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Category Archives for "For CXOs and VPs"

How Far Would You Go To Make Your Supply Chain More Secure?

Let’s start with a story illustrating how supply chain security irrevocably altered the fortunes of a company that was global leader in a very popular consumer electronics industry.

A High Profile Industry

This story is in public domain and involves two behemoths of the mobile phone industry at that time – Nokia and Ericcson. I tell this story in my book THE 5-STAR BUSINESS NETWORK.

Think of the time before Iphone and Samsung phones came along and conquered the supply chains of the industry, and the minds of the users. I tell that story elsewhere.

Here we focus on the simpler times.

An Uncontrollable Event

A seemingly trivial random event, on a fateful day in March 2000, changed the destiny of the industry.

Both Nokia, and Ericcson, the stalwarts in the mobile phone industry at that time, were equally impacted by the same event – a lightening fire in the chip manufacturing plant of their common supplier, Philips, in New Mexico.

Both Nokia and Ericsson experienced business disruption to an equal extent as a result.

Fire damage to the stocks was extensive

More importantly, the manufacturing capacity of the plant was damaged and it was difficult to estimate the time for repairs.

This is where the events take an interesting turn. Not everyone thinks of supply chain security beyond the physical security of goods in transit. For example only a few people think in terms of continuity of supply.

In fact, all the security experts who have no background in supply chain security fail on this count – they never think deep enough in terms of the layers of supply chain, while they do think deeply in terms of layers of physical security. Look at what happened in our real life story next.

Nokia had invested months, if not years, in creating and perfecting a robust and responsive supply chain security, while Ericsson’s business network was relatively a middle-of-the-line affair that worked well when things were good.

Ericcson staff were content to go with the flow, without too much care and worry about this part of supply chain security.

Nokia Sees the Future Before Ericcson, or Even Philips

After the fire, Nokia was able to see the full impact of the chip shortage on its own business, as well as the entire industry with a lot more clarity than Ericsson, and even Philips.

Moving quickly, it activated other parts of its business network to shore up supplies, to redesign some of the chips to manufacture them in other plants, and to take pre-emptive steps in the network.

Ericcson Did Not Move to Secure The Supply Chain; It Lost Out For Ever

Ericsson let the situation evolve at its own pace and made decisions more reactively.

The resulting gain in profitability and market share for Nokia and the loss of these for Ericsson tipped the balance of the industry to an extent where within a few years Nokia pulled far ahead of the Ericsson which never caught up with its erstwhile equal rival.

So, Why Do I Tell This Story?

It does have some anecdotal entertainment value.

But the moral value is even higher. Here are some things to ponder:

  1. Supply Chain Security is a layered affair – for the best results organise it as such:
    1. Supply Chain Layers
    2. Physical Security Layers
    3. Virtual Security Layers
  2. A random event can change the fortunes of an industry
  3. Better prepared companies generally wins in such events
  4. You do not need to be perfect, you just need to be better than your competitors
  5. If you don’t work to keep the supply chain advantage, you will lose it in a jiffy:
    1. Ericcson lost out to Nokia
    2. Nokia eventually lost out to IPhone (that is a story, I tell elsewhere in my posts)
  6. Supply chain advantage, when you have it, translates into industry leadership, fat margins and cushy life.
  7. Supply chain security is directly corelated with supply chain advantage. DO NOT IGNORE SUPPLY CHAIN SECURITY.

I could easily turn this above 7 point list into a large magazine article (listicle), but my readership is wise enough to connect the dots themselves, and do not need ot labour through the obvious.

Given the quality of my readership – I have created a 350 page report on supply chain security – which is available at a small (or relatively trivial) expense by sending an email to info@globalscgroup.com

If you really want to pay due attention to supply chain security there will be nothing comparable on this globe – get this report NOW by directly emailing me.

How To Choose The Best Consultants For Your Project

I came across a startling statistics which prompted a new line of thinking that I wanted to share – hence this article.

Consider these statistics – over 70% of professionals would have worked as a consultant, or will work as a consultant, at some point in their careers.

In other words, if you are reading this article, then just look around you, and include people up to 2 rungs below, and up to 5 rungs above you – and think about all those people. About 70% of them have either been a consultant at some point in their careers, or will be.

No wonder that with so many consultants around, today, more than ever before, it is extremely difficult to make a choice of the right consultant for your project.

So, how do you make sure that you choose the right consultant for the job at hand?

Before we go any any further…

Let us start with making an assumption that you have a project, and that you have a choice. That mean that no one is twisting your arm to hire the nephew of the chairman, or best friend of the CEO. And that the body of work is not a forgone conclusion. There are times “when a project is not really a project” – I have written an entire blogpost on this topic.

Now, if you indeed have a project, and a choice – you will be in a conundrum.

When you go to your boss, or to whoever you go to for funding for the consultant, guess what is the silent CD running inside their brain?

“Are you going to waste my (company) money on a no good person/company (or a friend of yours), and make me look bad, OR, are you going to find someone who will visibly return 10 times the value of what you pay him out my budget, and make me look good?”

A mediocre consulting result does not cut it any more, even in low-performance companies. Clearly everyone (except for your detractors) wants you to find a consulting firm that will indisputably add enormous value that far exceeds what your company pays them.

You may not believe this, but most good consulting firms also want you to do exactly the same. Most good consulting companies have more work enquiries than they can actually fulfil – read this blog post if you want to know more about the view from the other side of the table. As a bonus, you will also learn how to get the most out of your chosen management consultants, while spending the least on them.

This post will focus on how to choose the best management consultants for the job you have at hand. I could actually give you a step by step formula, but it will be a lot easier to understand if I give you a list of the four most common mistakes, and the wrong things so many people focus on.

Once you remove all those common mistakes and wrong things to focus on, all that will be left is a single thing that you should focus on. That will make things so much more crystal clear than any step-by-step set of guidelines.

