Category Archives: rants

How Dumb is Your Company?

Although it is likely that the majority of my regular readers — who strive to improve their knowledge, capabilities, and skill-sets by the day — work for above average companies who are reasonably intelligent at their core, it’s a recession out there, and your average company is getting dumber by the day. Moreover, many companies don’t even seem to realize how dumb they’re getting or the bad precedents they’re setting for good companies who will be pressured by investors and Wall Street to follow their lead. Thus, in my quest to keep your company on the straight and narrow, I bring you CIRCUIT: the “Corporate Intelligence Rating Calibration Under Inflationary Times”. I hope you don’t need it, but if you do, I hope it persuades your managers, and investors, from doing dumb things.

In recessionary times, companies have a tendency to execute one or more of the following 10 dumb mistakes. To determine your corporate intelligence, start with a score of 10 and subtract 1 for each act of corporate omission.

Doing Away With the Perks
Usually the first thing to go when money gets tight are the employee perks. If perks at your company happen to be box seats at the game, and a box costs your company 100K a year, then it’s a justifiable call. However, at most companies, “perks” are usually limited to refreshments in the break room, the odd meal out, and the odd office party which, when combined, account for a total cost that is a negligible rounding error on the balance sheet. The pennies you save is not worth the loss of morale, and productivity, that will result from taking away your employee’s 25 cent coffee or soda. 		-1
Delaying that Technology Purchase
Companies that win do more with less. They do that by deploying technology that increases the productivity, and capability, of their staff. Look at the Hackett numbers. Leaders spend more — way more — on technology.
I’m not saying that you should go out and spend millions on a new ERP, since some traditional enterprise solutions on the marketplace are way overpriced, but if you’ve identified a need for a system, do your homework, find a low-cost (SaaS) solution that meets your needs, and license it on a pay-as-you-go basis. 		-1
Postponing New Product Development
Recessions do two things. They break (and sometimes bankrupt) losers and they make leaders. In strong markets, the leading companies are always — ALWAYS — those companies that emerge, lean (which means cost-conscious and not cost-focussed) and mean, from a recession with new products and services to meet the needs of the market. This also means that leading companies continue to innovate new products during a recession (as well as new ways to produce or deliver them more cost effectively). 		-1
Freezing the Marketing Budget
Companies that succeed in recessionary times are companies that conduct business-as-usual. Although this doesn’t mean spending millions on a Super Bowl ad, it does mean a continued advertising presence on the web and at intelligently selected trade shows. Companies that conduct business-as-usual show their (potential) customers that they run their business responsibly, in good times and bad, and are more than capable of riding out some rough waters here and there. (And there’s a difference between responsibly getting a booth at a trade-show and irresponsibly hiring expensive magicians, professional athletes, and bikini-clad super-models to staff it when you have real-world budgets.) 		-1
Strangling the Travel Budget
Global business requires global travel — plain and simple. It’s true that you can do a lot by tele-conference and video-conference, and also true that you should be doing as much as you can with these new technologies, but this will never replace the connection formed by being there in-person, as any good sales person will tell you. Sometimes you need to visit customers, sometimes your remote teams need to come together to form a bond, and sometimes you need to go to trade shows. If you were managing your travel budget responsibly, and only traveling when you needed to, you can’t cut a single penny without negatively impacting your business. 		-1
Cutting 10% Across the Board
A responsible business doesn’t have more employees than it needs to get its work done, and doesn’t retain employees who are not capable of adequately performing the job they were hired to do. This means that every single employee is needed and productively contributing to the business and that, logically, cutting employees must seriously cut into productivity and threaten a business’ ability to continue business-as-usual.
Furthermore, in reality, cutting 10% of your employees is equivalent to cutting 30% to 50% of your operating capability. The first thing that happens is that morale and drive, which greatly impacts an employee’s productivity, tanks across the board. Then your employees get scared and start looking for new jobs — but since most companies aren’t hiring, only your best employees get new jobs. End result: cutting 10% across the board ensures that your top 10% take their leave as well, and the 80% who are left are operating at maybe 2/3rds capacity as they spend a lot of their time worrying about what they’ll do if they lose their job and looking for a new job. Net effect, you lose up to 50% productivity for what you thought was a 10% cost savings. 		-1
Killing the Training Budget
Not only do top companies spend more on technology than their peers, they spend more on training. Why? This allows them to do more work with fewer employees. This allows them to keep their salary expense lean-and-mean relative to their peers, and to earn more per employee, for a total cost that is usually a small fraction of the lean-and-mean salary expense. 		-1
Shifting Focus from Growth-Planning to Cost-Cutting
The leaders, innovative to the core, always find a way to grow slowly in a recession. Always. Always. Always. Maybe it’s only a few percentage points compared to the tens of percentage points they grow when the recession ends, but they grow. The losers switch to cost-cutting and, more often than not, cut themselves out of existence. 		-1
Stifling Innovation to Reduce Risk
Three words: INNOVATE OR DIE! Your choice.		 -1
Retreating into your Moated Castle
This has become my new personal favorite! Often the first thing to go these days after the employee perks is the consulting budget — and it’s often by far the dumbest thing your average company can do. Often the only way of introducing significant, meaningful, cost-saving revenue-generating improvements into your average company is to bring in an outside consultant who specializes in one or more types of business innovation. A consultant who can tell you what technology is right for you. A consultant who can help you define the right new product development roadmap that will result in products customers want to buy, even during a recession. A consultant who can help you maximize your marketing budget. A consultant who can help you save money and avoid unnecessary costs in an intelligent, non-destructive, fashion. And a consultant who can keep you on the innovation path and out of the cost-cutting abyss that ultimately spells a cruel demise to what could have been a very successful business model with just a few tweaks. 		-1

