Monthly Archives: February 2013

2013: Another Year of the Same Old, Same Old? Part II

In part I, we lamented the relative lack of new innovation in the space for the last few years, as most of the big announcements, and innovations, have centered around technologies that were in (initial) development of the first half of the noughts, and usability and applicability (to specific verticals) in particular. (Not to say there hasn’t been any innovation, but there’s a reason vendor coverage has been down the last couple of years. In addition to the fact that there’s been less to cover as the major best-of-breed players get gobbled up the IT gorillas who haven’t caught onto the value of social media and blogs in this space, there just hasn’t been as much to cover.)

Then we noted that we don’t see much new in the way of trends coming this year, and that SI isn’t alone! Reviewing ChainLink Research’s recently published Big Trends for Business 2013, it almost looks like the Mayans were right, the world came to a stop, and then immediately reversed direction as it looks like we’re in for 2012 all over again! The major global trends — slowing in the globalization of trade, china off-shoring, US Insourcing, Small Office Home Office (SOHO), and Local vs. Global don’t sound any different than what we’ve been seeing, hearing, and speaking for the last year (or two to be honest).

What’s even worse is that the business trends companies expect to the capitalize on this year are the same trends they should have been capitalizing on last year!

  • Manufacturing Goes East / Service Goes West
    If you still (have to) manufacture east, then you can at least focus on keeping your (value added) services (support) close to home. And to be honest, how much more does it really cost to have that call center in a small-town in Idaho or Alabama or even Springfield, Illinois or Wichita Falls, Texas where the costs of living are low and there are lots of people who can afford to take entry level positions for not much more than minimum wage? Yes, you can still get three resources for the price of one in some of the more remote locations in India, but when you factor in the long-distance costs, the travel costs for regular on-site visits and training, the ongoing training costs due to the much higher turnover (as poaching is very common and often an employee will go to lunch and not come back because the call center across the street offered him 15% more), and the lower throughput (as it’s always easier for someone from the same culture to understand an upset or confused caller who may use slang or unfamiliar words and resolve the issue sooner), services outsourcing is not as cheap as you think and might actually increase costs compared to a well run on-shore operation.
  • Devicification
    Finding ways to embed more intelligence in your older products to sell important upgrades, and charge more for what you sell. After all, with innovation down across the spectrum in many industries (relatively speaking), you have to milk what you have somehow.
  • Analytics
    More insight into operations and sales to maximize use of resources and potential sales.
  • Investment in Energy Independence / Green Technology
    Energy costs are going to continue to rise, and eventually will cost more than every piece of technology they power – unless we collectively do something about it. That something is moving to low-cost, renewable sources (and low-cost storage technologies that minimize our dependence on coal, oil, and gas and a third-party grid).

In addition, Retail needs to continue to pursue social media channels as sales channels; Life Science needs to continue to focus on better monitoring solutions; Food and Beverage need to focus on ingredient traceability from initial harvest to final consumption; and Packaging needs to focus on safety and security. Nothing new here either. And to top it all off, the big issues identified by ChainLink are the same issues we’ve been facing for years. But we’ll discuss those in Part III.

2013: Another Year of the Same Old, Same Old? Part I

Regular readers will note that I’ve been lamenting the relative lack of new innovation in the space for the last few years. Most of the big announcements, and innovations, have centered around technologies that were in (initial) development in the first half of the noughts, and usability and applicability (to specific verticals) in particular. And most of the hype has centered around Big Data, which isn’t new, Cloud, which is just your provider giving you hands-off ASP, and “spend optimization” which is typically defined as real-time visibility into spend and budgets. All good, but where’s the ground-breaking new technology?

In fact, in the last few months, the only ground-breaking new R&D has centered on allowing players outside of Supply Management, namely Marketing, to manage the value chain. (Ugh. Supply Management is supposed to manage the value chain!) There’s a few companies that have come to my attention as of late that are working on some innovative new offerings that could reshape markets Supply Management should own. (And when they release their products/services, SI will cover them.)

But I guess I shouldn’t be surprised. From a business perspective, I don’t see much new in the way of trends coming this year. And I’m not alone. ChainLink Research recently published their Big Trends for Business 2013, and it looks like we’re in for 2012 all over again.
Maybe the Mayans were right, the world came to a halt, and now we’re moving backwards. Seriously. Consider these global trends:

