Robert Kugel's Analyst Perspectives

Kinaxis recently held its annual user conference, Kinexions, which focuses on helping the company’s customers improve their execution of supply chain and sales and operations planning (S&OP). Its RapidResponse software handles S&OP, demand, supply, inventory and capacity planning. S&OP is a function sorely in need of improvement: Our research finds that only 22 percent of companies perform it well or very well.

At the event, the most significant news and discussion for future direction was its extended platform strategy. The objective is to broaden the company’s market by opening RapidResponse to development by third parties with specialized industry and functional expertise as well as customers who need to add specific capabilities. The company also outlined its direction in artificial intelligence, which will be a key technology for improving the performance of supply chain management and sales and operations planning.

To put the event into a broader perspective, this year’s Kinexons took place against the backdrop of rising trade tensions that reflect what I’ve called a new (and more challenging) era of world trade. In this new era, companies that operate globally are finding that supply chain management has become a more strategic matter because conditions are more dynamic. Consequently, companies must manage their supply chains with more long-term flexibility and greater short-term agility.

The new environment has complicated the already challenging tasks of supply chain management and related sales and operations planning. In larger companies these processes require planning, coordinating and handling a vast amount of detail to support an ongoing stream of tactical decisions. Being able to execute those tasks accurately and in a timely fashion forges an intimate connection between purely tactical motions and a company’s ability to achieve its strategic objectives. The old proverb, “For Want of a Nail” — where the loss of nail for a horseshoe ultimately leads to defeat in battle — comes to mind.

Unfortunately, in too many companies the strategic value of effectively executing the grunt work is underappreciated. Senior executives do not recognize the degree to which better execution will produce a sustainable competitive advantage and higher profitability. Conversely, too few of those in the trenches have the perspective or ability to effectively communicate the value of improved supply chain execution. This lack of appreciation has been the most significant market challenge for Kinaxis.

From its inception, Kinaxis has focused on addressing the needs of companies with very demanding supply chain environments. Kinaxis differentiates its offering through its ability to significantly cut the time it takes to generate feasible plans, an approach the company calls “concurrent planning.” Rather than requiring an iterative process of step-by-step, silo-based planning motions typical of most S&OP software, concurrent planning does this all at once. Being able to compress planning cycles from hours or even days to minutes enables organizations to react to changing conditions faster and with greater intelligence and weigh the implications of different courses of action under different scenarios.

Moreover, S&OP is an inherently collaborative process. Having a single platform that enables all constituents (demand and supply chain planners in particular) to work with a single set of data helps compress decision cycles to enhance agility in responding to marketplace or supply chain changes.

I found the most significant development discussed at Kinexions was the progress the company is making with its expanded platform strategy, a topic I wrote about earlier this year. Kinaxis is opening its software to third-party developers to build custom planning applications and algorithms that operate natively with RapidResponse and is enabling external algorithms to be overlaid in the software’s operations. The objective is to be able to address the needs of a wider set of companies in a shorter period of time than it could with its own internal development programs. Retail is one example. Currently Kinaxis focuses on corporations in high technology and electronics; aerospace and defense; life sciences and pharmaceuticals; industrial, and automotive. Different industries and microverticals (such as beer and malt drinks as a subset of beverages) have unique supply chain characteristics and may use specific algorithms for optimizing trade-offs in their supply chain planning.

Supply chain management and sales and operations planning are fields ripe for the application of artificial intelligence using machine learning and Kinaxis is focusing on these technologies. On the planning side, AI can quickly assemble a preliminary plan or update that reflects most of the variables that individuals must now consider, for example, seasonality and movable holidays such as Easter or Black Friday in the U.S. or the new year holiday in China. AI can support the creation of predictive analytics to develop more nuanced forecasts. Planners can use AI to “sanity-check” their plans and forecasts and point out irregularities that should be corrected or defended with an explanation. There is a mass of detail and many repetitive steps involved in planning and execution. A significant portion of these steps could be automated, enabling individuals to focus on anomalies and exceptions. In addition, systems can monitor conditions to spot irregularities or conditions that could result in downstream issues before they become a problem. This would improve a company’s ability to take measures ahead of time to ward off problems or mitigate their impact.

The application of artificial intelligence to concurrent planning can accelerate planning cycles by cutting planners’ workloads and shortening the time required to create multiple relevant scenarios. The business value of planning lies in its ability to help make successful data-driven decisions faster and more consistently.

Today, a more challenging and complex environment for trade and taxation has complicated how products, components and supplies are sourced and routed. Fortunately, technology is making sales and operations planning and supply chain management more effective by eliminating the need for humans to endlessly handle the complex interactions of minutiae to achieve company objectives such as cost, order fulfilment and working capital optimization. Kinaxis’ decision to open up its platform to developers means that a wider range of companies will be able to utilize the software.

Over the coming decade, artificial intelligence using machine learning will transform how supply and demand chains are managed. By substantially reducing the need for humans to handle the minutiae, AI will put a premium on a company’s supply and demand chain managers to adapt rapidly to changing conditions. I recommend that any larger corporation with even a moderately complex supply chain or set of production processes evaluate Kinaxis.

Regards,
Robert Kugel