I have been asked this question a lot on Quora, as well in my board and other speeches. A lot of supply chain commentary is becoming too technical and mysterious. Supply Chain Software sellers have a vested interest in creating the mystique – similar to what McKinsey used to do about 20 years ago. But Supply Chain Management (SCM) need not be mysterious. Remember, if someone cannot explain it easily enough – they do not understand it well enough. The purpose of one of my books – Unchain Your Corporation – was precisely this – to demystify the supply chains. This books is written for layperson, can be read in 2–3 hours, and had more than 200 stories and anecdotes to help the readers use complex concepts. At its core, SCM is just about two things – integration, and optimisation. Integration of various functions (purchasing, production, logistics, inventory management, finance, sales) within a company. And, Integration of of various companies that form a supply chain together to serve an end consumer. Optimisation – is the art of getting the best results from the same inputs. You will be surprised to know that most GPS software do not even give you the optimum route even if they have real-time traffic information. The key to testing optimisation is by doing the same exercise manually and comparing against the results of the software. There are clearly degrees of Integration and Optimisation. Higher levels of Integration and/or Optimisation will lead to higher level of efficacy in supply chains. See the figure below – that comes from one of my board speeches:
If you supply chain consultants are not telling you these two simple truths, then all the talk of automation, big data software and driverless vehicles is a pipedream without a purpose. And, if your Supply Chain MBA is not teaching you these two basics then you might have wasted 2 years and thousands of dollars. Here is why… …Everything else in supply chain stands on those two foundations. Your supply chain relationships are part of integration effort, and automation is part of optimisation effort.
First let me start with a story. I have some personal experience in 1990 with this ancient mariners’ rhyme:
Day after day, day after day,
We stuck, nor breath nor motion;
As idle as a painted ship
Upon a painted ocean.
This was on a ship with a very intransigent bunch of crew from an aggressive Marxist union. What I did not know at this point was that all the crew ratings received a hardship allowance for every day they spent on the ship under water rationing conditions.
The ship embarked on a several weeks voyage across a vast ocean with sufficient stock of water, and then some surplus. This was one of my responsibilities.
I was also closely monitoring the daily usage. I had the cadet and chippy (carpenter) take sounding morning and evening – and write the daily water consumption on a blackboard in the crew mess, as well as the officers ward rooms.
I took daily rounds in the accommodation to monitor the dripping taps to stop wastage of water. Any jump in water consumption was promptly investigated – all for a good reason. I wanted the ships company to arrive with sufficient water stock.
Perhaps it was just an accident – but somehow sea water gained entry into every fresh water tank on the ship (but that is a long story about unions and compensations which is best told at some other time).
The captain (and I) was left with a dilemma, whether to rely on the fresh water generator on board for a long sea voyage, or not. There was no shortage of water – it just was too salty for most purposes.
I will tell you how this voyage panned out at the end of this blog post.
to the real purpose of the post – the over-abundance of un-usable data, and the opportunities that it presents for start-ups.
In my last blog post I recounted a real life story of a business transformation project where information technology fell woefully short. This is not the only such situation I encountered. In fact I recount more than 20 similar examples in my book ‘UNCHAIN YOUR CORPORATION’.
Look at the growth in global data storage capacity below:
Obviously it is not just the capacity – but also the data that is growing. There are many graphics showing growth of data – a few of them are Every Day Big Data Statistics, Data Generated On Social Media Every Minute and 4 V’s of Big Data and all over the cyberspace. The key story they all are telling is just one –
Just like the ancient mariner had no dearth of water, we have no dearth of data. And, just as minute quantities of salt (3.5%) that is present in all that seawater, is enough to make raw seawater unusable for most practical purposes, minute quantities of data error is enough to make most of the raw data unusable for practical purposes.
On the ships (and in many locations on land) we deploy fresh water desalination plants such as Sydney Desalination Plant. The sole purpose of these massive plants is to parse seawater, take it into a pressure chamber, evaporate it at high temperature (because that requires less energy) and then condensate it into distilled water. Further processing is required to remove other contaminants such as bio-hazards. Check here for infrastructure of the full process in some more detail.
In information technology the most bang for the buck is not in generating or collecting more data, but in making the data more usable.
I was asked a question at a recent speech why I was not as bullish as everyone else on big data. I likened the current big data set-ups to an ocean full of seawater. It still takes a huge expense to desalinate the seawater, and to make the data usable.
Any start-ups that figure out a better way to collate, parse, access, and make usable the data to create insights would be a tremendous success. If you know of any, please let me know in the comments below.
In the voyage above, we had to put into an emergency port to get fresh water rations. Without doing this none of our sailors would have survived.
