Category Archives: Strategy

What is The Price of Flexible Supply Chains? Part I: Flexibility

In this series of posts, I’m going to discuss highlights from the CPO Executive Debate on “the price of flexible supply chains” and focus on not only why you need flexibility in your supply chain, but what you have to do to get it.

In response to how do you balance flexibility with cost and quality considerations and can you measure whether you are striking that balance, Michael Walsh said that beyond knowing that it will be cold at some point in the year and it will be warm at some point in the summer, it is hard to be accurate. We need to build in flexibility to drive the volume responsiveness, and the trade-offs need to be thought through carefully and he was right. With many types of consumer goods — like electronics, fashion, and toys, you can’t predict precisely what demand will be or when demand will surge. You have to be ready to respond or lose business. It’s as Guy Allen said, the nearer you are to the consumer retail market, the more flexible you will need to be. This requires long term flexibility in your supply chain, especially if you are selling multiple types of goods, as well as short term agility which, in the words of Martin Hogel, determines how you react to sudden changes on the demand or on the supply side.

With regards to longer term flexibility, also in the words of Martin Hogel, you need to figure out how you adapt to wider changes in the market structures, such as shifting vertical industry structures, stricter environmental legislation, technological changes or movements in international labour costs? How do you incorporate that into your corporate strategy, your manufacturing footprint, your supply chain approach and so on?

The reality is that vertical industry structures always change over time. In the early part of the century, we had centralized supply chains where companies owned their end-to-end supply chains and centralized them as much as possible. Then we had the downsizing, rightsizing, and outsourcing crazes where everything was outsourced and sophisticated multi-echelon supply chains were formed that cross many borders and included many players. Now we are seeing a shift to center-led supply chains where a center of excellence, which some consulting companies might term a 4PL, will manage (warehousing and global shipping) operations across a supply chain for multiple parties (in contrast to a traditional 3PL that would manage logistics for a single player).

Environmental legislation is still in its infancy, and we are soon going to see many Asian equivalents (in India, China, and other progressive countries) to the European RoHS legislation and at some point, as India and China take more and more global GDP, the US is going to have to sit down and play nice with the rest of the world. Technology never stands still, and the low cost country of today is not the low cost country of tomorrow once the low cost labour market is saturated, which results in a swelling middle class, which results in the demand for a better quality of life, which results in higher salaries. You have to be flexible, or you’ll be left behind.

However, you’re only going to get this flexibility if you design it into your supply chain. As Andrew Vaughan said, one of the keys to flexibility is effective supply chain design where you segment your supply base to focus on key components that you source as generic parts from a variety of suppliers, and customized parts that are specific to your requirements. With your generic parts, you set up a structure that allows you to resource from auxiliary or new suppliers quickly if you need more than your current suppliers can provide, and with customized parts, you set up relationships with custom manufacturers who have the ability to increase production when necessary (even if it is at overtime costs, etc.).

And finally, you have to be cognizant of the impact of each decision you make. As Martin Hogel said, when you look at the supply side, really advanced procurement supply chain organisations understand today the ripple effects that a natural disaster, or an epidemic, has on their overall supply chain, and take immediate preventative action even though only a sub-tier supplier to their main supply base is directly affected, because they know that if their supplier won’t be able to get they part, they won’t be able to get the part … and by taking action right away, they know they’ll have the product when they need it.

In the next post, we’ll discuss how flexibility starts with strategy.

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Extracting Great Performance from Great Strategy

Back in 2005, Mankins & Steele wrote a great article for the Harvard Business Review on “Turning Great Strategy into Great Performance” that outlined seven rules for successful strategy execution that fit nicely within our strategy development and execution framework. Since the article has probably faded from collective memory, here are the seven rules and why you should revisit the article.

