Category Archives: Strategy

Sustainability Requires More Than High Level Planning Guidelines

A recent article in Supply & Demand Chain Executive on how “CEOs pursue business opportunities where corporate and societal priorities converge”, summarized a recent Accenture study that noted how many CEOs are looking for sustainable profitability and ways to create value in line with societal goals.

The article, which noted that the Accenture study found that

  • 70% of CEOs realize that Sustainable Value Creation strategies must be evaluated using different criteria than traditional opportunities due to the longer time horizon required to generate returns and
  • 91% of CEOs face difficulties in identifying societal issues that link to competitive advantage and in measuring the societal and business performance of ‘sustainable’ initiatives

is promising in that it indicates that CEOs are now open to strategies that create value in a sustainable manner, but disappointing in that the five implementation imperatives to help companies create sustainable value that it summarizes are reduced to the point that they are nothing more than fluff that will result in the creation of bad strategy in your average organization.

Consider the following pieces of advice:

  1. Recognize the Opportunity
    This is obvious. If the organization does not understand that it should be sustainable and conscious of societal desires, it’s not going to even go down the sustainable path.
  2. Recalibrate Your Radar
    If the organization doesn’t change the way it thinks, then it’s not going to seriously consider sustainable strategies. Also obvious.
  3. Research, Develop, Repeat
    A good strategy does evolve over time. An organization that doesn’t realize this gets left behind. But stating fact is not helpful.
  4. Rewire the Organization
    Sustainable strategies do often require a different modus operandi. It’s not business as usual to go sustainable.
  5. Reinforce the Value
    The CEO must take a leadership role. But that’s true of any initiative.

They are not likely to produce good strategy. Why?

  1. They do not address the fact that the organization must also recognize the challenge to be overcome.
  2. They do not address the fact that the organization first has to understand what sustainable means. Otherwise, the radar can’t be recalibrated.
  3. They do not indicate what the measures are that will indicate success.
  4. They do not address How? It’s difficult to successfully engineer massive organizational change.
  5. They do not address how the CEO reinforces this value vs. other organizational values.

Organizations need lots of help, and lots of depth, to get sustainable. High level fluff is not going to help them.

Can Your Supply Management Organization Spot Bad Strategy?

As per this recent article on “the perils of bad strategy”, a good strategy does more than urge us forward toward a goal or vision; it honestly acknowledges the challenges we face and provides an approach to overcoming them. It embodies the hallmarks of Admiral Horatio Nelson’s victory against the French and Spanish armada in 1805 where, outnumbered and outgunned, he prevailed against the enemy fleet without losing a single ship.

In comparison, bad strategy, which is often without focus, accommodates a multitude of conflicting demands and interests. It covers up its failure to guide by embracing the language of broad goals, ambition, vision, and values which are no substitute for hard work and good strategy. A good strategy is like a good brand. It makes an impact. It encourages a specific action, or set of actions, towards a specific goal. Stakeholders, customers, and market analysts love it or hate it. It is not another same-old, same-old slogan-based market statement that is heard today, forgotten tomorrow.

So how do you spot bad strategy? The McKinsey article on “the perils of bad strategy”, you look for the following hallmarks.

  • Failure to Face the Problem
    A strategy is a response to a challenge. There can be no strategy until the challenge is defined. If the real issue is not defined, the strategy will not work. For example, if labor relations are bad, new equipment will not improve productivity. If manufacturing costs are high, increasing sales will not increase profit margins.
  • Mistaking Goals for Strategy
    Audacious goals are great, but will never be achieved unless the company can identify a point of leverage to achieve that goal. An organization can only compete if it has a competitive advantage. It’s not just a push to succeed, it’s creating the conditions that will make the push effective.
  • Bad Strategic Objectives
    Strategic objectives cannot be fuzzy. They must be clearly defined. They can’t be blue sky. And they can’t be long lists of things to do. Good strategy works by focussing energy or resources on a select few pivotal objectives whose accomplishment should lead to a cascade of favourable outcomes. If the strategy doesn’t do this, it’s likely bad strategy.
  • Fluff
    If the strategy is nothing more than a restatement of the obvious, combined with a generous sprinkling of buzzwords, with no original thought, it’s bad strategy.

Your organization doesn’t have a bad strategy. It has a choice. Can your supply management organization make it?

How Do You Achieve Indirect Procurement Success?

As per this morning’s post on Common Challenges of Indirect Procurement, often the best way is to start with better technology and better processes, beginning with spend analysis. If the organization can quickly identify which categories will yield sufficient savings to make a sourcing project viable, then it can integrate high-opportunity projects into the strategic sourcing plan, put mid-opportunity projects out to auction, and simply ignore low-opportunity categories as the 20/80 rule generally applies to indirect Procurement as well. If better technology and processes are not possible due to budget or other constraints, sometimes the organization can outsource the categories to a third party. However, if the organization is not good at outsourcing, this could backfire.

So what does your Supply Management organization do to enable success if it can’t get better systems and can’t outsource? As per this recent article over on the HBR Blog Network on “how we killed our strategy to save our mission”, the best thing it can probably do in this situation is to get out of the way. Just like Question Box ultimately achieved success by shutting down its field operations (and killing its physical product line) to build toolkits to help local community organizations be successful, maybe the best thing Supply Management can do is to deliver a knowledge service that provides the other departments with the knowledge and tools they need to manage their major indirect categories efficiently and effectively. If Supply Management provides each department with the appropriate market information, strategy, contract templates, and other key sourcing tools for managing their high-dollar indirect procurement categories, then Supply Management can enable better results by acting as a consultant to the rest of the organization. It might not be the ideal situation for some Supply Management organizations, but if it improves the bottom line, and Supply Management’s reputation, it’s still a big step forward.

