Tag Archives for " Supply Chain Management "

Never Hire Management Consultants In These Situations

I need to tell a true story which is about 16 years old.

Jon had just left the secure world of a senior role in a multi-billion dollar global corporation to accept the role of the CEO in a mid-size family-owned company. He had always been a go-getter, who had progressed fast in his previous roles.

He always showed impatience with the bureaucracy endemic in such large corporations, and believed that he could do things much better. And, he might have been right in most of those thoughts.

Moving On

So, I was not surprised when announced his plans to take command of the mid-size Australian company. Because he was not very close to me, I was a bit surprised when he sought me out, saying that he might contact me for a project once he was settled in his new role.

True to his word, and style, he did not let the dust settle before he called me up and requested a meeting. He gave me some details of the situation, and asked for a proposal to revamp the procurement department – which he saw as the weakest link.

Because the story is old, I can share some contextual information while changing other details. The company itself has been sold multiple times since; none of the information is confidential or identifiable.

Jon explained to me that he was the first external CEO in the business – which had so far been run by the founder. The company had been reasonably successful in the mining boom, and was ready for its next stage of expansion on to the international stage.

The Right Person in the Wrong Place

Jon, being the go-getter, was just the right man for the job. He was promised total autonomy by the founder/ past CEO – who had stepped back to the role of the Chairman.

In my first meeting with the Chairman, I found him to be an extremely astute man, who had built a strong company through difficult circumstances. Granted that the recent boom had made things easy for the industry, he was not the kind of man who could easily relinquish control.

It will take a long narrative to describe exact details of the project, and these are not even relevant. Suffice it to say that Jon, who had taken his bosses assurance of total autonomy on face value, found it very hard to operate the company as a CEO.

Relinquishing Control is Difficult

Almost all the crew was used to go to a single man for every decision. For the past 25 years in the company, all decisions were made by a single man – the founder.

Despite the appointment of the new CEO, this continued to happen in our transformation project, as well as in the business-as-usual operations.

It became amply clear to us that our project proposal terms were unlikely to be honoured. There was no way to get the co-operation from the management team because everyone was afraid of what the procurement data might reveal about the past and present.

We requested a meeting with Jon and expressed an inability to continue with the project under the circumstances. He apologised to me about misreading the situation and putting us in very difficult circumstances.

Being Thanked For a Half Done Job

The Chairman thanked us profusely for showing the direction to ‘his’ team and after getting assurance that we will continue to guide them as needed, wrote us a check on the spot – which is the way he operated.

However, more ominously, within weeks, it was clear to Jon that he had jumped from a chiller to a freezer. Within weeks he moved on to a new role as the CEO of a different, more progressive, company.

I will talk about how the story ended later on in this article. Here, I want to come to the main point of this article.

Many Such Situations

There are many similar situations when you MUST not hire management consultants because it will only waste time and money.

In my last article titled – “How To Get The Most Out Of Your Management Consultants While Spending The Least On Them?” – I wrote

The Quality of Your Management Consultants Will Decide The Heights You Eventually Climb To

https://globalscgroup.com/management-consultants-how-to-get-the-best-outcomes-for-fraction-of-the-cost/

A number of people wrote back, objecting to the presumption that every situation is amenable to getting management consultants.

While I did not say any such thing, when I thought about the topic, I recalled this story.

Leading from it, I can think of other situations where we did not start a project just because the person leading the project was really not in control.

Title inflation

This can happen due to title inflation in some countries where people get titles without commensurate powers and abilities.

In many Asian countries, family owned corporations continue to be run by the family members, despite there being a whole cadre of professional managers in place.

It is very interesting to watch the dynamics of these organisations in practice. The problem arises when many foreigners are misled by titles, not too dissimilar to the rare Australian situation quoted above.

Unions Galore

Unions are a fact of life in almost all big corporations – and they have a role to play in balancing the scales.

