Another Headline from the Land of D’oh: Knowledge Management New Source of Competitive Advantage

A recent SCMR blog post reviewed The New Edge in Knowledge by Carla O’Dell and Cindy Hubert of AQPC that describes the Knowledge Management (KM) concept and provides some real-world examples of leading companies that have mastered KM. The post, like the authors of the book, states that the right knowledge enables the right decisions that improves organizational performance. Well, duh!

Knowledge has been improving performance for thousand of years in all sorts of organizations — corporate, religious, government, and military. As Sun Tzu wrote, so it is said that if you know your enemies and know yourself, you can win a hundred battles without a single loss. Churchill said that battles are won by slaughter and maneuver. The greater the general, the more he contributes in maneuver, the less he demands in slaughter. And Hannibal said I will either find a way, or make one. Thousands of years, and thousands of miles, apart, and all of these great military leaders understood the importance of knowledge, and managing that knowledge, to achieve success.

Knowledge is arguably one of the two greatest sources of competitive advantage (with the other being innovation). But this is nothing new. So don’t get lost in the hype.

Collaboration: Three Views from the Harvard Business Review, Part II

In part I, we discussed how “true collaboration grows the pie” while false collaboration just splits it and how the Harvard Business Review recently ran a special series of articles and posts on “Making Collaboration Work”. Some of these articles were quite insightful and a good read for any Supply Management professional looking to improve the efficiency and effectiveness of her supply chain. In this post, we are going to address the insights from two recent HBR posts that capture some key insights.

In “collaboration as an intangible asset”, the authors state that the most important intangible asset an organization has is the ability to collaborate. This is because it’s the willingness on the part of people to work together to solve problems when they could just as easily pass them along to someone else that usually means the difference between “good enough” and “outstanding” and differentiates an average organization from one that is constantly innovating. And given the price-earnings multiple fetched by companies like Amazon or Apple, it’s easy to see why “ability to innovate” and “brand management skill”, which is a product of great collaboration, is important to any company that wants to become a Global 3000 leader.

As a result, the authors argue that it is important to monitor and manage collaboration, and one way to do that is through social network analysis (SNA). SNA allows an analyst to see the patterns of interaction — information sharing, problem-solving, coaching, and mentoring — that make up the less visible, often informal side of an organization. This makes it possible to depict the networks that underlie or exist in parallel to the formal organization charts and process diagrams and, in turn, assess whether reogranizations or other efforts to improve collaboration are likely to have the desired impact. In addition, it can uncover the existence of parallel innovation efforts. This allows the organization to combine teams, and efforts, and get the most bang for their buck by minimizing effort in a way that maximizes the chances of success.

Finally, in “quantity vs. quality in collaborations”, the author addressed the potential of the web for crowd-sourcing innovation, as Innocentive does. Not only does crowd-sourcing bring more ideas, but it brings more opportunities for collaboration, which, in turn, creates more ideas and increases the chance that a great idea may knock on your door. And it also increases the chance you’ll find a great collaborator who can help you to better interpret this wealth of insights, to recognize the value of ideas that is not often visible at first, especially when it comes to radical change, and to identify a novel strategic direction. And that just might be the key to your collaborative success.

Logistics Improves on Both Sides of the Atlantic

West of the Atlantic, there are two big logistics bottlenecks. One is the US border with Canada (where documentary requirements make in-transit goods a cumbersome process). The other is the US border with Mexico, where there have been long standing conflicts over cross-border trucking. East of the Atlantic, you have EU security programs that are not compatible with US programs, and also make for bottlenecks.

In the last few weeks, progress has been made on two of the three big bottlenecks as the US reaches agreement with Mexico on cross-border trucking and agrees to mutual supply chain recognition with the EU (jocsailings.com).

As per the article in Logistics Management, on Wednesday, July 6, U.S. Transportation Secretary Ray LaHood and Mexico’s Secretaría de Comunicaciones y Transportes Dionisio Arturo Pèrez-Jàcome Friscione signed documents to resolve the long standing conflicts between the trucking industries of the two countries that resulted from the elimination of the pilot program for cross-border trucking in 2009 as part of the Omnibus Appropriations Act. (In response to the act, the Mexican government stated it would place tariffs on roughly 90 American agricultural and manufactured exports as payback. The tariffs amounted to $2.4 Billion of American goods.)

