Category Archives: Strategy

Looking to Transform? Make Sure The Organization is Ready!

Transformation, which many companies will require to survive the next few years, doesn’t work unless it’s taken seriously, and the organization is ready for it. To judge awareness, ask these “six questions for company transformation” from a recent Industry Week article.

Where is the Organization’s Culture?
Before an organization can begin a change management initiative, it must understand the culture of the organization. What are the beliefs and expectations of the employees? If this is not understood, then it is not likely that an initiative can be designed to change their spirit. And unless the employees get behind the initiative, there is no hope for success.
What starts the process?
Most companies want to take action right away, but action is often no more effective than reorganizing lines on an organizational chart, which is rarely effective. A successful transformation begins with knowledge — a pervasive awareness of what needs to change, why, and how it will improve the company’s situation.
Whose culture is it?
The organizational culture must be owned by the employees, not by the management team or the consultants brought in to lead the change management initiative. Furthermore, the effort must allow the people to reach their potential or the change will not be as successful as the organization hopes.
How Do You Know If You Are Making Progress?
It’s not just about the metrics, which won’t convey meaningful information for months, but about the visible changes in behaviour that signify that change is taking place within the organization.
When Can You Change the Culture?
Change can only happen now, not at some future time. Each day must be an effort focussed on meeting that change.
Why Do People Change?
There are two critical steps to transformation success. The first is to understand that organizational culture will need to change. The second is to understand why it will change, which is not always obvious. For more details, see the article or The Seven Arts of Change (DavidShaner.com).

If You Trim Your Supply Chain, It Will Grow

In some ways, a supply chain is like a bonsai tree. It must be regularly pruned, shaped, and defoliated if it is to take on an aesthetically pleasing shape that is sustainable in the long term. This is especially true if the supply chain is going to be the foundation of corporate success. As per this article over on Supply & Demand Chain Executive on how “most companies [are] paying a ‘Coherence Penalty'”, companies with very few (one to three) firm-wide strategic priorities are the most likely to … have above average profitability and revenue growth.

Furthermore, if the company’s capabilities — namely the supply chain — support the company’s strategy, profitability and revenue growth will most likely be above average. And if the company is coherent, which is only true for about 13% of companies, it is twice as likely to have above-average profitability.

Thus, since there must only be a few strategic priorities, and since the supply chain must support those priorities, the supply chain must be lean and focussed on those priorities — and those priorities alone. If the supply chain sprawls, it will not be sharply focussed on the strategic priorities, and, chances are, the lack of focus will lead to a sprawl in priorities which will, in turn, lead to a sprawl in strategy. This will cause the company to lose coherence which will in turn stunt revenue growth and profitability.

So keep trimming that supply chain. The reward will be worth it.

When Do You Consider the Customer?

As the following image from the AbleBrains blog indicates, at every single step:

Customer Focus

Because if you don’t, yours will be the company that sees its supply chain get a lot leaner — fast. Consumer confidence may be rising, but discretionary spending — with the rising cost of food, clothing, and fuel — is falling. It’s not a good time to be in an optional CPG category — so you better make sure everything that you do is about the customer.

Manage Uncertainty Like an Engineer

Like microchip fabrication and other complex engineering tasks, the supply chain is full of uncertainty. The best way to handle uncertainty is to deal with it up front, instead of trying to sweep it under the rug in the misguided hope that if the corners of the rug are stapled down, it won’t escape and manifest as a supply chain disruption. So how do you attack uncertainty head on? You approach it like an engineer.

A recent blog post on the HBR blogs on “how engineers manage uncertainty” had some great advice on how to handle uncertainty like an engineer.

Acknowledge the Uncertainty
Ignoring it never works. Do your best to quantify the worst-case scenario, to mitigate as much of the uncertainty as you can, and to deal with the repercussions should it come to pass. For example, if you’re shipping a lot of product from China and the cargo ship sinks, and the holiday season is fast approaching (and it’s when you do 70% of your sales), if you have a dual sourcing strategy in place, you would quickly ramp up (overtime) production in the manufacturing facility where product can be manufactured and shipped to your warehouses in less time than it takes to ship them from China.
Have a Plan
Working through a plan to deal with potential uncertainties helps to not only deal with repercussions when something happens, but to minimize the chances that something unexpected will happen in the first place. For example, if you realistically expect that 3% of products shipped to you will be faulty, you will order 103.1% of expected demand.
Break Down the Process
This lets you analyze each step carefully and understand not only where the risks can arise, but how to mitigate the risks and prevent them from occurring in the first place. If the risk is transportation, because there is a high risk of a truck being hijacked for valuable components, you’d add security and possibly split the shipment in half to increase the odds that at least some product makes it to you quickly.
Teamwork
If all team members on a cross-disciplinary team work together, not only is there a greater chance of identifying all uncertainty, but there is a greater chance of coming up with production plans that minimize uncertainty due to more creative power being available. For example, let’s say the product is fragile and the uncertainty lies in how many units will survive multiple shipments from factory to warehouse, warehouse to store, and store to consumer. More mind power increases the chance that a sturdier design will be found or that better packaging will be identified.