Yet, in some circumstances, they acquire so much power that any positive change is impossible. I quote one such very personal story in this article.

The point is simple – if the management is totally powerless against the unions they should not substitute analysis for action by carrying out one management consulting project after another.

That would be just throwing good money after bad.

If you adhere to these simple rules of the thumb then I can truly say that:

The Quality of Your Management Consultants Will Decide The Heights You Eventually Climb To

Coming back to the story that started this article:

The company went through two more CEOs, and an industry-wide government inquiry before the chairman finally relinquished control of the operation. At this point, the company was a popular target for take-over.

What Supply Chain Managers Can Do About Safety Recalls?

If you are in Australia, it is more than likely that you already know this saga. If you are not in Australia, or do not follow the news cycle, take a look at the video below:

This happens all too often. Once every few months, in some part of the world, a crisis of similar nature emerges.

Several years ago it was this:

I could keep finding a lot of similar videos about products and places – but you get the point. And, it is a not a new problem either. Take a look at this story from over 3 decades ago:

The point is that the lack of supply chain security hurts the company, the industry and the economy significantly.

Some band-aid solutions are rolled out – mostly to restore public confidence and get the demand up again. However, a comprehensive supply chain security regime is never put in place.

Having done large scale supply chain transformation projects for companies as sensitive as explosives, chemicals, fertilizers, food stuff, soft commodities, bakeries, meat, dairy, livestocks, and many others, we have seen both – the vulnerabilities and some really cutting edge supply chain security in practice.

Unfortunately, supply chain security, in conceptualisation and training, has not kept paced. There is no university course that covers this topic sufficiently. Conferences skirt this topic. Books cover it sketchily. Regulatory framework is patchy and officious.

And after complying with the regulatory burden most people relax in the belief that they have done enough.

In fact they have no basis to go beyond regulatory requirements, lest they are accused of being paranoid or overzealous about security.

Yet, dozens of incidents have demonstrated that regulatory framework is never enough. Each company has to develop its own supply chain security framework, based on its own particular circumstances. Even compliance with insurance requirements is not enough. Reputation damage to your business is a non-insurable loss in most cases.

How do you develop your own supply chain security framework?

Complying with regulatory and insurance requirements is a good start. You also need a more robust, holistic and comprehensive supply chain security framework that provides the guidelines for your own company’s supply chain security model.

Our report titled  SUPPLY CHAIN SECURITY – A COMPREHENSIVE, HOLISTIC FRAMEWORK provides the information to get you started.

Better still – run a one day workshop based on the content of the report. It will be the best 20K your company ever spent.

 

CFOs’ Guide To Supply Chain

It is ironic that though the CFOs are at the absolute center of the universe within their organisations, when it comes to succession into CEOs role, boards are as almost as likely to overlook the CFOs candidature, as they are likely to give them the nod.

At a first sight it looks like a puzzle.

But, when you think about this a bit more your realize that most CFOs are so good at their job, that moving them to a bigger and better role would be a huge loss to the organisation.

If you are a CFO (or in a position close to being a CFO), in this blog post I am not going to show you how to get worse at your job so that you can fill bigger shoes.

Instead, I am going to unpack this phenomenon (some of the observations and stories come from my book UNCHAIN YOUR CORPORATION), so that you can move into bigger roles with an equal ease.

A Real Life Story

Let us start with a real life story (critical details are disguised a bit to make sure we protect the identities of the people involved).

When I flew into the big city with the continental HQ for our client, it was middle of winters. As it so happened, the next day was scheduled for the monthly senior management meeting. The business had been under-performing for  last three years, and everyone was looking for a turnaround, or a scapegoat.

The CEO, and all the regional heads, were strongly sales oriented individuals. They were all cut from the same cloth – strong personalities, heavily market focused and not very analytical.