So what are the common mistakes that people make when choosing the right management consultants for their projects?

1. Too much credence on past relationship with the consulting firm

I say this when our longest stretch of client ran for over 13 years because every project is a new undertaking. I kept reminding our teams that we are only as good as our most recent results. No one should have the luxury of resting on their laurels, their brand, or their accident of birth.

From a client perspective, there is a slight edge when they do not have to ‘educate’ a consulting firm in their company fundamentals. Yet good consultants come up to speed very rapidly, and are used to fast ramp-up. Any other reason for past relationships is simply invalid and will be covered in the next few points.

2. Too much credence to the past history of the consulting firm

Many firms regularly tout their experience of over a century in your industry, or in management consulting in general. This sounds enticing. Yet, many of these very same firms struggle on their projects because the senior partners lack knowledge and time, and the junior staff lack direction. your chance of getting good results just based on long established history of the firms is no better than 50-50.

3. Too much credence to the brand of the consulting firm

Brand is a powerful indicator of quality, and no doubt ensures a certain minimum performance in consulting. But, in this age of disruption and specialisation, does it guarantee the best possible outcomes for your projects.

If it was my money, I would do careful due diligence and put it a world class specialist who is top of his/her field and work closely with them, rather than on a vapid branded team who takes over the game and the glory, and hope for the best.

4. Too much credence to other clients and exploits of the consulting firm

By all means ask after these – ask for projects history, testimonials and clients in and outside the industry. But know this – none of them is a guarantee that your project will succeed.

There is a reason why none of the four things above matter at all

I did not want to set out to make an exhaustive list. You could add many other things to the list above – which will be either variations or extensions of the four themes above. And, when you read my two main criteria below, you will agree that only these considerations should decide the right consulting firm for each project.

These criteria are simple:

  1. IS THE SENIOR PARTNER A WORLD CLASS SPECIALIST IN THE AREA OF YOUR PROJECT (INDEPENDENT OF THE COMPANY BRAND), AND
  2. IS HE/SHE GOING TO SPEND AT LEAST TWO DAYS A WEEK ON YOUR PROJECT FOR THE DURATION OF THE PROJECT?

The first point is making sure that the expertise of the individual is up to the mark. In this era of internet copycats almost everyone is saying similar things in similar forums. So, try and find unique things that the person is saying (or writing) in public and use your own innate sense to judge them.

The second point is making sure of their actual availability for your project. The only thing you are leaving to chance after covering these two points is the actual goodwill and best effort of the person. But, it will really be a low life who will take your money, stay two days a week exclusively working on a project and still not expend full goodwill and best effort on the project. Such a person will not survive for too long as a management consultant, or a world-class expert anyway.

In another blog, I have written about How To Get The Most Out Of Your Management Consultants While Spending The Least On Them?

What is the Most Effective Strategy to Massively Slash Shipping Freight Costs?

Freight costs reduction is almost always the last frontier in the cost reduction landscape. At the board level, most companies do not pay much attention to their external freight costs. These costs never get the attention they deserve because they are scattered all over the place, and generally out of sight.

What if I told you this simple strategy can reduce the overall freight costs by over 75%. It will be hard to believe – right? Well, by the end of this article you will see an actual case study analysis proving this to be the case.

If you study that case example seriously enough, you can replicate the strategy in your own company, and see for yourself the enormous benefits it creates.

But, this magnitude of cost reduction needs strategic thinking. I call it a strategic because it is not a tactical (and, certainly not a trick). A trick is something which is impermanent, a sleigh of hand.

For example, I know a trick that can instantly cut your freight bill to zero. But, why would I even talk about this sleigh-of-hand. A trick rarely enriches you – it merely has some entertainment value, and perhaps, ocassionally, a short term monetary value.

For my clients, I focus on things of lasting and real value.

Strategies for minimising freight costs need fresh thinking

This strategy is so obvious to me that I am constantly surprised that very few companies are doing it. In fact, this is the first thing I look for when I visit a new company.

And, invariably, in every company, I find room for improvement. “Why is it not equally obvious to everyone else?” – that is a constant surprise to me. But then, that is the very definition of “the curse of knowledge.”

Consider the following scenario and see if sounds familiar: you join a new role (in the same company, or in a new company), and suddenly you are now in charge of the freight and shipping costs.

You look at the numbers, and they seem high. But as yet you have no means of saying they are high, so you dig out some benchmarks on google (or from your past experience, or reports) and while nothing definitive can be said because benchmarks never compare apples with apples, your gut feeling is confirmed. The freight costs for your company is in fact higher than the norm.

Freight costs can be reduced by these common tactics:

Even when you can conclusively prove that the freight costs are higher than the norm – what is your next step?

  • Do you go to all your shipping and freight vendors and start pressing them for discounts?
  • Do you wait till their contracts are up for renewal, and then initiate a rigorous and objective RFP process, with the full intention of negotiating as hard as you can?
  • Do you openly break the existing freight contracts and go out to the market straight away?
  • Do you surreptitiously call in alternate vendors and do some trial shipments?
  • Do you initiate a freight audit to ensure that the invoices for the past shipping activities actually match the contractual rates, and the actually delivered shipping activity?
  • Do you physically shadow a shipment to find times and places where the vendors were inefficient so that you can go back to vendors and press them to be more efficient and pass on the savings to you?
  • … … …

Take control of your freight costs by starting here

I could go on with another 20 points of activities that could be potentially done to reduce the freight and shipping costs. Each of them would be a legitimate alternative – though not the first thing to be looked at.

At different points in time, during my projects, I have seen all of them being done. Indeed, I have done many of these same things, but only at the right time. As in the rest of life, here too, timing is everything.

We have to do the first things first. And, for that very reason, you should not start with doing any of these things listed above.

