Category Archives: Supply Chain

Is Your Supply Chain Organization Ready for the Decade Ahead?

A recent article in the Harvard Business Review outlined “seven questions to ask” to find out if you are ready for a rebound. What I found enticing about the article is that these seven questions have supply chain corollaries. If you can’t answer yes to these seven questions, chances are that your supply chain will not be ready for the decade ahead.

  1. Do You Take Advantage of Opportunities Others Miss?Many companies continue to miss market and technology shifts that their rivals exploit. If you’re in this camp, you’re going to fall behind your competitors as they adopt better practices, better technologies, better suppliers, and better transportation options. For example, this means that you should have adopted real spend analysis and strategic sourcing decision optimization by now, as these are the only two sourcing technologies proven to repeatedly deliver double digit savings time and time again (at an average of 11% for spend analysis and 12% for decision optimization).
  2. Are Your Hydraulics Oiled and Flowing Smoothly?As per the HBR article, organizational hydraulics are the mechanisms that senior executives use to translate corporate objectives into aligned action by individuals across the organization. If there are too many initiatives, priorities, or conflicting goals, then the hydraulics get overburdened and break down. Limit your goals to 2 or 3 and initiatives to the top 4 or 5 opportunities and excel in the execution of those initiatives most likely to deliver the desired results. For example, if your sourcing team is limited, do a spend analysis and identify the top 5 categories with the greatest savings opportunities and those are your priorities for the quarter. Everything else can wait. It’s better to save 10% off of 100M than 20% off of 10M.
  3. Does Your Organization Reward Excellence?Or does it reward mediocrity and call it teamwork? Organizations should not only reward individuals who do what they say the will and meet, or exceed, their (stretch) goals with outsized bonuses, but remove compensation caps. If your top sales person or top buyer ends up taking home more than the CEO, that’s a good thing! It generally means that he sold (tens of) millions worth of product or services or she saved (tens of) millions of dollars for the organization. And if you’ve hired a smart CEO, and given her a piece of the company, she’ll be grinning from ear to ear as the value of her stock soars as a good CEO is in it for the long term.
  4. Are Your Core Values Aligned to Success?Or are they a joke? If your organization looks up to a bullcrap mission statement like “we synergize our processes to bring value to our customers”, then your values are probably a joke. But, on the other hand, if you focus on achievement, ownership, teamwork, creativity, and integrity … then you’ve got the framework for building a truly world class supply chain organization.
  5. Are You Talking About the Right Things?Or focussing on irrelevant minutia because you don’t have the guts to take on the elephant in the room that is the real impediment to your progress. If you spend your days looking for the next fire to put out instead of addressing how you’re going to weather the market storm that’s brewing, you’re talking about the wrong things and will be battered badly when the storm hits. Optimality in the supply chain is fleeting — even if you’re lucky enough to obtain it, it will quickly fade. The organization must always be on the lookout for the next process or technology that will increase efficiency and stability.
  6. Are Your Warriors Still Fighting?Or have your Vikings become farmers? If your team spends their time tweaking the last initiative until they’ve eeked out every last fraction of a percent of the perceived savings opportunity instead of diving into new opportunities as soon as they’ve extracted 80% of the potential value of the current opportunity, then your team has transitioned into a community of farmers content to live a peaceful and stable life. From an organizational viewpoint, this is bad since fields can be wiped out by a single flood and the only way to sustain success is to keep going after the next big opportunity. Furthermore, since it will generally take four times as much work to eek out the last 10% to 20% of savings, it’s just not a good investment of your team’s time. Follow the 80/20 rule if you want to maintain success.
  7. Are Your People Self-Sufficient?Or does everything come to a stand still every time you spend a few extra minutes in the lavatory? As the article says, senior executives who dash from crisis to crisis are a sign of organizational weakness, not leadership strength. If your team is truly strong, they will be able to function without your leadership and solve crisis on their own. You should be able to disappear for a month without any adverse effects to the organization. A good leader focusses on building the team, providing them with the support they need, and preparing them for future advancement — she doesn’t solve their problems for them. She gives them the training and support they need to solve their own problems

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Six Drivers of a Successful Supply Chain Strategy

In addition to offering insights into planning horizons and supply chain strategy drivers, the recent report on “Supply Chain Strategy in the Board Room” by the Cranfield School of Management and Solving Efeso also summarized six drivers of a successful supply chain strategy. While there were no surprises, the points do deserve reiterating.

  • A balanced input of vision. A strategy developed without the blinders on generally works better than one developed with the blinders on.
  • Frequent review. When there’s a regular review to insure the strategy is being followed and implemented properly, the strategy will tend to be more successful.
  • Balanced input of quantitative modelling. Decisions based on a consideration of facts tend to be better than decisions made solely by gut instinct.
  • Adaption.What gets adapted gets implemented.
  • Integrated risk management. A supply chain that is less prone to collapse tends to function better than one that is more prone to collapse.
  • Benefit tracking. What gets measured gets managed is a timeless truth.

It would have been nice to see more insightful drivers considered, but c’est la vie. The reality is that if every company made these six drivers part of their supply chain strategy checklist, the average supply chain would function much better than it does today.

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A Couple of Surprises in the Supply Chain Strategy Survey

A cooperation between the Cranfield University School of Management and Solving Efeso that resulted in the publication of Supply Chain Strategy in the Board Room (based on a survey of 181 senior logistics and supply chain executives) between July 2009 and January 2010) had a couple of surprises in the top ten findings, at least to me.