Six Key Lessons for Sustainable Supply Management

A recent article over on the CPO Agenda on “Platforms for Growth” that discussed the challenges for Supply Management involved in procuring goods and services for decommissioning oil rigs had some great lessons for Supply Management professionals involved in projects in new or emerging areas of spend. While cost control is important, it’s even more important that Supply Management prevent their organization from becoming the subject of media headlines — as this is never a good thing. Plus, early approaches to category strategy can set a pattern within an organization and even drive market structures across the industry that, once established, become difficult to change. Thus, it’s important to get spending in new categories right.

Think Strategy
Supply Management needs to be a part of all of the strategic decisions of the organization as true commercial advantage can only be obtained if Supply Management is involved early enough in projects to influence raw material and service requirements. Not only does the design stage lock in up to 80% of the cost, but it can lock in up to 100% of the market risk. If the design locks in a raw material in tight supply as necessary, such as tantalum, instead of a more available material, such as aluminum (for capacitors), and unrest along the African coast suddenly makes 15% of the global supply unavailable, the organization will be in for a major price shock.

Influence the Plan
Not only does Supply Management need to be involved in all strategic decisions, but it has to come to the table with a good understanding of potential scenarios and a plan in mind. If, by working with marketing and external market research agencies, it understands that sales will be maximized at a certain price point, it can ensure that the selected design can be profitably produced for that price point.

Go for Global Category Scale
Even if the product must be customized for different regions, Supply Management should still attempt to aggregate global demand and award it to a small number of suppliers who are capable of producing variants for the global market to take advantage of economies of scale.

Build the Desired Marketplace
If the product or service being designed is (relatively) new, then Supply Management might be buying from an immature market. In this situation, the organization has the ability to influence market development, which occurs quickly once demand exceeds a critical mass. If Supply Management implements a category strategy that meets the objective of the organization, and it is the first major player in the market, the market will likely mould itself to that need. If the market strategy is low-cost, then the suppliers will focus on no-frill production and delivery. If the market strategy is the full service experience, suppliers will focus on creating end-to-end value added services. If the focus is on being the epitome of cool, then suppliers will focus on creating the most stylish and sleek product they can, with a price tag to match.

Do Your Homework
Market intelligence is the lifeblood of effective category management and the best way to influence the strategy, plan, and marketplace. Even if the organization does not agree with the proposed category strategy, it’s much harder to refute facts than opinions. Plus, it’s much harder for a supplier to exploit the organization in negotiations if Supply Management goes in armed with full knowledge about the current market state.

Examine New Buying (Structure) Options
Don’t limit your options to the current organizational buying strategy. Consider in-house, industry buying groups, vertical integration and even the creation of a Global Business Services organization. New markets sometimes offer new opportunities for doing things different. Take advantage of this.

Avoid The Transformation Traps

You’ve been reading SI and after the considerable amount of discussion around Next Generation Supply Management that has taken place since January, you know your organization needs a transformation to get to the next level. Operational excellence isn’t enough — it’s all about strategic business enablement. Moving from tactical cost cutting to sustainable value generation. A long term vision that elevates Supply Management to the center of the business.

However, transformations are easier said then done. Getting it right is a journey, as compared to getting it wrong, which often only requires a single misstep. That’s why SI was pleased with this recent white paper form Wipro that summarized “the top three reasons supply chain transformations fail”. While not a how-to guide, it did point out the most common gotchas that an organization needs to keep an eye out for.

The Leading Practices Trap
While the organization will need to implement, and execute on, leading practices on a daily basis if it wants to be a world class Supply Management organization, it will not be able to go from 0 to 60 without passing through every speed in between, and it will not be able to adopt a competitor’s practices as is. Some processes will have to be adapted gradually. For example, trying to move from landed-cost to value-generation models might be too big of a step for an organization used to making buying decisions from landed cost. The organization might have to move to simple TCO models supported by an optimization solution with expressive bidding and get the stakeholders comfortable with this level of analysis first. Only when an organization understands that lowest landed cost does not equal lowest ownership cost will they be ready to accept that lowest (ownership) cost is not necessarily the best value. In addition, just because JIT inventory management works for the organization’s biggest competitor, this doesn’t mean it’s the right solution for the organization. If the organization uses a more time-intensive manufacturing process than the competition, or is subject to more unpredictability in sales, then the organization might need to maintain buffer stock to insure demand is met and profitable revenue levels are preserved.

The Technology Big Bang
While the organization will need to implement advanced supply chain technologies that automate processes, improve planning accuracy, streamline execution, expand visibility, and transform information into knowledge, an attempt to implement such systems simultaneously across the board is just asking for disaster. Just ask FoxMeyer. Oh wait, you can’t. A failed big-bang roll-out of a new ERP bankrupted the company. All that’s left is a case study (that used to be on SpringerLink). The implementation of new systems must be staged, well-planned, and rolled out in a controlled manner.

Ignoring the Organizational Big Picture
Change requires both buy-in across the organization and the leadership to instill that change. Leadership is required to break through the barriers of poor communication, lack of focus, distrust, and silo mentality. Don’t overlook the big picture.

The white paper also has some good tips on how to avoid the traps. Including:

  • Start from the Top
  • Focus on the Customer
  • Continuous Improvement
  • Fix the Process First

For details, see “the top three reasons supply chain transformations fail”. It’s worth the read.