. However, the contract was not up to date and we were not properly protected from mishaps of the supplier.

We bought a specialized system from them to run part of our software. We installed these systems worldwide for our customers as a critical element of our overall solution. As with any purchasing environment, we tracked cost, quality, delivery, technology capability, and response to issues to judge performance. They performed very well.

Then, we discovered the issue.


The impact

It was not the type of problem that surfaced during the normal testing and evaluation. In fact, it was serendipitous that we found the issue at all. Once we discovered it, there was no turning back. Due to the nature of the problem, it was inevitable that at some point our customers would experience an unacceptable problem.

The cause of the problem was not the usual bad device or faulty manufacturing process or the rest of the list of hardware hiccups. The supplier had made a change in their manufacturing control system (MRP). During the translation from the old to the new system, the bill-of-material (BOM) got truncated and a number of components in the design never made it into the hardware. Despite that, all of the functional tests passed their processes and ours.

By the time we realized it, we were hundreds of systems, and a few million dollars, into shipments and field installations. Houston, we’ve got a problem.

We had to recall, replace, and repair the systems immediately – it was an “epidemic” situation. The challenge was that replacement had to occur first. We worked through those logistics to ship, replace, return, repair, and then re-ship. Fortunately, the systems were all very new and we could send repaired systems back out as new.


We began the dance to get the supplier to cover the recall and replacement costs. Back and forth between the procurement manager and the account executive at the supplier.

Of course, our CFO was breathing down my neck. “We never get compensated for anything from suppliers. How come we always bear the burden?” Mind you, the contractual situation was inherited.

Regardless, time to negotiate more intensely. I went back and forth with the account executive.

“Look, we did not cause this. In fact, we did nothing wrong. You shipped us bad stuff.”

“Yes, I know. But why should we pay for the overall recovery? We are not obligated. There’s no way our financial executives will allow me to commit anything. We will fix our mistake, but that is it.”

Time to escalate.

Money Handoff

In the end we got our compensation

The escalation call was scheduled. The account exec told me not to expect a miracle or anything different from the financial executive.

The Cliffs Notes version went as follows.

“We have a major recall and repair problem. We are thankful that you are fixing the problems quickly and expediting new material to accelerate the entire process. However, we are spending a couple hundred thousand dollars to execute the entire process. Our customers cannot wait, so we must move fast. The personnel and shipment costs are not cheap.

“Please accommodate us by paying at least half. Thank you.”

Within 15 minutes of the call, the account executive called me back.

“You won’t believe this! Your request was so compelling, honest, and candid that the financial person agreed to compensate you. Congratulations. I never thought this was possible.”

It was even more fun walking down the hall to tell our CFO that we got half of the money back. He was equally ecstatic.

The negotiations and escalation could have gotten heated and hurt the relationship. We could have threatened legal action or changing suppliers. Both of these courses would incur a lot of opportunity cost and wasted effort.

Instead, we just asked and they said “yes.”



Michael A Massetti is a supply chain executive who has managed procurement, quality, supply chain planning, operations engineering, and more. He’s also “gotten the money” when suppliers go awry.

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Don’t Be Afraid to Say “No!” to a Bad Contract

The Grass is NOT Always Greener on the Other Side of the Fence!


With the new operations and procurement organization in place, it was time to focus on improving the performance of the supply chain. Since we were a relatively small manufacturer, we maintained our contract manufacturing with one partner. The performance of this segment of the supply chain was not meeting expectations. At the surface, the answer appeared straight-forward – change suppliers. The new CEO and new Sr. VP of Operations were experienced with a larger partner from their past. For the procurement team, it was time to evaluate the options – supplier improvement and/or a new supplier.

We began the new supplier evaluation process. Candidate companies were researched, visits to their facilities were completed, and we reviewed initial RFI (Request for Information) responses to prepare for the next step. We selected two companies to execute a formal bid with in addition to our current partner. With the courting process now in full motion, a few months later we made the choice to select a new supplier and begin the negotiations dance. So far, all of the amazing attributes and features of their business models were in full bloom, just like the male peacock’s glorious tail.


