Monthly Archives: July 2011

Project Assurance: Pre-empting ERP/SCM System Failure

ERP/SCM projects fail all the time. The reasons include, but are not limited too, lack of top management commitment, unrealistic expectations, poor requirements definition, improper package selection, gaps between software and business requirements, inadequate resources, underestimating time and cost, poor project management, lack of methodology, underestimating impact of change, lack of training and education, and, last but not least, poor communication. In other words, human factors cause these projects to fail much more often than they should.

However, as per a recent article in Supply & Demand Executive on preempting ERP/SCM failure through project assurance, there is a way to minimize the risk. It begins with a blueprint of strategic project assurance at critical points in the implementation project’s evolution. It establishes clear understanding of expectations among all people involved — from the executives, to the business and IT management, to the software vendors and end users.

A Project Assurance plan, that

  • identifies the real issues,
  • sets realistic timeframes,
  • aligns the work streams
  • looks beyond the indicators for early warning signs,
  • manages the expectations,
  • seeks objectivity,
  • communicates the expectations, and
  • measures progress regularly

reduces the risk of failure by

  • trakcing milesontes,
  • controlling costs, and
  • minimizing surprises.

It requires a lot of up-front planning, and a willingness to be realistic at all times, but is worth the effort. For details on how to create one, see Rob Prinzo’s No Wishing Required that will hep you identify six critical points in every project and get you on your way.

Cost Leaders Do Not Sacrifice Quality or Customer Focus, Part I

I was pleased to see that this recent article over on ChiefExecutive.Net on why businesses should shift from cost management to cost leadership, that emphasized the need to control cost in the current economy, clearly stated that cost leaders do not compromise quality or customer focus. Every time I see a headline or article on cost management that emphasizes the need to identify low-cost producers, I get worried because, as many manufacturers who jumped on the outsourcing bandwagon have learned, low cost does not always translate into cost savings if quality is not maintained.

The article defines cost leadership as the:

  1. recognition as the lowest cost producer in one’s industry, without compromise in quality or customer focus
  2. realization of a long-term cost-centric culture where cost consciousness is a strategic and leadership preoccupation across functional lines
  3. dissemination of cost information with regard to customer, product, distribution channel, and the like that is timely, understandable, credible, and actionable to fuel continuous improvement
  4. establishment of aggressive and balanced performance targets across the value chain

And it’s a good definition. With costs rising across the board, cost control is very important, but cost control must take into account quality, customer needs, and continuous innovation. If quality is bad, costs will add up in repairs and returns and profits will drop as customers leave for your competitor. If the focus is not on the customer, market share will slowly decrease as your competitors begin to offer products and services that better serve the customer. And if continuous innovation is not employed, costs will creep back up.

The article also noted three practices of costs leaders that are worth diving into:

  • Less Is More
    Simplified products and services, even if they cost a little more up front, will usually cost a lot less over the lifetime of that product or service.
  • Customer Profitability
    Each customer should be profitable, and, more importantly, if you deliver a product or service to businesses, it should make them profitable.
  • New Formula
    If a product requires costly raw materials, or contains raw materials that are heavily regulated, or produces hazardous waste in its manufacturing, reengineering the product to use less costly raw materials, less regulated raw materials, or production processes that do not produce hazardous waste will significantly reduce costs while maintaining, or improving, quality in the process.

The article also highlighted a number of cost leadership initiative killers that you need to watch out for and address as soon as they are encountered. But that’s the subject of Part II.

Master of Business Annihilation

After reading a number of recent articles on the decline of American Industry and the rise in MBAs, including this recent article in Time on why a rise in MBAs coincided with the fall of American Industry, I’ve decided that what MBAs were really being trained for was Annihilation of the economy.

I have to agree with Bob Lutz, who, in his new book on Car Guys vs. Bean Counters: The Battle for the Soul of American Business, says that we need to fire the MBAs and let engineers run the show. After all, who else would insist that a Cadillac ashtray be designed to function at -40F (which means that it won’t function at normal temperatures and will stay closed unless you’re in North Dakota, Northern Maine, or Canada in the middle of winter).

Just imagine Apple with an MBA on top, like Brooke Crothers did. There’d be no iPad and no iPhone — just netbooks and Motorola Rokr clones to take their place. After all, if you’re a MBA, all products have to be low risk, devoid of inspiration, and easy on the balance sheet. And if you’re an engineering pitching a MacBook Air to an Executive MBA for the first time, you know you’re going to hear “What? You’re saying you want to build a unibody laptop out of one piece of aluminum with only a few connectors? Do you know how much that will cost to build? I don’t see anyone else doing it? HP? Sony? And who’s going to buy it? Are you brain-dead?. And then when you try to pitch the iPad, you’re likely to get a “Hold it. Stop. I’ve heard enough. 10 inches but no physical keyboard? What would anyone use it for? Just buy a laptop. And we already make those. And I suppose you’d want to make that out of aluminum too with almost no ports. What rock did you crawl out from under? Where’s your cost argument? Didn’t you get the memo?“.

In other words, MBAs are increasingly trending toward the short-term, myopically balance-sheet-driven management that has infected American business. And while I’m all for mathematical modelling, game theory, and complex statistical analysis, they have their place. And their place is to reduce sourcing cost, not to restrict product innovation. Before the MBAs took over in the late 70s, the leading companies spent most of their time and money on new technologies to create the best possible products or service on the if you build it better, the customers will come philosophy. Which, if you look back, worked great for almost a century. Then came the MBAs. And now entire industries, like the automotive sector, are in decline.