Other two people in the room were the head of finance, and the head of supply chain. As they all saw it – one of them was charged with making the deliveries, and the other was charged with doing the numbers. A very simple arrangement in their scheme of the world.

global supply chain

No wonder the company was losing money hands over fist in almost all markets.

Almost all negotiations with the customers were based on seat-of-the-pants calculations made from half baked numbers.

Bluster was  common, and in face of threats to use of competitive products, significant price discounts were made available to the large customers who formed bulk of the revenue base.

Not only that, nimbler supply chain partners, well aware of the analytical deficiencies, were milking away the system.

Only Two Problems

The monthly management meeting was an appalling show of solidarity between the regional heads and the CEO who blamed the heads of supply chain and finance (again) for the monthly under-performance. Almost all problems were attributed to one of two things:

  1. Delivery related problems – attributed to the head of supply chain
  2. Transactional compliance, budgeting and analytics related problems – attributed to the CFO

The facts that sales staff were making promises that could not be kept even by supermen at prices that would never make any profits, and that the operations field staff were regularly circumventing the workflow to reduce their work load, and many other similar happenings, were conveniently overlooked.

Someone’s Gotta Go

In this meeting, in my presence, the CEO ended with an ominous warning that one of the two heads who carried the blame would lose their job if the business did not turn around in the next 3 months and came within an acceptable variance to the budget.

On the supply chain side, we worked very hard for verifiable turn around of the supply chain (and demonstrate that bulk of the problems originated from the lack of sales discipline). A number of projects were conceptualised, planned and executed in a short time frame to get supply chain out of the jail house.

On the finance side, I do not know what kind of number massaging was expected from the CFO, but I was unhappy to learn that after a few months he did indeed move on from the organisation.

There are more details which I am not including so that I can focus on the key points of this story.

Why did I recount this story?

Because I believe if he had done something similar to what we did on the supply chain side of the business, he would have clearly demonstrated that the problems did not originate in the finance department – in the way financial discipline, budgeting and variance calculation was structured and executed.

Unfortunately, all the way through he restricted his thinking to accounting data, and its analysis without getting into the nitty-gritty of the business side of the equation too much. Even when he attempted to get into business side of the discussion he was thwarted.

That got me thinking

That incident got me thinking quite a bit. I suddenly realised how your history could easily anchor you. Consider the following figure:

You start into a role in finance or accounting at the bottom of the pyramid, and as you get more experience and capability you rise towards the top. Only those individuals who are exceptionally good at almost all functions in this pyramid will rise to the very top, to get the crown of CFO.

The problem is that what brought you here, will not be enough to keep you here. And, most certainly, it will not take you any further.

 All that competence, all the hard work – burning mid-night hours during audits,  millions of zega-bytes of number crunching using the most sophisticated investment banking models, budgetary cycles – all that dedication was great. It brought you up to here.

To go further, it will not be enough.

So what kind of thinking is required?

New thinking in finance is required because supply chain and finance are now so closely inter-linked that you need mastery in both.

This new thinking will extend:

  1. BEYOND Compliance  – Added layers of auditing and compliance gives more control, but rarely results in higher returns. It gives the right to play, but does not tell you how to play well.
  2. Beyond traditional Working Capital Management – Excessive squeeze on the creditors is now counter-productive, and cost of capital is likely to be volatile.
  3. BEYOND Dupont Formula and other financial tools – These work very well retrospectively, for post-hoc explanations. As tools for future value creation, their application is limited.

Today, boards expect deeper control over the heart of supply chain finance.

Why?

Because, more than ever before, today, one of the most pressing concerns of every board of directors is CEO and executive succession. Clearly, the boards want C-LEVEL executives who can step into a CEO’s shoes at a moments notice, if necessary.

So, what distinguishes a C-LEVEL functional expert from a near C-LEVEL?

It is their ability to see the BIG PICTURE. This is not a cliche.

BUSINESS TRANSFORMATION AND LEADERSHIP SUCCESS COMES FROM CROSS FUNCTIONAL INTEGRATION ABILITY.