Meanwhile, there was business to run, market share to attack, and profit to be achieved. Procurement was under-staffed, especially the resources dedicated to the largest and most critical supplier. After adding a very experienced out-sourced manufacturing ace to the team, it was time to drive measurable performance improvements. The four areas requiring focus were cost, inventory visibility, cost of poor quality (CoPQ), and delivery performance. The team set out to establish systematic improvement plans in each area – that’s what procurement does. With all of the warts and blemishes in full purview, we had to assess if we could dress our current dance partner up to the hilt.

With the prospective partner identified, we prepared to negotiate the contract. We had already negotiated myriad contracts during our professional life. We understood the ins and outs of negotiating, outlining critical goals for each partner, giving and taking on the hot clauses, and sending countless red-lined versions back and forth. It always seems to go this way: we tear through many of the clauses rapidly but get bogged down on the most intricate ones that have the largest financial risk.


Six months had passed since the contract negotiations commenced and we had not reached closure. It was looking dismal. There were a few very critical clauses that we could not even come close to agreement on – we put negotiations on hold twice during the process to ensure both companies were thinking things through thoroughly. We had come to a critical juncture in the potential relationship, not just the approval of the agreement. Despite many attempts to massage the wording to accommodate both parties’ concerns, we had reached a stalemate.

It was a difficult call to make, but it was time to go to the senior vice president and tell him we had to abandon the negotiations – we could not accept the financial risk that was being put on us compared to our current situation. During the six month period of the negotiations, our existing partner’s performance had transformed markedly. The quality team had reduced the cost of quality excursions by 50%. Delivery performance climbed over our 95% objective. Inventory issues had virtually disappeared. And, cost reductions were reaching all-time levels. Was there really a dire need to change suppliers anymore? In contrast to the courting phase when we observed all of the beauty of the new supplier and the warts of the existing one, we had a more complete view of both parties now.

Cancel Contract

In the end, we said “No!” and continued a successful and productive relationship with our existing partner. We sat down and hammered out a new agreement with them in less than two months. Business was progressing well. While it was a difficult decision to make, in the end, it was clear that the grass was not greener on the other side of the contract fence.


Michael Massetti is a high-tech supply chain executive who really does enjoy being a supply chain professional! Seriously.

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So, you really enjoy being a supply chain professional? Part 4

Resolve to Reduce Your Risk with Resilience, Really!

 Risk Dice

Let’s face it, managing a global supply chain is a fascinating and pressure-filled profession. We learned a long time ago that chains are only as strong as their weakest link. If it weren’t for the myriad ways that your supply lines could be disrupted without a moment’s notice, we’d all sleep a lot better! Don’t you wonder sometimes how and why you got into this field?

This fourth article will look at the challenge that is managing risk – from systematic solutions to the unintentional roll of the dice we often take.


Chains are only as strong as their “weakest link.” Telecommunications has it right. Fault-tolerant networks rarely fail. Do you have a supply chain or supply network?

True, chains are only as strong as their weakest link. Why do we even call what we have a supply “chain?” Do we ever settle for a supply “chain” without understanding the risks to our business without some level of protection of a “network?”

Fault-tolerance is a concept that has been used in telecommunications, airplanes, and space missions for many years. Even the simple spare tire in your automobile is some degree of risk management and fault tolerance.

Procurement professionals ponder the merits of multiple source strategies from both a pricing and supply risk perspective. But there are times when a sole-source is the only practical path. In many electronic devices, there are sole-sourced parts that are critical to the function of that device – just consider “Intel Inside” of the PC market for years, with few viable options, if any. Can your supply chain tolerate that risk?

With a multiple source strategy, there are fewer individual disruptions that, when they occur, can affect your company’s supply. This is one degree of redundancy that provides some fault tolerance. Supply chain professionals need to look up and down their entire “chain” from raw material inputs to their suppliers, through all levels of manufacturing, warehousing, and global distribution to ensure the right level of end-to-end risk avoidance is in place.

As a long-time cyclist, I always carry at least two spare tubes, a patch kit, and plenty of CO2 cartridges to repair any possible flats during the ride!


Supply disruptions will always occur at the worst possible time to your most important customer on your least flexible product when you least expect it. Think Boy Scouts “Be Prepared!

Supply Network

The 18-month stretch from mid-2010 through the end of 2011 was “one for the ages” when it came to uncontrollable and “unknowable” global supply chain risks.

It began (not so) innocently with the eruption of the Eyjafjallajökull volcano in Iceland in 2010. So, what impact can a silly volcano in Iceland have on the global supply chain?