Why?

Because if you do any of these things before doing the first thing first – your vendors, and even staff, will identify you either as a novice, or as non-serious player. And, they will calibrate their response accordingly.

So, what is the first thing that players will expect you to do?

Let me illustrate with three examples each one getting more and more complex, and see if you can guess the answer.

1. A mid-size business wasting money on freight costs due to careless shipping practices

I and my business partner were standing in the warehouse of a mid-size global player in a nice margin business. On the shipping docks were sitting a number of pallets – each half or more full of goods. I asked about the paperwork for one of the pallets and was surprised to be handed a thick sheaf of papers. Right on that single pallet sat more than 50 shipments, all going from one large city to another. Each was accompanied by a consignment note (and a Con. note fee of $35 each). So I asked why they were not being shipping in a single shipment, and distributed by a local courier? Or alternatively, by a inter-city courier covering the entire shipment. “We have always done the things this way” was the answer. I calculated that – just those 4 pallets were wasting at least $3000 in additional freight costs. That was over $100K a month – the practice was changed and the hole plugged straight away.

2. Another mid-size business had high freight costs due to wrong inventory, in the wrong places

After a very thorough and detailed analysis of the inventory holdings, and movements within this company, we created a chart similar to the one shown below:

Freight Cost Reduction 1

Because there was no scientific approach to inventory targeting (besides what was built into the ERP system), and because even that was very sloppily implemented, the company suffered from having excess stocks for items that were not required, and shortage of items that customers wanted. Almost every location suffered from this problem.

Even a very generous inventory allowance revealed that over 70% of the inventory was wrongly located.

As a result, the staff were all the time trying to track things in their system and ship the items from where they were located to where they were required.

3. A large business in multiple wrong locations suffered from very high freight costs

This third example is a much larger business. It had a global supply chain network, though we were only analysing the national network. Almost all the locations were decided based on factors other than efficiency or effectiveness. Some were just historical decisions, left to continue on without any thought. Others were made because the regional manager preferred to be located there (even though the customers for that region were located somewhere else).

A very thorough analysis of all the locations, and all the movements revealed that current network was the worst possible configuration for cost and customer service. Only the freight vendors benefited with this configuration (which had evolved gradually over several years). Take a took at the figure below:

Freight Cost Reduction 2

Reduce the number of transportation movements to minimum

Your own situation will not be exactly same as any of the three situations above. It would rather be same, same – but different. That is the reason I will not go too much into any of the examples above.

I am also skipping a lot of details about how the above analysis was done, and the changes were implemented.

In reality, it took weeks to conduct the analysis, and months to implement the recomendations. But the resulting benefits ran into millions of dollars in last two cases, and were worthwhile in each of the case. In each case the results prevented another round of dibilitating lay-offs, perhaps even saving the company in the long run. The cost of analysis, and implementation was mere fraction of the savings in every single case.

You need experienced eyes to look at freight costs with a fresh mindset

You will have to think about how to reduce the transportation movements in your business. But if the above businesses had the room to reduce the transportation movements by up to 83%, then your business might have at least some room to reduce transportation movements. You do not need to negotiate with the vendors to do this. You just need to organise your supply chain better.

And, once you do this properly, your vendors will take your business a lot more seriously. I have seen the change.

A word of caution is advisable at this juncture. The results above – over 70% erroneous inventory holdings, over 80% redundant movements due to supply chain misconfiguration, over 50 shipments that could be consolidated into a single shipment – are anything but typical.

In fact, in my over 25 years of hundreds of projects, they stick in memory full of similar cases, only because these cases were so far out on the limb. That is why it was easy to dig out the data for them, and share the facts of the cases (in a disguised form).

Does that mean you will not have these opportunities?

Quite the contrary, you will have these three, and nearly a dozen more, different types of opportunities to minimise the number, size and volume of shipments.

In conclusion, keep minimising the number of unnecessary freight movements all the time.

There will be a multitude of different types of unnecessary freight movements. These three were just the most obvious examples that occurred to me as I was writing this article. If I leaf through our past projects folder, I could detect at least a dozen more types of unnecessary freight movements.

But each company is different, and will have its own example of this practice. The trick is to have enough experience to recognise an unnecessary freight movement when you see it. And, then to call it as such you need fortitude and backing.

Finally, you need to come up with a comprehensive model that will replace the current logistics model. And, you need to be able to sell it to all the stakeholders.

And, you have not even started talking to your logistics vendors yet. The truth is that there are so many different ways of reducing freight costs that any blog will not do full justice to it. There are a couple of reports that we have issued covering the matter. Look for them in the footer on our website, or contact me.

Unique Supply Chain Challenges of Oil & Gas Industry

One of the common problems cited by the boards and senior management is that the consultants they hire do not understand their unique challenges.

This problem applies even more to large cookie cutter approach based consulting houses with thousands of consultants where the guys who have the knowledge are too senior (and too involved in their company’s internal politics) to focus on your problems, and the junior people who have all the time have little knowledge or experience.

Time and time again I hear clients complaining about this problem, and their aversion to teaching very expensive junior consultants everything about their own business, only to have it all regurgitated back to them in a report.

That is why our approach works – we focus knowledge on problems.

Let me give an example.

I was recently asked a question about the Key Challenges in the Supply Chain the Upstream Oil & Gas Companies Face?

See below my answer, and understand how unique the challenges in this industry are. All the generic supply chain challenges fade away in comparison.

My answer below:

I am going to assume that you are looking for challenges that are unique to this supply chain, and not generic challenges faced by all supply chains. I am also assuming that the boundaries of upstream go till the refinery and beyond that is the downstream oil and gas industry.

