Category Archives: Supply Chain

The Board Room CPO

In addition to offering insights into planning horizons, supply chain strategy drivers, and keys to supply chain success, the recent report on “Supply Chain Strategy in the Board Room” by the Cranfield School of Management and Solving Efeso also discussed what it all meant for supply chain leaders of tomorrow. It’s conclusion was that the CPO of tomorrow needs to fit the following profile:

  • Strong Communicator: gravitas within Leadership teamin many companies, the sourcing / procurement / supply chain leader still doesn’t have a seat at the table, and even when she does, she often reports to the COO, CFO, or another CXO that’s not the CEO
  • Multi-Disciplinary: able to understand corporate & customer service strategywithout this insight, the CPO will never develop a supply chain strategy that complements and enforces the corporate strategy
  • Collaborative: works as a team player, does “external sensing”in modern terms, the CPO must have a high EQ IQ
  • Vision-Led: but practical and pragmaticthe CPO must be able to think long term, but able to adapt to short-term circumstances and fluctuations
  • Fact-Based: but able to deal with “ambiguity and ambition”the CPO must have a solid grasp of true analysis, and apply those skills whenever data are available, but also be able to fill in the gaps with wisdom and experience when data is sparse
  • Culturally-Intelligent: able to deal with a mix of global, regional, and local culture/leadership stylesmodern supply chains are global and they are going to stay that way

In other words, nothing that Sourcing Innovation and other top blogs haven’t been telling you for years, but it’s nice to see more support for the profile.

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Where is Your Company on the Transformation Curve?

A recent article over on strategy+business on why it makes sense to adjust did a great job of outlining why business transformation needs to be a continuous process. Now that operating in a more volatile, less predictable environment has become a way of life, companies must be ready to repeatedly transform themselves. If the company can not respond to new challenges with a broad-based, enduring plan , it may soon be left in the dust by its competitors.

But most companies can’t do this, because they don’t have an adequately proactive road map for transformation. Instead, they attempt change on the fly, reacting to business disruption with equally explosive responses that may not be useful six months down the road or even sooner. On the transformation curve, they are stuck at the bottom in the reactive stage, when they need to be at the top of the curve in the sense-and-adjust stage.

A company that is reactive employs minimal seat-of-the-pants transformation strategies with little cross-company coordination or follow-up. Such strategies are not only limited, but unsustainable.

A company that moves up the curve becomes programmatic and takes more comprehensive approaches when major changes are required and the company has sufficient lead time. These approaches include thought-out widespread change initiatives across the lines of business that are most affected. Such programs — that include tactics, milestones, and executive assignments — can be quite effective in dealing with contained threats, such as new competitors or new rival products, but fall apart when the threats are not contained and well understood in advance.

But a company that reaches the top of the curve is able to sense-and-adjust. This continuous long-term strategy allows a company to constantly and consistently smooth out volatility in areas of business subject to swift and dramatic change. This is important in turbulent times.

And very important if a company is to have a successful supply chain, which not only has to deal with a tumultuous and unpredictable market, but also has to deal with risks of every colour and flavour, which pop into existence when and where they are least expected. Does your company sense and adjust? Is your supply chain ready?

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What’s the Right Planning Horizon for Your Supply Chain?

The recent report on “Supply Chain Strategy in the Board Room” by the Cranfield School of Management and Solving Efeso had some interesting and surprising statistics on the frequency of supply chain strategy review and the supply chain planning horizon. Namely, while the frequency of review was all over the place and ranged from less than a year at some companies to over 3 years at others, with an average of approximately 1.25 years for the electronics industry and 2.70 years for the heavy machinery industry, with the exception of APAC, the average planning horizon was between 3 and 4 years, and with the exception of the automative industry (which had an average planning horizon of 5 years), the average planning horizon was almost exactly 4 years across all of the other industries. That’s right, the average planning horizon for construction, heavy industry, electronics, consumer goods, chemicals, textiles, pharma, retail & distribution, and food & beverage was 4 years.

If empirical evidence is to be taken as truth, than this would suggest that 4 years is the right planning horizon for your supply chain. But is it? While the organization does need flexibility and the ability to change direction quickly if the market shifts, does that mean the entire supply chain needs to be reinvented every 4 years?

Product life-cycles are shorter than they used to be, but will the organization be producing completely different products in only 4 years? Or simply bigger, better, badder versions of the current product. At an industry level, most product categories have lifespans of decades … or longer. The basics offerings in any electronics category don’t change that often. CRT TVs lasted decades. Cell phones were primarily analog for about a decade. Than they were primarily digital for another before the modern smartphone came along, which will probably not change much (except with respect to the feature/function/performance classifications) for another decade. The technology for packaging food and making clothes changes very little from decade to decade. Even if the products themselves change rapidly, the production technologies change slowly and the dominant suppliers tend to retain dominance for years and relevance for over a decade, if not two. If a supply chain is properly designed, there’s no reason to think that the fundamentals will have to change every few years.

Furthermore, isn’t a long term strategic planning supposed to look forward five to ten years into the future? Maybe 4 is the new 5, but deeper thought would seem to suggest that this is a very-shortsighted view that will prevent the company from ever realizing all of the efficiencies and economies of scale that are available. This insight from one of the more forwarding thinking interviewees (who’s viewpoint was shared by about 10% of the respondents, who could be considered the leaders) sums it up best:

The review is continuous but the planning horizon is 7 years because the results couldn’t be reached in a shorter period.

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What Will The New Brazilian Consumer Mean to Your Supply Chain?