  • Slowing in the Globalization of Trade
    This started 2 years ago, and will continue throughout the decade. There are a few reasons for this, including the emergence of what were once “low-cost countries”; the continued rise in the cost of oil and, as a result, transportation; and the move towards protectionist policies in a few major first world players, and the U.S. in particular with its “Buy American” movement.
  • China Off-Shoring
    As emerging economies become emerged economies, they pick up our (bad) habits and find even poorer countries to outsource to.
  • US Insourcing
    As a direct result of the slowing of the globalization of trade, Buy American policies, economic stimulus policies, consumer backlash against foreign products, and rising costs of outsourcing for mid-sized businesses.
  • Small Office Home Office
    For some, it’s the new American Dream to be your own boss, for others they have no choice as they can’t secure (the) full time work (they want), and for others still it is forced upon them by their employer that doesn’t want the overhead of a large office.
  • Local vs. Global
    The 60’s saw the hippies protesting the war and lack of equal rights, the 80’s (dubbed the “me” generation) saw the yuppies concerned with the lack of personal wealth and ways to achieve the American dream before retirement age, and now that we’ve seen the result is unrelenting greed, which has delivered nothing but one economic disaster after another, we’re coming full circle and focussing on the greater good again. However, we learned from the previous generation (or the modern media which has chronicled the hippie movement in various formats) that “peace and love” isn’t enough, that we’re not taking down the governments and the corporations, and that we have to work within the system to help our neighbour. And the answer we have come up with is “Buy Local”.

And as a result of these global trends, we will see a number of secondary trends focussed on by Supply Management and/or Manufacturing organizations this year. These will be discussed in Part II.

Supplier Circles? That’s Just Loopy!

Don’t know how SI missed this, but apparently McKinsey has been telling everyone to abandon supply chains in favour of supply circles for almost a year now! What? While it’s true you can loop a chain to make a circle, it’s not always the case that you should. And, moreover, it’s not really a circle that you want, but a chain where information, inputs, and values flow up and down. Just like you can walk up and down stairs, you can push value up and down the chain.

But we’re getting ahead here. Stepping back, the article from last spring on Manufacturing Resource Productivity stated that manufacturers can generate new value, minimize costs, and increase operational stability by focusing on four broad areas: production, product design, value recovery, and supply-circle management. All true, but none of it requires you to manage a supply circle, or even treat the supply network as a circle.

Digging in, we find the article is building on an inforgraphic released at the same time that takes us from supply chains to supply circles and explains how companies can respond [to pressures on profit as a result of higher variable costs] by improving resource productivity. Furthermore, it goes on to say that leaders in the field are exploring circular operating models where value is created by looping products, components, and materials into the value chain after they fulfill their utility over the life of a product.

Essentially, the article is saying that you should recycle, refurbish, reuse, and repair — the reduce, reuse, recycle that environmentalists have been preaching for years. The only difference is that they are preaching that this thinking should pervade the supply chain and influence new business models that improve recovery, create new sources of supply, optimize production, and increase revenues and products. Isn’t this just the Design for Recycle that SI and other thought leaders have been preaching for over 6 years?!? (SI’s post is back in 2007!) It is! The only difference is that they are confusing you by saying that you have to circle your supply chain to make it work.

Sorry, bub, but this ain’t the case. As long as you build a recovery mechanism that is usable, and attractive, it doesn’t matter if you have a chain, a loop, a circle, or a figure 8. It’s not the physical design of the chain, but the capability. Maybe the consumers return unwanted / end-of-life products to a recovery centre that breaks your product down into component parts, and returns the working ones to your primary manufacturer and sends the broken ones to a base metals extractor that, in turn, sends the extracted metals to the component manufacturers that feed the primary manufacturer and the waste that it can’t process to a waste processor for further recovery efforts. And maybe the consumers return the produts to the retailer that sends them to you and you repair, or send them to a raw material extractor, as needed. The supply network might end up being circular, might loop back in to the manufacturer, or the return (and recovery) paths might be the exact inverse of the supply paths. The design doesn’t matter — it’s the capability to insure raw material supply and keep variable (and unpredictable) costs down that matters!

Getting a Grip on Multi-Tier Supply Chain Risk – A Resilinc Commentary


Today’s commentary guest post is from Jon Bovit, Chief Marketing Officer of Resilinc, a provider of supply chain resiliency solutions for industries including high-tech, medical devices, and automotive manufacturers. SI recently covered Resilinc in detail in Do You Know What’s At Risk? Resilinc Does! and Will Resilinc Resonate with Your Supply Chain.

Today’s supply chains are complex, global, and highly dependent on
sub-tier suppliers. Long term sustained success of companies is hugely
dependent on the resiliency of their suppliers. Despite this, most supply
chain leaders are unable to readily access critical supplier information
necessary in order to manage business effectively. Supply chain leaders need
a solution that maps the global supply chain across multiple tiers, identifies
critical supply chain dependencies, exposes critical vulnerabilities and
single points of failure, manages risk mitigation across the organization,
and optimizes resiliency practices throughout the organization.

