Category Archives: Strategy

Supply Chain Leaders Internalize Risks Before They Come To Pass

A recent article in the Harvard Business Review on “leadership in the age of transparency” noted that whereas, in ages past, companies could ignore “externalities” and still prosper, today’s leaders are finding that, in order to truly prosper, they have to internalize the “externalities” and successfully manage them long before they creep into realm of regulation or law.

(In economics, an exernality [or transaction spillover] is a cost or benefit, not transmitted through prices, incurred by a party who did not agree to the action causing the cost or benefit. As a result, in a competitive market, prices do not reflect the full costs or benefits of producing or consuming a product or service, producers and consumers may either not bear all of the costs or not reap all of the benefits of the economic activity, and too much or too little of the good will be produced or consumed in terms of overall costs and benefits to society . The examples give by the article are the tobacco industry, that profited by burying research it did in the seventies that proved smoking was an addiction and not a choice for most people, and the use of trans-fats, which are only now being outlawed in restaurants despite the facts that it has been well known for a while that they have no health benefits and provide a danger to some people.)

Supply chain leaders take a similar approach to supply chain management. Whereas good business leaders look beyond the market of today to the market of tomorrow where regulation, activism, or other forces could threaten their business and find ways to internalize those threats and eliminate them before they occur, supply chain leaders are always on the lookout for issues that could cause a major supply chain disruption. Leaders have noticed the increase in natural disasters in recent years that are posing supply chain threats and developed alternate routes and contingency plans. Leaders keep on top of the results of additive and chemical testing and find ways to remove dangerous chemicals and additives from their products long before regulations prevent their use. Leaders are on top of supply and demand swings and proactively lock up supply before it becomes a problem. Leaders look ahead and internalize what’s important.

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Six Drivers of a Successful Supply Chain Strategy

In addition to offering insights into planning horizons and supply chain strategy drivers, the recent report on “Supply Chain Strategy in the Board Room” by the Cranfield School of Management and Solving Efeso also summarized six drivers of a successful supply chain strategy. While there were no surprises, the points do deserve reiterating.

  • A balanced input of vision. A strategy developed without the blinders on generally works better than one developed with the blinders on.
  • Frequent review. When there’s a regular review to insure the strategy is being followed and implemented properly, the strategy will tend to be more successful.
  • Balanced input of quantitative modelling. Decisions based on a consideration of facts tend to be better than decisions made solely by gut instinct.
  • Adaption.What gets adapted gets implemented.
  • Integrated risk management. A supply chain that is less prone to collapse tends to function better than one that is more prone to collapse.
  • Benefit tracking. What gets measured gets managed is a timeless truth.

It would have been nice to see more insightful drivers considered, but c’est la vie. The reality is that if every company made these six drivers part of their supply chain strategy checklist, the average supply chain would function much better than it does today.

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What’s Driving Your Supply Chain Strategy?

The recent report on “Supply Chain Strategy in the Board Room” by the Cranfield School of Management and Solving Efeso listed the top 10 functional drivers of supply chain strategy at the 181 companies surveyed in the report. While all are valid considerations, the reality is that there should be only one driver of corporate supply chain strategy, because there’s a big difference between a consideration and a driver.

Customer service, distribution, and planning are all valid considerations, but none should drive the supply chain strategy. The supply chain strategy should be driven by the corporate strategy and corporate strategy alone. It does not matter what level of service the supply chain supports, how efficient or cost effective the distribution is, or how simplified planning becomes if the supply chain strategy is not in line with the corporate strategy. If the corporate strategy is to be the lowest cost provider, then customer service (which can be costly) is not at the top of the list — cost and availability are. If the strategy is immediate availability, quick distribution is a must, even if air shipments are five times as expensive as ocean freight. And if the business is subject to the whims of the market (like fashion), plans are short term.

The reality is that the customer service strategy, distribution strategy, customer proposition, production processes, planning, purchasing strategy, product design processes, returns management, and the disposal strategy should all be determined from the corporate strategy, not the other way around … because if the supply chain is not in synch with the rest of the business, it’s full value proposition will never be realized.

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Is There a Hole in CPO Agenda’s Synergy Strategy Bucket?

A recent article on CPO Agenda that asked if there is “a hole in your synergy strategy bucket” made some very good points about how Procurement can often help to identify the right IT strategy and synergies to make a merger or acquisition a success.

However, what it failed to mention is that in addition to contract analysis and risk assessment, market research, negotiation management, and should-cost analysis, procurement can also serve as the mediator who helps the organization identify the IT needs and the most appropriate strategies. Furthermore, until the desired go-forward strategies are identified, contract analysis and negotiation management are irrelevant — who cares about license rights, location of use, competitive intelligence, or contract consolidation if you’re no longer going to use the system.

Furthermore, trying to determine the right IT solutions to keep based on license agreement analysis is worse than putting the cart before the horse. If you can get the horse angry enough, maybe he’ll kick at the cart until it moves forward. But if you keep the wrong IT solution, your employees won’t even kick at it … they’ll find every means possible to go around and bypass it completely.

Procurement can play a crucial role here as well. As the one unit that has to continually negotiate with all organizational units with respect to purchases, it can lead the analysis team that reaches out to every organizational unit to understand not only what software they are currently using, but what their needs actually are and work with IT to come up with a strategy that addresses the anticipated needs of the merged organization. Furthermore, as the central mediator and (hopefully) technology-savvy market analysts (who should be using modern e-Sourcing and e-Procurement systems) who talk to both IT departments and external entities, they have a better chance of figuring out when an objection is due to platform limitations (hardware, software, etc.) or simply a resource limitation (the support techs don’t know the software or don’t think it’s the right solution). In the end, the biggest negotiation will likely be with the organizational units that want to merge, and not the vendors, who will probably be more responsive to demands in exchange for a bigger customer and more dollars in their pocket in the long run.

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You Can Have Any Color You Want …

… so long as it is black.

This is one piece of advice from the early 20th century that we should not have forgotten in the early 21st. Maybe if a few more companies remembered this, they would not be in such dire straits. Consider the case of PolyOne Corporation that we discussed in a recent post on coming back from the brink to cash in the bank and how the complexity of too many manufacturing locations producing too many product variants was running them deep into the red.

Now consider the case of Apple — one iPad with 2 network connectivity options and 3 memory options. That’s only 6 variations, with only 2 components different in each variation. They’re “you can have any iPad you want, as long as it’s white” produced the best selling pad/tablet PC this year (with sales in excess of 2 Million units in less than 60 days, before it was available outside of the US), just like their “you can have any iPhone you want as long as it’s black” produced the best selling phone three years ago.

I was reminded of this while reading a recent piece on getting a handle on complexity which offered up a four step approach to reduce complexity, which, while workable, lacks the simplicity of:

You can have any color you want, so long as it is black.

Remember this, and you just might get your complexity, and associated costs, under control.

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