Perfect Order, Happy Customer. Managing the Order-to-Delivery Cycle Nari Viswanathan & Melissa Spinks

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1 Perfect Order, Happy Customer Managing the Order-to-Delivery Cycle Nari Viswanathan & Melissa Spinks February 2009

2 Page 2 Executive Summary The beginning of 2009 is a time that business operations are really being tested; many manufacturers face increasingly volatile demand and the need to satisfy customers whose demands cannot afford to be ignored. But when are customers' needs too costly because of production, shipping, or inventory holding costs when there is such a tremendous pressure to reduce costs? With this report, Aberdeen describes what some companies are doing to mitigate those unnecessary inventory-related costs. Over 115 companies were asked to benchmark their business processes such as request for quote, order promising, order capture, order scheduling and order fulfillment. This report is a roadmap for companies looking to identify cost savings and improve their customer satisfaction ratings via the order-to-delivery process. Best-in-Class Performance Aberdeen used five key performance criteria to distinguish Best-in-Class companies with respect to the order to delivery process. Mean Best-in- Class performance is as follows: 3% decrease in order-to-delivery lead times 4% decrease in days of finished goods inventory as a percentage of sales 2% decrease in logistics costs as a percentage of sales 1% decrease in out-of-stock inventory occurrence 93% perfect order delivery (complete and on-time) Competitive Maturity Assessment As this report attests to, Best-in-Class companies are far outpacing their peers when it comes to innovating the order-to-delivery process. By streamlining internal processes, providing cost and inventory data upfront, and utilizing distributed order management software, Best-in-Class companies are decreasing order-to-delivery lead times and reducing inventory as a percentage of sales. Some specific examples include: Forty-six percent (46%) have a strong ability to support single quoting process to customers irrespective of sales channel Fifty-eight percent (58%) have a strong ability to provide single view of inventory across multiple facilities Fifty-four percent (54%) have a strong ability to flexibly schedule and reschedule orders based on due dates Required Actions In addition to the specific recommendations in Chapter Three of this report, to achieve Best-in-Class performance, companies must: Research Benchmark Aberdeen s Research Benchmarks provide an indepth and comprehensive look into process, procedure, methodologies, and technologies with best practice identification and actionable recommendations "The last thing I want is for us to tell the customer one thing and then we don't have the plan or the capability to execute on it. Understanding the strategy, priorities and operational actions helps everyone service the customer in the manner they deserve." ~ Mike Cramer, Director, Logistics & Customer Operations, Owens Corning Create the ability to perform order promising for finished goods inventory Create the ability to perform due date based scheduling Create the ability to perform distributed order management Create the ability to prioritize orders based on a what if scenario (i.e. considering core customers, customer requirements, impact on revenue)

3 Page 3 Table of Contents Executive Summary...2 Best-in-Class Performance...2 Competitive Maturity Assessment...2 Required Actions...2 Chapter One: Benchmarking the Best-in-Class...4 Business Context...4 The Maturity Class Framework...7 The Best-in-Class PACE Model...8 Best-in-Class Strategies...9 Chapter Two: Benchmarking Requirements for Success...12 Competitive Assessment...12 Capabilities and Enablers...14 Chapter Three: Required Actions...21 Laggard Steps to Success...21 Industry Average Steps to Success...21 Best-in-Class Steps to Success...22 Appendix A: Research Methodology...23 Appendix B: Related Aberdeen Research...25 Figures Figure 1: A Picture of the Economy...4 Figure 2: Corporate Pressures Driving Supply Chain Change around Orderto-Delivery...5 Figure 3: Top Supply Chain Challenges Driving Change in the Order-to- Delivery Process...6 Figure 4: Building the Case for an Integrated Order to Delivery Process...7 Figure 5: Laggards Lack Commitment to Order-to-Delivery Process...9 Figure 6: Best-in-Class Maintain a Customer-centric Strategy...10 Figure 7: Best-in-Class Excel in Entire Order-to-Delivery Process...15 Figure 8: Best-in-Class Seize Distributed Order Management Capabilities..17 Figure 9: Technology Differentiators among Best-in-Class...19 Tables Table 1: Top Performers Earn Best-in-Class Status...7 Table 2: The Best-in-Class PACE Framework...8 Table 3: Manufacturing Mode in Order to Delivery...10 Table 3: Manufacturing Mode in Order to Delivery (continued)...11 Table 4: The Competitive Framework...13 Table 5: The PACE Framework Key...24 Table 6: The Competitive Framework Key...24 Table 7: The Relationship Between PACE and the Competitive Framework...24

