Category Archives: Best Practices

Five Precepts for Greening the Supply Chain

A recent post over on the Kenco Blog on “Best Practices for Greening the Supply Chain” contained five precepts for making your supply chain greener that should be shared far and wide. They are:

  • Realize the Contribution of Efficiency
    Part of green is being lean. Lean minimizes waste. Waste costs money. So when you are efficient, you minimize costs, which, all other things being equal, maximizes profit. As SI has said many times before, green not only makes you sustainable, but it increases the green you have in the bank.
  • Assess the Life Cycle Impact of Products
    When evaluating the sustainability of a product, you have to look beyond the raw materials (and their creation/extraction) and production, evaluate (intended) use, and think about disposal. As SI has noted before, the product should be designed for recycling (and raw material recovery) and at the very least minimize, if not eliminate, waste and landfill requirements.
  • Recognize Green Products & Services
    When presented with multiple product and service alternatives, the ability to recognize those that are naturally sustainable is key to embedding sustainability in your organization.
  • Minimize Resource & Energy Use and Carbon Impact
    Pay careful attention to the amount of resources required, the amount of energy required, and the amount of carbon produced. A truly green process utilizes renewable resources, renewable energy, and is carbon neutral. That may not always be possible, but that is the end goal.
  • Give Back to Society
    While it can be argued that a company can be sustainable without being charitable, the goal of sustainability is to sustain both the company and the society that the company is trying to sell its products and services to. Thus, as the article suggests, a company should at least make some effort to display corporate leadership and engage the community and, preferably, give time and resources to sustainable causes in the community.

Great advice for sustainable companies to live by.

Are You Biased? Here’s What To Do About It!

Every day, senior managers are tasked with making very significant strategic decisions for their companies, which usually require support by teams of internal and external experts and a heavy dose of research. And every day, across the world, these managers screw up. Without fail. Why? Hard to say. Sometimes the experts are wrong. Sometimes the data is faulty, either due to collection, storage, or retrieval error (and, hence, the derived conclusions by the experts are faulty). And sometimes it’s the managers who are at fault. Sometimes they trust their gut when they should trust their brains, and vice versa. And sometimes, they are just biased and ignore the facts that suggest their bias is the worst decision they can make.

So what can they do? They can do whatever it takes to minimize their biases, especially if it impacts supply management, the lifeblood of a modern organization. How can they do this? They can take some tips from this recent post over on the HBR Blog Network on How to Minimize Your Biases When Making Decisions.

The first tip is to recognize the common biases that arise in corporate decision making. The common biases are:

  • Anchoring
    This comes in two forms, number fixation and target information fixation. In the first case, we get fixated on numbers, even invalid ones, and don’t adjust away from, or ignore, them when we should. In the second, our questions can lead us down a path where we focus on a specific set of data to the point where we’ll ignore or omit contradictory data.
  • Framing
    We are often persuaded to judge a situation by how it is presented. If it is presented as difficult to the point of painful, given our natural aversion to pain and preference to pleasure (as has been argued by philosophers throughout the ages), we’ll tend to shy away from it, even if the pain will be worth the gain in the end.
  • Availability Heuristic
    We tend to weight recent events as more prominent than not-so-recent events and events we can easily imagine, such a those presented vividly to us, more than events we can’t easily imagine, even if the latter is much, much more common and likely to happen. (Remember, most companies FAIL!)
  • Confirmation Bias
    We tend to seek out evidence that confirms our initial decisions, ignoring information against them.
  • Commitment Escalation
    It’s our tendency not to accept sunk costs and throw good money after bad, even when no amount of money can save the situation. We act like captains with a bucket after a pirate has blown a hole in the side of the ship with a cannon ball.
  • Hindsight Bias
    Once we know something, we find it difficult to remember when we did not know it and this limits our ability to learn from past failures.

Then, once we are able to recognize the biases, we must follow the following tips offered by the blog post to minimize them:

  • relentlessly search for relevant or new disconfirming evidence
  • seek diverse outside opinions that challenge our overconfidence
  • flip the problem on its head to see if we are viewing the situation positively or negatively
  • constantly redefine the problem to avoid escalation
  • develop systemic review processes that contain well-defined committed “outs”

In addition, SI suggests that you also:

  • have at least two parties run the numbers, and present them as they see them to minimize anchoring
  • for every proposed course of action, ask a party who takes the opposing viewpoint to present the situation from her viewpoint to minimize framing
  • take methodical notes at each step of the analysis and process that document knowns and unknowns so you can clearly identify not only when you learned something, but what process you used — if the process is repeatable, it may accelerate organizational learning in the future

Sears’ Deadly Sins

By now, everyone knows the story of K-Mart, and its bankruptcy that was well chronicled in Marcia Layton Turner’s book on Kmart’s Ten Deadly Sins: How Incompetence Tainted an American Icon, which was summarized in a recent article by Vivek Sehgal on why Business Strategy Should Design and Determine Supply Chains over on the Supply Chain Management Review this spring.

But not everyone knows that Sears, part of the Sears Holding Company, may not have learned the lessons K-Mart failed to learn and may be going down the same path, at least North of the Border. Consider the following sins in particular:

  • Brand Management
  • Underestimating Walmart
  • Ignoring Store Appearance
  • Supply Chain Disonnect
  • Repeating the Same Mistakes

Let’s take them one by one. It hasn’t made a top 100 brand list in 3 years, since it made the virtue 100 in 2009, and 24/7 Wall St (.com) predicted it would vanish this year. It’s still around, but it’s not a household name. In fact, the only good rankings it is getting are for its mobile site, but we all know how limited mobile sales still are, and one has to wonder how long it is going to fare well in the online world now that you can get most of its products through Amazon Supply. There was a time when Sears was a household name, and would always be in the top 50 brands. Not anymore, although Lands End was recently recognized, but Lands End is not Sears. Just an apparel line.