In the emergency port, we had to fight with a bunch of sea pirates, which is a whole new story .
“Call it a clan, call it a network, call it a tribe, call it a family. Whatever you call it, whoever you are, you need one.”
Business Networks are important to accelerate and sustain success for any individual or organization. It is imperative to learn from the evolution and success of business networks. Business structures have evolved radically to such a degree that nowadays, most businesses have no option but to create business networks.
Naturally your business infrastructure is fixed, rigid and cost accruing. Your business networks, on the other hand, are evolutionary, flexible and revenue accruing.
Those businesses which had the most responsive and resilient business networks were the ones to recover from any downfall the quickest. See who survived the global economic downturn during 2008 – 2009.
Data is visibly conclusive that in times of cash crisis, the quality of their business networks saves companies. Those with more robust business networks have far more superior cash conversion cycles, nearly 6 times better. In fact, as pointed out by Aberdeen Group, business network masters improve their cash to cash cycle leading up to the Global Financial Crisis while the rest of the industry went backwards.
Even relatively smaller businesses can achieve remarkable results quickly based on the responsiveness of their business networks. In economic booms, whether accompanied by economic volatility, or economic stability, business networks allow you to realize higher profits, quickly. The potential of your company’s capabilities are multiplied many times over, by the leverage effect provided by your business network. This is only possible through extensive utilization of business networks that the company has built, nurtured and managed effectively. Most executives grossly under-estimate the value and efficacy of business networks in ramping up capacity rapidly in boom times.
Especially during times of extreme volatility, we see airlines and shipping companies forming global service alliances to ride out the season and economic peaks and troughs. In such volatile business environments, budgeting and planning can become a nerve-racking exercise for all companies except those which use their business networks to cushion the lean periods with long term contracts and find scarce capacity during boom periods. Supply chain is unique to every company and industry, formulated over a number of decades in many cases, and is worth several trillions of dollars in value.
Estimates range into trillions of dollars, and yet may be underestimating the full extent and power of these hidden business resources. The magic of business networks has made it possible to design, build, launch and sell revolutionary products in less than one-third time of the industry. If you cannot make your business networks more visible and manage them more proactively, you may be silently yielding the competitive advantage to others who can. It is, after all, the obtainable magic.
Want to start now? Create your own 5-Star Business Network today.
In case you are wondering why I am focusing on the second biggest mistake rather than the biggest one – it is because I have already written a blog post on that topic last week. Here is the link to it.
But the second biggest mistake is even more common and well known.
Yet it is so common that it worth spending half an hour writing a blog post about it. Even if 10 business transformations are put back on track after reading this blogpost – it would have done its job. After all each derailed business transformation is a huge waste of human effort and ingenuity.
So, what are the cliches that are used to describe this second mistake. I am sure everyone is familiar with these:
Putting the Horse Before the Cart.
Confusing the Cause with Effect.
Post Hoc Fallacy
A theoretical discussion of human fallacies is out of scope of this blogpost. You can read more about these here.
In many cases these IT upgrades take a life of their own and business objectives of the transformation projects start taking a back seat to these technological considerations.
In my book UNCHAIN YOUR CORPORATIONS I have given more than 20 examples of this phenomenon, in various contexts. Below I quote from the book:
Modern supply chains collect information at each node of the network. This rich data is methodically analyzed to optimize demand, supply, inventory, costs and service levels to create the best profit results. Not many people know this art – while there might be many pretenders.
The next component in business transformations is the informational part of the business network, which is strongly bounded by its IT systems. A word of caution, though, IT should always be viewed as a means to an end rather than the end in itself. In other words, systems are implemented to facilitate information exchange that is conducive to business transformation.
In the project we were working on, the challenge was indeed, moving the system from the regional to the global structure. Apart from having islands of data to consolidate, the company also found themselves dissatisfied with a system that met only 70% of its needs.
Even though you may be tempted by flexibility as it offers more room for maneuver in the future, every additional bit of flexibility breeds corresponding complexity.
To get a more realistic picture of the complexity, type “supply chain software” into Google and you will get more than 75 million results. How do you know which one is the right one? Though many of them will pretend that they can, there is not a single piece of software that can do everything that you require from a supply chain software solution.
Plethora of tools are available – each with its own peculiarities and limitations. Old ERP type systems can lead your operations into a big hole from which it will take years to emerge. Furthermore, each tool is most suitable for certain situations, and unsuitable for other situations. You need the ability get the right tools – just the ones that suit your situation – and combine them well.
