Monthly Archives: November 2010

Stress-Test Your Supply Chain Strategy

Even if everything is going okay, and especially if everything is going well (as good fortunes never last), it is important to stress-test the supply chain strategy on a regular basis. If the weaknesses in the supply chain are not uncovered before a supply chain disruption occurs, it could mean the difference between a minor hiccup and a major disaster that shuts down production for a week and costs the organization millions of dollars in losses.

The weaknesses will only be uncovered if the organization is asking the right questions. After all, as Peter Drucker has warned, the most serious mistakes are not being made as a result of wrong answers; the truly dangerous thing is asking the wrong questions. If the right questions are not being asked of the supply chain strategy, there’s nothing to stop the organization from taking the wrong fork in the yellow brick road and ending up lost in the jungle instead of back home in Kansas.

So what are the right questions? That’s a good question in and of itself, but thanks to Robert Simons, the Harvard Business Review and a recent article on how to Stress-Test Your Strategy, it’s one that is fairly easily answered as the right questions to start with are the seven counterparts to the seven questions every business should be asking at the strategic level. More specifically, the seven questions that should be asked to test your supply chain strategy are:

  1. Who Is Your Primary Stakeholder?
    The organization has to serve its primary customer, but as an internal function, you have to serve your primary stakeholder who must, in turn, serve the primary customer. It’s important to know who the primary stakeholder is because supply chain generally has multiple organizational stakeholders, each trying to pull the organization in disparate directions. Unless the organization can quickly focus in on the most important direction, which it can if it knows whose needs must be met first, it will lose a lot of time, energy, and productivity.
  2. How Do Your Core Values Prioritize Customers, Stakeholders, And Your Team?
    An organization must serve its customers (who are the source of life-blood revenue) first, stakeholders (and internal supporters) second, and it’s employees (workers) third. By keeping this trio of parties happy, it will ensure success and thereby achieve the first goal of business — generating value for the shareholders.
  3. What Critical Performance Metrics Are You Tracking?
    Only what’s measured get managed, and since it’s critical that the right things are managed, it’s critical that the right things are measured. Furthermore, it’s even more critical that the right things are measured in the right way. For example, as a measurement, “on-time outbound shipments” is a useless metric. What ultimately matters is whether or not it reaches the customer on time, not that you shipped it when you said you’d ship it.
  4. What Strategic Boundaries Have Been Set?
    Where does your function begin and end? Does it stop with sourcing and procurement? Does it include logistics management? Does it include risk management? Does it stop at risk identification or does it include the implementation of mitigations? Are the mitigations limited to disaster recovery or do they venture into financial hedging? Despite pressure to the contrary, no supply chain organization can do everything on its own, and it must ensure that those functions it is responsible for are appropriately staffed and monitored.
  5. How Is Creative Tension Being Generated?
    What incentives do your team members have to push through the boundaries and find ways to improve processes and policies? There should be a constant effort to improve the supply chain while adapting it to the current economic conditions.
  6. How Committed Is Your Team To Helping Each Other And Key Organizational Stakeholders?
    No person can be a peninsula thinly attached to the rest of the team if the organization as a whole is to consistently generate great results. The amount of skill and knowledge expected of today’s supply chain professionals is simply staggering and the team has to work together if they are to succeed. Furthermore, they have to help those whose help they need, and finance in particular (which might mean leaning to speak the language of the CFO: Part I and Part II) as the ultimately control the budget and resources the supply chain organization has at its disposal.
  7. What Strategic Uncertainties Keep You Awake At Night
    If something isn’t keeping you awake at night, then you fail to realize that there are half a dozen things that could grind your supply chain to a halt at any particular moment. You need to be constantly thinking about these possibilities and coming up with ways to prevent them, or at least mitigate the damage they could do if they materialize.

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Time to Stop Worrying About China

Yes they’re the number two economy and yes they will reclaim their spot as the number one economy in thirty (30) to forty (40) years, but they’re not worth all the attention they’re getting. As per this recent article in The Economist on Chinese Acquisitions, China owns a mere 6% of global investment in international business. That’s less than 1/15th. Compare that to Britian’s stake in international business in 1914 or America’s stake in international business in 1967 when they both held about 50%, or 1/2, of global investment in international business, and you see that there’s really nothing to worry about.

Since most developed world markets have rules in place that insure that no global investor can divert business away from the home country or export trade secrets or compete in a monopolistic way, the rules we have in place for foreign investors right now are good enough. There’s no point wasting time and money developing special rules for China, especially when most of our economies need our attention as it is. And as far as our supply chain is concerned, how about we spend the time and effort making sure they are adhering to our regulations and safety protocols instead? After all, even when they become the dominant economy, they’re not likely to be more than 20% of global GDP (especially since the rest of the BRIC countries are expected to increase significantly in GDP as well) or control more than 20% of global investment. And while 20% is significant, it’s far from majority control. Time to stop the much ado about nothing and get back to business.

How Important are MiniTrends?

A recent book review of Minitrends: How Innovators & Entrepreneurs Discover & Profit from Business & Technology Trends over on the World Future Society site, which introduced the “minitrend” as any trend — technical, social, economic, demographic, legal, etc. — that is just beginning to emerge, although not yet acknowledged by the media or the marketplace, states that the early identification of emergent long-term trends poses such enormous marketplace value, it seems not improbable that traffic in minitrends will become a significant online phenomenon during the next two to five years.

As per the authors’ website, Minitrends go hand-in-hand with Megatrends. For example, within the Megatrend of an aging population are the Minitrends of people remaining active in the workforce for longer periods of time and increasing movement of elderly individuals to smaller nursing centers. And while some Minitrends will have little or no relationship to a Megatrend, they will have relevance to wider audiences.

If the minitrend is the leading indicator of an emerging megatrend, then it is probably quite important as it is signalling the state of things to come. If it’s a short-lived trend that’s here-today and gone-tomorrow, then any thought applied to the matter is a waste of time.

So what would a minitrend look like in supply chain? And how would you tell if it’s important? It could be a switch to a new technology platform, a switch to a new energy source, or a switch to a new form of payment. It would be important if the technology started to gain critical mass, if the energy source was cheaper and/or more sustainable, or the payment methodology preferred by your financial institutions.

So how do you detect a minitrend? Good question. According to the authors, you:

  • Follow the Money,
  • Follow the Leaders,
  • Take Note of Demographics,
  • Analyze Frustrations, and/or
  • Search for Convergences.

A good start, but I’m not sure it’s the secret sauce. But I’m not sure what is. Anyone have any ideas?