Daily Archives: August 22, 2010

Where is Your Company on the Transformation Curve?

A recent article over on strategy+business on why it makes sense to adjust did a great job of outlining why business transformation needs to be a continuous process. Now that operating in a more volatile, less predictable environment has become a way of life, companies must be ready to repeatedly transform themselves. If the company can not respond to new challenges with a broad-based, enduring plan , it may soon be left in the dust by its competitors.

But most companies can’t do this, because they don’t have an adequately proactive road map for transformation. Instead, they attempt change on the fly, reacting to business disruption with equally explosive responses that may not be useful six months down the road or even sooner. On the transformation curve, they are stuck at the bottom in the reactive stage, when they need to be at the top of the curve in the sense-and-adjust stage.

A company that is reactive employs minimal seat-of-the-pants transformation strategies with little cross-company coordination or follow-up. Such strategies are not only limited, but unsustainable.

A company that moves up the curve becomes programmatic and takes more comprehensive approaches when major changes are required and the company has sufficient lead time. These approaches include thought-out widespread change initiatives across the lines of business that are most affected. Such programs — that include tactics, milestones, and executive assignments — can be quite effective in dealing with contained threats, such as new competitors or new rival products, but fall apart when the threats are not contained and well understood in advance.

But a company that reaches the top of the curve is able to sense-and-adjust. This continuous long-term strategy allows a company to constantly and consistently smooth out volatility in areas of business subject to swift and dramatic change. This is important in turbulent times.

And very important if a company is to have a successful supply chain, which not only has to deal with a tumultuous and unpredictable market, but also has to deal with risks of every colour and flavour, which pop into existence when and where they are least expected. Does your company sense and adjust? Is your supply chain ready?

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What’s the Right Planning Horizon for Your Supply Chain?

The recent report on Supply Chain Strategy in the Board Room by the Cranfield School of Management and Solving Efeso had some interesting and surprising statistics on the frequency of supply chain strategy review and the supply chain planning horizon. Namely, while the frequency of review was all over the place and ranged from less than a year at some companies to over 3 years at others, with an average of approximately 1.25 years for the electronics industry and 2.70 years for the heavy machinery industry, with the exception of APAC, the average planning horizon was between 3 and 4 years, and with the exception of the automative industry (which had an average planning horizon of 5 years), the average planning horizon was almost exactly 4 years across all of the other industries. That’s right, the average planning horizon for construction, heavy industry, electronics, consumer goods, chemicals, textiles, pharma, retail & distribution, and food & beverage was 4 years.

If empirical evidence is to be taken as truth, than this would suggest that 4 years is the right planning horizon for your supply chain. But is it? While the organization does need flexibility and the ability to change direction quickly if the market shifts, does that mean the entire supply chain needs to be reinvented every 4 years?

Product life-cycles are shorter than they used to be, but will the organization be producing completely different products in only 4 years? Or simply bigger, better, badder versions of the current product. At an industry level, most product categories have lifespans of decades … or longer. The basics offerings in any electronics category don’t change that often. CRT TVs lasted decades. Cell phones were primarily analog for about a decade. Than they were primarily digital for another before the modern smartphone came along, which will probably not change much (except with respect to the feature/function/performance classifications) for another decade. The technology for packaging food and making clothes changes very little from decade to decade. Even if the products themselves change rapidly, the production technologies change slowly and the dominant suppliers tend to retain dominance for years and relevance for over a decade, if not two. If a supply chain is properly designed, there’s no reason to think that the fundamentals will have to change every few years.

Furthermore, isn’t a long term strategic planning supposed to look forward five to ten years into the future? Maybe 4 is the new 5, but deeper thought would seem to suggest that this is a very-shortsighted view that will prevent the company from ever realizing all of the efficiencies and economies of scale that are available. This insight from one of the more forwarding thinking interviewees (who’s viewpoint was shared by about 10% of the respondents, who could be considered the leaders) sums it up best:

The review is continuous but the planning horizon is 7 years because the results couldn’t be reached in a shorter period.

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