Category Archives: Supply Chain

The Probability of Supply Chain ROI Must Be Considered

As per this recent editorial by Dan Gilmore over on Supply Chain Digest, you can’t overlook the probability of success when considering the ROI of a supply chain project. A 10X ROI isn’t a 10X ROI until the returns and identified and realized. If the new system doesn’t work, or the assessment doesn’t turn up the expected savings, then there is no ROI. And the chances of this happening are dependent upon the probability of success.

Therefore, before you give a project a green light, you need to understand the probability of success. Because a 10X ROI probably isn’t worth pursuing if there’s only a 20% chance of success, especially when you’re sitting on a 5X ROI project that has a 90% chance of success. If you have a lot of options, a good rule of thumb for zeroing in the ones that should be given the most consideration is to multiply the probability of success by the expected ROI and focus on those with the modified ROI. For example, given the above two scenarios, the first one has a modified ROI of 2X (since only one in five similar efforts would succeed) and the second has a modified ROI of 4.5X ROI (since nine in ten similar efforts are expected to succeed).

The reality is that there are probably a dozen high-probability ROI projects you can do right now, no use expending your resources on the wrong one.

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How To Slow Your Supply Chain Transformation to a Crawl

In my last post, we discussed how transformation is necessary for high procurement performance and gave you some advice on how to get started. But transformation is not easy, and there are many pitfalls you can encounter along the way. In this post, we’ll addres some of those.

As a supply chain leader, you are probably in the midst of a process to redesign your supply chain to be more fault tolerant, more secure, and more safe to avoid the fiascos that your brethren (Huntington Meat Packing, Mattel, Toyota) have recently faced in the media. If you want the transformation to go smoothly, and be effective, you better avoid these “six mistakes that can derail your company’s attempts to change” its supply chain, as described in a recent HBR article on Accelerating Corporate Transformations. (Subscription Required)

  1. Cautious Management Culture
    There’s a time and a place for incremental improvement. That time and place is not during a supply chain transformation project. During times of “incremental improvement”, executives tend to be too preoccupied with daily operations and too busy to get involved in redesigning the entire business. During a transformation, the entire management team needs to be charged, focussed on the goal, and involved in making it happen as a team.
  2. Business-as-Usual Management Process
    A transformation can’t be pigeon-holed into established systems and processes and meeting times. It has to be its own system, it’s own process, and its own, all-hands-on-deck, meeting — run alongside the existing systems, processes, and meetings until you’re ready for a transition. People may feel that they don’t have quite enough time, but that’s normal, and often good. Put a little pressure on and stick to the schedule, otherwise a three-month initial phase can quickly become a six-month, nine-month, or longer phase as people keep delaying it because they’re too busy with current processes, systems, and meetings, which aren’t working and need to be replaced as soon as possible.
  3. Initiative Gridlock
    Sometimes you have to kill an old initiative for a new one to fly. As the article points out, executive leaders may lack the insight and courage to discard efforts that have come up short and, to avoid admitting failure, pile new initiatives on top of the ones that are struggling — and the result is gridlock. Success is best achieved when action agendas are restricted to only three or four companywide initiatives, each targeted to two or three carefully selected areas of focus and tied to clear outcome metrics. That way workers aren’t overloaded and can focus on achieving clear, non-conflicting, goals.
  4. Recalcitrant Executives
    Many executives … choose to avoid conflict and hope that the “clarity” and “efficacy” of their grand plan will quickly win people over. Problem is, what’s clear to them isn’t always clear to their counterparts or their direct reports. And if you don’t take the time to win over a “deep denier”, resentment, and a need to undermine your efforts, can build and eventually bring your project to a dead stop. You have to be willing to confront, debate, and fight-for your project. You might not be able to change everyone’s views, but if you can convince them you’re serious and that your initiative is well researched and thought out, and earn their respect, you greatly improve the chances that the dissenters don’t stand in your way.
  5. Disengaged Employees
    Employees, who do most of the actual work, are the key to your transformation. It’s critically important to involve them in the transformation process as early as possible. This should include sessions that inform them of the upcoming transformation before it starts as well as training and Q&A sessions as early as possible in project launch. Roll-out to the entire organization should be as rapid as possible.
  6. Loss of Focus During Execution
    If you don’t continually champion the transformation initiative as the day-to-day grind again takes centre stage, you might find that old habits gradually sneak back in, that leaders switch back to command-and-control mode, or that attention is turned to other “important” activities. As a leader, you have to follow the project through to the end to ensure success.