While the following findings made sense:

  • The most important supply chain performance drivers are cost focus, customer lead-time and customer quality but these vary by sectorUnfortunately, supply chain initiatives are still primarily focussed on cost and not the overall value supply chain can deliver in terms of risk mitigation, service level improvements, and innovation.
  • Customer service issues and cost issues are the main triggers for strategy reviewReviews are usually reactive and not proactive.
  • Supply chain strategy implementations are not straightforwardThe supply chain affects all areas of the business and multiple systems in sourcing, procurement, logistics, warehouse, and trade management are needed to address the supply chain end-to-end.
  • Successful supply chain strategy implementations have top level supportGreat results typically require significant changes to systems and processes, which just don’t happen without support and leadership from the top.
  • Cross-functional accountability and a balanced combination of several key approaches and techniques also improve the likelihood of successAll of the affected parties need to collaborate. This will generally only truly happen if they are all held responsible for the success or failure of the initiative.
  • Development of the supply chain strategy is largely internalisedEven though most corporations don’t truly understand how to revolutionize the supply chain, those that embark upon defining a supply chain strategy generally try to do it themselves without the help of an expert guide from outside the organization (even though Consultants are Cheap).
  • Of the many barriers to success, the major ones are company culture, lack of leadership and poor supply chain visibility. Barriers are predominantly people-related, rather than technical.Implementations may be difficult, but with the right guidance, support, and elbow grease, they can be done relatively quickly and efficiently and, depending on the system or process in question, sometimes be completed in a few weeks. Most of the solutions are fairly matures these days. As a result, any hiccups are generally caused by humans and not hardware.

The following findings are a little shocking:

  • Supply chain is recognised as an important part of the businessWhile I hear a lot more talk these days about how important supply chain is to the business, I still don’t see a lot of action. It’s shocking how many mid-market companies still don’t have basic e-RFX/e-Auction platforms even though affordable solutions have been available for years! As far as I’m concerned, it’s Action, Not Words, and until I see more action, I won’t believe it.
  • Service and corporate strategy are key driversNo, cost is. While 10% of the true innovators might have moved onto service and strategy in an attempt to generate long term value, 90% of the time it’s cost, cost, cost. (If you get any other response is just lip-service.) While it should be value, it’s still cost.
  • Review of supply chain strategy is highly cross-functional and in many cases, a continuous process with regular monitoring and continuous adaptation according to circumstancesWell, at those few companies that actually have real supply chain strategies, review is likely to be cross-functional (as these are the few companies where the CSCO/CPO will actually have a seat at the table), but at the vast majority of companies monitoring is irregular, adoption is haphazard, and cross-functional participation is still a pipe-dream. Sorry, but this is either wishful thinking on the part of the survey respondents, or the survey sample was very skewed towards the 10% of true innovators. If review and monitoring was continuous, you wouldn’t have 40% to 60% of negotiated spend unrealized at the average company, because maverick spending would be caught and eliminated, overcharges would be caught and never paid, and off-contract shipping options avoided in all but true emergencies.

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Where Are The Extreme Supporters?

A recent Vision Statement in the Harvard Business Review on why a business should “Behold the Extreme Consumers”, the 5% of customers so infatuated with the brand that they spend more than 10% of their lifetime income on it that many brand managers fear, had some impressive statistics:

  • 100% personally identify with and say they gain meaning from a favourite brand
  • 98% have defended the brand against perceived attacks in the media or from other firms or individuals
  • 96% describe their favourite brand as “part of the family”
  • 94% display their extreme behaviour in relation to just one brand
  • 94% agree strong that “more often than not, buying cheap is expensive”
  • 94% never even consider buying a brand that rivals their favorite

Which leads one to ask, where the extreme supply chain supporters? Imagine how much more respected (and successful) the supply management organization would be if it could find the 5% of company employees in other business units who:

  • personally identified with supply management and gained meaning from its involvement
  • defended supply management against unjust attacks, no matter where they came from
  • described supply management as “part of the team”
  • displayed extreme support for supply management and supply management alone
  • agreed that any buying decision was multi-faceted and should be left to the pros
  • never even considered making a major purchase without the involvement of supply management

What a wonderful world it would be.

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What’s Driving Your Supply Chain Strategy?

The recent report on “Supply Chain Strategy in the Board Room” by the Cranfield School of Management and Solving Efeso listed the top 10 functional drivers of supply chain strategy at the 181 companies surveyed in the report. While all are valid considerations, the reality is that there should be only one driver of corporate supply chain strategy, because there’s a big difference between a consideration and a driver.

Customer service, distribution, and planning are all valid considerations, but none should drive the supply chain strategy. The supply chain strategy should be driven by the corporate strategy and corporate strategy alone. It does not matter what level of service the supply chain supports, how efficient or cost effective the distribution is, or how simplified planning becomes if the supply chain strategy is not in line with the corporate strategy. If the corporate strategy is to be the lowest cost provider, then customer service (which can be costly) is not at the top of the list — cost and availability are. If the strategy is immediate availability, quick distribution is a must, even if air shipments are five times as expensive as ocean freight. And if the business is subject to the whims of the market (like fashion), plans are short term.

The reality is that the customer service strategy, distribution strategy, customer proposition, production processes, planning, purchasing strategy, product design processes, returns management, and the disposal strategy should all be determined from the corporate strategy, not the other way around … because if the supply chain is not in synch with the rest of the business, it’s full value proposition will never be realized.

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