In other words:

  1. Ability to get their functional team to play well with the rest of the functional teams.

  2. Ability to take leadership and integrate cross-functional teams.

  3. Ability to understand how one function affects another – in depth.

Here is one simple example of a financial tool for business transformation. No school will teach this:

 

There are many such tools, but most importantly, you will need to design and create your own tools. They all ask (and answer) some common questions.

  • Financial Engineering – view the entire spectrum of Balance Sheet Management, some of which are known to only a few experts. Small differences in these can make a significant impact on shareholder return and outcomes.
  • Strategic Reversal – in the fast moving digital age – why assets might become your biggest liabilities, and liabilities might be your biggest assets – and what companies are doing to create extra-ordinary shareholder value?
  • Profit Optimisation – what lies beyond Cost-to-Serve, and how to leverage big data to optimise margin for every transaction using latest technology (think about UBER and airBNB)?
  • Process Innovation – why process innovation is even more important than product innovation, and what finance tools are available to regularly access process innovation in your situation?
  • Real Strategy – why today’s digitally vocal customers demand REAL supply chain segmentation, not just fake marketing segmentation. How to use this move strategically for financial value creation?

Clearly, it is not easy to do all this. But, neither was it easy to come up the pyramid to the top. Here is a tool which will make it easier – but, in the end, as usual only your own effort will get you there.

If you want more examples such as the smile curve above, I got my assistant to make a 104 page document with sanitized selections from our past projects executed over the last 18 years. It may give you more ideas for similar tools for your business. Contact me on v.sood@globalscgroup.com for the document (available selectively).

How Can I Improve Supply Chain In My Company? Five Signs of a Broken Supply Chain

Leading Executives Are Continually On a Lookout to Improve Supply Chain in Their Company

Most CEOs and CXOs think about how to improve supply chain. They are surprised to discover that what they thought was a well-functioning Supply Chain turned out to hide such a tremendous amount of problems.

Five tell-tale signs that help you recognize a broken supply chain:

  •  Silos mentality

The big companies are often confronted with this problem. The different departments of the firm are not sharing information properly, and in case of failure the departments tend to evade responsibility. 

  • Unhappy customers

The quality of the service is directly affected by a broken Supply Chain. Customers are not only looking for a good quality offer but also reliable one. Brand image is at stake here.

  •  Struggling sa​les force, declining market share

The weakness of the reliability of the supply chain makes the work of the sales force more difficult as the brand image of the product is becoming less attractive. Even low prices  are less appealing to the customers, because the competitors win on service. And, when you win by reducing pricing, you encounter the next problem.

  • Eroding margins

A broken Supply Chain is a  handicap  that hits on both fronts. Rising logistics cost  raises the cost of the goods sold. At the same time, poor service can only be overcome by lower prices.

The company faces a dilemma. Either raise the price to maintain the margins at the risk of losing sales, or accept the drop in profitability.  Most companies opt for the second option – and blame the competition. Only a few recognise the root cause – the broken supply chain.

  •  Burgeoning inventories and missed deliveries

Many CEOs are surprised to find both the problems at the same time – overflowing warehouses, and missed deliveries. The reason is simple – their supply chain carries the wrong type of inventories, and in the wrong places. People do their best – by hunting around for the right inventory in the shortest period of time, and by expediting. But, a better solution is to carry the right inventory in the right place. 

To improve the performance of your supply chain we provide a tailored solution to each of our clients for more information click here or contact us.

What Two African Entrepreneurs Have Learnt from Amazon.com – Globalization in Action Serving Humanity

Boasting exponential growth since its inception in 2012, Jumia became the first e-commerce site to bring the coveted Play Station 4 to Nigeria. The company announced the offering after just two days of the release in the US. The Nigerian would-be Amazon is following the global giant’s footsteps in becoming a super networked business, although there is still a long way to go.