4 Page 4 Chapter One: Benchmarking the Best-in-Class Business Context Companies entered into 2009 with a level of uncertainty primarily centered around what the repercussion of the global recession for companies will be. The changes brought new meaning to globalization whereby the ripple effect of the US economy has spread to the entire world similar to how an infection in the blood stream spreads. Figure 1 shows the extent to which those surveyed are feeling the pain - 86% of respondents were negatively to severely negatively impacted. In order to successfully survive the turmoil, companies are looking to maintain their stream of revenue, reduce costs, and compete in all facets of their business from product to supply chain. The process of capturing the customer order is a critical process that should be looked at by organizations in this situation. The conversion rate of a request-for-quote to an order is a key factor for the efficiency of the order-to-delivery process. Any incremental improvements resulting in improved order capture rates results in sales revenue uplift. In addition the process of capturing the order and delivering the order is a major area of opportunity for cost improvements. Fast Facts 55% of companies have had an order-to-delivery initiative in place for more than two years Customer mandates are the primary driver of innovation of the order-to-delivery cycle - higher than both cost and revenue The Best-in-Class averaged a 3% decrease in lead times over the past two years Figure 1: A Picture of the Economy We are positively to strongly positively impacted, 2% We are not impacted, 5% It is too early to say, 8% We are moderately negatively impacted, 51% We are severely negatively impacted, 35% The aim of this benchmark study - based on the responses of 115 manufacturers, distributors, and wholesalers - is to show how top companies are streamlining and investing in the order-to-delivery process in order to meet corporate goals. The various process phases that were benchmarked as part of this survey include request for quote, order promising, order capture, order scheduling, and order fulfillment.

5 Page 5 Customer Satisfaction but at What Cost? Respondents to the study put customer fulfillment demands at the top of the list of pressures driving supply chain change or innovation, followed by revenue and cost pressures (Figure 2). This urgency around customer mandates brings with it the potential to arise at sub-optimal solutions. Hasty decisions to expedite a shipment or ramp up production without considering costs, profit margin impact, or other options (such as redirecting an in-transit shipment or checking other warehouses for inventory) will prove careless, especially in this tumultuous point in time of the US economy. Figure 2: Corporate Pressures Driving Supply Chain Change around Order-to-Delivery Customer mandates for faster, more accurate and more unique fulfillment 29% Need to increase revenue 23% Rising supply chain operating costs 18% Management of increasingly global supply chains Need for improved cash flow due to credit crunch 12% 12% 0% 10% 20% 30% % of All Respondents The top three pressures should not be independent of one another. For example, as Chapter Two explores, companies with above average supply chain performance are fulfilling orders with an average of 93% accuracy and are more likely than their peers to be conducting cost optimization analysis within the order-to-delivery process. Chapter Two also explores how top companies are streamlining the process by implementing business rules, making the process reliable and repeatable for the benefit of staff and customers alike. Small companies with revenues of less than $50 million are in a somewhat different place, with revenue being the foremost driver of change, followed by customer mandates. These companies naturally want to grow, but need to understand they are facing competition from larger companies that are compelled to change their business in order to satisfy customer needs. In the supply chain organization, this is manifested in the order-to-delivery process.

6 Page 6 Localized Perspective on Supply Chain Challenges Figure 3 indicates inventory carrying costs remain the predominant issue at hand. How does one reconcile the corporate concern of customer mandates and local concern of the fulfillment team when it comes to carrying costs? The next section begins to address this question. By looking at the supply chains that are reducing finished goods inventory and logistics costs, it also apparent that these companies have more mature order-todelivery process capabilities. Figure 3: Top Supply Chain Challenges Driving Change in the Order-to-Delivery Process Need to reduce our inventory carrying costs 26% Customers need their orders faster 23% Customers are unw illing to tolerate inaccurate orders 20% Competitors are offering higher levels of service 11% Product life cycles are shorter 5% 0% 10% 20% 30% % of All Respondents Not surprisingly, survey data also points to a correlation between underperforming supply chains, their limited order-to-delivery process capabilities, and their increased likelihood to perceive their competitors service levels as a top challenge (Laggards are 2.5-times more likely to indicate that a "competitors' higher level of service" is a top challenge). The following are some of the key challenges that companies are facing: Disparate ERP systems resulting in lack of a single repository of orders Mergers and acquisitions resulting in complexity in order management processes due to disparate order processing systems Order fulfillment processes that concentrate on individual orders rather than the holistically viewing order fulfillment Customers want quoted lead times, but there is no visibility into available finished goods or scheduled production

7 Page 7 Figure 4: Building the Case for an Integrated Order to Delivery Process These issues shown in Figure 4 result in the need for an integrated order to delivery process. Providing a common window to the end customer throughout the order-to-delivery lifecycle is the key capability of this process. The Maturity Class Framework Aberdeen used five key performance criteria to distinguish the Best-in-Class from Industry Average and Laggard organizations, as shown in Table 1. Table 1: Top Performers Earn Best-in-Class Status Definition of Maturity Class Best-in-Class: Top 20% of aggregate performance scorers Mean Class Performance 3% decrease in order-to-delivery lead times 4% decrease in days of finished goods inventory as a percentage of sales 2% decrease in logistics costs as a percentage of sales 1% decrease in out-of-stock inventory occurrence 93% perfect order delivery