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Stress-Test Your Supply Chain Strategy

Even if everything is going okay, and especially if everything is going well (as good fortunes never last), it is important to stress-test the supply chain strategy on a regular basis. If the weaknesses in the supply chain are not uncovered before a supply chain disruption occurs, it could mean the difference between a minor hiccup and a major disaster that shuts down production for a week and costs the organization millions of dollars in losses.

The weaknesses will only be uncovered if the organization is asking the right questions. After all, as Peter Drucker has warned, the most serious mistakes are not being made as a result of wrong answers; the truly dangerous thing is asking the wrong questions. If the right questions are not being asked of the supply chain strategy, there’s nothing to stop the organization from taking the wrong fork in the yellow brick road and ending up lost in the jungle instead of back home in Kansas.

So what are the right questions? That’s a good question in and of itself, but thanks to Robert Simons, the Harvard Business Review and a recent article on how to “Stress-Test Your Strategy”, it’s one that is fairly easily answered as the right questions to start with are the seven counterparts to the seven questions every business should be asking at the strategic level. More specifically, the seven questions that should be asked to test your supply chain strategy are:

Who Is Your Primary Stakeholder?
The organization has to serve its primary customer, but as an internal function, you have to serve your primary stakeholder who must, in turn, serve the primary customer. It’s important to know who the primary stakeholder is because supply chain generally has multiple organizational stakeholders, each trying to pull the organization in disparate directions. Unless the organization can quickly focus in on the most important direction, which it can if it knows whose needs must be met first, it will lose a lot of time, energy, and productivity.
How Do Your Core Values Prioritize Customers, Stakeholders, And Your Team?
An organization must serve its customers (who are the source of life-blood revenue) first, stakeholders (and internal supporters) second, and it’s employees (workers) third. By keeping this trio of parties happy, it will ensure success and thereby achieve the first goal of business — generating value for the shareholders.
What Critical Performance Metrics Are You Tracking?
Only what’s measured get managed, and since it’s critical that the right things are managed, it’s critical that the right things are measured. Furthermore, it’s even more critical that the right things are measured in the right way. For example, as a measurement, “on-time outbound shipments” is a useless metric. What ultimately matters is whether or not it reaches the customer on time, not that you shipped it when you said you’d ship it.
What Strategic Boundaries Have Been Set?
Where does your function begin and end? Does it stop with sourcing and procurement? Does it include logistics management? Does it include risk management? Does it stop at risk identification or does it include the implementation of mitigations? Are the mitigations limited to disaster recovery or do they venture into financial hedging? Despite pressure to the contrary, no supply chain organization can do everything on its own, and it must ensure that those functions it is responsible for are appropriately staffed and monitored.
How Is Creative Tension Being Generated?
What incentives do your team members have to push through the boundaries and find ways to improve processes and policies? There should be a constant effort to improve the supply chain while adapting it to the current economic conditions.
How Committed Is Your Team To Helping Each Other And Key Organizational Stakeholders?
No person can be a peninsula thinly attached to the rest of the team if the organization as a whole is to consistently generate great results. The amount of skill and knowledge expected of today’s supply chain professionals is simply staggering and the team has to work together if they are to succeed. Furthermore, they have to help those whose help they need, and finance in particular (which might mean leaning to speak the language of the CFO: Part I and Part II) as the ultimately control the budget and resources the supply chain organization has at its disposal.
What Strategic Uncertainties Keep You Awake At Night
If something isn’t keeping you awake at night, then you fail to realize that there are half a dozen things that could grind your supply chain to a halt at any particular moment. You need to be constantly thinking about these possibilities and coming up with ways to prevent them, or at least mitigate the damage they could do if they materialize.