Jumia started with a relatively similar aim and manifesto to Amazon, which puts customers at the heart of its operation. In the same vein, the Nigerian site also reaps benefits from being one of the pioneers in Africa’s emerging online retail market. “Being first is good, but it is not everything. What fuels Jumia’s success so far is somewhat akin to Amazon’s evolution into a Five-star business network” – said Vivek Sood, CEO of Global Supply Chain Group.

Jumia is not shy of innovation either, given the fact that people are still skeptical about online retailing as well as online payment in Africa. The Lagos-based retailer launched a range of online payment options but steers its technology-shy consumers by accepting cash on delivery and offering free returns. “It’s very important that people know it’s not a scam,” said co-founder Tunde Kehinde. They even take a step further and deploy a direct sales team of 200 to educate Nigerians about secure online shopping, which also serves as a means to build trust. Now with pick-up stations spanning over 6 locations, a warehouse facility, 200 delivery vehicles in Nigeria and 4 other country-specific microsites, Jumia seriously strives to become a one stop shop for retail in Sub-Saharan Africa. “Here you are collecting cash and reconciling payments almost like a bank desk, here you are building a logistics company,” said co-founder Raphel Afaedor.

Both co-founders and Harvard Business School graduates built the business from $75 billion in funding and are bringing “a couple of million” dollars in monthly revenue, a growth rate of nearly 20%. Vivek Sood, author of the book “Move Beyond the Traditional Supply Chains: The 5-STAR Business Network”, said: “Jumia is taking the right steps towards building the five cornerstones of a super networked business: innovation, efficiency, profitability maximisation, product phasing and result-oriented outsourcing. With the promising results so far, perhaps we could see the next perfect example of a 5-star business network besides Amazon.”

Understanding and Using Resistance – in Business Transformations Using SCM 3.0

19 years ago, when studying for MBA, our Professor in Change Management, Dexter Dunphy told us that Change Management is nothing but management of downside. I understood that his point was every change has a downside – and as a change manager, the most important job you have to do is to understand the downside of the change being proposed, and manage it well enough. When I became a management consultant with a top-tier strategy house after my MBA, I took his dictum to heart, and it served me well through several change management projects. Those who were most affected by change appreciated the fact that the change was managed in a sensitive and caring manner – rather than imposed abruptly.

After a few years, when we started our current boutique consulting house, I started to notice another pattern. This was that many companies could accelerate their change management by skipping one entire generation of Supply Chain Management (SCM) in their efforts to make their businesses more modern. In other words, change management would entail moving from SCM 0.0 to SCM 1.0 or from SCM 1.0 to SCM 2.0 or from SCM 2.0 to SCM 3.0. On the other hand, many companies would want to take up an accelerated path – jumping 2 steps at a time – e.g. SCM 0.0 to SCM 2.0 or from SCM 1.0 to SCM 3.0.

This enabled them to frequently leapfrog their competitors, and transform their businesses rapidly and systematically. This was nothing different from many companies skipping a generation of Microsoft Windows when they upgraded their operating systems – for example skipping Windows Vista and jumping from Windows XP to Windows 7.0. The reasons were different, yet the methods were similar.

While change management entailed managing the downside for those who were affected by change, business transformation was more about understanding and managing resistance. By now, downside management has already become a big enough industry – just look at the number of large outplacement consulting houses, HR consultancies, and the booming business they do through the ups and downs of business cycles. Business Transformations will lead to a second boom in these.

If a business keeps up with the SCM evolution and moves with it, there will be a greater need for leadership training, corporate cultural adjustment, collaboration training and less outplacement and redundancies. And, there will be a need for understanding, managing and using resistance to further business transformation. What is the nature of resistance? What is the reason? How to identify 4 different types of resistance? How to use resistance to accelerate positive business transformations? That will be the topic of my next blog.

