Monthly Archives: April 2013

What is a “Servitized” Supply Chain?

Last summer, the Supply Chain Quarterly published an article that defined 8 steps to a servitized supply chain. Each of the 8 steps consisted of a supply chain best practice that you should be doing whether or not you desire a servitized supply-chain, or even care about services from a revenue perspective, as each of the 8 steps is something you should be doing even if you have a product-focussed supply chain. So why would you need, or want, a “servitized” supply chain and, more importantly, what is it?

According to the article, “servitization” is defined as bundled product-service packages that provide differentiated sources of value to customers, and, as a result, a “servitized” supply chain is one that supports such offerings and, ostentatiously, is different than a product-focussed supply chain. According to the authors, such a chain is more responsive and agile, can vary degrees of service outcomes to a differentiated customer base, and increases the probability of more profitable relationships between the Supply Management organization and the manufacturers with whom it does business.

At this point, I’m a little confused because, at least in the fast-moving Apparel and Consumer Electronics industry, a successful product-oriented supply chain is extremely responsive and agile (as orders for products in demand have to met quickly and orders for products not in demand have to be cut), offers various levels of product and warranty customization (where applicable) to user-defined tastes, and increases the probability of profitable relationships between the Supply Management organization and the manufacturers with whom it does business. This is because, in these industries, the product is the service, as McLuhan’s classic statement that the medium is the message, while not always true in today’s information age where you are hit with the same message across multiple mediums, is true in the consumer product industry. For many consumers, the products they buy define who they are and create the statements and messages they want to convey. As a result, when you create a product you are also creating a messaging service that your consumers can use to, indirectly, advertise who they are. So, in effect, your offering is a service as much as it is a product and the concept of a service supply chain being different is, well, a bit foreign.

Of course, if you are in the hardware industry and selling the same old nuts, bolts, and traditional C-section joists that you have been making for twenty years, then it’s probably the case that your supply chain is not very service oriented. In this case, if you “servitized” your supply chain and listened to your customers who want frames that are lighter (as steel prices are skyrocketing), stronger (as they want to build bigger), and faster to assemble (as labour is costly), you might come up with a solution akin to the iSpan Total Joist solution. To do this, you would have to become more responsive, offer various levels of product and services (including pre-fabricated kits for warehouses of pre-defined architectures and sizes), and, as an effect, increase your profitability as your customers pay more for the solutions they want (that save them time or raw material cost). But note that, even in this situation, your supply chain would still be oriented around a product — the only difference is that you would optimize the services offerings around that product.

So, in effect, a “servitized” supply chain is just one that is optimized for products and associated services, and, that, in effect, is just an “optimized” supply chain. And an “optimized” supply chain is one that creates collaborative teams across the supply, sales, and marketing functions to drive value. And we should call a spade a spade, instead of creating more unnecessary terminology.

Keep Your Big Data. Big Brains Will Win in the End.

I have to admit that I’m sick of all this hype about big data and how it is the answer to all our problems. As I’ve said again and again, there’s no such thing as big data in business. Relative to our ability to process it, data has always been big. And, in business, big has always been meaningless. Furthermore, in business, we’ve always been able to process as much data as we need to in reasonable amounts of time if we made good technology decisions.

And I’m even sicker of the fact that some people think we can replace science with math and processes with computer programs. We never could, and for the foreseeable future, where AI (artificial intelligence) will not be a reality, we can’t. Thinking like this is what causes economists to latch onto, and promote, financial policies that, seem good in theory but, in practice, result in economic collapse when taken to extremes.

The reality is that science can never be replaced by math and automated prediction. Not only is the author of this HBR blog post on why data will never replace thinking right when he says that it’s only by trying to come up with our stories (hypothesis) beforehand, then testing them, that we can reliably learn the lessons of our experiences — and our data, but it’s only by coming up with hypothesis, and putting plans into actions that we can beat the competition and gain market share in the global market. Look at the giants of industry today. Did Apple become the dominant first in the e-Music industry by letting Microsoft, Sony, Samsung, etc. develop their music players and music stores first, analyzing customer responses, and then introducing their offering? Or did they become the dominant force by using their brains to try and figure out what the market, and customers, were missing, using the best creative and engineering talent to design a solution, and then releasing that product on the market? It was the latter solution — the solution that required big brains that won the market. Similarly, Walmart became the biggest retailer not by asking consumers want they wanted, but by predicting what the average consumer really wanted — a one-stop department store that met most of their basic needs at low prices with a consistent product and service offering across each store for the mobile consumer.

This isn’t to say that data isn’t important, it is, just that it won’t solve all your problems and that, beyond a certain point, more data doesn’t help. Remember, statistically speaking, you only need 384 data points to have 95% confidence with a confidence interval of 5 on a population of 1,000,000. If you want a confidence interval of 3, you only need 1,066 data points, and if you want a confidence interval of 1, you only need 9,513. Beyond a certain point, more data doesn’t add much confidence and the only way you’re going to get more insight is to see it inside your head.

So keep your big data. I’ll use my brain instead. How about you?

Seven Tips for Succeeding in Any Market, Part II

Yesterday, we noted that the article published in Chief Executive last year on Seven Tips for Succeeding in Asia actually provided seven tips for succeeding in any market and, briefly, explained why. Today, as promised, we are going to review the supply management corollary to each of these seven tips because they will help you increase the value of your Supply Management organization.

So, without further ado, here are the seven tips for creating a successful Supply Management Organization.

