Daily Archives: April 25, 2010

Even Good Times Call For Lean Supply Chain Strategies

A recent article over on the Harvard Business Review blogs told us that we should stand by for the same old strategy mistakes, because you see the same ones over and over again every time a downturn starts to trend up again. Moreover, similar fundamental strategy mistakes are often made by supply chain organizations when the economy starts to improve. As a result, there are lessons to be learned. Three easy ones are:

  • Too many supply chains.

    Many companies think they should have multiple supply chains — one for commodity electronics, one for custom parts, one for chemicals, etc. — as this will allow for a razor-sharp focus on streamlining operations around a category. The reality is that you should have only one supply chain (from a planning and management perspective), because every (distinct) supply chain costs money to manage and operate. Just like a business loses when it splits its focus (as 20% of operations will end up accounting for 80% of profit), a supply chain loses when it splits its operations.

  • Throttling back on cost reduction.

    When times improve and profits start to increase, supply chain often starts to think it can ease up on the push for ever lower prices, give suppliers a break, focus on quality, and / or focus on collaborative initiatives that will take cost out in the future. While it is important to focus on (these) other initiatives, you can never cease your cost reduction quest.

  • Pushing too hard for supplier consolidation.

    While it is true that most companies have too many suppliers in the supplier master, with 20% of active suppliers accounting for 80% of spend, and while it is true that a smaller supply base can enable greater spend leverage, too much consolidation too fast can greatly disrupt your supply chain.

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Open Innovation Will Help Your Supply Chain Cope in Lean Times

A recent article in the Harvard Business Review’s spotlight on innovation on how open innovation can help you cope in lean times is just as appropriate to supply chain organizations as it is to R&D organizations. In a nutshell open innovation will help you move innovation from the inside out to get the greatest value from your initiatives. Specifically, it will help you:

  1. Become a Customer of Your Projects

    For example, if you require an important capability that you can neither afford to develop nor acquire on the open market, and it’s something that other organizations would also want, join with these other organizations to fund, develop, and launch the capability … and become the first customer. This is how a number of exchanges, procurement platform providers, and BPOs started in Supply Management. And there’s a good chance it will be how a number of future players in the space start. So if you have a brilliant idea, don’t miss out on your chance to be the one that brings it to market.

  2. Let Others Develop Your NonStrategic Initiatives

    Hopefully your business is in the midst of embarking on a project to focus on its core activities, and hopefully your supply chain organization is following suit. If you are, you’ve probably identified some activities that drain too much time and money for the value they return to the organization and classified them as non-strategic. You’ve probably also identified some activities that, if you had the right strengths, could return a lot of value and should be strategic, but aren’t in the hands of your current staff. In both cases, you should spin out the tasks to outside organizations who can do them efficiently and cost effectively. In the first case, you’d spin the tasks out to a tactical BPO and the second to a consultancy who can act as a strategic partner. Then, every effort undertaken by Supply Management will return value.

  3. Make Your IP Work Harder for You

    If you’ve developed a lot of Sourcing IP (category or commodity expertise, process expertise, etc.), but most of the time it just sits on the shelf and generates no direct financial benefit outside of cost savings on specific categories, then consider licensing the expertise to outside partners and/or spinning off an organization that generates and sells the IP at a profit. For example, if you have a strong market intelligence team in energy and metals, spin off a market intelligence organization which can do the research much more cost effectively, license the content back to you for a dollar, and make the organization’s investment arm a profit.

  4. Grow Your Ecosystem

    Look beyond your four walls, direct customers, and direct suppliers for innovation. Also engage with trade associations, analysts, and industry experts. You never know where the next big idea is going to come from.

  5. Create Open Domains to Reduce Costs and Expand Participation

    Once you have your ecosystem in place, you need to maximize it. Do that with open domains, exchanges, forums, and other knowledge network tools that will allow everyone to collaborate.

And when you’re done, you’ll be doing more for less and getting more for everything you do.

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