Category Archives: Strategy

Does Your Supply Chain [Still] Have [A] Manufacturing Myopia

Manufacturing Myopia can be defined as a narrow vision of future potential, [generally] leading to formulaic cost-cutting, layoffs, loss of competence, and decline. It’s a state of affairs that is becoming more and more common in North American manufacturers, but it doesn’t have to be in your future.

The fundamental problem, as pointed out in a now classic Strategy + Business article on Manufacturing Myopia is that manufacturing strategies — decisions related to siting, designing, and running factories — are often the same as they were 10 or 20 years ago. Despite all of the so-called program advancements — such as “TQM” (Total Quality Management), “lean production”, and “Six Sigma” — manufacturing, for the most part, has not kept up with the times. Strategies have been contained to the functional or plant level, disjoint from the enterprise-wide strategy and cut-off from the executive decision makers, and, as a result, the manufacturing focus has narrowed over time to the point where competence has atrophied with respect to the rest of the business. This has compelled many companies to focus on cost cutting to the point of irresponsibility instead of (fundamental) process innovation.

So how do you prevent manufacturing myopia? According to the authors, you start by building awareness as the only “cure” is 20/20 vision that ties together an understanding of manufacturing costs and means. Companies have to sharpen their own ability to see their operations more clearly and redesign them more flexibly as they need to acquire the ability to produce higher-quality goods at lower prices in a flexible manner as this is a key component of their long-term competitive strategy and a central, dependable part of their identify.

In order to build this awareness, a company needs to master the following four dimensions:

  • technological distinctiveness
    a company that relies on machine builders and other vendors to fill the gap is simply buying solutions that are available to the mass-market; this will not give them a distinctive advantage over their competition
  • network sophistication
    the company has to progress to a global, flexible supply chain network that can be reconfigured anywhere in the world as market conditions change; plants have to be designed with “flexible footprints” so that they can be enlarged, shrunk, or reconfigured based on the business landscape because it can take two years to close down a factory — and that’s typically after several years of wavering over the decision
  • in-plant transformation across-the-board
    in order for plant processes to truly be transformed, an initiative has to be initiated at the executive decision making level as part of an overall strategy; otherwise, adoption of new processes will be haphazard and results will be across the board (and even include a loss of efficiency in some cases)
  • labor modernization
    even the shop-floor technicians have to become modern knowledge-workers (using the best tools and techniques for the job) who take pride in their job and strive to produce the best product they can; hours of work and compensation must also be modernized so that people are not driven to overtime (where they work themselves sick and lose productivity instead of gaining it)

And, most importantly, as per the article, the company needs to have patience. While the benefits of a manufacturing transformation should start to materialize within eighteen (18) to twenty-four (24) months, as the article indicates, after production technology is replaced it could take two-to-three (2-3) years before the capital investment bears fruit in the the semiconductor sector, five (5) years in major manufacturing, and as much as twenty (20) years in process industries such as petrochemicals and electricity production. Additionally, to improve processes, companies have to train entire plant communities in dozens of different tools and techniques and completely different ways of working. All of that consumes time and resources.

It’s a tall order when you think back to the classic Ford production line that most plants still work on — one path, one job, and one product — but it’s what is needed if plants are to truly enter the 21st century. I highly recommend that you check out the Strategy + Business article [again] on Manufacturing Myopia. I bet your supply chain could use it.

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How to Deal with Problem Salespersons – Use Their Seven Deadly Sins Against Them

In a recent post over on the HBR blogs, Steve W. Martin describes “a salesperson’s seven deadly sins”. Many sales people indulge in one or more of these sins, and you can use this to your advantage to avoid negotiating a deal you don’t want to make (as some sales people won’t stop calling until they get a meeting since their mantra is to “prospect, prospect, prospect until they have a purchase order or a restraining order”).

In the order they were presented by Mr. Martin, here is how to use the seven deadly sins of sales people to your advantage.

Garrio (Chattering):

For whatever reason, some salespeople just can’t keep their sassy mouths shut. If you know that you don’t want what the salespeople are selling, but can’t get out of the meeting / call (because your supervisor bound you to it), you can avoid getting to the “negotiation” entirely by asking a question every time the salespeople come up for air. This will keep them talking until time’s up when you can bid them good day (and good riddance).