In the exploration stage, the investments are big and the probability of success is low. Exploration equipment, seismic survey vessels and equipment is very expensive. Today, it is also very data intensive work. You must procure contracts for equipment at the best possible rates, and keep them productive at a very high level of utilisation and availability. Getting parts to remote locations where exploration is underway and machinery or vessel is broken down is often a big challenge. The machinery itself is highly sensitive and must be treated with a lot of care.

Booms and busts are common in these markets due to oil price fluctuations. When the oil price is high all producers are rich and wants to explore and make more ‘finds’, and increase their proven reserves. When the prices are down they give up on exploration and a lot of equipment is ‘parked.’ MAnaging the economic cycle of the industry is one of the biggest challenges as a result.

Moving from exploration to pre-production, and then on to production has its own set of challenges. Consortiums of some of the largest companies on earth are involved in these processes. Co-ordinating these large companies’ activities is never a simple affair.

The business network becomes very complicated. Outsourcing is very common, and sometimes badly managed. I wrote the story of Deepwater horizon in my book Outsourcing 3.0 | Outperform | Outsource | Outprofit – Vivek Sood and will reproduce some parts below to give you a sense of the complications:

Deepwater Horizon, a semi-submersible oilrig owned by Transocean was a dynamically positioned drill rig of this type of vessel. A highly acclaimed rig for its numerous deepwater successes, it was deployed off the shore of Louisiana at an approximate cost of $1 Million per day to drill an exploratory well for British Petroleum (BP) who owned the exploratory rights for the block it jointly owned with two other unrelated parties. BP had chartered the oil rig from its owners, the Swiss entity, Transocean. Transocean operated this rig through a subsidiary – Triton Asset Leasing also based in Switzerland, although the rig carried a Marshall Island flag of convenience.

5-STAR Business Networks come together in many forms

As the exploratory well it was digging nearly came to completion, on 20 April 2010 Deepwater Horizon became front page news on nearly every newspaper on earth. The incident was reported in a press release by Transocean [1] as follows:

“Transocean Ltd. (NYSE: RIG) (SIX: RIGN) today reported a fire onboard its semisubmersible drilling rig Deepwater Horizon. The incident occurred April 20, 2010 at approximately 10:00 p.m. central time in the United States Gulf of Mexico. The rig was located approximately 41 miles offshore Louisiana on Mississippi Canyon block 252.”

“Transocean’s Emergency and Family Response Teams are working with the U.S. Coast Guard and lease operator BP Exploration & Production, Inc. to care for all rig personnel and search for missing rig personnel. A substantial majority of the 126 member crew is safe but some crew members remain unaccounted for at this time. Injured personnel are receiving medical treatment as necessary. The names and hometowns of injured persons are being withheld until family members can be notified.”

The details of the incident, as per the figures from popular mechanics [2] were attention-grabbing:

4.9 million: Barrels of oil (205.8 million gallons) leaked from the Deepwater Horizon well, about half the amount of crude oil the U.S. imports per day
 
19: Times more oil leaked from Deepwater Horizon than spilled from the Exxon Valdez in 1989 (10.8 million gallons)
 
62,000: Barrels leaking per day when the wellhead first broke, roughly the amount of oil consumed in Delaware each day
 
53,000: Barrels leaking per day when the well was capped on July 15, roughly the amount of oil consumed in Rhode Island each day
 
397.7 million: Dollars’ worth of the oil spilled at current market prices ($81.17 per barrel)
 
665: Miles of coastline contaminated by oil

The resulting investigation to establish the causality, contributing factors and liability will fill up a book many times the size of the one you are holding.

Outsourcing is a fact of life in business today

We will however, briefly focus on three relevant parties – BP, Transocean and Halliburton for the sake of discussion relevant to this Chapter – on modularized outsourcing. BP had outsourced the task of drilling to Transocean. At the same time Transocean had bought the Blowout preventer from Cameron International Corporation. Whether it can be argued that BP or Transocean had outsourced the task of Blow-out Prevention (BOP) to Cameron is not certain; neither is the liability on malfunction of the blowout preventer because of allegations of lack of proper maintenance. Cameron agreed to settle all claims related with the Deepwater Horizon tragedy with BP for $250M – without any admission of guilt. The situation with Halliburton is still unclear. As per a CNN news-report [3]:

BP and Halliburton sued each other in April 2011 claiming each is to blame for the deadly explosion on the Deepwater Horizon rig and resulting disastrous oil leak. Halliburton was in charge of cementing the Macondo well and claims that its contract with BP indemnifies (releases) Halliburton of any legal action resulting from its work as a contractor…

In a response filed Sunday, BP asserted that “maritime law prohibits indemnification for gross negligence.”

As part of that four-page filing, BP reiterated that it was seeking to recover from Halliburton “the amount of costs and expenses incurred by BP to clean up and remediate the oil spill.” BP has estimated in the past that the total cost will be around $42 billion, and by the end of November 2011 the oil company it has paid out or agreed to pay out $21.7 billion to affected individuals, companies and governments around the Gulf.

In an e-mail to CNN, Halliburton spokesperson Beverly Stafford said “Halliburton stands firm that we are indemnified by BP against losses resulting from the Macondo incident.”

Outsourcing tasks does not transfer responsibility for those tasks

President Obama quipped in an interview with CNN [4] On May 14, 2010 “you had executives of BP and Transocean and Halliburton falling over each other to point the finger of blame at somebody else…The American people could not have been impressed with that display, and I certainly wasn’t.” The legal wrangling continues and will take considerable time and expense to resolve. We need not go into the gory details of dollar numbers too big to even fully comprehend, but from our perspective in this Chapter three key points stand out:

  1. When you outsource a task, service or suite of services, you could still retain significant responsibility for its full and proper execution.
  2. Brand-names, size of the company or even their experience is no guarantee of performance of the outsourcing service contracts.
  3. No matter how close the ‘partnership’ is at the start, the test of a successful outsourcing contract is how it ends.