I have dedicated a whole chapter to IT systems in my book The 5-Star Business Network and here I would like to focus only on a few key things. To get this component right, you also need to see things through the eyes of the system provider. It is a delicate dance between rigid functionality and flexible business outcome.
How do you choose the right software for, say forecasting, from among more than 2,500 such systems? How do you link this system to the other systems it needs to work closely with – say inventory management software? How do you pick the right inventory management software from among more than 2,000 systems that claim to do more or less the same thing? Do you go for a single solution that is about 50%-60% right, at best – or do you go for a best-of-breed solution that can cover more than 85% of your need, if you do it properly? All these are very complex questions to answer.
Figure below, taken from my book The 5-Star Business Network, illustrates just some of the ways a business can falter along their road to using IT for business transformation.
FIGURE: PROBLEMS WITH USING INFORMATION TECHNOLOGY FOR BUSINESS TRANSFORMATIONS
Then you configure the pieces to form an integrated system, that meets your rapidly changing needs in a business transformation.
We need to revisit the strategic component, to examine the level of disconnect between the corporate strategy and the IT capabilities and carefully find tools that fill that gap.
In the past, it might have been the case that corporate strategies were made up in the air, then supply chain strategies were formed by people down in the warehouses based on their own assumptions about what the business wanted to achieve, and the IT staff work in their own cubicles to provide systems based on poorly articulated needs.
If the above example of three isolated types of strategies resonates with your personal experience, you would also concur that despite numerous vocal calls for enterprise-wide collaboration, people still continue to work in silos. This is equal to saying many companies are still staying at Supply Chain 0.0 while others are moving towards 1.0 or 2.0 or, even mastering Supply Chain 3.0.
Figure – The process and service component
As you can see from Figure above, which shows typical processes in a supply chain 1.0, there are four levels that need to be weaved into a cohesive whole. Typically, there can be missing links between processes – vertically, or even horizontally.
Even worse, for instance, a delivery scheduler may not know how his work output related to that of his next cubicle neighbor – the customer forecast expert.
During a transformation, processes and services may get streamlined, re-aligned or even created from scratch to accommodate change. That is why it is pivotal to keep in mind how they all fit together by devising a visual presentation such as the pyramid diagram above.
I was having a conversation with one of the senior executives responsible for business transformation in a large-sized industrial company with operations and plants across the developed world. This particular person had come from one of the top tier global consulting houses and obviously was very well versed in the hypothesis-driven problem-solving approach, which both he and I had learned in our formative years in top tier consulting houses. He was adamant that this approach would be enough to carry out a large-scale supply chain transformation in his business. Hence, he was very skeptical about the supply chain methodologies that we were espousing.
In his mind, he could derive the same results from the first principles using his hypothesis-driven approach. And I was patiently explaining to him the difference between going back to the first principles to create a new approach, and deploying a tried and tested approach for supply chain transformations which had the benefit of having adapted the same hypothesis-driven approach.
So I gave him an example of the early stage motorcars where people were still using solid rubber tires and a number of fittings which were a carry-over from the days of horse buggies. Of course, if he had the luxury of time and budget to make all the mistakes there were, he could probably recreate a modern-day motorcar, going through all the stages of evolution. He was smarter than most of the population, so he could perhaps complete the task in 20% of the time that it took for the actual evolution to take place and perhaps, at 20% of the budget. Yet, if a modern-day motorcar was already developed, wouldn’t he be better off testing if it suited his purpose and adapting it for his use?
Obviously, on one hand, you can become too rigid and attached to the process itself. On the other hand, robust processes, based on experience from a number of similar business transformations in the past, are far more useful than some skeptics envisage.
After all, who would you like to be your guide for a climb – a person who can theoretically show you a path through a map of a mountain, or a person who has actually traversed that particular journey several times before, and knows all the pitfalls along the road?
Now let us talk about the “service” bit in the process and service component.
One of the hangovers from the last century industrial organizations which never ceases to surprise me in a modern-day organization, is the importance attached to a product in comparison to the importance attached to service by the company.
What do I mean by that?
The service might be just fitting the product, or providing the right information about the product, or helping customers choose the right product for their needs.
To give you an example, if you are a customer of a motorcar company like Ford or General Motors and you are looking for a particular part, you will be amazed to know how many different possibilities there are of fitting the right part for the purpose. You will then need to discuss your particular needs with someone called a Parts Interpreter in order to pick a suitable part for your motorcar. It is a very specialized job and invaluable service provided by the car industry to its customers. It is the service that makes the cost of parts more expensive than the base cost of manufacturing and selling that part.
In almost every project we have done, when we calculated the overall cost-to-serve, it is very clear that the product component of the cost was supplemented by the service component of the cost, which was quite substantial to start with, and getting higher progressively.