What’s your Corporate Intelligence Rating? If your score is:

  Rating Comments
10 Genius Congratulations! You are a true market leader.
9 Intelligent Quite Good! You’re best-in-class.
8 Smart Not Bad. You’re above average and on the road to stardom.
7 Average You’ve got some work to do, but if you set your mind to it, a bright future awaits.
6 Dull You’ve got your work cut out for you.
5 Deficient You’re handicapped, but if you’re handi-capable, with hard-work, perseverance, and a devout focus on change, you can be average in no-time!
4 Feeble You’re seriously lacking in corporate know-how, but if you open your heart to innovation, and bring in some expert consultants, you can get back on the right track.
3 Dumb You’re going to need a corporate make-over to survive.
2 Moron Find a Leprechaun! You’re betting on Lady Luck at this point!
1 Imbecile Start writing your corporate obituary. It’s just a matter of time.
0 Complete Idiot Congratulations! The Sourcing Maniacs lay their bells at your feet. It should be impossible to be this idiotic and still be alive, but you’ve proven that nothing’s imposible. Have some bubbly before the money runs out.

Are You Still Relying on the Mallet and the Carrot?

In the old days, purchasing had two levers in negotiations: the (rubber) mallet, which they used to bonk their suppliers over the head when they did not like the way negotiations were headed, and the carrot, which they used to try and convince suppliers to lower their prices. The particular mallet and carrot would change depending on the negotiation in question, but the goal was always the same — to convince suppliers to offer better terms in exchange for an award (the carrot) or to convince suppliers to offer better terms to prevent a loss of business (the mallet). For example, the buyer might offer the widget supplier part of the gadget buy as well for a 10% decrease in price (the carrot) or might threaten to take the gadget business off the table (if the supplier already had both categories) if a price decrease of 5% across the board was not agreed to (the mallet). A traditional purchaser would alternate between the strategies depending on the supplier, and might even use both in the same negotiation to try and extract the best deal.

However, these days, purchasing has more levers than just the carrot and the mallet, including win-win levers like total cost awards enabled by optimization, new opportunity identification enabled by cutting edge spend and data analysis, and innovation enabled by supplier collaboration and enablement technologies. But many organizations, who are obviously not innovative best-in-class, fast-acting leaders, or even average supply management organizations, still rely almost exclusively on the mallet and the carrot.

Why?

It’s a very good question that needs a damn good answer, especially given today’s economic climate where, thanks to the multiple financial crises, your average supplier is probably in, or about to be in, a credit crisis, if they weren’t already in a crisis with the explosive increase in most commodity costs over the past year and the recent increase in DPO (Days Payable Outstanding) at organizations trying to improve their working capital that failed to see the big picture. (This is one of the three sure-fire finance strategies for supply chain failure.) Now more than ever you need to work with your suppliers to find the best-deal that allows both of you to win … and this means abandoning the time-honored mallet and carrot negotiation techniques of supply management past.