8 Page 8 Definition of Maturity Class Industry Average: Middle 50% of aggregate performance scorers Laggard: Bottom 30% of aggregate performance scorers Mean Class Performance 1% decrease in order-to-delivery lead times 1% decrease in days of finished goods inventory as a percentage of sales 2% increase in logistics costs as a percentage of sales No change in out-of-stock inventory occurrence 85% perfect order delivery 1% increase in order-to-delivery lead times 4% increase in days of finished goods inventory as a percentage of sales 2% increase in logistics costs as a percentage of sales 4% increase in out-of-stock inventory occurrence 70% perfect order delivery The Best-in-Class PACE Model Optimizing the order-to-delivery process to achieve corporate goals requires a combination of meeting customer demands and bringing the customer perspective into strategic improvements, in addition to organizational capabilities, and enabling technologies that are summarized in Table 2. Table 2: The Best-in-Class PACE Framework Pressures Actions Capabilities Enablers Customer mandates for faster, more accurate and more unique fulfillment Reduce inventory Improve the ability to match customer needs (product requests, lead times) with supply chain / order management capabilities Ability to perform distributed order management Ability to support single quoting process to customers irrespective of sales channel Ability to support single order fulfillment process irrespective of channel Ability to perform order promising for finished goods inventory (ATP) Ability to support cost optimization strategies Ability to flexibly schedule and reschedule orders based on due dates Shared metrics between order fulfillment team and the supply chain team Involvement of fulfillment team in S&OP process Ability to provide single view of inventory across multiple facilities Ability to mine order data to gain intelligence on buying patterns of consumers Ability to measure order-to-delivery lead times Distributed order management Product configurator Multi-level available to promise

9 Page 9 Best-in-Class Strategies Survey results indicate Best-in-Class and Industry Average companies have had an order-to-delivery process initiative in place for a longer amount of time compared to Laggards. Figure 5 also shows more than 35% of Laggards do not have an initiative currently underway. Figure 5: Laggards Lack Commitment to Order-to-Delivery Process % of Respondents 75% 62% 63% Best-in-Class Average 50% 37% Laggard 25% 27% 26% 15% 8% 20% 13% 4% 9% 17% 0% More than tw o years Less than tw o years We w ill begin implementing this year or beyond No current or planned activity With the Best-in-Class having had a longer engagement with this critical process, survey data also shows their strategy to be different for a number of reasons. Based on Figure 6, it can be said that Best-in-Class are more customer-centric. Best-in-Class are: 1.8-times and 2.3-times more likely to prioritize matching customer needs with supply chain / order management capabilities Best-in-Class 1.9-times and 7.5-times more likely to bring the strategy of creating a single order fulfillment process to customers Laggards as well as Industry Average organizations are at a point where their planned strategic actions for 2009 are performance oriented. As Figure 6 shows, these companies are geared towards reducing inventory and improving order promise accuracy, without a clear vision of the source for improvement. This Laggard point-of-view is perhaps partially a result of the initiative being only in its infancy.

10 Page 10 Figure 6: Best-in-Class Maintain a Customer-centric Strategy Reduce inventory Improve ability to match customer needs (product requests, lead times) w ith supply chain / order management capabilities 12% 20% 19% 18% 18% 15% Create single order fulfillment process to customers 3% 8% 10% Improve the ability to dynamically allocate supply to w arehouses/dcs based on customer demand Improve the order promise date accuracy 10% 12% 9% 8% 9% 15% Best-in-Class Average Laggard 0% 10% 20% In Chapter Two, we will explore more process, organizational, performance management and technology related capabilities exhibited by Best-in-Class companies. Aberdeen Insights Where Does Manufacturing Mode Fit in Order-to-Delivery? The manufacturing mode adopted by organizations has a major impact on how their order-to-delivery cycle is managed. Companies that are build-to-stock rely on inventory positioning strategies versus build-to-order organizations, which rely on postponement strategies. Table 3 highlights key differences across the various stages of the order-to-delivery cycle. Table 3: Manufacturing Mode in Order to Delivery Phase of Order to Deliver Cycle Request for Quote Order Promising Build to Stock Not complex; Volumetric pricing strategies may be adopted Inventory-based order promise Build to Order Complex; Has major impact on the margins associated with the product Inventory- and capacity-based order promise continued

11 Page 11 Aberdeen Insights Where Does Manufacturing Mode Fit in Order-to-Delivery? Table 3: Manufacturing Mode in Order to Delivery (continued) Phase of Order to Deliver Cycle Order Capture Order Scheduling Order Fulfillment Build to Stock Requires simple order entry screens Fulfilled from end item inventory Execution processes can be optimized in several ways: multisite warehouse management, merge in-transit, delayed allocation to customers, etc. Build to Order Requires configurators to capture dependency rules May or may not be fulfilled from end item inventory; May require integration with the production order board Outbound logistics is typically not optimized Source: Aberdeen Group February 2009 As can be seen from Table 3, organizations focus on the manufacturing processes in a build-to-order manufacturing environment and on the distribution processes in the build-to-stock type. However the actual manufacturing process within companies are evolving into a hybrid model, which includes both types of modes and hence the need of the hour is to adopt a more flexible form of order-to-delivery processes that take the best elements of both manufacturing modes. In the next chapter, we will see the process, organization, performance management and technology capabilities associated with a Best-in-Class order-to-delivery life-cycle.