Gula (Gourmandizing):

Some salespeople are more interested in the meal than the sale. If you know a bit about food, you can avoid a discussion of the salesperson’s product or service entirely by suggesting a fine establishment unfamiliar to the sales person where you will spend the meal discussing the restaurant and the food. Plus, the sales person will be happy because he “bonded” with you.

Lentus (Inactivity):

Some sales people are way too focussed on the here and now, to the point where they’ll ignore the future to their significant detriment. If you don’t want them bidding on a big contract next quarter, but don’t want to upset them because you want to continue to do business with them where other products or services are concerned, you can easily distract them by diverting their attention to a contract that is closing sooner that they can bid on.

Oblivio (Oblivousness):

Salespeople often have no clue who does and does not have buying authority and think that a manager is a manager is a manager. If you want to divert their attention or get them off your back, you can keep them tied up for months by redirecting them to another employee of “equal” rank who is interested in their product (but who will take months to decide such product is best), but who ultimately has no buying authority. When the salespeople ultimately finally find out that Manger of Quality Assurance has no spending authority, they might just give up completely and go away.

Ieiunitas (Shallowness):

Some salespeople don’t know their product or service well enough to answer a simple question. A great way to get them off your back is to ask a dozen detailed questions that they have no shot of answering without having to go to engineering / service delivery (whose priorities will not be the same of the salesperson) and to indicate that it will be impossible to proceed until the questions are answered in detail.

Incomptus (Presumptuosness):

Some salespeople will happily assume what they don’t know in order to make “progress”. This can work to your advantage if you suggest that you require a key feature, on the future roadmap that won’t be completed for at least a year, in such a way that they presume you won’t go forward without that feature.

Ignarus (Ignorance):

Some salespeople don’t realize the importance of a contact that tells them what is happening behind closed doors, that defends them when they are not around, and that disseminates propaganda on their behalf. Other salespeople will believe anyone who says they are on the salesperson’s side. If you’re willing to stretch the truth and make lies of omissions, you can convince the sales person you are fighting a losing battle tooth-and-nail on their behalf and that the best thing they can do is stay away and be patient while you slowly wear your peers down while you are, in fact, doing absolutely nothing. After all, ignorance is bliss!

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Has the Outsourcing Craze Finally Stopped?

According to a recent article in the CPO Agenda, in the recessions and its aftermath, companies are re-examining the business cases for keeping processes in-house or outsourcing them. It’s “return of make or buy”. And it’s about time.

Not that I have anything against outsourcing, if it’s the right function to the right provider in the right location at the right price point, I just have something against outsourcing everything you can put your hands on. At some point, there’s more being done outside your four walls than inside. At this point, chances are that if you haven’t already outsourced most of the value your organization produces, you’re pretty close to that point. And once most of the value is elsewhere, what reason do people have to invest and support your company?

If Back Office Boys are handling your back-office tasks, Marketing Madmen are handling all your marketing and advertising, Rocket Resellers are handling your sales and account management, Stylized Support is doing your support and CRM, Custom Manufacturing Inc is doing your product design and production, and Total 3PL is doing all of your forward and reverse logistics, what are you doing? Okay, you’re orchestrating, but how are you any different from anyone else with the same skill set? So if someone else comes along, builds the same relationships, and finds a way to produce a competing product 20% faster, 20% better, and 20% cheaper, how long are you going to last?Not long. Not to mention, if you are producing 100% custom products, or 100% (very) high volume products, there’s a good chance you can do it cheaper in-house if you build and retain differentiating expertise.

And if you have to invest capital in a supplier’s business to keep your own afloat (as 9% of CPOs in a recent survey by CPO Agenda had to do), or acquire a failing and/or strategic supplier (as 3.6% had to do), it kind of kills the argument for (going overboard on) outsourcing, doesn’t it?

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Resource Allocation Processes Have to Change

The March edition of the Harvard Business Review had one of the best articles on strategy and restructuring (in response to the recent downturn) that I’ve read in a long time. In finding your strategy in the new landscape*1, the author notes that for much of the next decade, we can reasonably expect to see weak global growth, pressures from overcapacity, persistently high unemployment, volatility in the financial markets, costlier capital, a greatly expanded role for governments, a much larger burden of regulation and taxation for all, and maybe even increased protectionism. Essentially, a global marketplace that is pretty common when you consider not the last 5 years, but instead look back through the last 500 years (and the last 50-60 years in particular as there is lots of detailed economic data available post WWII).