  1. Keep it SimpleClear goals. Clear actions. Clear boundaries. If an average high school student can’t understand the plan, it’s too complicated.
  2. Challenge AssumptionsIt’s important to ensure that the assumptions underlying the strategic plan represent real market economics and actual organizational performance relative to industry peers and rivals. An organization should continually analyze market profitability, costs, and pricing relative to the competition, for starters.
  3. Speak the Same LanguageOperations, marketing, and finance must agree on a common framework for execution and performance assessment.
  4. Discuss Resource Deployments EarlyExecution requires people, who have to be trained, geared up, and ready to go.
  5. Identify PrioritiesMake sure that strategic priorities are explicit and focussed on.
  6. Continuously Monitor PerformanceTrack real-time results against the plan, reseting assumptions and reallocating resources as required.
  7. Develop Execution AbilityMake selection and development of leaders and trainers a priority.

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Successful Strategy Development and Execution: Getting it Right the First Time

As per last week’s series on “What is Strategy? And How is It Obtained?” (parts I, II, III, and IV) and the last two posts on The Secrets to Successful Strategy Execution and Successful Strategy Execution is More Than Lean or Six Sigma, successful strategy development and execution is within the reach of every organization, and there are a number of toolsets that can be brought to bear to streamline development and execution once the basics are understood. However, the real key to avoiding false starts and getting it right the first time is to bring in an external sensei (which, literally translated, means “one who has gone before”) to guide the organization through the process.

Let’s face it, while it is easy in theory to come up with a vision, conduct a gap analysis, create an execution plan, streamline the plan with best practices, acquire the necessary tools and resources, and define the decision rights, information flows, and organization chart that will pull it all together, it can be very challenging in practice — especially if the organization has never done this before. Without a guide, the organization might not even be able to define an appropriate vision. Let’s face it “we will be the most progressive company in our vertical, by providing high quality, customized services to our customers, achieving a measurable difference of success for our suppliers, rewarding the excellence of our employees, and ensuring the long term prosperity of our shareholders“* is not a vision. It is a meaningless collection of buzzwords that’s on par with the drivel created by the Auto Joe-ks Mission Statement Generator that will only result in employees having a good joke at management’s expense as they say “Yeah, right! Who do the nincompoops think they are trying to fool? This is as likely as a monkey flying out of my butt!” After all, it doesn’t pass any of the sniff tests (outlined in part IV). It doesn’t specify what the organization is going to do, where it is going to do it, or why this will help the organization succeed.

Furthermore, it will be hard to conduct a gap analysis if the organization does not know how to define a successful representation of an organizational structure that is aligned to the strategy. Without an expert who knows what an appropriate structure looks like, and how to define the gaps between the current structure and the desired structure, the effort could grind to a halt. Then there is the issue of streamlining the structure, process, and execution plan. This will require someone who understands the core tenets of Lean, Six Sigma, or the foundational Toyota Production System, as well as Business Process Modelling. And the organization will be challenged to select the right tools and resources if the organization doesn’t fundamentally understand what the tools and resources have to do in order to enable the new organizational structure that is required. Plus, the entire effort can break down entirely when it comes to deciding decision rights when mangers mired in traditional mindsets will fight for rights they should never have had and should never, ever, want! And, assuming the organization is able to appropriately divide the decision rights, it might still be stumped on how to define, and enable, the information flows.

That’s why the ultimate key to getting it right the first time is to bring in an experienced guide to lead, moderate, and run the process. An experienced, analytical, and impartial guide will help the organization:

  • focus on constructing a buzzword-free vision that defines the what, where, and why in a manner the employees can truly and whole-heartedly get behind;
  • define a high-level end-state that specifies the who, what, and when;
  • conduct a meaningful gap analysis;
  • develop a process-oriented action plan that will get the organization from its current state to its desired state;
  • select the appropriate methodologies to streamline the processes;
  • identify the right tools and resources to meet the streamlined process needs;
  • categorize the relevant strategic and tactical decisions that will need to be made and assign them to the appropriate personnel (who are affected the most by them and who can generate the most effects from them);
  • streamline the required information flows;
  • create the appropriate organizational chart; and
  • identify the incentives that will have the most impact.

Furthermore, considering that, relatively speaking, consultants are cheap, there’s no reason for an organization not to hire a guide. It just make sense. Why stumble up the mountain when a guide can lead an organizational climber safely to the top?

*So, needless to say, the “leading” Canadian Broadcasting company that decided that it’s vision was to be the most progressive broadcasting company in Canada, by providing high quality, local service to our listeners, achieving a measurable difference for our advertisers, rewarding the excellence of our employees and ensuring long term prosperity of our shareholders wasn’t on the right track … or anywhere close to it!