In supply chain, we are continually talking about how the BRIC: Brazil, Russia, India, and China, are going to revolutionize our supply chain by substantially decreasing our costs and, thus, increasing the overall value the supply chain organization brings to the business. For the most part, it hasn’t happened yet (as management costs, tariffs, delays, and expedited shipping costs usually serve to eat up most of the projected savings), although many companies, who took their time and did it right, did see enough savings and enough improvements to make it worthwhile. The real opportunities are going to come when the middle class in these countries reaches a point where the market is just as lucrative, if not more lucrative, then our home markets. Just like Japan, with its focus on electronics, achieved a rapid transformation over the last few decades to become the second largest consumer economy in the world until it was overtaken by China this month, the BRIC is on track to create a new middle class larger than the current global middle class in the next 15 – 25 years.

And while much has been written about the China and India Opportunity (as the 2.5 Billion people the countries contain are expected to contribute another 500 Million to 750 Million people to the global middle class), I haven’t seen much written about Brazil, which is still very respectable in size with it’s 8.5 Million square kilometers and 192 Million people. Plus, it’s current middle class, which is approximately 25% of the population, already earn between $1,000 and $3,250 US, which is on par with what the average middle class income in India (which is as low as $3,000 to $5,000 US by some estimates) and most of China.

Brazil, like any other country, poses a distinct market. As per The Brazilian Consumer: Opportunities and Challenges, Brazilians favour quality over low price, status over indifference, and interaction vs. seclusion in their way of life. The companies that have successfully reached the emerging middle class to date have focussed on quality, distinction, small stores (in lieu of hyper-centers), and exclusive distribution networks — all of which will have an impact on your Brazilian supply chains. But will the emerging Brazilian consumer have any impact on your supply chains for those of you sourcing from, but not selling to, Brazil? Probably not. But if anyone has any differing opinions, I’d love to hear them!

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Is Your Supply Chain Organization Ready for the Decade Ahead?

A recent article in the Harvard Business Review outlined “seven questions to ask” to find out if you are ready for a rebound. What I found enticing about the article is that these seven questions have supply chain corollaries. If you can’t answer yes to these seven questions, chances are that your supply chain will not be ready for the decade ahead.

  1. Do You Take Advantage of Opportunities Others Miss?Many companies continue to miss market and technology shifts that their rivals exploit. If you’re in this camp, you’re going to fall behind your competitors as they adopt better practices, better technologies, better suppliers, and better transportation options. For example, this means that you should have adopted real spend analysis and strategic sourcing decision optimization by now, as these are the only two sourcing technologies proven to repeatedly deliver double digit savings time and time again (at an average of 11% for spend analysis and 12% for decision optimization).
  2. Are Your Hydraulics Oiled and Flowing Smoothly?As per the HBR article, organizational hydraulics are the mechanisms that senior executives use to translate corporate objectives into aligned action by individuals across the organization. If there are too many initiatives, priorities, or conflicting goals, then the hydraulics get overburdened and break down. Limit your goals to 2 or 3 and initiatives to the top 4 or 5 opportunities and excel in the execution of those initiatives most likely to deliver the desired results. For example, if your sourcing team is limited, do a spend analysis and identify the top 5 categories with the greatest savings opportunities and those are your priorities for the quarter. Everything else can wait. It’s better to save 10% off of 100M than 20% off of 10M.
  3. Does Your Organization Reward Excellence?Or does it reward mediocrity and call it teamwork? Organizations should not only reward individuals who do what they say the will and meet, or exceed, their (stretch) goals with outsized bonuses, but remove compensation caps. If your top sales person or top buyer ends up taking home more than the CEO, that’s a good thing! It generally means that he sold (tens of) millions worth of product or services or she saved (tens of) millions of dollars for the organization. And if you’ve hired a smart CEO, and given her a piece of the company, she’ll be grinning from ear to ear as the value of her stock soars as a good CEO is in it for the long term.
  4. Are Your Core Values Aligned to Success?Or are they a joke? If your organization looks up to a bullcrap mission statement like “we synergize our processes to bring value to our customers”, then your values are probably a joke. But, on the other hand, if you focus on achievement, ownership, teamwork, creativity, and integrity … then you’ve got the framework for building a truly world class supply chain organization.
  5. Are You Talking About the Right Things?Or focussing on irrelevant minutia because you don’t have the guts to take on the elephant in the room that is the real impediment to your progress. If you spend your days looking for the next fire to put out instead of addressing how you’re going to weather the market storm that’s brewing, you’re talking about the wrong things and will be battered badly when the storm hits. Optimality in the supply chain is fleeting — even if you’re lucky enough to obtain it, it will quickly fade. The organization must always be on the lookout for the next process or technology that will increase efficiency and stability.
  6. Are Your Warriors Still Fighting?Or have your Vikings become farmers? If your team spends their time tweaking the last initiative until they’ve eeked out every last fraction of a percent of the perceived savings opportunity instead of diving into new opportunities as soon as they’ve extracted 80% of the potential value of the current opportunity, then your team has transitioned into a community of farmers content to live a peaceful and stable life. From an organizational viewpoint, this is bad since fields can be wiped out by a single flood and the only way to sustain success is to keep going after the next big opportunity. Furthermore, since it will generally take four times as much work to eek out the last 10% to 20% of savings, it’s just not a good investment of your team’s time. Follow the 80/20 rule if you want to maintain success.
  7. Are Your People Self-Sufficient?Or does everything come to a stand still every time you spend a few extra minutes in the lavatory? As the article says, senior executives who dash from crisis to crisis are a sign of organizational weakness, not leadership strength. If your team is truly strong, they will be able to function without your leadership and solve crisis on their own. You should be able to disappear for a month without any adverse effects to the organization. A good leader focusses on building the team, providing them with the support they need, and preparing them for future advancement — she doesn’t solve their problems for them. She gives them the training and support they need to solve their own problems

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