How Organizational Silos Can Ruin Your Supply Chain

Organizational silos are based on the division of labor, on organizing the labor in such a way that each individual specialized in what he/she knows best, so that it can all be integrated in such a manner that a cohesive whole which is created in the result is much better in quality and much cheaper in price. This gift of the industrial age to humanity allows to make a production must better in quality and must cheaper in price. Indeed, because of the period of time, the person will become very good at his production and work at a much faster rate, even if the technology is the same. Each employee will make his work much faster, and he would make it much better quality than if he was making the whole product.

By the 70’s, the division had been carried too far, in fact, so far that each person would pretend that as if he has nothing to do with the other employees. To give you an example, I was working in a business transformation project in a mid-sized airlines and I was sitting in the office of the person in charge of maintenance planning of the aircrafts. At one point in the conversation he dug out and e-mail exchanged with his colleagues from across the room and this e-mail exchange had been carried on over a period of 18 months. This trivial matter could have been solved by just walking across the room in an authentic spirit of give-and-take and collaborating across the silos. People in both silos have entrenched themselves into such a position where no action could be taken, the decision-making was extremely slow and people were pointing fingers at each other.

In fact, every organization we have seen, to some extent or other, suffers from this silos mentality. The bureaucratic organization of supply chain 0.0 leads each department to become a pyramid. Any information which needs to be passed from one department to another would have communicated with the head office of one department to another. Imagine the time wasted and the problem of information distortion in the process. By killing the spirit of collaboration, it hampers efficiency and effectiveness.

No wonder this kind of organizations find it very hard to compete against even rudimentary supply chains, such as supply chain 1.0. Many companies struggle with one business transformation after another without addressing the root cause of information holding and silos in supply chain 0.0. If the company stays stuck in organizational silos, no appreciable improvement will be seen: Information holding will become rife and selective information sharing, the norm. Blame will be the name of the game in such a situation.

Below are 20 questions that every executive should ask about the supply chain in their business:

 

A Great Man Knows His Own Limitations

This picture prompted me to write the blog post. Like many other people, I am a great admirer of Steve Jobs – his integrity, his passion and his sense of design.

Almost single-mindedly he twice created a company that eventually became bigger than the economy of Spain (and many other countries).

Having grown up away from computers, I personally experienced his genius much later in my life than most people did; only when I installed a very expensive and clunky hard drive based music system in one of my cars I found out in a few months that his company had released a much more compact, mobile, versatile, far superior iPod, which made my costly, and clunky install redundant.

But today, when I reflect – almost every technology I use on daily basis has his finger prints on it – Microsoft Word, Windows, Android Phone – all have ideas inspired by him. It was his misfortune that ‘the look and feel’ was something that could never be patented – shows you how useless the patent laws really are when they protect what is not worth protecting and give no protection to what is worth protecting the most.

When I wrote my book The 5-STAR Business Network I used Apple as a shining example of the first star – Innovation. The collaborative approach to innovation that Steve Jobs pioneered, and that is epitomized in the quotation above was worth emulating.

Admittedly, his is not the only company that does it – his company just used to do it better than anyone else. Using a business network of suppliers, suppliers’ suppliers and collaborators to co-create a product in far less time than anyone else could have created was a work of a genius.

He stood the Edison and Tesla model of innovation on its head. And, even Ford could have learnt a few things from him. What surprises me most is that despite the overwhelming evidence and a clear role model – why most companies still cannot get their act together when they sit back to create products that their customers would worship.

Why do they still settle for shoddy GM cars, or pills that do more harm than good.

I will end this blog with a quotation from Steve Jobs’ biography by Walter Isaacson:

“Because he believed that Apple’s great advantage was its integration of the whole widget – from design to hardware to software to content – he wanted all departments at the company to work together in parallel. The phrases he used were “deep collaboration” and “concurrent engineering”. Instead of a development process in which a product would be passed sequentially from engineering to design to manufacturing to marketing and distribution, these various departments collaborated simultaneously. ” Our method was to develop integrated products, and that meant our process had to be integrated and collaborative”, Jobs said.