Up until the invention of the standard shipping container in the 1950s, global trade, and global growth, was very slow. Up until the exuberance of the IT boom, and the virtual wealth it created, capacity was limited, as demand was, more or less, steady and predictable most of the time. Even in the developed world, unemployment has been traditionally much higher than it was between 1997 and 2000 and 2005 and 2009 for most of the last few centuries which saw a lot of poverty, war, and suppression of the rights of women (who were encouraged to stay home). There have been booms and busts in the markets for hundreds of years. After all, the IT bust wasn’t the first great bust — at the very least it was preceded by the crash in the Dutch Tulip Market in the late 1630’s where, at the peak of Tulip Mania in February 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman! Capital has traditionally been much costlier than it has been in recent years — as recently as 1981, the Bank of Canada interest rate exceeded 20% (and from 1976 to 1992, it averaged significantly more than 10%). Throughout most of history, it was the governments, and not the global corporations, that held most of the reigns, regulation was the reaction to every problem, and when cheap imports threatened an industry, tariffs were slapped down faster than a bell clapper in a goose’s ass*2.

The author, Pankaj Ghemawat, then goes on to state that managers cannot afford to ignore the risks of pursuing a global strategy in the uncertain years ahead and that they must change their strategic approach in several dimensions. In particular, companies whose strategies currently emphasize smoothing differences and achieving economies of scale across national boundaries may need to shift toward adapting to local conditions and their resource allocation processes will have to change, too. And the changes will have to take place on the sell side and the buy side. Not only will the one-product fits all strategy be unlikely to work, but so will the one location produces for all. When you consider steadily rising shipping costs, increasing labor costs in “low cost countries”, and the costs of a single factory having to regularly shut-down and retool a line for different products (or variants), outsourcing sometimes becomes more expensive than near-sourcing or even home-sourcing. That’s why a strategic shift will need to be made across the board.

Furthermore, in addition to rethinking the scope of off-shoring, companies also have to:

  • simplify supply chains,
  • import process innovations from emerging countries, and
  • move R&D to where the (best) researchers and market growth are.

Your supply chain is too complicated.

You have two many products that use too many different raw materials coming from too many suppliers and travelling down too many lanes in too many shipments because you’ve never optimized and consolidated your suppliers, SKUs, and lanes. While you need redundancy to avoid risk, there’s a difference between using 3 suppliers and using 13-30 suppliers, which is what the average company who hasn’t fully analyzed the category (and the end-to-end supply chain behind it) is doing. (And since less than 10% of the market is using SSDO regularly, opportunity abounds!)

When you have to do more with less, that’s when you innovate or die.

When you have no money, you tend to think different than when you have more than you can spend. This often leads to completely different kinds of innovation than what we produce in the western world. And that’s likely the kind of innovation you need to tap an emerging market where the middle class makes 1/10th to 1/8th of what the middle class makes in the USA.

The best researchers know the market.

If you’re trying to innovate a new product for a market, you need people who understand what the market will like. Those kind of people are native. Maybe they’re not your people, but maybe that’s a good thing. Not only will they innovate for their market, but they’ll bring you new ideas, and some of these ideas might improve your global operations.

In other words, the elastic that holds the global market together is trying to snap back, and you’re going to have to be agile and adapt if you’re going to hold on.

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*1 I was thrilled that, unlike just about every other publication out there, the author did not use the all-too-common, and all-too-stupid, “new normal” terminology which drives me nuts because anyone with half a brain that either (a) studied her history or (b) lived through it knows that it’s just the old normal coming back with a vengeance, and doing it on a global scale.

*2 Ask a Texan.

The Strategic Sourcing Debate, Part IV

In Part I, we noted how Dalip Raheja of The Mpower Group decided to stir the global hornet’s nest last month by declaring that Strategic Sourcing is Dead and that The Sourcing Emperor Has No Clothes. This was quickly picked up across the supply management blog-sphere and resulted in powerful reactions from a number of prominent bloggers. Then, in Part II, we noted that of all the responses, only one blogger got it right. Joe Payne, the quiet cub among the roaring lions, was the only one to note that at most companies, the concept of strategic sourcing hasn’t even been born yet. In our last post (Part III) we reviewed each of the responses and pointed out what the contestants got right (as well as a few mistaken assumptions) in our efforts to help you get a better grasp of what Strategic Sourcing really is. And in this post we’re going to discuss Dalip’s posts that instigated the debate.