What We Can Learn About Supply Chain Security From One of the Shrewdest Pivots In Business History

Here is a story of the fire than tipped the balance within an industry.

Two stalwarts in the mobile phone industry in March 2000 were equally impacted by the same event – a lightning fire in the chip manufacturing plant of their common supplier, Philips, in New Mexico.

Both Nokia and Ericsson experienced the business disruption to an equal extent as a result. Fire damage to the stocks was extensive.

More importantly, the manufacturing capacity was damaged and it was difficult to estimate the time for repairs.

Nokia has invested months, if not years, in creating and perfecting a robust and responsive business network, while Ericsson’s business network was relatively a middle-of-the-line affair that worked well when things were good.

After the fire, Nokia was able to see the full impact of the chip shortage on its own business, as well as the entire industry with a lot more clarity than Ericsson, and even Philips.

Moving quickly, it activated other parts of its business network to shore up supplies, to redesign some of the chips to manufacture them in other plants, and to take pre-emptive steps in the network.

Ericsson let the situation evolve at its own pace and made decisions more reactively.

The resulting gain in profitability and market share for Nokia, and the loss of these for Ericsson tipped the balance of the industry to an extent where within a few years Nokia pulled far ahead of the Ericsson which never caught up with its erstwhile equal rival.

Source: The 5-STAR Business Network http://www.5starbusinessnetwork.com

I write about The Supply Chain CEOs, The 5-STAR Business Networks and Unchain Your Corporations. My website is at http://viveksood.com

How Supply Chain Strategy Can Help You Resolve The Innovators’ Conundrum

This is a million dollar question for most companies – start-ups or conglomerates. A lot of time and money is wasted either because the companies do not bother to ask this question in time, or try to answer it in the wrong way.

“What Comes First – Make, or Sell?” – this is a conundrum from millenia – akin to the chicken and egg question. Indeed, this may be the genesis of that famous question. I call this the “Innovators’ Conundrum.

Here is my answer to a similar sounding question on a popular forum.

A Good Story

Let me tell you a story from my book The 5-Star Business Network – Vivek Sood | Global Supply Chain Group :

One of our large corporate clients faced exactly this dilemma when investing in the renewable energies sector.

In simple words, the dilemma was whether or not an entrepreneur with a good idea should go looking for customers or go looking for the ability to build the product/deliver the service.

Innovation can be driven either by demand or supply

Depending on the choice made at this point in time, the two models of innovation will look very different as shown in the figure below:

Alternate models of innovation

There are enough proponents for both types of models. In our work with clients, this conundrum has frequently surfaced and is always argued quite passionately by different senior executives in either of the two camps.

On one hand, there are the proponents of the Reaganomics supply-side theory – arguing ‘if you build it, they will come’. On the other hand are the more traditional thinkers arguing unless we have the customers and services pre-defined, how can we build anything?

Objective analysis of key drivers of demand and supply will show the basis of innovation

In this story, as a way out of this dilemma, we listed the factors on which the decision was dependent. Among the factors were questions related to the certainty of the customer demand, such as:

• Are the real customers properly identified?

• Do the real customers know exactly what they want?

• Have the real customers communicated their demand to the market explicitly?

• How likely are real customers to change their minds?

• How easy is it for real customers to change their preferences?

On the other hand, there were several factors related to the level of innovation itself – whether it was just an incremental innovation or a giant leap. Key questions in this realm were:

• By what factor (multiplier) does this product/service improve the customer life?

• What are the existing means of getting the same value in use?

• What makes the new product better than the existing product?

• What tangible measures can be used to measure the superiority of the new offering?

• Do the real customer really value the new offering as superior as the provider does?

The board agreed that innovation will only succeed if the Supply Chain structure matches the demand and supply drivers

Based on these factors we developed the following matrix to enable answering the question:

Figure: Innovation Drivers and Supply Networks

Red box (Box 1) is the danger zone

In box 1 (red colour) – in a situation where the level of innovation is only incremental and the certainty of customer demand is very low – massive investments are required for customer education as well as for building a viable supply network.

This is because most potential supplier will see the situation as high risk and will only respond to monetary inducements to buy co-operation. A very high percentage of innovative efforts are in this square and, as a result, fail because of lack of deep enough pockets and difficulty of fighting the battle on two fronts simultaneously.

A basic supply chain would be the only possibility in this instance – where the organization has to move on two different fronts to build demand and supply simultaneously. This is shown in figure 8.3 (of the book mentioned above).

The key lesson for the players in the red box is that you need very deep pockets to fight the battle on both fronts – demand and supply.

If you lack that financing ability, try and move up or right – either find a niche of customers with pent-up demand looking for the right product/service by moving up, or move right in the matrix by creating a step change in the users’ lives by creating a product that far surpasses anything else available in the market place in terms of the customer experience.

If you cannot do either of these two things, keep looking for ways to make one of these two moves; or, consider scrapping the idea altogether.

Light Green Box (Box 2) needs more customer intimacy and/or supplier agility

Recall our client case study; the company, in this case, was in box 2 (light green colour) – with massive innovation but uncertain customer demand due to competing technologies promising similar magnitude of innovations.

In such a case, the business suffers from a chicken and egg situation. The customers do not buy because of some uncertainty, perhaps regarding which technology will ultimately win the battle; after all, no one wants to be stuck with a Betamax VCR and find that VHS standard has won the battle.

At the same time, the company is not in a position to invest too much in production capacity unless the customer demand is certain. Most businesses in this type of situation try and work with customers on a conditional basis – promising to build capacity if the orders are placed.

However, customers are not inclined to place orders because of the factors driving uncertainty in their own world. A way out of this situation then is to work with the supply network on a conditional basis – promising and delivering massive returns as the demand materializes.

