Category Archives: rants

One More Step To Go and Maybe CFOs Will Finally Get It Right

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A recent article in the Supply Chain Management Review notes that, for CFOs, these days, “Survival Trumps Profits”. This is a step in the right direction as it’s not all about the almighty dollar, and, more specifically, how many of those almighty dollars you can bring in this quarter, it’s about doing good, doing right, and being around for the long term. After all given the choice between 1,000,000 in profit this year, and potentially going out of business tomorrow, or 500,000 this year and at least 500,000 a year for the next ten years, I’ll take the 500,000 a year because no investment vehicle is going to quintuple my investment in 10 years.

The article, which summarized a recent study commissioned by Basware and produced in cooperation with Indiana University’s Kelley School of Business and the University of Navarra’s IESE Business School, noted that most corporations these days are doing one of the following:

  • relentless restructuring
    slashing expenses, massive layoffs, and other drastic measures
  • cash flow
    cracking down on late payers, reducing customer payment terms, and extending supplier payment terms
  • the “holistic” approach
    integrating with procurement, eliminating siloes, and making operations transparent

But only one of these is the right approach. Can you guess which one puts you on the right track to building a long-term success story and, in comparison, which two put you on the fast track to failure?

If You Really Want To Fix Executive Pay, Decide Who NOT To Pay

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A recent blog post over on the Harvard Business Review site on the issue of executive pay, which stated that “whom to pay is more important than how much or how”, made a good point — that the fundamental issue is to ensure that CEOs and other leaders make the greatest potential contribution towards building lasting greatness. In the author’s viewpoint, that means you need to be paying the right people.

Furthermore, while a star blue collar worker on a traditional assembly line would be 40% more productive than a typical worker, that performance advantage can be 240% for a star insurance salesman, and more than 1,000% for star workers in more complex jobs such as a computer programmer or an account manager of a professional service firm. This indicates that CEO performance, given the complexity of the job, can have a huge spread.

So it’s definitely important to be paying the right people. But, in my experience, it’s even more important NOT to be paying the wrong people. You can have a star CEO and still have her fail if she’s surrounded by useless blow-hard suck-up yes-men who can do nothing but produce hot air eight to twelve hours a day. Nothing ensures a bad quarter, and ultimate failure, faster than an over-paid, under-performing nincompoop who constantly interjects nonsense, demoralizes the team, blames everyone else for his failure, over-promises and under-delivers to your most important customers, stumbles into meetings late, leaves early, and constantly acts as if the entire company would fall apart without him when, in fact, it would reach entirely new heights. So if you really want success, the first thing you need to do is weed out and fire these bad apples because, then, it will only take one or two star performers to turn a slightly above average team into a superstar organization. Then it won’t matter how much you pay since your superstar team will always be delivering value relative to how much you incentivize them.

Musicians Beware: United (Airlines) Breaks Guitars

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Dave Carroll, of the Sons of Maxwell, decided to recount his unfortunate story about his trials and tribulations on a United Airlines trip last year the way a musician does best: in song. Even if you think the style of music isn’t your style, the video (and song) is definitely worth checking out all the way. Trust me. (And give a local boy some support.)

United Breaks Guitars

Was China Ever Worth It?

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A recent article in the Supply Chain Management Review covered a recent AMR survey across 133 manufacturers and retailers with over 5 Billion in revenue each and asked them about their sourcing plans from China. The survey found that manufacturers, who believe China contributes the most risk in 12 of 15 categories, are now 2-3 times more likely to decrease sourcing in China.

Nothing against China, but it’s about time. I’ve been against needless global sourcing since day one. Most of the time it just adds time, cost, risk, and, because of the dismal state of pollution control in the ocean shipping industry (which accounts for 4% of all emissions that contribute to climate change globally), pollution. And it wastes limited petroleum reserves. (The stuff takes millions of years to form under the earth’s surface, thus, at any point in time, the total amount available, even if we don’t know how much there is, is limited.) We can get the same quality of VCR or DVD player from Mexico, quicker, with reduced costs in a number of categories, with less risk, and less pollution.

Now, I’m not against global sourcing … some raw materials just aren’t available in sufficient quantities on all continents, each continent has a different growing season (and greenhouses aren’t as cheap or green as you think they are), and sometimes there are only a few places that can produce a new product. In these cases, you should definitely be global sourcing. But you shouldn’t be global sourcing just because it’s the lowest cost today … you should be global sourcing because it’s the best option, and value, over the long term.

CFO: You Are The Weakest Link!

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A recent article in CSM Worldwide Insights about “Stress on the Supply Chain: Where is the Weakest Link?” about the perilous state of the US automotive supply chain hints at a much deeper question than just who will fail when one of the big three fails. Why will they fail, and how could failure have been prevented?

They’ll fail because they were too reliant on one company that has been essentially financially insolvent for years. What could have been done to prevent this? They could have diversified among not just the big three, but the big three foreign manufacturers who also have, and are opening up plants in, North America. Moreover, they could have diversified beyond the automotive industry. Cars aren’t the only things with gasoline-based engines. We have buses, trucks, boats, airplanes, and even riding mowers. Is it the same part for every vehicle? No, but there are similarities since all gasoline engines pretty much work the same way.

Why did they choose to overspecialize? Most likely because, during the last boom, business was so good that the CFO advised them to follow this path. A CFO who was more concerned with presenting an unrealistically and unsustainably good set of financial statements to Wall Street and investors than insuring the business was diversified and stable for the long term. The same CFO who, when times get tough, cuts New Product Development and Marketing first, the two things that could actually help the company thrive during a downturn, and then, more recently, kicks procurement in the face (and cuts positions, budgets, and new technology implementation) when, in fact, they could be the organization’s saving grace.

For this, I name CFOs, with their reluctance to focus on the big long term picture, the weakest link in the supply chain.