12 Page 12 Chapter Two: Benchmarking Requirements for Success The order-to-delivery process exists in multiple phases. This chapter will explain how Best-in-Class companies are refining this process by presenting customers and staff with a unified process and how these companies are implementing Distributed Order Management (DOM) capabilities in order to improve fulfillment performance and thus customer service levels. Industrial Equipment Case Study: Global Order Management An Industrial Equipment manufacturer manufacturers its products on four continents and distributes in more than 200 countries via dealership and rental outlets. The company s history of mergers and acquisitions created various order systems, which prevented efficient management of global orders. Coordinator for the company s Customer Support order system explained, With our full product line, which is manufactured, services, and supported worldwide, we must be able to act as one global company with a common order structure. Fast Facts 50% of Best-in-Class companies have distributed order management capabilities 58% of ability to support single order fulfillment process irrespective of channel 42% of Best-in-Class companies utilize distributed order management software Historically, all regional plant regions hosted their own independent order and warehouse systems. Each time dealers wanted to place orders, they had to access several warehouses. The fragmented IT environment made global order management difficult for company staff and dealers. Also when newly acquired companies were getting integrated into the enterprise structure, the process took too much time. The company wanted a fast implementation with extraordinary capacity a solution that enabled integration of a new warehouse system in no more than six months. The company implemented a best-of-breed Global Order Management (GOM) solution. Through the system, the company now has a single, integrated web interface to manage all ordering, price and availability, part information, order placement and status. The company is also enabled to integrate with suppliers. The company improved customer service, increased efficiency in global order management, cost savings due to less administration and more efficient maintenance, and better overall pricing and customer credit control. Competitive Assessment Aberdeen Group analyzed the aggregated metrics of surveyed companies to determine whether their performance ranked as Best-in-Class, Industry Average, or Laggard. In addition to having common performance levels, each class also shared characteristics in five key categories: (1) process (the

13 Page 13 approaches they take to execute their daily operations); (2) organization (corporate focus and collaboration among stakeholders); (3) knowledge management (contextualizing data and exposing it to key stakeholders); (4) technology (the selection of appropriate tools and effective deployment of those tools); and (5) performance management (the ability of the organization to measure their results to improve their business). These characteristics (identified in Table 4) serve as a guideline for best practices, and correlate directly with Best-in-Class performance across the key metrics. Table 4: The Competitive Framework Process Organization Knowledge Technology Best-in-Class Average Laggards Ability to perform distributed order management 50% 22% 11% Ability to support single quoting process to customers irrespective of sales channel 46% 35% 17% Ability to support single order fulfillment process irrespective of channel 58% 43% 26% Ability to perform order promising for finished goods inventory (ATP) 46% 33% 17% Ability to support cost optimization strategies 31% 17% 6% Ability to flexibly schedule & reschedule orders based on due dates 54% 24% 11% Shared metrics between order fulfillment team and the supply chain team 42% 20% 17% Involvement of fulfillment team in S&OP process 37% 22% 6% Ability to provide single view of inventory across multiple facilities 58% 33% 14% Ability to mine order data to gain intelligence on buying patterns of consumers 23% 17% 6% Order-to-delivery technology currently in use:

14 Page 14 Performance Best-in-Class Average Laggards 42% distributed order management 31% multi-level available-topromise software 31% product configurator 20% distributed order management 26% multi-level available-topromise software 26% product configurator 15% distributed order management 24% multi-level available-topromise software 24% product configurator Ability to measure order-to-delivery lead times 46% 35% 23% Capabilities and Enablers A way to summarize Table 4 would be to say that the unique challenges of the order-to-delivery process are being overcome by way of integration. Recall Figure 4, which depicted the back and forth flow of information from the manufacturer to the customer around an order quote, purchase order submission, finished goods allocated to demand, production scheduled, and so forth. There are a lot of exchanges, which open the process to error. Error results in waste, customer dissatisfaction, and eventually customer attrition. And, as customers want orders faster and more accurately, competitive supply chain practices are forcing directors and VPs of Supply Chain to take this process on head to head. This section identifies some of the Process, Organizational, Performance and Technology strategies practiced by Best-in-Class companies. The gap in capabilities and use of technology enablers is also explored. "All aspects of the supply chain are critical to have a successful S&OP process. Decisions are made via the S&OP process which ultimately guides our actions in fulfilling the needs of the customer." ~ Supply Chain Director, Large Manufacturer Process: Order-to-Delivery Best-in-Class companies not only excel in processes that are present after the order has been taken but also in processes that occur as the order is being captured. Figure 7 depicts a few of the phases in the process.