The key is to find the right suppliers with the superior world-class capability and flexible capacity who are willing and able to understand the situation and work in it.

At the same time, flexible product design and investment in customer education to reduce demand uncertainty and increase buy-in also yield good results.

The need for flexibility, adaptability, ability to hold supply in readiness for the demand that builds up through education, clarity and events results in an adaptive supply chain that looks like alternative number 2 in the round figure above.

The key strategy is to make sure that suppliers and co-developers of technology and production capacity are fully on board with the plan and work alongside your business – as part of your 5 STAR Network.

If you have any doubts about any of the co-developers or suppliers, it is better to continue looking, negotiating and influencing till all the members of the 5 STAR Network are fully on board with you.

Consultants, think tanks, industry organizations, academia, research laboratories, brokers play a critical role in bringing together businesses that could form part of the same 5 STAR Network.

They play an even more important role in keeping the network humming smoothly, ironing out any wrinkles in the relationships. Such an adaptive supply chain is shown in Figure 8.4 of the book.

We have already seen how, in such an adaptive model, several organizations work together in an adaptive network to think and solve problems of their common customer/s.

Our client, an entrepreneur with massive innovation, used this model to work alongside some of the largest and best heavy machinery and engineering corporations in the world in order to bring their technology to the market successfully.

This was also a good example of the Fire-Aim-Ready (FAR) Innovation, but we will use yet another case example – of a much more ubiquitous product, an iPhone – later in this chapter to illustrate that effect.

Dark Green Box (Box 3) needs more supplier intimacy and/or customer flexibility

In box 3 (dark green) above the situation is exactly the reverse. Imagine a pharmaceutical company trying to find a cure for cancer or a number of other old age infirmities.

As the population ages, the demand is already present and growing. However, on the supply side of the equation, the research and development are being carried out in the laboratories of large pharmaceutical companies and their collaborating partners in academia, scientific establishments, consultancies and other organizations.

The patent system, to some extent, restricts the collaboration – barring this anomaly every company would be keen to collaborate much more openly to gain part of the returns of a first mover advantage in a blockbuster product.

However, in any scenario, an adaptive supply chain similar to the figure above will result in far quicker and more effective innovation at a much lower cost. In fact, that is the reason for collaboration, despite the patent laws.

Successful strategies in this scenario will hold demand in Supply Chains till supply eventuates. At the same time, the business will make massive R & D investments to build further product innovation and sell limited quantities to early adopters under limited conditions – which is indeed the case in the pharmaceutical industries.

We will not discuss the box 4 (yellow box) in this article because such a scenario, where demand is highly certain and the level of innovation is mammoth, is rarely encountered in real life. Such opportunities are snapped up in a jiffy.

All innovation must have an effective business network

We have seen how the super-networked businesses use their 5 STAR Business networks to build adaptive supply chains and gain a massive advantage in the field of innovation. But this does not happen only in the fields of pharmaceuticals or high technology.

Apple, Amazon, Inditex and many other case studies dispersed throughout this book demonstrate clearly how super-networked businesses innovate better than the rest of the businesses in their industry.

Consider the case of Apple once more. Whether it is iPads or Apple TV, the company has never shied from firing first and then taking aim towards the target.

For example, the much maligned and a total flop Apple Newton, released around 1995, served as the key platform for the eventual success of iPads. Just because the technology or the public was not ready for the product, Apple did not shy away from testing, learning, improving, testing again, learning more and eventually succeeding.

As it succeeded with other products and learned the lessons (get the iTunes and iPod ready before launching iPhone) it has had less number of flops along the way.

Eventually, Apple will be ready with a unique, highly personalized and anticipated experience for each customer – which is the holy grail of the modern era. Most successful companies have followed similar Fire-Aim-Ready (FAR) trajectory to innovation, and examples abound.

Your Company’s Innovation

If you have questions about your own company’s innovation strategy, send me an email on info@globalscgroup.com or take our diagnostic survey. The results are always enlightening for senior executives, as they always bring up some blind spots. Covering these spots will save you a lot of heartache, time and money.

I write about The Supply Chain CEOs, The 5-STAR Business Networks and Unchain Your Corporations. My website is at http://viveksood.com

The Trouble With Supply Chain Security

I know that Supply Chain Security is not the top of mind of anyone. Least of all for people who are so busy all day, every day that they barely have time to take a meal break.

I am, of course, talking about the supply chain managers. The mobile does not stop ringing from the time they take it off silent in the morning, to the time they are ready to crash. If it is not a customer calling about “another botched-up delivery”, it is one of the service providers calling about ‘another unpaid invoice”.

Literally, hundreds of things can go wrong as millions of things are moving around 24X7. And, sometimes they wrong, all at once. Like when a customer threatens to walk away, AND, a supplier takes you to court.

Nobody thinks of supply chain security until it is too late

Who has time to think of Supply Chain Security in the midst of all this? Only those who are most serious about their careers in the supply chain.

“Why is that the case” you ask? I think, by the end of this article the answer will be crystal clear to you.

Listen, I have written in many places earlier that the traditional supply chain model is gradually failing and will be relaced by a suplly chain model which is radically different.

It is true! Think about Sears, and all the others who were blindly copying Sears in the 80’s and 90’s. It gives me no pleasure to name all the favourites of the yesteryears in this context.

Anyway, you would have to be living under a rock not to know the names I am talking about. And, by the end of 2019, there will be many more names to add to that list.

But, this article is not meant to compare and contrast the supply chain models of yesterday, today and tomorrow. I will write a different article soon to cover that important point.

2019 is different

The point to pay attention is that 2019 is edgy. Things move slowly, but in a ‘definitive direction’. And this is the main point – careers are more important today, than in the past 20 years.

Nothing has bigger impact on a career than a major incident in the supply chain. What’s a major incident?