And it’s all because of MBAs and their balance-sheet-driven management that is focussed on the quarterly numbers. As the TIME article notes, this just results in planning that’s reactive rather than smart: force the highest-paid engineers to retire, even if they are the best, and reduce payroll costs across all divisions rather than invest in the ones that are pushing the New New Thing through the pipeline. And when your brightest engineer, like your top coder, is many times more productive than an average engineer, as she is the one coming up with great new product designs, lean process reductions, and sustainable designs (that your marketing department can go goo-goo ga-ga over), this is just stupid.

Moreover, it’s ultimately their focus on the quarterly numbers that is responsible for the extended jobless recovery that we are undergoing right now. After all, as Jeffrey Immelt told a jobs summit at the U.S. Chamber of Commerce, responsibility for hiring lays with business. Business have to take action — like taking some risks, and thinking about bringing back jobs that had been moved overseas.

And this, of course, is precisely what the MBAs are advising against. Taking risks means risking the quarterly numbers, moving jobs back means, at least initially, increasing payroll cost (even though, with good ol’ American ingenuity, productivity might more than make up for it over the long term), and going first means breaking with the pack that is now blaming debt ceiling uncertainty for the jobless recovery instead of their own incompetence.

And while a change in government policies, such as new free trade agreements, a reform of visa rules, and an overhaul of procedures for permitting new projects will help, they are not hindering the average business. There’s often an alternative source for raw materials, products, and services where a free trade agreement is in place. The visa limits are high enough at the present time, considering no one is hiring anyway. Plus, if more American firms would follow Blum Inc’s example and build their own Apprenticeship program, they would have more than enough talent at home to choose from. And given the current administration’s need to create jobs, there is a real interest to make sure projects are permitted by any organization that follows all the rules. (This means you will need an expert in red-tape, but that will always be the case. Government is not ever going to regulate themselves out of the way.)

There’s just no evidence to the contrary. MBAs are the Masters of Business Annihilation.

Should You Move Your Production Back to the US?

In the outsourcing craze, there was a mad rush to move manufacturing to China and services to India. In the latter case, with the rising costs in the big, mature, outsourcing centers, it’s now cheaper to open call centers and back-office shops on home soil in the US and UK than to move them to India, where they are so desperate for talent that they are now hiring Americans in America to fulfill American outsourcing agreements. In the former, the price of production, especially with logistics costs and a weakening American dollar, is rising monthly. For some industries, it may soon be cheaper to produce at home, if it isn’t already. Especially when the total lifetime cost of ownership is taken into account.

Consider this recent article in Fortune which notes how some American businesses, fed up with the poor quality of having their products made in China, are moving production back to the US. In why we left our factories in China, we find out that Sleek Audio, a small business that makes in-ear headphones for iPods and other audio devices, fed up with low quality, too much travel, communications problems, shipping delays, rising costs, and — worst of all — a ruined shipment of 10,000 sets of earphones that cost millions and nearly brought the company to its knees, decided to quit China and move manufacturing back to the US. Their up-front costs are about 15% to 20% higher on-shore, but since they are now able to produce a higher-end product (that can command a higher price), they can justify the cost.

Now it’s true that some companies get great prices and great quality from Chinese factories, but the reality is that these are usually the large multi-nationals that can afford to have someone on the ground full-time to oversee production. If you can afford to oversee production and insure your production runs get the appropriate timing, priority, and quality checks that you need, you can get good quality. But if you don’t have someone on the ground full time, then you may not even realize there is a problem until the next day as most small operations don’t have a phone manned at 2 AM. And since your production run is usually squeezed between bigger ones, there may not be much attention paid to quality or other issues important to you.

In other words, if you’re a Global 3000 multi-national, then it’s likely that production in China still makes sense for the organization for the time being, but if you’re a small or mid-sized manufacturer, it might be time to pull production back home — especially with the economic incentives being offered by many states to revitalize the economy.

Mulally’s Turnaround Strategies Are Good Fodder for Supply Management

A recent article in Industry Week on management lessons you can learn from Alan Mulally presented six pieces of advice that should be taken to heart by any Supply Management organization looking to turnaround its operations and take its performance to the next level. Simply put, they are:

  • One Vision
    Just like Mullally created a “One Ford” plan, which charted a course for product development, manufacturing strategy, and financial rehabilitation, your Supply Management organization needs to help the business construct its own “One Company” vision that defines what products and services its going to focus on, the manufacturing strategies it is going to employ, and the market goals. Then Supply Management needs to create the “Single Supply Management Operation” plan that describes how Supply Management is going to operate to support the “One Company” vision.
  • Act with Urgency
    Why put off until tomorrow what can be done today? That being said, there is a difference between acting with urgency and rushing things out the door. Never put anything off, but take the time that is needed to get it right.
  • Develop the Guiding Coalition
    Be sure to involved all of the affected stakeholders, internal and external. This will significantly increase buy-in and support for Supply Management.
  • Communicate the Vision
    Everyone inside and outside of Supply Management needs to be on the same page. Savings only materialize if contracts are adhered to, best practices only provide value if followed, and efficiency is only obtained when operations are in sync.
  • Generate Short Term Wins
    Go for the low-hanging fruit, get some success stories, and then communicate them up the wazoo.
  • Make Change Stick
    Instill a disciplined sourcing review process and make sure it is followed at all times. Support will be easier to obtain after the organization sees some short-term wins.

In addition, it will help if you are a charismatic, creative, and decisive collaborator. You need to work with your stakeholders, but when an impasse is reached, you have to clear the way.