15 Page 15 Figure 7: Best-in-Class Excel in Entire Order-to-Delivery Process Ability to support single order fulfillment process irrespective of channel 26% 43% 58% Ability to flexibly schedule & reschedule orders based on due dates 11% 24% 54% Ability to perform distributed order management 11% 22% 50% Ability to perform order promising for finished goods inventory (ATP) 17% 33% 46% Ability to support single quoting process to customers irrespective of sales channel Ability to support cost optimization strategies 6% 17% 17% 31% 35% 46% Best-in-Class Average Laggard 0% 20% 40% 60% Planning, Quoting, and Accepting Orders Cost optimization support. Companies identify cost optimization by identifying where products should be produced and stored, or delivered, attempting to find a balance between inventory investment, transportation costs, and warehouse quantity and location. Another approach to cost optimization is to perform it at the point of quoting by analyzing customer priorities and company preferences. Why source from Warehouse A versus Warehouse B or ramp up production to a low-priority customer when there is a negative margin? Provide order promising based on Available to Promise (ATP) inventory. There are two key pieces of information helping to identify inventory that is ATP; there is the inventory that is going to be produced (usually calculated by period) and there is stocked finished goods inventory. Based on the requested lead time, call center or sales representatives with information from the master production schedule and warehouse shelves would be able to quote ATP due dates. Single quoting process, irrespective of channel. One of the biggest challenges facing organizations is the lack of a single window to the supply chain for various order capture channels like CSR, online sales, retail stores, etc. Best-in-Class companies illustrate that while each channel might have unique pricing, lead time, or product requirements, the quoting process should be standardized across the channels. We have a single quoting process because we recognize quoting is an integral part of the ordering process. ~ Supply Chain Director, Midsize Manufacturer

16 Page 16 Automotive OEM Case Study: Success in Order to Delivery The organization is a large global automotive OEM that faced significant inventory build up due to siloed order promising processes across its dealer network. In addition, standard lead-times were provided to the fleet orders and other build-to-order inventories due to a lack of visibility into the production schedule and end item inventory. The OEM has deployed an end-to-end attribute-based supply chain solution from a best-of-breed solution provider for managing its supply chain. This solution is used for both the company s build-to-stock as well as its build-to-order products. The solution is enabling the company to provide the capability for dealers to be able to search for inventory through a locate-to-order and a capable-to-promise tool: Locate to order: The ability to search for dealer and OEM inventory based on attributes. Capable to promise: The ability to look into assembly build schedules to provide promise dates to dealer and end customer demand Using the technology, the company has been able to reduce its end item inventory and improve its planning cycle times. Production Scheduling and Delivering Ability to flexibly schedule and reschedule orders based on due dates. This is where the visibility into the production schedule will drive response time to quick changes in demand and is particularly important in consumer and process industries. Inventory is typically the largest current asset held by manufacturers and can therefore have a major impact on the working capital health of the organization. If the demand widely exceeds or misses forecasts, can the product schedule be modified quickly? Is order management able to quickly notify production scheduling to ramp up or down production? Are there parameters identified for this notification? These are some of the collaborative processes required to enable an efficient order to delivery process. Ability to support a single fulfillment process, irrespective of channel. As operations extend globally and products proliferate, the fulfillment operation should not become autonomous at each warehouse of distribution center, especially as distributed order management capabilities are enabled. A single fulfillment process should be an extension of the inventory management policy, which includes replenishment policy; for example, meeting customer service levels at a minimum cost. In addition to these policies and capabilities, Figure 7 shows Distributed Order Management (DOM) capabilities as another Best-in-Class

17 Page 17 differentiator of a matured order-to-delivery process. This process is discussed in more detail in the Case Study to follow. Vehicle Manufacturer Case Study: Success in Order to Delivery A large European manufacturer of construction equipment and trucks sought to achieve best-in-industry customer service. It deployed a solution that included: A single order interface to customers that provides available to promise and net pricing information in real time Dealer VMI, including automatic replenishment at over 300 dealer sites globally Forecast and planning of more than 750,000 different spare parts Support of direct shipping, in which goods are delivered directly from the company s suppliers to its end customers We have gained market share on both the machines and spare parts, says the head of logistics at the manufacturer. The success is directly traceable to the investment we have made in the end-to-end supply chain solution. Distributed Order Management Drilling down deeper into the DOM process - the key message is having a responsive supply network that is able to flex itself to meet customer demand. The process elements discussed here are specific strategies that companies can be adopted to maximize the cost reduction for every order fulfillment transaction. Figure 8: Best-in-Class Seize Distributed Order Management Capabilities Ability to fulfill multiple channels from the same source of inventory (i.e cross-dock, in-transit, w arehouse facility) 11% 22% 50% Fulfill orders directly from supplier w arehouse (i.e. direct store to delivery) 22% 17% 42% Fill orders from w hatever distribution center meets customer requirements Ability to configure business rules for order fulfillment 6% 11% 39% 26% 31% 26% Best-in-Class Average Laggard 0% 25% 50% 75%