Take a look at the 1 minute video below to get a sense of the issue:

https://www.youtube.com/watch?v=_VZ4AaBhHKU
When everyone is scrambling around for answers…

But, sabotage is not the only type of potential incident that can hit your supply chain. There are many other types of potential incidents.

In fact, in a project last year we identified at least seven types of potential supply chain risks – each with very complex supply chain implications.

Threats To Supply Chain Security

Even making a list of all the different types of potential supply chain security breaches and related incidents is difficult. One you go past the most obvious ones – where do you stop? And, how do you neatly group them?

Take a look at the figure below:

(Source: Global Supply Chain Group’s SUPPLY CHAIN SECURITY REPORT – 2019)

the risk assessment and mitigation work in supply chain is extremely painstaking and thorough. All the projects that we have done which involve this kind of work have left me dissatisfied despite the projects being quite lucrative, and enlightening.

Why do I say that?

Because no matter how much you know – you cannot make a list of everything you don’t know that can happen. And that is just the trouble with the qualitative part of supply chain security and risk management.

On the quantitative side, it is even worse.

Try multiplying infinity by infinity. How do you assess the probabilities of something that has never happened before, but is likely to happen at some point in future? And, then how do you assess the full repercussions of that event, up and down the supply chain?

There is a tendency in our planning to confuse the unfamiliar with the improbable. (Thomas Schelling)

Did you know that in 2000 Ericsson permanently lost its pre-eminence in mobile phones market to Nokia mainly due to a fire in a chip factory owned by Philips. This is no place to tell the full story. That story is told on page 9 of my book The 5-STAR Business Network.

How did Nokia lose its crown to Apple due to its supply chain missteps is another story worth talking about. As is the story currently underway, how Apple is losing its crown due to its supply chain missteps.

But I digress. Let’s get back to the talk of supply chain security. People ask me why is supply chain security is such a dismal state that only by sheer providence (and goodness of population in general) we do not more incidents.

ABC of ‘Supply Chain’ “Security”

The main reason is this – most security professionals do not even know ABC of supply chains, and most supply chain professionals bother about only ABC of security.

A secondary reason is that it is just too difficult to secure supply chains with the current level of resorcing in most companies.

Think about this:

The truth is that there are so many moving parts in today’s supply chain that it is impossible to keep track of them all with the current level of supply chain resourcing.

And, companies are always reluctant to give more resources for anything, especially something as ‘unproductive’ as security, unless justified by a bulletproof spreadsheet vetted three times over by the most painstaking auditors.

Who will cop the blame for breaches of Supply Chain Security?

All this would not matter in the past when everyone could pretend that every security breach incident was a one-off, “could not be foreseen or prevented” kind.

Today, irrespective of whether it could be prevented or not, everyone – regulators, governments and public – are hyper-vigilant, and clamour for someone to blame. And guess who is going to cop most of the blame? The person who cops most of the blame when anything goes wrong in the entire supply chain – The Supply Chain Manager.

That trend is only going to escalate. And, that is the “Trouble With Supply Chain Security”.

Notes:

  1. We have created a supply chain security survey which can give you more ideas on important aspects of Supply Chain Security. If you are interested, here is the link for the survey.
  2. We also have a report titled Global Supply Chain Group’s GUIDE TO SUPPLY CHAIN SECURITY. If you are interested in this report, write to info@globalscgroup.com

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.

How To Get The Most Out of Your Management Consultants While Spending The Least On Them?

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

Yes, everybody – from Steve Jobs (when he was alive) to the biggest Private Equities – uses management consultants. In fact, it will be safe to say that if you are not using management consultants, you may not be getting anywhere.

That is not to say that everyone who is using management consultants is making great progress.

The BIG difference is that those who get the right advice at the right time in the right manner, get the best value (for their companies, and for themselves).

In this piece, I am not going to answer who is the right consultant for you, and how to choose one. That is probably a topic for another blog.

The key question that I will address here is really the one on top of this page.

So, let us just start with two assumptions:

  1. You have determined that ‘this project’ is so important /urgent / critical (or something else) that you need external expertise, help or assistance for it to get done.
  2. You have, by some algorithm or heuristic, determined who is (or are) the right person/s to provide this external expertise, help or assistance.

Now the burning question is – How To Get The Most Out of Your Management Consultants While Spending The Least On Them?

Similar to all other industries, the value chain in management consulting industry is fast unraveling. Most clients are much more sophisticated than 2-3 decades ago, and do not buy into the mystique of the brand.

A whole bunch of ex-consultants from the top-tier brands are freelancing, and have created their own boutiques while specialising and amassing formidable knowledge base.

Many of them have created networks which allow them to bring the best of top-tier brands at a fraction of the price.

In this context here are FIVE suggestions, in escalting costs and commitment, to get the best out of your management consultants:

1. BUY THE BOOK, ALWAYS

Many top boutique consultancies have by now amassed such a vast repertoire of expertise in their own narrow area that they could be rightly named as world’s best in that area of expertise. They have distilled and condensed this expertise into book/s which are always worth way more than the price charged for them, simply because they offer a lifetime of experience in a few hours worth of reading.

Sure, sometimes key actionable details might be held back, but they are easy to discern from the general gist of the material. Because many people keep the books to a level of the lowest common denominator, some of them can also be too simplistic, and that is the reason for moving on the step 2.

2. GET THE RELEVANT REPORTS AND E-COURSES, IF AVAILABLE

While books may sometimes be diluted to target the lowest common denominator, reports and e-courses are now being produced to the highest professional level that these boutiques are capable of. Of course, you still have to pick the right consultant, but chances are that you can ask them to sell you their methodology, or gist of expertise in the form of an e-course, or report for a very small fraction of price that they would charge to perform the service itself.

Now you may think why would a consulting firm do this? Will this not cannibalise their business model?