The agreement, focussed on a safety-first program, will lift these tariffs and provide opportunities to increase Mexico-bound US exports and create job opportunities. Furthermore, Mexico will provide recriprocal authority for US carriers to engage in cross-border long-haul operations in that country.

In addition, as per this article in JOC Sailings, the US and EU plan to implement mutual recognition of their supply chain security programs by the end of October. Specifically, mutual recognition between CBP’s C-TPAT and EU’s AEO program will occur, as per the joint statement between the European Commission and the US Department of Homeland Security. Once this is achieved, cargo will flow more smoothly between the US and the EU.

Collaboration: Three Views from the Harvard Business Review, Part I

Recently, the Harvard Business Review ran a special series of articles and posts on “Making Collaboration Work”. Some of these articles were quite insightful and a good read for any Supply Management professional looking to improve the efficiency and effectiveness of her supply chain. In this two part series, we are going to address the insights from three recent HBR posts that capture some key insights.

In “collaborate to grow the pie, not just split it”, the authors tell us that far too many retailers and manufacturers opt for pie-splitting instead of collaborating to come up with pie-growing strategies and, as a result, the majority of money spent each year on trade promotion just shifts share from one retailer to another or one manufacturer to another. This results in short-term, unsustainable results where companies are merely “renting share” and destroying long-term industry profitability for everyone involved.

As support for their argument, they reference a recent Neilsen Company macro study analyzing trade promotion across 30 grocery categories which found that only 13% of trade dollars actually result in category growth while 15% result in brand switching, 17% result in store switching, and a whopping 55% just results in subsidized volume (where no new consumers or incremental units are purchased). In this last case, customers who would have purchased anyway get a discount while corporate profits are gutted. And while a manufacturer or retailer might think that consumers only want lower prices, a recent analysis across dozens of categories by the Cambridge Group found that only 10% to 30% of households are truly price sensitive and the rest (who make up the majority) want new benefits and innovation and are willing to pay for them.

Thus, manufacturers and retailers need to collaborate, upfront, on innovation strategies with the consumer in mind and grow the pie. If they do, they can actually increase market share, either by creating a new market (because the product is the first to sail a blue ocean) or by robbing share from a different market. Jimmy Dean is an example of the latter. By expanding its frame of reference beyond just breakfast sausage into convenient breakfast meals centered around sausages, it grew the overall category 25%, drove 2/3rds of the growth, and tripled its frozen breakfast sales. Manufacturers and retailers both won by stealing sales that would have likely gone to fast food establishments instead.

In Part II, we will discuss two more HBR posts that address the inherent value of collaboration.

Three Things Supply Management Should Know About Real Estate

A recent article over on Chief Executive that outlined six questions a CEO needs to ask the Director of Real Estate is a must read for Supply Management. In many companies, real estate flies below the radar, but often accounts for a significant portion of spend, especially when lease terms are factored in. In particular, Supply Management needs to know:

  • What are our aggregate lease obligations?
    In some companies, only payroll, debt, and cost of goods sold obligations will be greater than lease oligations. For some industries, lease costs will be very significant. Consider the example of how a restaurant chain saved 3.38 Million simply by reducing lease costs at only seven locations.
  • What is our key metric for evaluating occupancy costs?
    In some industries, market rate is irrelevant. What is relevant is whether or not the occupancy costs of the location make economic sense for the location based on actual performance. In the retail and restaurant industry, it’s typically the occupancy costs as a percentage of sales that matter — and these should be below a given threshold. For example, when occupancy costs exceed 10% of sales, there is a greater than 50% chance that the location will lose money. However, if occupancy costs are less than 8% of sales, there is less than a 20% chance that the location is losing money.
  • If our rent is too high, what are we doing about it?
    A signed lease should not deter action. In most instances, a landlord has a strong interest in retaining a tenant and the associated rent cheque. A tenant who goes out of business automatically vacates the premises and voids the rent cheque. Even though it can be difficult to engage a landlord in a lease negotiation, there are strategies, and risk averse landlords will often prefer a smaller rent cheque than no rent cheque for an extened period of time.