Well, quite a lot. Most European air shipment channels were shut down for a week or more. It was rough sledding for my company during that stretch as our sole-sourced critical supply node was in Germany. It took a few days, but we got trucks to head southeast and eventually get shipments. Thankfully, we had buffer inventory in place.

Not to be undone, the massively devastating earthquake followed by the deadly tsunami in Japan hit in early 2011. The damage to the automobile industry just before the summer selling season was significant for several months.

Later on, after supply resumed, who had actually thought about and prepared for the fallout from radiation due to the damage at the nuclear power plant and the need to have materials inspected for radioactivity?

Last, but not least, in late summer, the monsoon rains in Thailand created floods that eclipsed the 100-year benchmarks that most flood plains are based upon. This disrupted nearly 40% of the global hard disk drive market for months as many of the supply nodes were under water, literally.

One very interesting juxtaposition of supply chain efficiency, just-in-time inventory policies, and overall supply chain risk played out during the latter two events.

A concentration of suppliers for the two industries developed over time – automobile components in the northern part of Japan and hard disk drives in central Thailand. This looks great from a supply chain efficiency angle as transit times between steps in the process are reduced, inventories can be kept leaner, and a pool of talent is developed (no pun intended).

However, the impact of the uncontrollable and unknowable was dramatic. An efficient supply chain on one day and a dramatic impact to global supply on the next. Both industries have done some major upgrades in their overall practices to reduce the potential impact in the future.

How lean is too lean when it comes to supply chain risk reduction and overall resilience? Are you prepared?

Don’t be an ostrich. Just because you can’t see it doesn’t mean it won’t affect you!


Visibility is an essential element in risk planning and avoidance. Even events or risks that can be considered “unknowable” (like the exact timing of a devastating natural disaster) can be modeled and that intelligence deployed to your supply chain’s risk resilience assessment.

Sometimes, even internal practices that are very visible, when left alone, can open the door for a catastrophic impact due to an untimely event.

I’ve experienced some very skewed end-of-quarter delivery profiles in my career – very high risk when it comes to disruption susceptibility.

More than once we were faced with major typhoons running around Southeast Asia during the last week of our quarter. Timing-wise, we had to have all shipments out of the region by the end of the day on Friday in the US to have any real chance of revenue attainment for the quarter, which ended on Saturday at noon in the US (midnight in eastern continental Asia).

While I have no disastrous results to share, it did wake us up and probably had more of an impact to affecting the linearity in our quarterly shipments than any whining our supply chain and logistics group could muster. Even the CEO brought the topic up during the next end-of-quarter review.


Inflection points are only visible in the rear view mirror.

You don’t know until you know and then you know. Especially when it comes to a change in the curve – an inflection point in the trends.

InflectionPointEven with all the big data stories and the tremendous growth of analytics in supply chain, sometimes things change and you don’t know it until you know it.

The resilience of the supply chain depends considerably on the ability to detect and respond (react) to an inflection point. The strategies put in place to protect business are called into action when the need arises. The better prepared and more agile your supply chain is, the less the damage.

Written off as a fad in 2010 when Apple introduced the first iPad, two years later, the entire PC industry was reeling from the damage. The lack of serious attention given to that inflection in the personal device or computing market hit PC manufacturers and the rest of their supply chain very hard.

Further, the entire software model was disrupted. While “apps” had debuted with the iPhone (even the iPod Touch) a few years earlier, the entire software industry was impacted. Did anyone prepare for the impact of Angry Birds?

In the end, it’s all about preparation and detailed analysis of your entire supply network risk to determine whether or not you can weather the storm.

As the Boy Scouts of America have said for years, “Be Prepared!”



Michael Massetti is an executive who really does enjoy being a supply chain professional! Lucent Technologies once took a risk on Michael and he’s been in supply chain ever since. Thanks to my former colleagues and partners in supply chain crime Joe Carson and Chris Armbruster for their ideas.

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So, you really enjoy being a supply chain professional? Part 3

Supplier Management – Isn’t It Fun to Manage Suppliers?

Let’s face it supply chain is a fascinating and pressure-filled field. As we discussed in part 2, without demand there is no need for supply. Similarly, without supply, there’s no need for suppliers. If it weren’t for all the trials and tribulations of working with suppliers, procurement professionals would lead such a boring life. Don’t you wonder sometimes how and why you got into this field?