18 Page 18 Developing Best-in-Class DOM capabilities - for multi-channel distribution, in particular - is not simply an act of mandating warehousing managers to cross dock on committed orders or delivering piecemeal orders from different warehouses. (In later sections of this chapter, inventory visibility is discussed, which is really what would be essential to enabling smart DOM capabilities.) DOM represents a closed-loop process. Customer demands are carried from the purchase order receipt through to the fulfillment operations. Clear understanding of customer lead time, packaging, order splitting, product substitutions, product priorities, and pricing requirements will help to drive an effective DOM initiative, minimizing transportation, holding, and excess inventory costs as well. Furthermore, in some situations it is about knowing which customers are priority customers and executing on their orders first (discussed in the Knowledge Management: Order Data Mining for Customer Insight section to follow). Furthermore, this can require collaboration with suppliers in order to have visibility via Advanced Shipment Notices (ASNs) or supplier inventory levels. Organization A key takeaway is that the order-to-delivery processes should not be completely decoupled from the planning processes. Even if organizationally the order fulfillment teams are part of the sales and marketing teams or as a separate order team, there is a need for organizational alignment with the supply chain team. Shared metrics with the supply chain team is a Best-in- Class behavior. The Best-in-Class are: 1.7-times and 6.7-times more likely to involve the order fulfillment team in the S&OP process, compared to Industry Average and Laggards, respectively 1.5-times and 1.9-times more likely to maintain shared metrics between the order fulfillment and supply chain teams, compared to Industry Average and Laggards, respectively Knowledge Management Earlier in this report, in the discussion of DOM capabilities, the ability to present a single view of inventory was mentioned. Survey data shows Bestin-Class companies are 1.8-times and 4.1-times more likely to be able to provide a single view of inventory across multiple facilities, as compared to Industry Average and Laggard companies, respectively. This lack of end-to-end order visibility is a result of disparate ERP systems and, as a result, disparate order repositories. In order to link ERP systems, master data management strategies should be explored. As new products, new customers, and new vendors are onboarded, data synchronization issues will only perpetuate; hence, there is a need for a coherent information strategy. Master data management is an approach that can help in this regard.

19 Page 19 Order Data Mining for Customer Insights With order data held in a common format, mining that data to gain insight into the ordering patterns of customers is a Best-in-Class trait that will enable closed loop integration with the demand management process. Performance Management The saying "you can't manage what you don't measure" is no longer an often heard adage; rather, it is an oath and the Best-in-Class are swearing by it. Despite this, 34% of Laggards and 24% of Industry Average would rate their ability to measure order lead time as poor to none existent. Going back to Figure 1, it was shown that the number one pressure manufacturers face currently is customer demands for faster, more accurate, and more unique fulfillment. And the number two factor driving focus on this process is customers wanting orders faster. Order-to-delivery is not getting the PO to the warehouse faster and it is not getting shipment out the door faster, it is a complex process that has many touch-points, including the customer. By not measuring this process, companies are failing to see the big picture. Technology While 58% of Best-in-Class currently use an order management tool and another 23% plan to use it in the coming 18 months, Industry Average and Laggard organizations have similar rates of usage, meaning an order management module is more commonplace and less a differentiator of performance. The top technology differentiator is the use of distributed order management software; compared to all other companies (Industry Average and Laggards combined), Best-in-Class companies are 2.4-times more likely to utilize this software. Figure 9: Technology Differentiators among Best-in-Class 50% 42% Best-in-Class All Others 40% 30% 31% 31% 25% 25% 20% 17% 10% 0% Distributed Order Management Softw are Multi-Level Available-to- Promise Sof tw are Product Configurator Why is Order Management Technology Important? Just 17% of the companies surveyed indicated that they plan to outsource distribution to a third-party, meaning these manufacturers plan to rely on their own order-to-delivery process. As is evidenced by the number of

20 Page 20 Industry Average and Laggard companies operating without a single view of inventory and disconnected ERP systems, companies are not envisioning a holistic picture. With that comes, a lack of scalability in improvements, especially in retail. Some of the technology strategies adopted by companies are highlighted in the Analyst Insight to follow. Aberdeen Insights Key Technology and Process Strategies for Improving Order to Delivery Processes A technology oriented approach: Business process platform. Order-to-delivery processes are different from organization to organization; however, due to the implications of having chosen standardized ERP platforms, companies have to adhere to a standard set of IT defined processes. This results in situations where the actual execution of the processes is ad-hoc and differs widely from what is present in the ERP system. ERP systems that allow a business process platform approach or add-on best-of-breed solutions are suitable in these cases to ensure that the competitive advantage that companies have arrived at with their order-to-delivery processes are encoded. Multi-stage order promising. Organizations do not have the full visibility to their finished goods inventory (let alone raw materials and production capacity) when doing order promising. This results in situations where even though the organization may do sophisticated supply and demand balancing during the planning processes, while providing a promise (supply) to the customer order (demand) the process falls short. This situation can be rectified by the ability to look into all possible sources of supply to the customer demand (supply sources include - multi-stage warehouses, finished goods buffers, raw material component inventory, production capacity etc). Process centric approach. Appoint a single end-to-end owner of the OTD process. Without this level of accountability, local inventory reduction and service level programs will thrive. Locally optimized programs, despite their good intentions, almost always lead to higher working capital costs and service level challenges. Make sure metrics are changed so that local staff members are measured on how well they follow the optimal supply chain OTD and service level policies that have been set, while central order planners are compensated on how much they have been able to improve customer service levels and take out cost from the total supply chain. Act on merge in transit, postponement, and risk pooling opportunities. The competition is becoming much smarter in how it pools inventory and flows product, so every corporation should be re-examining its product portfolio for additional opportunities. These are strategies that can be adopted without a major re-haul of existing technologies.