  1. To expand your organizational influence, pick a department with an unmet need your organization can readily fulfill.
    For example, let’s say you are not yet supporting any marketing and legal spend and know that you have to go after one of these sacred cows to increase your spend under management. Let’s also say that you just hired a new analyst who was a marketer in a past life and who has experience sourcing creative services from his past job but not a single professional in your organization knows anything about e-Discovery, which is Legal’s issue of the day. In this case, you should go after Marketing as you have someone who can help them source better talent more efficiently, and save them money by decoupling non-value added services.
  2. Find a mentor on the Board (of Directors) who understands the value you can bring to the organization and can help you forge stronger ties with the C-Suite.
    This will get you more support across the organization and will inevitably help improve your financial situation as other budget holders see the value in supporting your efforts. Eventually, they will be willing to pay their share of system upgrades, GPO fees, or contract labour who you identify as being able to reduce their costs and/or increase the value they offer.
  3. Scale your organization by learning the language of finance.
    Let’s face it, if you can’t explain to the CFO in a language she understands that the budget and cost savings calculations should not be decoupled, you will be forever doomed with constantly being tasked to do more with less until the organization implodes under the weight of an increasingly impossible task. You need to be able to demonstrate the ROI of investments in training, technology, and talent to get the budget you need to deliver the savings the organization wants, and the ROI you know your Supply Management organization is capable of with sufficient budget.
  4. Be sure to consult regularly with the IP specialist on your legal team.
    Considering that you will be sourcing contract manufacturing and services from value-added services providers who could very easily copy your products and steal your expertise, you need to make sure you are adequately protected to discourage this from happening, especially in foreign markets.
  5. Keep an eye on your ROI, especially when services and SaaS contracts are about to come up for renewal.

    While there isn’t an advanced sourcing technique or technology that won’t save you money in the right situation when properly applied, not all techniques and technologies are created equal, and neither are all situations. If a service provider isn’t delivering the value you expect, they may need to be replaced. And if a technology platform isn’t delivering a decent ROI, it definitely has to be replaced. Your cash is limited. You can’t be wasting your budget on non-ROI products and services when there are dozens of products and services that can save you double digits and provide an ROI of 3X to 10X, or more.
  6. Go after the low-hanging fruit first.
    The fruit at the top of the tree may be juicier, but it is a lot more difficult to pick, and the risk of falling off of the ladder and seriously injuring yourself is much greater. Start with the easier wins, gain experience, and work your way up to the harder wins.
  7. Reward success with bonus pay tied to performance.
    Give your top talent the opportunity to increase their compensation without ceiling, and watch your savings soar and value surge. Just be sure to tie the compensation to appropriate metrics, because you get what you incentivize! (But, whatever you do, don’t put a ceiling on potential compensation. If you know you’re not going to make any more money, why would you work harder? There’s a reason the most successful companies in the enterprise space don’t limit the earning potential of their sales-people. They know that every dollar earned in commission puts ten dollars in their bank account, and the shareholders know that, at the end of the day, every $10 in the bank ramps up valuation by $20 to $100 and makes them many times richer in the end than the sales-person. If you think about it, a truly successful organization is one where the top sales-person and the top buyer both take home more than the average CXO!)

And this is how you begin to create a successful Supply Management organization. There’s a lot more to success, but these corollaries are a good starting point.

Seven Tips for Succeeding in Any Market, Part I

Last year, Chief Executive published an article on Seven Tips for Succeeding in Asia that, when you get right down to it, really presented seven tips for succeeding in any market. And while they were sales focussed, they did contain some good lessons for Supply Management, which is why SI is covering them. So sit back, relax, and after we get through the basics, we’ll dive in to the real lessons.

The seven tips for succeeding in any market are:

  1. Pick a segment within a fast-growing market sector that still has an unmet need your company can fulfill with a differentiated product or service.
    Let’s face it, you have a much greater chance of breaking into a market that is still growing when you can meet a demand not currently being serviced than you do of breaking into a stagnant market that already has a number of established products that dominate 90% of sales and that people unconsciously trust.
  2. Find a mentor who understands your business, the local culture and can also help you cement connections, stretch financial resources and expand into new territory.
    Even in an established market, your chances of success are better if you have an advisor that is tapped into what the public really wants, and can hook you up with appropriate marketing and advertising agencies to target them and contract manufacturers / providers to fulfill your manufacturing or contract service provider needs at the best value.
  3. Scale your business by tapping professional management who can bring in sophisticated financial and management tactics.
    Most businesses lack sophisticated financial modeling skills. As a result, any business that acquires them has a much better chance of scaling.
  4. Be sure to retain a good corporate lawyer, who can help you to navigate intellectual property-protection issues.
    It’s imperative to protect your intellectual property no matter where in the world you are.
  5. Keep an eye on your cash-burn rate, ditching products/services that don’t work out quickly and focusing on the money makers.
    Cash flow is the life-blood of any business. It doesn’t matter what your valuation is or future (projected) receivables are if you can’t make payroll.
  6. Conquer markets within grasp before trying out new opportunities.
    While it’s nice to have stretch goals, over-extending your reach and spreading yourself too thin is a just a recipe for disaster!
  7. Keep human capital by rewarding fast learners with pay tied to results.
    Reward your value-generating star performers and they will stick with you and help you make more money.

And each of these tips has a supply management corollary, that we’ll address in tomorrow’s post.