He called it ‘deep collaboration’ – and we call it Supply Chain 3.0. Hopefully, we will have a lot more time to put it into practice. This tribute to the great man has been cooking up in my brain for a long time. The world is a much better place, for he was in it for a few brief decades. You cannot say that about too many people.

Disclaimer: I never had, and do not currently own, any shares in Apple.

 

Five Key Cornerstones of The 5-STAR Business Network

There are five key Cornerstones of success in building and harnessing effective global business networks

So what are these 5 key cornerstones of the super networked businesses that lead to these networks being called the 5-STAR Business Networks? As an aid to memory, I have given them mnemonic names in order, shown below (see the complete structure in the book):

5 STAR Business Networks enable businesses to do these regular activities in a much better manner than would have been possible otherwise. As we will see with the help of several examples and cases studies, aided by technologies, an open collaborative mindset and a focus on the bottom line, these businesses are achieving better results through superior methods.

We will examine each of these five cornerstones of the 5 STAR Business Network in great detail in the five chapters  in the book. In this article, we will use an example of one company that is positioning itself as the super networked business of this century by using all five of these very astutely.

Amazon is a successful example of an emerging Global Business Network

 

When Amazon was founded in 1994, it was but one of the hundreds or thousands of businesses aspiring to make it big on the Internet. Just like all its peers, initially the markets and analysts were starry-eyed about Amazon’s success, and later, when the dot-com bubble burst, and the trend reversed, few people gave it much chance of success. Yet it defied the naysayers and continued to sell at PE ratios exceeding 100 on the stock markets.What is the secret of Amazon’s success? What allowed Jeff Bezos to build the largest online retailer in the world, where customers can acquire anything that they desire over the Internet?

Admittedly, the company started with a first-moved advantage in its segment: books. Amazon was one of the first major companies to sell books online.  The business was founded in 1994 and by 1995 the website was launched.  Initially, the company was exclusively an online bookstore. However, it transformed to sell millions of products to a large and valuable consumer base.  Today, the company sells everything from electronics to clothing, furniture and even food.If you had to ask this simple question to 100 people – “Who on earth today is the world’s most customer-centric corporation?”

Amazon would figure very high on the list.  Amazon has achieved low prices, a wide inventory selection, convenience, and truly gives customers what they want.  As a result, Amazon has evolved into a Fortune 500 business and continues to grow as a world-class electronic commerce platform.The company grew its annual revenue from US $19 billion in 2008 to US $24.5 billion in 2009 to US $48 Billion in 2011, all the while continuing to invest in future businesses and maintaining a healthy cash flow. How does it do this?

In an article in Forbes (April 2012) Jeff Bezos offers some tantalizing clues. Bezo’s main message is to base his strategy on tings that will not change.For Amazon, their purpose is simple: offer wider selection, lower prices and quick, dependable delivery.  Another significant lesson Bezos reveals is obsessing over customers.

Amazon starts with the customer and subsequently works its process backwards.  The company even designates specific roles performed by trained employees known as customer experience bar raisers.  This is one topic that Bezos takes exceedingly serious.

But, to some extent, every corner store does these things just as well. Why, then, is that would a corner store owner be lucky to grow his lowly sales by a couple of percentage points, while Amazon grew its sales to $48 billion from $24 billion in just 3 years.

Amazon achieves high marks on all five key cornerstones of success of Global Business Networks

Let us take a more in-depth look behind the curtains.

Jeff Bezos, on the record, said that you have to be willing to be misunderstood for long periods of time.  While several of Amazon’s designs look like a bust at first, if the new idea makes strategic sense to him, Bezos goes for it knowing full well that people will initially misconstrue the design. In general, this is what innovation is – people are going to misunderstand it because it is new. Overall, the business philosophy is rather simple: make online shopping simple and suitable so that the customer does not think twice about buying instantly with one click (Anders, George. “Jeff Bezos’s Top 10 Leadership Lessons.” Forbes. 4 Apr. 2012).