Despite popular opinion to the contrary, the harsh reality is that measuring supply chain risk at the supplier, or even the location, level is inadequate for today’s
global and complex supply chains. In order to properly
managing supply chain risk, a company must start by mapping its
global supply chain down to the individual products, parts, sites, and revenue across
each of the multiple tiers. Once the multi-tier supply chain is mapped down to the
product and part level, with the proper methodology, the company can calculate risk scores based on (multiple measures of) financial
risk, location (economic and
geopolitical) risk, and recovery risk (recovery time and BCP). By evaluating
supply chain elements based on inherent financial, location and recovery
risks (which align well with the risks identified in the recent World Economic Forum Global Risks report), supply chain practitioners can choose the most effective mitigation
strategies.

As an example, by utilizing the above methodology, the Resilinc platform is able to quickly identify high risk, high
revenue, single sourced parts for a high-revenue producing business unit.
The high risk may come from long recovery times from a specific supplier
manufacturing site in Malaysia or Japan. The customer can then come up
with specific risk mitigations strategies for those specific high risk,
high revenue single sourced parts before a disruption occurs, which could save the company millions in losses and unmeasurable damage to its brand. If risk was measured at the supplier level, these details would have been missed completely.

Customers should not only focus on assessing and mapping risks based on
their supplier global footprint and site locations, but also should
capture sub-contractor and sub-tier supplier dependencies, site
activities, part origin, alternate sites, recovery times, emergency
contacts, and business continuity planning (BCP) information. By focusing
on identifying critical vulnerabilities and the highest risk exposures
using quantitative scores and impact analysis at the product, part, and
site level, leaders can direct limited budget and resources into the right
areas for optimal protection against future supply chain disruptions.

Thanks, Jon!

Strategy is Not Always an Academic Pursuit

And a consideration of market leading companies should put this into perspective. the doctor was reminded of this while reading a recent piece over on the HBR Blogs on Apple Versus the Strategy Professors where the author noted that the how of Apple’s fall (or continued rise) will hinge on strategy — because strategy has driven its success.

In the article, the author referenced Michael Porter, famous for his five force analysis, W. Chan Kim and Renee Mauborgne, and their blue oceans, Clayton Christensen, and his disruption model, Michael Raynor, and his successful growth strategies (co-devised with Clayton Christensen), Carl Shapiro and Hal Varian, and their information economy, and Amar Bhide, and his hustle. He then illustrated how Apple has drawn on the teachings of all of these professors (of the Harvard Business School, INSEAD, UC Berkeley, and Tufts) to achieve their transformation and market leadership of the last decade.

It does a great job of demonstrating how strategy is key to success, and, more importantly, how strategy has to be taken beyond the classroom to be effective. Apple didn’t subscribe to any one philosophy or methodology, it borrowed from the teachings of all of the greatest management and strategy thinkers of our time and incorporated those that made sense. But it didn’t do so randomly.

What Apple really did, and what you need to do if you want to ensure consumer success, is figure out what your customers need and give it to them before they have figured out what they need. It took note of what it could do, and then searched for products that would fulfill what people wanted in blue oceans. For example, going back to the iPod, it realized that consumers wanted a portable music device that was easy to use AND easy to manage.

At the time, the mp3 players available were few, used different, proprietary operating systems, and were difficult to use. Furthermore, even if you weren’t a computer geek, getting music on and off was a pain in the backside, and the whole experience — compared to popping a cassette into a Sony Walkman — was unpleasant. Apple realized that people needed an end-to-end solution — a great device, a great software tool for managing the device, and, equally important, an easy way to acquire legally licensed music in the appropriate format. Hence, it developed, and released, in order, iTunes for easy mp3 (and device) management, the iPod, and, finally, the iTunes Store that negated the need to get music from third parties. It was an end-to-end solution that even the most novice of computer users could master — and it was cool. Market dominance was just a matter of time.

While your customer might not be able to tell you what they want when you ask, they know it when the see it and, if you listen, can give you lots of hints. For example, Apple’s future customers were saying things like: “I want my music on the go.”, “This portable music player is cr@p., and How do I manage a library when all I can see is 1 song at a time.” “I can’t figure out how to get the music files I buy from Mperia onto my mp3 player.” All they had to do was listen closely, come up with an entirely new solution that met all the most common wants, and find a way to make it desirable (cool, sexy, fun, etc.). Yes, that’s a tall order — but not that tall when you think about it.

And when you figure out not only what your customers want, but what you are going to give them to make them want your product over the competition, that’s when your supply chain can really give you an edge by getting involved early in the NPD (new product design) effort and finding creative and innovative ways to keep costs down, quality up, and value-add at the right level for maximum reward.