In other words, the overall cost-to-serve is made up of cost of product plus cost of service, each a fairly significant component of the overall cost-to-serve. Then why do companies keep ignoring the cost of service or treat it as a minor hassle, rather than manage it as an overall part of the full cost equation?
Hence, service is merely an after-thought, even though the cost of service might, in many cases, be higher than the cost of product.
That is the reason why a cost-to-serve analysis is an eye-opener for senior management teams or for boards of directors, when an overall cost breakdown is laid out, clearly showing that cost of product is far less than the cost of service. Suddenly, the entire orientation of the management changes towards managing the service component much more efficiently and effectively than they have ever done in the past.
We have noticed that tendency in airlines, in the automotive industry, the mining industry and in many other industries.
Similar to the informational component, companies are increasingly discovering their ability to cherry-pick service providers that deal with different service modules. Before this can happen, service components must be broken up into geographical, asset based and activity based components to discover and engage best service provider for each module. This is known as modularization.
Then, service modules are homogenized in order to create and manage parallel interactions with several service providers at same time. The cherry-picking or commoditization of service modules enables you to configure a best-of-breed customized business-to-business network that would be impossible to emulate for your competitors, and provide flexibility, cost advantage and risk mitigation to your company.
Sure you will need the right tools, and deploy them rightly – that is important. But much more important is why you are deploying them, and are you getting the right results from them?
It’s no surprise that customers hate companies with too much internal focus. As organizations free up their inter-departmental planning from rigidities, the communications start to bloom. Efficiency improves considerable and everybody starts running together, faster. However, a higher set of problems emerge due to lack of external focus – on suppliers, customers, and end-consumers. Many times everybody inside the organization is running together, faster, but in the wrong direction.
New challenges need new responses. The common organizational model looks like the generic drainpipe structure, meeting the mammalian need for an ordered hierarchy and flow of power within a business. Most companies have evolved in the last 2 decades and their functioning has become almost entirely customer centric. Their customers’ priorities drive most of the business workings. The traditional drainpipe model frequently stifles customer responsiveness and innovation, therefore there is a clear need for a new standardized customer centric model of business. The new customer centric model starts with customers at the apex of the organization. It is the customers’ needs which the organization is trying to serve, so directly aligned with the customers is the sales team. The function of the sales team is to have an https://www.viagrapascherfr.com/le-viagra-vente-libre/ intimate understanding of the customers’ needs. Only then can an organization create successful products. An organization can outsource almost everything else it does, but it can never outsource its sales. Two other key functions which are equally important and support the sales team is marketing and research & development. Between these three we form the top tier of the modern organization’s structure.
There are a number of factors that have ensured that business have been struggling in the current economic environment. Technology has made many business models defunct, incomes and profits are falling due to cost cutting and price conscious consumers and off-shoring has hollowed out entire industries. Given this reality, business networks are essential to struggling companies to help turn their fortunes around. Here are five ways you can use your business network to turn your company around – the five cornerstones of a Five Star Business Network.
When I engaged Vivek’s services for supply chain transformation in one of the companies I was heading, we expected the careful and methodical approach that he was famous for. Outsourcing was only one of the components of our supply chain, and at the time we did not think it was even a particularly important one.
I was already convinced that critical business turnaround can only be achieved by taking an end-to-end supply chain approach to this transformation. I was pleased to note that the original target set for 3 years was surpassed by almost 70% in just 18 months – providing graphic evidence of the full power of these ideas in action.
On the information technology side, the supply chain requirements were never fully translated into a usable system resource base. I will not go into the reasons in this blog. SAP has since invested in Ariba – a procurement management software. unfortunately, the confusion between procurement and supply chain management continues to persist. A number of journalists, and even business professionals use the terms interchangeably. On the IT side the supply chain workflow still remains inadequately supported. A few newer companies are starting to crop up, yet a great majority of them (to some degree) seem to be falling into the same traps that their predecessors fell into above. In my next blog I will cover this in more detail. Meanwhile, share your experience with SAP, Ariba or other so called supply chain transaction processing software systems. Not only will you add to the accumulated IP on supply chain system, but also you may earn a copy of the book quoted above. You can find comments on My Experience With Freight Cost Reduction Using Supply Chain Software on LinkedIn.
The person who does less than s/he is paid for, will soon be paid less that s/he does.
So, what do you get paid for? And, are you getting paid for what you are worth? What skills do you bring to the job? What attitude to you bring? Are you being rewarded for the two? What can you do? Use the figure below as a guideline: You can find comments on LinkedIn.