The complexity lies in how this simple business philosophy is translated into consistent action, resulting in nearly a billion customer visits a year. There is nothing simple in the complex execution of this simple business philosophy. Therein lies the dilemma of the modern business world – the quest for simplicity at the highest level, underpinned by the highest level of sophistication reminiscent of Nano-technology under the hood.

Almost all successful businesses do this dance of 5-STAR business network well, but Amazon does it exceptionally well on almost all 5 fronts. There are many other businesses – well-known ones – that could be a poster child for the emerging trend of global business networks we showcase in the book The 5-Star Business Network. However, no one is more successful, more visible, has higher potential and is more assured of its role in this revolution. That is why Amazon is a prime example of the 5 STAR Business Networks, demonstrating FAR Innovation, $t$ Efficiency, TOP, APP, and lastly, ROM.

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Why Every Start-up Always Has a Supply Chain Problem?

There is a common assumption that every company’s supply chain should be similar, if not the same. Even learned professors at august institutions write highly prescriptive articles in highly regarded magazines such as Harvard Business Review saying these things. For example see this article by a Stanford professor, on which I had a running correspondence through Harvard Business Review. My rebuttal of the article was published in the next issue of the same magazine.

The reality, encountered in the rough and tumble of the real business world is very different. Especially in the world of start-up companies – even the unicorns – the supply chain looks very different.

Supply Chain Maturity differs at each stage

In fact, our supply-chain maturity model shown in figure describes four  stages of supply-chain, where each stage of product life-cycle is paralleled by a maturity stage of supply chain. As figure below shows, there are four relevant zones of operations determined by two key factors on product maturity and supply chain maturity. Zone 1 is the foundation zone in which both the product and the supply chain are quite immature. As the name implies, in this zone the foundation for the future business is being laid. The next zone on the top left quarter of the matrix – the Innovation zone – implies a relatively mature supply chain, but a developing product. As the name suggests, this is the zone where both product and process innovations are rapidly taking place. The profitability zone on the top right quadrant is where both the product and the supply chains are relatively mature and while incremental innovation might be still possible. This zone is primarily focused on enhanced profitability. Finally, the twilight zone on the bottom right corner is when the product is reaching the end of its profitable life cycle and the supply chain becomes brittle.

Profitability Zone and Innovation Zone are the two most productive zones

Needless to say the more time spent in the profitability zone the more a company can reap rewards of its efforts. However, to maintain fresh product lines, to constantly stay on cutting edge and to retain long term leadership, companies will have to also spend some time in the innovation zone. Intuitively, companies want to spend time in the top two quadrants and minimize their time in the bottom two quadrants. In fact, overlapped on the four zones is a typical supply chain maturity cycle we observe. We will discuss this conundrum in more detail in Chapter 11 where we observe the Advanced Product Phasing strategies of the 5-STAR Network businesses.

 

 

Improvised Supply Chain

Initially, in the introductory stage of the product life-cycle, the supply chain is still very basic. In this improvisational stage of supply-chain, the key focus of supply-chain team is to really just gather enough material somehow, from somewhere, to make the product or to keep the research and development team supplied with raw material. They are not doing any advanced planning at this stage. They are not even aware of all the raw materials or all the parts, which will be required for making this product. Bill of Materials may not exist or, if it does, it is incomplete. There is no supply-chain planning mechanism besides this Bill of Material. There is no supply-chain control mechanism either. Even a budget does not yet exist, or it might be just a very rudimentary budget. At this stage of supply-chain maturity, the companies are not worried about its efficiency at all. There is no supply-chain collaboration with its partners for this simple reason: we don’t even know who they will be.

 

 

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