This third article will look at the fun that is managing and working with suppliers – from the transactional vendors all the way up through strategic partners. Future story lines will include inventory, supply chain risk, logistics, and managing numbers.

Suppliers who insist on telling you how strategic they are, aren’t.

Supplier Management Pyramid

As buying evolved to purchasing, which then evolved to procurement which further evolved to sourcing, the organizational concept expanded accordingly. The tactics of buying grew into the discipline of managing supply and suppliers.

The development of supplier relationship management accompanied the stratification of the supply base into a number of different hierarchal models. The most tactical suppliers are fundamentally transactional and have the lowest level of relationship management. This highest are the most strategic with the largest and most critical spend allocation and the deepest relationships. There are way more suppliers at the base than at the top.

Then why does it seem that the suppliers who are lower in your spending hierarchy insist on declaring themselves strategic to the procurement team? Based on non-scientific surveys of suppliers who evaluate themselves as “strategic” the triangle above would be inverted with hardly any in the lowest tier!

The question really is “who’s strategic to whom?”

A cornerstone of any supplier management program is transparency between both sides of the relationship. If your suppliers are not intimately aware of their status, the program might need some work.

Regardless, this does not guarantee that the supplier will not continue to view the relationship as strategic to them … it just may not be strategic to you.


If you or your suppliers consistently refer to “the contract… the relationship definitely needs some work.

Contract Icon

Anyone who has ever negotiated a long or difficult contract has experienced the absolute relief and joy when the agreement is signed and filed. Have you had this thought before? “I just hope that my tenure with this supplier expires before the agreement!”

Regardless, contracts are necessary (evils). Many companies require formal purchasing or supply agreements for specific spending thresholds. They are the foundation for managing the relationship, executing business, and dealing with exceptions – especially the unforeseen.

Nonetheless, the most hair-raising and deflating words that a purchasing professional can hear during the normal course of business is, “But, that’s not what the agreement says …” It gets even worse when similar comments permeate the daily conversations. Been there. It’s not fun.

Believe me, agreements are one facet of the total relationship. However, if you hear about the contract repeatedly, the relationship is dysfunctional. Fix it!

“If you had told me it was a competitive bid, I’d have come in with a lower price.

Dilbert Bid Lie

I’m sure we’ve all heard the cliché: the three most important things in purchasing are price, price, and price. A lower price, for sure.

RFI. RFP. RFQ. Auctions. E-Procurement. D&B. Altman Z-score.

There are myriad methods available to sourcing pros to evaluate and eventually select suppliers. Of course, the criteria include price, capability, capacity, relationship, number of sources, and more. No matter what, it’s always difficult to avoid price … or should we say PRICE?!

And, there’s nothing more upsetting during a bid process to have suppliers try to game you. Isn’t it frustrating to have to go back to a supplier, especially one you are already working with, and they tell you that they didn’t realize that price was important? Down right maddening!

Really? You didn’t know that your best bid was required? Makes you wonder. Cross that one off the list.



Michael Massetti is a high-tech supply chain executive who really does enjoy being a supply chain professional! Seriously. Thanks to my former colleague and partner in supply chain crime Alex Brown for his ideas.

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Never Quit! You never know when you are about to do the best you’ve ever done!! #neverquit

You never know when a lesson in life is going to present itself to you. Keep your ears and eyes open … there are a lot of lessons out there waiting for the right time to present themselves to you!

I tend to be a bit competitive. OK, for those of you who are already guffawing, quite competitive, especially with myself. I track every meter on my rowing machine (21 million and counting) and every mile on my bike (5000 and counting). The Strava mobile app gives me even more data – specific segments that are timed with all-time best and age group data. As a data “geek” … I thrive on this stuff and love it! Ask anyone who knows me well.

When I cycle my 20+ miles on the bike trails through Redmond, Woodinville, and Bothell in Washington I usually ride with a simple credo: “Pass. Do not get passed.” If I were to count, I’m sure I’m at 99.9%+ on this – passing overwhelimingly more than ever getting passed

Today, I caught site of a rider with about 5 miles left in my 23 mile ride. I was a bit tired having pushed hard for 2 timed segments already and fought into the “wind” for 12 miles. Nonetheless, I set my sights on him. This type of competition keeps me going, no matter how tired I might be. “You’re all mine, dude, here I come!!!