Basically, as the article points out, transformation launches must be bold and rapid to succeed. Even if the project can’t be done in less than a year or two, it still needs to get into gear quickly, and hit its early milestones as soon as possible, so that the team can see the early indicators of the improvements that will come their way. This will get their full support early on. And as the byline points out, to be successful, don’t lose your nerve!

I highly recommend you check out the full article. It has some great advice on avoiding each of these speed brakes that can bring your transformation to a grinding halt.

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Supply Chain Excellence Pays Off In Spades

“Does Supply Chain Excellence Really Pay Off?”

You don’t even have to go beyond the first page of this recent article in the Supply Chain Management Review (subscription required) to find the answer. According to a recent study by Morgan L. Swink, Rajdeep Golecha and Tim Richardson at Michigan State University, which analyzed the financials of top supply chain management companies and their nearest competitors from 2004 to 2007, supply chain leaders clearly outperformed their closest competitors across the following 10 metrics:

  • 50% higher net margins
  • 20% lower operating and SG&A expenses
  • 12% lower average inventories
  • 30% less working capital expenses
  • 2X the ROA
  • 2X the ROE
  • 44% higher economic value add
  • 2X the return on stock price
  • 2.4X the risk-weighted stock return
  • 46% greater market value-to-assets ratio

Excellence pays. What else do you need to know?

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A Framework For Making Better Supply Chain Decisions

A recent article in the Harvard Business Review on how to “make better decisions” (subscription required) provided a framework you can use to improve your supply chain decision making process if you don’t currently have one. It consists of four simple steps to take you down the decision making path:

  • Identify
    Start by listing the decisions that must be made to decide which are the most important. This will help to insure that you spend enough time analyzing the important decisions with enough care.
  • Inventory
    Assess the factors that affect each decision that must be made. This will help you understand what you need to consider, what decision making processes might be effective, and what data is relevant.
  • Intervene
    Design the roles, processes, systems, and behaviours your organization should be using to make the decisions. A successful decision making process considers all methods of improvement and execution before making a decision.
  • Institutionalize
    Companies serious about decision making have a process for determining who should make a decision, when, and how and all major projects have the benefit of systematic decision analysis.

It’s pretty simple, but just taking the time to identify, and document, the important decisions, relevant factors, appropriate data, and appropriate methods to make, and repeat, the process on similar decisions in the future is a great first step to better decisions.

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Supply Chain Social Networks: Getting Better, But Are They Compounding the Problem?

About a year ago, in Supply Chain Social Networks: Useful Resource or Productivity Killer, I reviewed the new kids on the supply chain social network block, “SCM Professionals” and iProcurement.org, in my effort to determine whether they offer supply management professionals benefits above and beyond regular social networking.

I noted that they had blog, news headline, and presentation sharing capabilities — which are useful if the blog posts, presentations, and news articles contain useful information, as well as the ability to form groups, but that they also had all of the banes of time-wasting social networking sites, such as latest activity tracker, comment walls, and photo free-for-alls.

Checking them out again, I see that iProcurement.org has added a Jobs section, improved discussion forums, created an on-line book store, developed a better events calendar, gained more members, and launched a cleaner look. SCMP has transformed their video section into the beginnings of an online training portal, also added a Jobs section, improved their event calendar, and integrated with Google Docs. Since then, Kinaxis has created the “Supply Chain Expert Community” with similar capabilities and Inovis has launched the private “Inovis Social Network” for trading partners to keep in touch. This, of course, is in addition to the communities on Linked-In, Plaxo, and Xing (with Linked-In alone having over 300 supply chain groups).

So they are getting better, and offering some value to select groups of people, but when you look at the big picture, I think they might be reducing productivity instead of increasing it. There’s so many networks with so many groups, forums, and blogs that you could literally spend all day scouring them for useful information and still not find anything. If I had to log in to 60 groups and forums across 6 social networks every day to try and keep up with what’s going on, I don’t think I’d get anything done at all! And while many of the networks allow you to create e-mail digest summaries from the groups, this just compounds the e-mail box clutter problem that we’ve been tackling for years.

Long story short, I think a well designed knowledge network can be a boon to supply chain professionals, but only if its A well designed knowledge network. One network with links to all of the groups, forums, blogs, and communities a professional needs. In other words, instead of dozens of vendors, organizations, and groups creating their own little, separate, communities, they need to adopt the predominant business social network (which right now is Linked-In) and build on it. And if the network doesn’t have everything they need, they should focus their development resources on helping the network create what they need.

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