Like every other big average consumer retailer, Sears underestimated, and North of the Border, continues to underestimate Walmart in my estimation. In the Great White North, Walmart is expanding like mad while Sears is barely holding the few locations it has in many places. While many of you are likely aware that Target is about to expand rapidly into Canada through its acquisition of the leasehold interests of over 125 stores from Zellers Inc., what many of you do not know is that many of the remaining stores that are (in the process of) being closed are being scooped up by Walmart. the doctor can’t remember the last time a Sears location opened in his province.

While Sears store appearance generally isn’t that bad, it generally isn’t that good. While Walmart stores are kept new, clean, and shiny, some of the Sears stores the doctor has been in lately are starting to look run-down, dusty, and drab. And many of the displays, which may have been attractive in the 80’s and 90’s, are looking dated. What’s going to happen when Target bursts onto the scene?

And the Supply Chain Disconnect is still there. Consider the fact, as reported in the SCMR article, that in 2010, four years after the merger, only 4 distribution centres out of 39 were shared between Sears and Kmart, while others continue to serve Sears or Kmart stores exclusively. Walmart is going to eat Sears alive!

Sears is repeating the same mistakes that Kmart made, and focussing in the wrong areas. Brands (like Lands End) are not going to save it. A good mobile site is not going to save it. The only thing that is going to save it is a renewed focus on supply chain (to get its operational costs in line with Walmart’s) and a focus on brand rebuilding. It has to be a household name again. Otherwise, it may not make it’s 200th anniversary, which is a mere 8 years away! I hope I’m wrong, but we’re in an age where billion dollar enterprises can go bankrupt almost overnight.

Good Advice from HBR on Understanding Suppliers in the Solution Economy

HBR recently published a post on understanding customers in the solution economy in which they noted that creating new value will require suppliers to combine their expertise with their understanding of their customers’ business needs. Which is completely true. They also said that this calls for changes in how B2B companies gather customer intelligence. Specifically, they need to

  • Ask different questions, much more often.
  • Observe the customer directly.

And they do. But since, generally speaking, a company that supplies a customer with a product or service outsources the production of that product, or the implementation of that service, to a third party, the company also needs to thoroughly understand its suppliers’ strengths and weaknesses to select the right supplier to manufacture the product or provide the service to the end consumer.

This means that where the suppliers are concerned, it has to:

  • Ask different questions, much more often.
  • Observe the supplier directly.

The questions need to move away from “do you have the facilities to make this product” to “what value-add do you add in the term of usability, reliability, or warranty support that we can use to meet the needs and want of our customers” and the questions have to be asked every time the customer needs change, not just once every three years when the category is resourced. You may not be able to change suppliers or alter the contract, but if you put in continual improvement and collaborative design clauses, you can at least make sure that subsequent iterations improve in the right direction. Similarly, on the service front, the focus should move from “do you provide service X” to “give us examples of how your delivery of service X met the following customer values and led to higher satisfaction ratings”.

Similarly, it’s not enough to just do a plant visit during the supplier qualification phase. There needs to be continual observation and interaction through the full contract life-cycle to make sure that the supplier undertakes continual improvement efforts, that issues are quickly identified and brought to your attention if they can not be quickly resolved, and that the level of professionalism and attention paid to you does not decrease over time as new customers enter the pipeline.

Procurement Value Creation Ideas, Part II

Recently, over on StrategicSourcing.com, Mickey posted her thoughts on “Procurement Value Creation Ideas”, highlighting four areas in particular that she thought were good targets:

  • Revenue
    Does your Supply Management team understand the value that needs to obtained from suppliers to bring innovation to products, materials, and business processes? Does sourcing reduce time-to-market for new products and services?
  • Costs
    Does Supply Management extend their focus to supplier variable and fixed cost structures, which materially contribute to the suppliers’ product and service costs?
  • Working Capital
    Does Supply Management understand the company DSO, ITR, and DPO equations and their interrelationships? [Days Sales Outstanding, Inventory Turnover Rate, Days Payable Outstanding] Does your Supply Management team work towards improving the ITR and balancing DPO with DSO? Does Supply Management Team contribute to S&OP? [Sales and Operations Planning]
  • Fixed Capital
    Does Supply Management play an active role in capital expenditure management? Are maintenance and service standard items contained in contracts and purchase orders?

These are great ideas, and a great start, but not all of Supply Management’s value creation potential is immediately realized, and not all can be easily measured in the revenue, cost, or capital management equations.

Consider:

  • New Market Identification
    By the time you identify the market, identify the proper products services, design them, source them, and sell them, it will be a while before you can measure the effects on revenue. Even costs will be difficult to measure as they will decrease as efficiency and volume increases.
  • Brand Building Potential
    Sometimes, the right supplier can enhance your brand, and decrease the marketing cost and effort require to enhance your brand the same amount. This can be very hard to measure, but Supply Management will be critical in obtaining the right relationship with this supplier.
  • Alternate Material / Component Identification
    A Supply Management team that keeps tabs on the market may not only be able to identify more cost effective alternatives, but also more sustainable / environmentally friendly ones, which could boost your brand image and lower your long term costs and risks.

Supply Management can do more than just impacting the top and bottom lines in the short term, and do more than impacting these lines in the long term. It can improve your image, increase organizational stability, and lower your risk. Don’t forget this.