I closed the gap by about 50%, never catching him. I don’t think he shifted gears once, he stayed in his gear and pedaled steadily for the duration that I had scoped him out. How did he do that so well?


I failed. I failed miserably.

I tried hard, but could not get closer than about 50 yards (meters) from him. I was very disappointed and glided in the last 1/4 of a mile. “What the hell? Why couldn’t I catch him?”

But, after further review, all was not lost. I got to my car and cooled down, I looked at my ride statistics on Strava. Actually, not bad at all. 19.3 mph average for 23 miles, the first half at 18.9 mph and the last 11.5 miles at 19.7. I was pumping for that second half.

Then I checked my segment times. I set two personal all-time bests. The first segment (0.9 miles) I was ready for and focused. I beat my best time by 10 seconds. (See my earlier post.) I still need 5 seconds better to break into the top 5! Believe me, I’m painfully aware.

The second segment, only 1/2 mile, I beat my best by 5 seconds and wound up with the 4th best time in the 55+ age bracket.

So, in my defeat (alleged defeat, that is), I wound up setting an unplanned and unexpected personal best. Not too shabby, when all is said and done.


It Ain’t What You Thought!

My entire body chemistry changed once I realized what I had done. I went from “How did I not catch him? He must be way younger than me.” to “Holy cow, I blew my best time away!” in a matter of seconds. Any hint of defeat was annihilated by the exhilaration of realizing that, without even trying, I set a personal best. HOLY COW (with emphasis for Phil Rizzuto – the long-time Yankees broadcaster)!!! I had no idea …

Remember, when you do your best at what you can do, you NEVER are a loser. You never lose. You did the absolute best you’ve ever done! That is AWESOME!

It doesn’t get much better than that. Revel in the moment. Enjoy what you have done. You ROCKED!


Michael Massetti is a global high-tech supply chain executive who really does enjoy being a supply chain professional! Seriously. He is also a life-long athlete who continuously pushes himself to be competitive.

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So, you really enjoy being a supply chain professional? Part 2

Are Demand & Supply Driving Your Supply Chain Crazy?

Let’s face it, supply chain is a fascinating and pressure-filled field. Supply chains deliver the products that customers demand. The concept of a demand-driven supply chain was developed by Gartner (originally by Debra Hofman from AMR Research). It’s a great concept that the entire supply chain be driven by demand. Albeit, what it usually drives is the supply planners crazy. Don’t you wonder sometimes how and why you got into this field?

Through a series of articles and musings, I will share some thoughts through adages, quips, and comics that will look at supply chain with a tongue-in-cheek perspective. I look forward to comments and other perspectives.

This second article will look at the vagaries of demand and the vicissitudes of supply. Future story lines will include supplier management, inventory, supply chain risk, logistics, and managing numbers.

Supply Demand Comic 1 

Demand planning is the art of integrating multiple, independent, and inaccurate signals into one accurate signal.

Demand is the baseline for all things supply. Customers’ desire for a product drives the demand and is the foundation for business volumes. Without demand there is absolutely no need for supply and even less need for supply chain folks.

But, where does the demand signal come from? It’s a question that remains mysterious for supply chain professionals.

Demand planners have a plethora of signals available to them – point-of-sale (POS) data, macro market or economic trends, historic demand accuracy, promotional effects, seasonality, business targets, prior product launches, actual orders, and more. While these are options aplenty, by themselves, none of them are sufficient or accurate.

Shouldn’t demand planners be able to get it right with so many variables available to them?

The reality is that most of these signals are rear-view mirror perspectives. As financial planners say, “past performance may not be indicative of future results.” We all know that if you drive your car by looking solely at the rear-view mirror you will eventually go off of the road. Not a good thing.

While many solutions providers have developed amazing tools and statistical techniques for demand planning, the fundamental problem of keeping demand stable and accurate remains unsolved, at least from the supply planner’s viewpoint.

Could it be that there’s more art to demand planning than anyone wants to acknowledge? So maybe the key is to channel our inner Picasso rather than our inner Newton. Regardless, each cycle, whether weekly, monthly, or otherwise, the demand signal is passed on, like the hot potato it is, to the supply team to work with.

And it’s usually different than the last one submitted. 

Supply Demand Comic 2

Supply planning is the science of delivering that exact signal regardless of how much or often it changes.