The three techniques identified above will save you millions on their own if you haven’t applied them effectively before:

  • Total Cost Decision Optimization
    It will help you jointly identify savings that can come from better inventory distribution, manufacturing distribution between plants, and raw material cost savings on raw materials that can be bought in bulk, by or on behalf of your supplier, across needs in multiple categories — allowing you to save money without forcing your suppliers to accept unsustainable margins.
  • Spend Analysis
    As pointed out in Opportunity Identification, the savings opportunities that arise just from knowing where you are overspending, and where you can consolidate spend, is significant. Just focussing your efforts on the right buys will save you more than hammering an extra 2% in a negotiation on an insignificant buy.
  • Collaboration and Enablement
    When you work together to help a supply manufacture more efficiently and cost effectively, you can often find significant savings opportunities that would otherwise go undiscovered. Consider a recent client of Apriori who found that a different manufacturing process could reduce the production cost on a $4.80 part to $0.80, a savings of over 80% on a six figure annual buy!

And this just scratches the surface of the innovative techniques for savings that have been covered in this blog over the past few years. So if you really want to succeed in the new supply management economy, throw away the mallet and the carrot before you bonk yourself on the head and bite off more than you can chew.

Why is the Perfect Order So Difficult?

Reading the latest research, you’d think that finding the Holy Grail would be easier than filling a perfect order. According to “Benchmarking the Perfect Order”, a recent study by Kate Vitasek of Supply Chain Visions and Karl Manrodt of Georgia Southern University that was commissioned by the Vendor Compliance Federation, the Perfect Order Index for 2007 was a measly 27.2%, assuming that every order was damage free (due to data unavailability for a proper estimate). Let me say it again — 27.2% at best! That means that three out of every four orders was flawed. That’s performance so bad, that it’s three times worse than the US aviation industry, the poster child for poor performance, where, on average, only one out of four flights was delayed.

After all, how hard should it be to deliver an order:

  • on-time,
  • complete,
  • damage free, and with
  • correct documentation

Think about it:

  • you know the delivery date when you agree to the order,
    and you shouldn’t be agreeing to anything you can’t deliver on
  • you know, line item by line item, what you have to deliver,
    as well as how many units are required
  • you know the fragility of your products,
    and should be packaging and handling them accordingly, and
  • you have to know the documentary requirements, especially if you’re exporting
    as failure to know can result in seized and destroyed shipments at your expense

So what’s the problem?

Well, obviously, you are!

But Why?

That’s the Billion, if not Trillion, dollar question, isn’t it? And the answer is, ultimately, that you’re not prepared for it. Why not? Although it’s hard to say in any individual case, it’s most likely because you haven’t shifted your focus from internal performance to customer delivery. In essence, you haven’t prepared for it. Instead of abondoning outdated software, processes, and metrics that focus on you for newer software, processes, and methods that focus on the customer, and allow you to get everything that really matters right, you’re still using the software, processes, and metrics that you were using 20 years ago during the quality revolution.

Let me explain.

With regards to on-time, most of you are probably still tracking “on-time” as shipped on-time with respect to whatever internal production and distribution schedule you devised. When you ship is irrelevant if the stores need it by Monday for a promotion on Tuesday that’s expected to generate tens of thousands of sales. If on-time to your system is “shipped four days before due date”, but you’re shipping by truck from Texas to Alaska, you’ve got a problem! With limitations on how many hours a driver can drive in a day and border delays, you ain’t gonna make it. You need logistics management software that understands minimum, average, and worst case delivery time requirements (by season) and you need to schedule each shipment to a different location in a large order separately.

With regards to complete, you can’t tackle it on a line-item by line-item basis, split across half a dozen shipments on two different carriers and wash your hands of it when the system says everything’s shipped. It’s only complete if it arrives complete. This means that you have to have an extensive shipment and delivery tracking system in place to insure that everything in a disaggregated order hits the checkpoints that need to be hit when they need to be hit so that part of an order doesn’t get lost. Again, just shipping it “complete” doesn’t make it “complete” if you’re breaking the order up across shipments – because then all shipments have to arrive by the designated date and time for the order to be complete. You need a web-based supply chain visibility solution that can be utilized by your partners to update progress as it happens.

