A recent article in the Harvard Business Review on how best practices get you only so far had some good points, as did the article on how imitation is more valuable than innovation, which illustrated how best practices can be used to get you further than your competitors (who you borrowed the ideas from), but neither of the articles address when you need to go “next”, when “best” is the right choice, and when there’s no reason to go beyond “good enough”. This is a critical question when formulating your supply chain strategy, just as it is when formulating your business strategy, because you only have so much time and so many resources at your disposal. And with so much to do, you have to be able to prioritize to get the most bang for your buck.
According to best practices get you only so far, the process of identifying best practices and implementing them may allow enterprises to catch up with competitors, but it won’t turn them into market leaders. Which is mostly true, because if you read imitation is more valuable than innovation, you’ll find out that copying alone isn’t enough to get you in first place, you have to improve on the practice during your implementation to make it better and cheaper.
But do you really need to be best at everything?
You need to be a market leader, and you need your supply chain to be at least as efficient and cost effective as your competition, and preferably slightly more efficient and cost effective, but does this mean every process, practice, and piece of technology employed has to be best? The reality is that best-of-breed is costly. It takes time, effort, and, more often than not, very costly technology. If there is an opportunity for a significant return, than it’s worth it. But if the return is not much more than the investment, it’s not.
To illustrate, let’s take a technology focus. Everyday you are bombarded with BoB e-Sourcing, e-Procurement, Trade Management, Logistics, and Inventory Management technology. The solutions range from stand alone “best-of-breed” modules to end-to-end suites to everything in between, and the price tags range from about 50K a year to 5M a year. What should you buy? And what should you pay?
It’s a hard question. The 50K you spend on a cheap contract management system might be a total waste of money (and cost you 500K a year to maintain), while the 500K you spend on spend analysis software and services might be the best investment the organization every made! The reality is that if the savings that results from moving from “good enough” to “best practice” or from “best practice” to “next practice” is not at least 3 times the total cost, it’s not worth it, especially when there are so many practices and technologies out there today that will generate a return of 3X, 5X, 10X, or more for the organization. (Decision Optimization on the right category can sometimes generate a return of 20X or more! A proper spend visibility and spend analysis initiative can easily generate a return of 10X year after year [and some organizations have seen returns as high as 100X in peak years]). Trade management can revolutionize the trade compliance effort and save millions for just a few pennies up front. And so on.
I’m not saying don’t go “next”, because sometimes it’s the right thing to do. I’m just saying, when you go “next”, make the right choice. Business is about returns, which is necessary for sustainability of the business. Just make sure the returns will be there waiting for you before you go all gung-ho on a risky initiative.