The supply planning team has the unenviable job of taking that ever-changing signal and converting it to a very specific plan for their factories to deliver. Reducing the uncertainty in the ability to deliver the products required is of utmost importance.

Supply planners are evaluated on finding the ever elusive perfect balance between the triangle that is forecast accuracy, on-time delivery, and stock levels. What’s your business targets for on-time delivery to your customers? Methinks it is well over 90%. 95%? 98%?

Is that even relevant in this day and age? We’re just being measured on our ability to serve the next link in the demand chain. Want a real headache? Start integrating notions of on-shelf availability one or two levels down the chain.

Factories do not deal with ever-changing requirements very well. Shooting at moving targets is not manufacturing’s core competency. They expect to have clarity and stability to be most productive. Building the same exact products at the same volume every single day keeps factory GMs young, vital, and stress-free.

That’s just not the real world of demand and supply. Enter the necessary evil: Stock.

While the demand may move around a lot, supply has a few tricks up its sleeves to mitigate the variance. Buffer stock of inventory and manufacturing postponement techniques are just two of many tools that the supply side can employ to reduce the effects of demand uncertainty.

Regardless, the never-ending conflict to balance the vagaries of demand with the specificity of supply contributes to the sleep deprivation of supply chain practitioners.

Supply Demand Balance Lever

Balanced supply & demand is a rare event they are actually two mutually exclusive, independent signals that occasionally intersect in time and space.

The assertion remains that demand accuracy is fleeting and changes in the signal are frequent and sometimes severe.

The monthly S&OP was our venue to manage the long-term balance of supply and demand. The cycle commenced with an updated demand signal and the supply team would evaluate inventory, capacity, incoming materials, and any constraints to match supply to the demand.

Imagine a giddy set of supply geeks preparing to tell the CFO, COO, CSO, and other execs that we can support the revenue and demand plan. Yeah, baby!

Then, the sucker punch appears. “Actually, we have changed the demand signal for you to evaluate.” Thud.

I lost count of how many executive S&OP meetings that we would be presenting that seemingly perfectly balanced supply plan with the demand signal from the business when the head of demand would utter that sentence. Are you kidding me?

And you thought that Nadia Comăneci performed miracles on top of that 4” wide padded suede beam!

At a macro level, supply and demand balance is quite achievable. But, we all know that attaining that balance at the micro or SKU level is the Holy Grail of supply planning. In those S&OP meetings, the total supply would easily match the total demand. That said, we’d have a list of angst-inducing shortages accompanied by a list of Little Orphan Annie excess products.

Chasing demand is the never-ending pursuit of supply chain. Sort of like that little puppy going ‘round and ‘round after its tail for minutes on end, only infrequently getting to it.

Balanced SC Metric Chart 001

“Forecast accuracy is the biggest oxymoron in supply chain lexicon.

I’ve often quipped that supply chain personnel typically do not utter the words “forecast” and “accuracy” in the same sentence without including a few other colorful adjectives.

For many, forecast accuracy is seen as the sole responsibility of the demand team. For an organization to truly mature, it needs to be a shared responsibility with marketing, sales and finance. The more the merrier. It may not be more precise, but it does increase the odds of a kumbaya session in the next S&OP meeting.

The numbers tell it all: world class demand planning accuracy is ~80% but you get fired if your supply delivery or manufacturing output accuracy hovers anywhere near 80%.

OK, maybe this stretches it a bit. However, the point is valid. Best-in-class demand planning is typically in the 70% range and supply chains get measured on their ability to reach the “Perfect Order”. I’ve been with companies that have settled for 65% as an “aspirational” target.

What is the cost of poor forecast accuracy? Heck, what’s the cost of 65% forecast accuracy? There are only a few levers available to accommodate a 35% degree of uncertainty – carrying more inventory or reducing service levels are two.

If we take a look at Gartner’s “Hierarchy of Supply Chain Metrics” and modify it ever so slightly, demand accuracy, inventory (instead of supply chain cost), and service level (instead of perfect order) are inextricably linked. If demand accuracy is low, something else has to be traded off. Either you carry more inventory or you risk lower service levels. We all know that both can be detrimental to a business.

No wonder so many of our top-talent supply chain planners moved to the demand side of the business.


Michael Massetti is a global high-tech supply chain executive who really does enjoy being a supply chain professional! Seriously.

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