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Successful Strategy Execution is More Than Lean or Six Sigma

As per Sourcing Innovation‘s last strategy execution post, which outlined the secrets to successful strategy execution, successful strategy execution requires clear-cut decision rights and information flows, as per Neilson et al., and good business process mapping. Lean is not enough. Six Sigma is not enough. TPS / Operational Excellence is not enough.

While these are very useful methodologies — as they can be used to streamline processes and operations once the organization has mapped out its current processes, identified the gaps, and developed revised processes that it believes will get it to where it needs to be; they are not vehicles for strategy execution in themselves. The very definition of lean is to eliminate waste from a process. That means an existing process is required as a starting point — lean can’t be used to develop a process from scratch. Six Sigma is a management strategy designed to improve the quality of process outputs by identifying and removing the causes of defects and minimizing variability. That means that, by definition, it also requires an existing (or proposed) process as a starting point. The Toyota Production System, the precursor to lean — which a few companies have rebranded “Operational Excellence” in light of the recent Toyota scandal, was a system developed to design out overburden (muri) and inconsistency (mura) and eliminate waste (muda). Again, the assumption is that there is a starting process.

Business Process Mapping is very straight forward, and there are a lot of free resources to be found if one searches for “business process mapping” or “business process modelling“. In addition there are a number of tools — such as flow charts, flow block diagrams, control flow diagrams, Gantt Charts, PERT diagrams; modelling techniques — such as functional modelling, data modelling and information modelling, and simulation modelling; and platforms — including workflow and BPM that can be used to assist the team. And it doesn’t matter which one the team selects — as long as everyone on the team understands it. The whole point of the exercise is to develop a representation of what the business is, and where the organization wants to go, that can be easily understood by everyone on the team and form the foundation of an action plan to get there. If the organization consists of mostly mathematical geeks, it can use directed acyclic tesseracts. It really doesn’t matter.

Strategy execution comes down to four essential elements:

  1. Have a clearly defined strategy. If it isn’t immediately obvious to an average high school student, it’s not clear enough
  2. Have an action plan to get from the current state to the desired state. Goals are not enough.
  3. Have the tools and resources in place to implement the plan. Make sure there is a process (such as lean, six sigma), process support (in the form of new systems and tools), and people ready to go (who must be given access to the support resources they need and trained in advance).
  4. Have the decision rights, information flows, and organizational chart clearly defined.Everyone must know what decisions are theirs, who they get data from and who they provide information to, and who they go to for guidance if a request requires a decision they do not own.

That’s it in a nutshell. It is within the grasp of every organization.

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Giving Your Supply Management a Competitive Edge

A recent article on “five strategies to give your business a competitive edge this year” in industry week for product development efforts is appropriate for supply management as well. Written by Renee Martin, co-author of The Risk Takers, it highlights how entrepreneurial strategies can help your supply chain to succeed.

What are the five strategies put forth, and what do they mean for your supply management practice?

  • Go on a Treasure Hunt and Find an Underserved NicheThis is easy if you have a real Spend Analysis solution that will let you slice and dice a data set of up to 50 Million transactions any way you want on your laptop in real time.
  • Spot a New Trend and PounceOnce a new technology or solution has proven itself as significant generator of ROI, adopt it. For example, this means that it’s past time that you adopted strategic sourcing decision optimization and global trade solutions.
  • Buck the Conventional WisdomJust because your current practice is considered a “best practice”, this doesn’t mean that it’s the absolute best practice for you. Maybe a revolutionary lean factory redesign could produce your product much more efficiently, maybe a distribution network redesign could greatly improve service levels without increasing costs, and maybe the best way to get the best price is to forget negotiation and work with your incumbent supplier to find a more cost-efficient product design.
  • Exploit Your Competitor’s Weaknesses and Make It Your StrengthAre they slow to market? Find a faster means of delivery. Are their products more customized? Find a new manufacturing shop that can do smaller lots and quick line changes.
  • Trust Your GutIf you think a certain supply strategy is too risky, it probably is.

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