As we are wrapping up development on the Integrated Business Planning IBP App for High-Tech Semiconductor industry, there is considerable excitement in the GitaCloud team, our partners like Anaplan and Snaplogic, and our high-tech semiconductor customer base that motivated us to develop a verticalized planning solution. This solution combines expected Foundational IBP capabilities with semiconductor industry specific rich scenarios that deliver differentiated value.
We have researched the S&OP/IBP landscape quite a bit and a consistent challenge we found is that that most S&OP solutions out there are pushing horizontal solutions, the one size fits all approach to planning. Does one size fit all when it comes to Integrated Business Planning IBP solutions? We have heard the argument that good planning practices can be learned from one industry and applied in another. In reality, the data models and planning problems are quite unique to industry verticals, and industry agnostic solutions may build a good foundational capability, but miss out badly on key industry specific capabilities to deliver the value being promised in the business case.
Take transfer business process and its impact on sales forecasting in high-tech semi-conductor industry for example. Transfer business is any part of your demand that is tracked in a particular region during design/engineering stages, which then transfers to a different region during buying/fulfillment cycle. For folks not familiar with semi-conductor industry or the transfer business process, let me lay out the basics here. Electronics Value Network is a set of trading partners all coming together to satisfy end consumer's insatiable demand for newer and better high-tech devices. The Electronic value networks can be Original Equipment Manufacturer specific: think Apple vs. Samsung Value Network. The value network consist of Big Box or e-Retailers like Best Buy, Target, or Amazon; Contract Manufacturers like Foxconn, Flex, or Jabil; Distributors like Arrow, Avnet, or Tech Data; Semiconductor companies like Broadcom, nVidia or Maxim; Foundries like TSMC, UMC, or Global Foundries. It's a truly global village for these networks as they must come together to design and manufacture an OEM specific solution in multiple geographic locations (iPhone designed in California and manufacturer in China). The fact that there are several channels and differing ordering parties makes it challenging to track billings (actual shipments of chips to Contract Manufacturer or Distributor) back to the OEM with which the Semiconductor company scored a Design Win (that act of getting Apple to agree to use your chip for power management in their next iPhone).
With maturing of electronics manufacturing in Asia, emergence of design houses, heavy consolidation in the semiconductor segment, increasingly sophisticated buying behaviors from OEMs to look for best price across regions and channels, the business impact is severe for semiconductor companies. They are either forecasting the same demand in multiple regions leading to excess inventory risk, providing different quotes leading to margin erosion, and risking opportunity loss where channel and sales teams in Asia region have no incentive to process business transferred from North America into Asia.
End customer specific opportunities are tracked initially by the Design Rep (Sales Rep in Design location leading the charge during a Design Project working closely with OEM Design teams). If during or after Design Win, the OEM decides to have another region lead the buying activity, this demand forecast needs to be transferred to the Fulfillment Rep (Sales Rep in Fulfillment location). Global Business Transfer team needs a global view on demand to manage scenarios where demand is falling through the cracks or duplicate demand, e.g., when Design Rep in North America logs in the sales forecast and thinks they transitioned it to Fulfillment Rep in Asia, while the Fulfillment Rep ignores it and generates a fresh opportunity from the CM buying in Asia.
It is critical to understand which opportunities across channels are for the same end customer (OEM in North America is the end customer, whether the director customer who is buying on OEM's behalf is a Contract Manufacturer or a Regional Distributor in Asia). Yet, most demand planning solutions being used by Semiconductor companies from ERP vendors are not designed to be able to map and model demand across regions, customer tiers, and sales hierarchies. Partly due to the lack of familiarity with the planning challenges in the industry and partly due to ever limited development budgets as these vendors aggressively chase the latest fads in big data, Internet of Things, and Cloud terms, the solutions are designed to struggle on adoption front from the get-go, not just on the ease of use front, which was never a focus area, but also due to the over simplification of the planning problem and high investment required to enhance the solutions to include key industry relevant planning scenarios like Transfer Business. Attempting to solve these planning level gaps later in transactional systems: as a Distributor Channel issue in ERP Channel Management like solutions are too little too late attempts to bolt the door when the horse has already fled.
Our thinking is that industries have widely varying data models and planning problems and IBP solutions need to be built from the ground up on a flexible Excel like cloud platform so business planners can get the best of both worlds: industry specific rich best practices they need out of the box, as well as business user owned and operated software that can be enhanced and fine-tuned on the fly without expensive IT or consulting budgets needed to produce a minimum viable product for use in planning. Anything less and the planners will go play in Excel and come back to load the final forecast in your 'Demand Planning' tool, which we prefer to think of as 'Demand Database' as there is no planning happening in these planning systems.
We have several industry specific features in the IBP for High-Tech Semi-conductor App we are shortly releasing:
1. Rich library of Statistical Forecasting capabilities
2. System proposed and user maintained product segmentation across multiple dimensions like revenue, margin, demand variability, etc.
3. Sales forecasting addressing key industry scenarios like Key Account Planning, Transfer Business, ability to see demand holistically by End Customer across all channels
4. Distributor / End Customer level Planning: POS based forecasting of sell-through signal and integration of End Customer Backlog, Sell-through forecast, and Customer Forecast along with Distributor Inventory netting to generate an accurate Sell-in Forecast
5. Range forecasting: what-if simulation capability to model and compare data side by side across Upside, Baseline, and Worst Case scenarios to understand upside support from supply chain, revenue / margin impact due to Foundry or Test capacity constraints
6. Truly Integrated Business Planning: developing truly integrated business plans, not by merely adding Finance forecasts to S&OP process, but having a telescoping approach of boiling down monthly volume level Sales & Operations S&OP plans to weekly mix level Sales & Operations Execution S&OE plans, which enable modeling of short term demand signal polluters like revenue management driven ship-aheads or a constrained supply chain driven delinquent backlog.
7. Thought leading ways to measure performance of IBP plans and corporate performance in terms of orbit charts modeling how Operating Margin has moved against Inventory Turns across Quarters / Years against peers in the industry or an internal view of performance across Business Units BUs. We want to measure supply chain balance, strength, and resiliency to enable objective measurement of efficacy of IBP plans.
We work across several other Value Networks: Health Care Value Network (Medical Devices, Hospitals, and Pharmaceuticals), Consumer Value Network (Consumer Products, Retail, and Food & Beverage), Automobile Value Network (Dealerships, Automakers, Battery or Engine Sub-Assembly Suppliers, and Component Suppliers), etc. The planning problems are quite different, and demand tailored solutions.
We will talk about an innovative use case in the Automobile industry in our next blog that we delivered successfully recently. Different components in a car fail at different rates in different geographies due to road conditions, weather patterns, driving habits, and so on. Automakers need to predict component failures by geographies across a range of reason codes in order to forecast component supplies and remanufacturing capacity required. You cannot push an IBP solution out there to auto makers that does not understand the nuances of mapping varying car configurations being sold to underlying components and be able to convert your Car configuration level IBP plan to a Remanufacturing Capacity forecast by Regional Centers.
We are intensely customer focused in our approach. It's our commitment to customers that we will bring the right industry experts to the table for business transformation prior to technology enablement and deliver industry specific rich cloud apps that delight business planners and are deployable within the quarter. Give us a call if you have a planning problem that's not getting solved by rigid on-premise software and/or cannot be modeled / managed effectively in Excel.