With regards to damage-free, you can’t just package it in accordance with minimally acceptable padding, check a box, dust your hands, and call it a day. You have to ensure that all third parties in your distribution network that handle the product do so with the necessary care and that it passes through each checkpoint undamaged. If one of your distributors screws up and breaks something, you need to get a replacement shipment out, and maybe even expedited, before it arrives broken and useless at the customer site. Again, you need a web-based supply chain visibility solution that can record the order status as it clears each checkpoint.

With regards to correct documentation, you need to make sure that all of the documentation required by each check-point is included before it leaves your facility. These days, if you’re importing or exporting, this requires a Global Trade Management Solution, because it’s almost impossible to manage the dizzying array of requirements otherwise.

In short, unless your key metrics have been defined to be 100% customer-focussed, and you have the proper logistics management, supply chain visibility, and / or global trade solutions in place, you’re not going to be able to achieve the perfect order the majority of the time, and the perfect order will continue to be a “holy grail” when, in actuality, it should be a common occurence. The solution, like the problem, rests with you.

A Tale of Murder and Intrigue in India

The Murder: I just read a short piece in Supply Chain Digest that noted that Lalit Kishore Choudhary, the India CEO of an Italian transmission company, was murdered by an angry mob after dozens of angry laid-off workers pummelled him during a meeting to discuss possible re-instatement.

The Intrigue: Searching for further information, I found this story in Industry Week which quoted India’s labor minister, who declined to criticize the attack, who said it should serve as a warning for management, workers should be dealt with compassion, and the workers should not be pushed so hard that they resort to whatever happened.

WTH?!? As far as I can tell, it sounds like the labor minister is saying that if you get fired for violence, and the discussions to reinstate you don’t go your way, that you can form a mob and kill your former boss. What?!?! You have the right to demand better pay and employment guarantees, but in today’s economy, you can’t expect the latter. If you don’t get what you want, you have the right to leave, and if you get laid off, you often have the right to severance. But you don’t have the right to resort to violence, and you definitely don’t have the right to kill your boss — who may not even have any say in the matter. Even the CEO has to answer to a self-serving Board of Directors!

According to the Industry Week article, a domestic industry body said the incident would hurt India’s international business image. Furthermore, the Federation of Indian Chambers of Commerce and Industry has said that such a heinous act is bound to sully India’s image among overseas investors and deserves our utmost condemnation. All I have to say is that I nominate that as industry statement of the year. If the reporting is accurate, the labor minister effectively said it’s okay to mob and kill your boss if you get fired for violence. Who’s going to want to open an operation in India in that economic climate?

The Return of U.S. Manufacturing?

In my recent piece on Is Your Supply Chain Reversible, I noted that the US is now a low cost country source for (Western) Europe and that those manufacturers ready to take advantage of the situation are going to lead the turnaround in US manufacturing. Shortly after, I found an article in Industry Week that wanted to “welcome back US manufacturing” on the basis that high fuel and energy prices along with rising labor costs in traditionally low-wage markets have some manufacturers rethinking how far they are willing to extend their supply chains. This article caught my attention as it pointed out that some mid-size companies are already bringing manufacturing back home, as they are unable to control shipping costs that are spiraling out of control.

The article mentions Desa LLC, a manufacturer of residential heaters based in Bowling Green, KY, as a case in point. Despite the low production costs in China, the high shipping costs, combined with the recent VAT reductions in China, give local manufacturing a lower TCO. Then there’s the relative price increases in some raw materials in China compared to the US, the falling dollar, and across-the-board energy costs. When everything is put together, the perceived advantages of China-based manufacturing for many (large, bulky) products disappear.

Of course, as the article notes, not all manufacturers are going to return to the US, since labor costs are higher than in other countries, but, as the article notes, many are likely to return to the continent and “near-shore” to Mexico (and, if the dollar rebounds, to Canada for complex products and services). But many are considering the US. A recent AMR survey of manufacturing executives found that 21% are planning to increase US-based manufacturing over the next year and Caterpillar Inc., for example, is investing 1 Billion in a multi-year capacity expansion plan for five Illinois plants.

But when you consider that the smart US manufacturers, like CEI who recently invested in an robotic palletizing system that automated a formerly manual stacking procedure, are investing in better technology that makes production more cost efficient, it’s going to make more and more sense for many manufacturers to return home. After all, it’s all about competitiveness, and those companies who invest money into new equipment, processes, and innovation are always going to have an edge. And considering that the US has been the center-point for innovation over the last few decades, there’s no reason that US manufacturers can’t bring jobs back if they put a bit of effort and investment into it.