While this possibility does exist, most good boutiques almost always have more project work than what they would like to do. After all they are the global subject matter experts in this area. So, how do they avoid doing the same thing over and over again? You are right, by putting their methodology down as a series of steps and letting their potential clients follow the same steps that they would have taken.

Of course, there is always the danger that the client teams would not be able to do it all by themselves. But, for overcoming that problem, see point #5.

3. ASK FOR A PRESENTATION AT THE BOARD, OR, MANAGEMENT, MEETING

Many boards, and management teams are not entirely convinced that the project is required. Frequently, the members have vastly different opinions, and do not have time to go through books, or reports – even if these are sent to them.

As a starting point, to bring everyone on the same page it is highly useful to have a presentation from a subject matter expert, and, a discussion subsequent to it. This offers an opportunity to get one of the the world’s best experts come in and explain the value of their area of expertise for the company, and for the company to debate the value among themselves, and with the expert/s.

Subsequent action plans, if any, can be formulated at the end of this discussion where all these, and many other options, might be put on the table.

This is, by far, the best way to start an engagement on a positive note.

4. ASK IF THEY CAN RUN A WORKSHOP

A much more engaging start is by conducting a full day, or two day workshop. In many cases, this may be the only engagement you need, whereby bulk of the knowledge transfer happens during the workshop and your team/s are well equipped to handle the project subsequent to the workshop.

Of course, a workshop costs much more than a board presentation, and your team may not yet be fully ready for it – especially if the board or senior management is still not on the same page. Yet, the only way to cover the topic in enough detail to make a dent into it is by doing an intense workshop.

5. ASK FOR ON-DEMAND SUBJECT MATTER ADVISORY

None of the above four ways of engaging precludes you from coming up with an arrangement where your team has access to the expertise of your preferred consultant when they most need it.

Most top boutique owners and subject matter experts have tens of thousands of hours of expertise with hundreds (or even thousands) of similar situations.

For this reason, they are able to quickly size up the circumstances and, similar to a good lawyer, doctor, or any other professional, come up with the best course of action in the situation based on a handful of possible root causes. They can suggest the hypotheses, how to test them, what to do after testing, and how to formulate action plans based on the test results.

In other words, while they may not yet know exactly what to do, they will easily know how to find our exactly what to do.

After that, who is the best team to carry out the action can be determined independently, or with their help.

As one highly experienced client told me nearly two decades ago:

This expertise is really the only thing we want from consultants. We hate to pay several hundreds of dollars, per hour of time, for novices fresh out of college. We detest having to fly the novices first class, and pay for super luxury hotels for their stay. But we put up with all that, just to access few hours of expertise of the top partners.

With the disruption in the consulting business model – you do not have to put up with all these inconveniences, when all you want is a few hours/days of time of a super expert.

Just ask for exactly what you want, and pay for it. It is that simple.

How To Get The Biggest Bang For Your Technology Buck

There were only 24 hours left. Tomorrow the board would pull the plug on the project which had continued for well over 3 years. The total costs as per internal calculations had run into hundreds of millions of dollars.

External consultants reckoned that when you included the costs of internal resources seconded to the project from rest of the organisation, and other costs buried elsewhere in P&L’s the real total was at least double of that.

However, the project had built a momentum of its own. No one was willing to point at the elephant in the room, let alone to lead it out. Careers were at risk. Good careers – built over several years.

I will talk about the outcomes later in this piece. Before, I do that I want to spend some time talking about how did the company arrive here?

How did so many competent people miss obvious and easy signs that the project was not on track. More importantly, where did it all go off the rails?

Was this a unique situation – with no lessons for  others grappling with technology outsourcing?

Of course, I have covered these, and other similar questions in my book OUTSOURCING 3.0, and in my blogs and videos. The book, in particular, carries a very comprehensive model and diagnostic tool kit, which is value for money.

In this piece, I want to focus on only a few key points. And, I want to frame it as a positive affirmation of key things that would build momentum towards success.

  • Create Congruence in Thinking

Three kind of congruence is important:

  1. Congruence between business strategy and supply chain strategy
  2. Congruence between supply chain strategy and IT strategy
  3. Congruence between IT strategy and business strategy

In the case quoted above, while minor lapses occurred in all three, several major gaps very readily apparent in #2. It appeared as if IT team was working in total isolation from the Supply Chain and Business Transformation team – though their projects were closely linked.

  • Think Beyond Tactics

Short term, tactical thinking – predominantly related to cost savings and control issues and considerations tend to dominate. It is quite easy to lose track of the big picture in the process. All the initial discussions and dreams of gaining competitive advantage are thrown out of the window at the first opportunity.

Then, what is the point in spending all the money? The project appeared like a lot of effort, just to stay in the same place.

  • Visualise How The Life Will Change Once The New Systems Are in Place

This takes more than a flight of fancy. A lot of things will change when one thing changes. You cannot ever do enough of visualisation and preparation. Every time you do this exercise, you will discover some more things that need to change in parts of the processes, infrastructure, skill sets, SOPs, contracts, warehouses, etc. Change it.

  • Do Not Underestimate the Time and Money Requirements

That brings me to my last point. All this difficult work is highly specialised; it also takes considerable time and money.  It needs skills rarely found inside organisations, or even in IT service providers.

While it is well known that most IT projects run into time and money problems, the scope adjustment problem is less well articulated. Yet, taken together, these can wreck havoc on your business outcomes.

supply chain management

The above graphic – taken from my book OUTSOURCING 3.0 sums up the situation nicely.

In the case study quoted at the start of this post, the outcomes were a lot different than what was expected by the majority. The board made a bold decision and pulled the plug on the project in the middle. That single decision most likely saved the company in the long run. They could have saved a lot more money if, at the outset, they are created governance structure to ensure just a few key points.    After all, prevention is better than cure.

 

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