After our last post, I’m sure you’re wondering if Dalip got anything right as I just spent a page and a half pointing out how pretty much every other blogger had valid points in each of their counter arguments. The reality is that quite a lot of what Dalip said in the four pages that constituted Strategic Sourcing is Dead and The Sourcing Emperor Has No Clothes was right, especially if you look beyond the words to the points he was making. (Yes, his posts probably could have been a little clearer, but they were deliberately written in a way that was designed to make you think. As was clearly stated near the end of both posts, the point was not that you agreed or disagreed, but that you joined in the debate.)

So what did Dalip get right?

Strategic Sourcing has not delivered the results it promised years ago, and it isn’t delivering the right results today.

This is because, as partially pointed out by Bob, at most organizations, strategic sourcing is:

  • tactical procurement with bells and whistles,
  • dumbed down to the point where the process is not strategic, and
  • a bunch of supply management processes shoddily slapped together without any coherent strategy in hopes that the whole will be more than the sum of the parts.

Until organizations employ true, modern, strategic sourcing, they will never see the right results.

Flaws in a process sometimes lead to the destruction of overall, or system wide, value.

You can do a bang up job defining your sourcing strategy, defining the process, selecting an initial supply base, conducting a sourcing event, making an award, and drafting a contract only to see it all go to hell when the supplier delivers an inferior product that starts failing en-masse when it hits your user base or a product that poisons your customers. One flaw in quality control brings down the whole supply chain, which pulls the business down with it.

If we are to maximize results, at some point we must address the process itself.

As noted by William and Jason in particular, you can’t just take someone else’s strategic sourcing process and run with it, because the process has to be customized to your organization and your organizational strategy. Furthermore, as Dalip implies, if everyone else is implementing a particular process, it’s a commodity, and therefore not strategic. The process must be implemented correctly, and it must grow and evolve over time as the needs and strategic foci of the organization change.

Many organizations do need next practices.

“Best practices” don’t stay best practices forever. They must be evolved or replaced with new best practices on a regular basis, or they go stale. At one point, paper RFQ packages was a best practice. That’s a stone-age practice today. Then electronic Excel bid packages sent through e-mail. That’s bronze age technology. Today, it’s on-line, real-time, web-based bidding and negotiation platforms. (In other words, some of us have finally reached the iron age!)

While cost cannot be ignored, we firmly believe that a process rooted in cost can never be a strategic process (unless the organizational strategy is to compete solely on cost).

You can’t focus on cost if you are competing on value. ‘Nuff said.

Unless we start expanding our pool of stakeholders to start considering our stakeholders’ stakeholders’ stakeholders needs, and start with those needs, we will never uncover these value contributors.

Unless we’re meeting the needs of all organizational stakeholders and the end customers, we have not yet reached true maturity in our strategic sourcing process and we aren’t making the right trade-offs.

The conceptual frameworks of Total Value Management (TVM) and Demand Driven Value Networks (DDVN) go the furthest in extending current thinking.

I’ve been telling you for years that you need to move from TCO to TVM.To borrow a phrase, hallelujah.

Plus, if you read very carefully, you’ll realize that Dalip doesn’t truly believe Strategic Sourcing is Dead, just that the current, shoddy, implementation that is common at way too many companies that have not yet learned what true strategic sourcing is (and made the leaps necessary for a proper implementation thereof) needs to die. Dalip was just using shock value to bring attention to a subject that we’ve become too complacent with. As astutely observed by William, Dalip was masquerading his thoughts behind buzzwords, round table discussions and slogans to grab your attention. The lack of proper strategic sourcing processes across organizations of all sizes is a big problem, and one we need to collectively address. After all, if there are still Billion dollar plus publicly traded internationals that allow administrative assistants, IT gurus, and marketing people with no formal procurement training to manage million dollar spends, as pointed out by Joe, collectively, we have a problem!

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