21 Page 21 Chapter Three: Required Actions Whether a company is trying to move its order-to-delivery performance from Laggard to Industry Average, or Industry Average to Best-in-Class, the following actions will help spur the necessary performance improvements: Laggard Steps to Success Create ability to perform order promising for finished goods inventory. Only 17% of Laggards have the strong ability to perform order promising for finished goods inventory versus 46% of Best-in-Class companies. Laggards are three-times more likely to be quoting standard lead-times as compared to all others. This results in inaccurate matching between supply and demand and the subsequent build up of demand. Involve the fulfillment team in the S&OP process. Only 6% of Laggards have their fulfillment team members engaged as part of the S&OP process versus 37% of Best-in-Class companies. The S&OP process attempts to balance supply and demand at the macro level through collaboration between the various stakeholders in the organization and the order to delivery process results in the execution of the S&OP plan. Hence the S&OP meetings are a natural place for the order fulfillment / delivery team to voice their concerns and provide on the ground reality to the S&OP executive management team. Industry Average Steps to Success Create the ability to perform due date based scheduling. The Best-in-Class are 2.3-times more likely to be able to schedule and reschedule based on order due dates compared to the Industry Average. Companies have traditionally added orders that are being captured into the non-scheduled portion of the production order board resulting in increased lead-times. For complex manufacturing environments, the frozen period of the production order board itself may be in weeks. Then the scheduled portion of the order board may then be an additional few weeks resulting in quoted lead times to customers in months rather than in days. By being able to slot additional orders dynamically at any stage in the production pipeline, Best-in-Class companies are able to dramatically reduce lead-times quoted to their end customers. Create the ability to perform distributed order management. The Best-in-Class are 2.3-times to have distributed order management capabilities compared to the Industry Average. The various types of distributed order management strategies that are adopted include the ability to split orders into individual line-items and routed to different warehouses for fulfillment; the ability to reconcile ATP from multiple warehouses and provide a single quote back to customer; and the ability to perform merge-in transit for order line-items during fulfillment etc. Fast Facts 50% of Best-in-Class companies have order promising capabilities and 31% plan to acquire these capabilities Only 17% of Laggards have the strong ability to perform order promising for finished goods inventory versus 46% of Best-in-Class companies The Best-in-Class are 2.3- times to have distributed order management capabilities compared to the Industry Average

22 Page 22 Best-in-Class Steps to Success Best-in-Class companies are of course already achieving a level of success; however, continuous innovation is also shown to be a Best-in-Class strategy. With that in mind, the following steps are recommended based on survey data that showed these processes bear the mark of "Best-in-Class," but with 25% or fewer companies labeling them as strong capabilities. Create the ability to support margin optimization pricing strategies. With revenue being the key objective, drive those capabilities that allow you to show the executive board or CEO that the supply chain organization is contributing through the order-todelivery process. As mentioned previously, the order to delivery process is where the matching of supply with demand happens and hence the financial dimension has to be optimized in this process. Create the ability to prioritize orders based on a what if scenario (i.e. considering core customers, customer requirements, impact on revenue). Best-in-Class companies are 2.1-times and 7.7-times more likely to have the ability to prioritize orders based on "what if" scenarios. By considering each order as a potential for enhanced margins, Best-in-Class companies truly possess the ability to weather economic downturns by maximizing their existing customers. In times of recession, this is a critical ability to possess and can be the make or break virtue of companies. Aberdeen Insights Adopt Overlay Strategy and Not Rip and Replace Often when a company grows through acquisition, it ends up with a patchwork quilt of processes and applications multiple warehouse, transportation, and order management systems. Each unique process may be very effective in managing a particular distribution center or line of business, but lack of centralized visibility can hamper any enterprise-wide efficiency. Companies often choose to simply live with the problem rather than ripping out each application and replacing it with a single system. The good news is a group of technologies has emerged that allows centralized visibility without a painful changeover. Best-of-breed visibility systems keep the infrastructure of localized execution systems intact. The visibility application sits on top of the existing order management, transportation management and warehouse management systems. It takes real time data feeds from each system, and provides a global view of the operation on one common dashboard. Whether using a best-of-breed or a homegrown application, compared to a wholesale system replacement, multi-site inventory visibility is a comparatively painless way of improving enterprise-wide metrics while keeping the basic software infrastructure intact. These solutions have a major role in enabling an efficient order to delivery process.

23 Page 23 Appendix A: Research Methodology In February 2009, Aberdeen examined the use, the experiences, and the intentions of more than 115 enterprises managing the order-to-delivery process in a diverse set of supply chain environments. Aberdeen supplemented this online survey effort with interviews with select survey respondents, gathering additional information on order-to-delivery strategies, experiences, and results. Responding enterprises included the following: Job title / function: The research sample included respondents with the following job titles: procurement, supply chain, or logistics manager (35%); director (16%); EVP, SVP, Vice President (12%); consultant (11%); engineer (5%); senior management (4%). Industry: The research sample included respondents from primarily manufacturing industries, including: consumer goods and electronics (10%); general manufacturing (9%); automotive (6%); chemicals (6%); retail and apparel (5%); distribution (4%); food and beverage (4%); wholesale (4%); computer equipment and peripherals (3%); pharmaceutical (3%); health / medical / dental devices (3%). Geography: The majority of respondents (60%) were from North America. Remaining respondents were from the Asia-Pacific region (15%), Europe (19%), Middle East / Africa (3%), and Central / South America, and Caribbean (3%). Company size: Thirty-two percent (32%) of respondents were from large enterprises (annual revenues above US $1 billion); 45% were from midsize enterprises (annual revenues between $50 million and $1 billion); and 23% of respondents were from small businesses (annual revenues of $50 million or less). Headcount: Twenty-two percent (22%) of respondents were from small enterprises (headcount between 1 and 99 employees); 31% were from midsize enterprises (headcount between 100 and 999 employees); and 47% of respondents were from small businesses (headcount greater than 1,000 employees). Solution providers recognized as sponsors were solicited after the fact and had no substantive influence on the direction of this report. Their sponsorship has made it possible for Aberdeen Group to make these findings available to readers at no charge. Study Focus The following are the expected outcomes of the research: Role of order management in a multi-channel environment (multi-channel retailing or distributor centric B2B organizations) Role of order promising process and best practices involved Order management for configure-to-order, build-toorder and make-to-stock environments Pricing as a key process for gaining top line revenue Linkage of order management with the demand chain (demand forecasting and shaping) Linkage of order management with the supply chain (order fulfillment) What are the key characteristics of a Best-in- Class order-to-delivery process? What are the key characteristics of a Best-in- Class quote-to-cash process?

24 Page 24 Table 5: The PACE Framework Key Overview Aberdeen applies a methodology to benchmark research that evaluates the business pressures, actions, capabilities, and enablers (PACE) that indicate corporate behavior in specific business processes. These terms are defined as follows: Pressures external forces that impact an organization s market position, competitiveness, or business operations (e.g., economic, political and regulatory, technology, changing customer preferences, competitive) Actions the strategic approaches that an organization takes in response to industry pressures (e.g., align the corporate business model to leverage industry opportunities, such as product / service strategy, target markets, financial strategy, go-to-market, and sales strategy) Capabilities the business process competencies required to execute corporate strategy (e.g., skilled people, brand, market positioning, viable products / services, ecosystem partners, financing) Enablers the key functionality of technology solutions required to support the organization s enabling business practices (e.g., development platform, applications, network connectivity, user interface, training and support, partner interfaces, data cleansing, and management) Table 6: The Competitive Framework Key Overview The Aberdeen Competitive Framework defines enterprises as falling into one of the following three levels of practices and performance: Best-in-Class (20%) Practices that are the best currently being employed and are significantly superior to the Industry Average, and result in the top industry performance. Industry Average (50%) Practices that represent the average or norm, and result in average industry performance. Laggards (30%) Practices that are significantly behind the average of the industry, and result in below average performance. In the following categories: Process What is the scope of process standardization? What is the efficiency and effectiveness of this process? Organization How is your company currently organized to manage and optimize this particular process? Knowledge What visibility do you have into key data and intelligence required to manage this process? Technology What level of automation have you used to support this process? How is this automation integrated and aligned? Performance What do you measure? How frequently? What s your actual performance? Table 7: The Relationship Between PACE and the Competitive Framework PACE and the Competitive Framework How They Interact Aberdeen research indicates that companies that identify the most influential pressures and take the most transformational and effective actions are most likely to achieve superior performance. The level of competitive performance that a company achieves is strongly determined by the PACE choices that they make and how well they execute those decisions.

25 Page 25 Appendix B: Related Aberdeen Research Related Aberdeen research that forms a companion or reference to this report include: Demand Management in Consumer Industries; December, 2006 Technology Strategies for Inventory Management: How to Convert Inventory from Cost to a Competitive Advantage; September, 2006 Warehouse Automation--What's Really Working For Pallet, Case, and Piece Pick Operations; January, 2007 The Extended Warehouse Benchmark; December, 2006 The Warehouse Productivity Benchmark Report; November, 2006 Technology Strategies for Inventory Management: How to Convert Inventory from Cost to a Competitive Advantage; September, 2006 Supply Chain on Demand: Enable Flexible Business Processes; August 2007 Working Capital Optimization: Improving Performance with Innovations and New Technologies in Inventory Management and Supply Chain Finance; June 2007 Supply Chain Executive's Strategic Agenda 2008: Managing Global Supply Chain Transformation; January 2008 Supply Chain Innovator s Technology Footprint 2008; March 2008 Technology Strategies for Closed Loop Inventory Management; April 2008 Sales and Operations Planning: Aligning Business Goals with Supply Chain Tactics; June 2008 Information on these and any other Aberdeen publications can be found at Author: Nari Viswanathan, VP/ Principal Analyst, Supply Chain Planning ([email protected]); Melissa Spinks, Sr. Research Associate, ([email protected]) Since 1988, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide organizations with the facts that matter the facts that enable companies to get ahead and drive results. That's why our research is relied on by more than 2.2 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of the Technology 500. As a Harte-Hanks Company, Aberdeen plays a key role of putting content in context for the global direct and targeted marketing company. Aberdeen's analytical and independent view of the "customer optimization" process of Harte- Hanks (Information Opportunity Insight Engagement Interaction) extends the client value and accentuates the strategic role Harte-Hanks brings to the market. For additional information, visit Aberdeen or call (617) , or to learn more about Harte-Hanks, call (800) or go to This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc a