In the previous blog entry of this series, I have outlined a customer centric business model, which is also captured in my book The 5-Star Business Network. Now let us delve into the evolution of supply chain models, or how Supply Chain 3.0 came about.
The customer centric model mentioned in the previous post is still a model of last decade and later in this piece we will see the reasons for this assertion. First, let us examine the impact of this model in practice of the commerce as conducted by many companies today. Due to persistence of traditional supplier-buyer relationships, when this model is applied across multiple organisations it morphs into an unworkable hierarchical structure shown in Figure 1 below.
Imagine if 5 of more organisations are linked in a multi-layer structure shown above. Unfortunately, that happens to be the case with many large organisations that compete with Apple in the market-place today. While such a structure minimises cost and responds predictably to all external stimuli, it is not suitable for the world of rapid change we live in today.
Today, businesses collaborate in a robust network
Success of Apple has shown that in the next decade this model needs to be supplemented by an even more evolved model which we have called Efficient Global Leadership model (EGL model for short). In this model we recognise that no single organisation by itself is in a position to service all the needs of a customer relating to even a single product. The fact is that two or more, in general three organisations come together as a supply chain, work together collaboratively, to fulfil the customer’s need.
As shown in Figure 2, each one of these organisations work in close harmony with each other, where the research & development teams of each organisation work together as do marketing teams and even sales teams of these organisations.
To create products, and then to manufacture those products, the production teams and the procurement teams work together to put those products in customer’s hands. In such a model, close collaboration is required among the supply chain partners to create market and sell the products.
Similarly, close cooperation is also required to produce the products, move the products and store the products in such a way that highly innovative products are produced in shortest period of time at a fraction of the cost of traditional products and put in customers’ hands extremely quickly.
Needless to say, when Apple manages to put out one innovative product after another in the market place, it is not only its own innovation but also an innovation of all its partners, which is at play here. Only when companies work together in such an efficient leadership model, do they achieve the level of success which Apple has achieved over the last 5 to 10 years. Figure 3 reminds one of the team huddles as shown below:
When an individual works on his own he is neither very efficient, nor very effective. That is the key reason, from early civilisations, humans have created organisations that give them the benefit of either effectiveness, or efficiency, or a bit of both. Figure 4, on the other hand reminds one of camel trains or dog sleds – where one animal is closely following another as shown in the picture below. Now imagine what would happen to the whole camel train, if the first beast lost its way!
Naturally, the question is why is this important? Think about it for a minute. In fact, stop reading and just reflect on the metaphors. A camel train was a great technology – but is now largely redundant. Moreover, with a limited room to collaborate, it is essentially a command and control organisation. In periods of rapid development, if such organisations stick to the tried and tested, they get left behind by their more innovative peers.
If you would like to see how Supply Chain 3.0 differ vastly from its predecessors, please read the next blog entry of this series.
There I was sitting across the desk from the legendary fleet commodore of my company. As a junior officer I could sense the power of the man who had led some of the most daring, and most successful sea voyages of his time. And now he was an admiral of a desk.
Yet, even the most senior sea masters and chief engineers trembled invisibly, at least once, if summoned into his office. He had a way of sizing up the people and quickly telling them exactly where they needed to focus.
As I sat across him, he asked “Lad, do you see this sign under my desk?” I glanced at the sign – neatly typewritten and carefully tucked under the glass covering his desk. I started reading it because it seemed interesting. It said:
“A captain is a man who starts knowing a little bit about a few things. As he gains experience, he learns less and less about more and more – till he comes to a point where he knows nothing about everything.
A chief engineer, on the other hand, also starts knowing a little bit about a few things. However, as he gains experience, he learns more and more about less and less – till he knows everything about nothing.”
It was an amusing sign, especially for a junior officer barely into 20s. I cracked a smile and looked at him with puzzled eyes. I was wondering why this serious man with hardly a minute to spare would show me such a frivolous thing.
In his thunderous voice, he asked me: “Which one are you, Lad?”
I answered: “It is obvious, I work on the deck side – so eventually I will become a captain.”
“So, you want to end up knowing nothing about everything?” he asked.
I replied: “Now that you put it this way – no, not really. I want to know about more and more things for sure, but I want also to make sure that I know enough about those things to be able to effectively use that knowledge.”
“Keep that answer in your mind as you gain experience – now you can go and join your ship.”
I wondered if he gave the same lesson to everyone. Then I remembered there were several other sayings taped on his desk.
In the next blog I will write about how to get everything for nothing.
Nobody sets out thinking, I have no purpose for bringing this technology into our company, but I will do this anyway (well a few rare twisted souls might do it – totally driven by a side deal that meets their self-interest). Yet, post-hoc analysis reveals so many IT projects fail due to a variety a reason that one has to ask – what happened to the original purpose. Where did not lose track of that? I have written in detail earlier about why IT projects fail. For example in my book THE 5-STAR BUSINESS NETWORK, I wrote the following:
Many large scale information technology deployments derail!
Data, anecdotes and case histories abound on the misapplication of information technologies for supply networks. Not too many years ago, a very large corporation operating worldwide, made news with the downgrading of their earnings expectations due to supply chain system’s implementation setbacks. The expectation was that the new system would reduce the new production cycle from 1 month to 1 week. Furthermore, it would better match the demand and supply of its products to place the correct products in the right locations and quantities, all at the right time – a very lofty goal. The company spent an enormous amount of money, exceeding US $400 million in order to achieve its aim. However, the software system ‘never worked right’. It caused the factories to crack out too many unpopular products and not enough of the trendier ones in high demand. While making the earning downgrade, the CEO asked the rhetorical question, ‘is this what we get for $400 million?’
The market analysts were not surprised. One respected market analyst [AMR] commented, ‘ fiascos like this occur all the time but are usually kept quiet unless they seriously hurt the bottom line.’ Another respected market analyst commented that while the CEO made it sound like it was a surprise for him, if he did not have checkpoints for the projects, he does not have control over his company. A third analyst commented that companies are confused by escalating market hype and too often underestimate the complexity and risks. Another [Forrester Research] commented ‘when the software projects go bad companies are more likely going to scurry up and cover it up because they fear that they are the only ones having trouble. But far from it; our conversation and research reveals this company was not unique or the only one having this kind of trouble‘.
Despite their lofty goals, many of the large information technology deployment projects derail. It takes time for the word to filter out because, in most cases, the executives involved in the process are far too embarrassed to talk about what happened. They do mutter among themselves; after several similar instances the mutterings become more vocal and a trend emerges where a number of people start talking about the shortcomings of the system itself or the implementation process or of the time taken for implementation. Because the cost of this failure is so high – greater than $400 Million in the above case – it is instructive to understand the real root causes of this failure. I am not looking to apportion the fault or apportion the blame in this chapter.
30 years of accumulated wisdom is now available
However, it will be a fallacy not to learn from all the accumulated wisdom of the past. After all, those who do not learn from history are condemned to repeat the same mistakes again and again. This will enable us to understand the steps we can take from the very beginning to increase your probability of success. This will also allow you to confidently move forward with Business Network Information Technology system selection, integration and use in order to achieve the results that you set out to achieve.
The supply networks information technology projects have become bigger and bigger over the last 15 years. It is quite customary now to start with an expectation of spending around $ 50 million but end up spending in excess of $200 million on systems renewal projects.
Rough estimates indicate that, even today, about one third of these projects are cancelled without delivering any benefits, after spending more than $100 million. Another third of the projects are not cancelled, but fail to deliver significant parts of what they set out to achieve. Only one third of the projects achieve most of their strategic goals, but many still incur several budget upgrades and time overruns.
Why is this pattern of failure repeated over and over again?
In general, the original purpose is lost somewhere between the scope creep #2 and #3, and thereafter technology becomes an end in itself, and not a means to achieve a business outcome. There is an admirable drive to digitization underway – but does it suit the purpose of all businesses in all locations? You can find comments on Technology Without Purpose is Like a Missile Without a Guidance System on LinkedIn.
Optimisation has always been a hot topic for strategists and business transformations executives. Now, as the mantle for leading corporations is moving from strategists to the integrationists and supply chain leaders – optimisation is hotter than ever before. When discussing business transformations, in my workshops, presentations and speeches, in particular I enjoy the audience interaction and questions. It does bring out many critical points that may lie embedded inside people’s minds as assumptions. Everyone is talking about optimisation at these events today. The assumption being, there is just one kind of optimisation. The example I gave in a recent workshop, and in my speech at the Quintiq World Tour, to highlight various levels of optimisation was that when I was a second officer, as a navigation officer of the ship I was in charge of optimisation of the route from a series of loading ports to a series of discharge ports. In most cases this job was relatively simple (if you knew elementary chart work and navigation). When I grew in rank to the chief officer, I was optimising the cargo flow as well to make sure that the loading operations, discharging operations and stowage were carried out optimally to minimise the time taken and maximise the cargo throughput within that time. As a master the job expanded to include optimising the cost of the voyage by minimising the fuel consumption (about 33% of the operational cost) and maximising the charterers’ results. As is self-evident, multiple layers of optimisation are added on top, as the complexity and responsibility grows. From costs of one ship, you can increase it to the cost of the entire fleet, and then add on costs of the land freight to create an end-to-end freight picture, and further add on cost of warehousing and storage to optimise the logistics costs. Further on, you can optimise the entire distribution network by relocating your distribution centres, and then start talking about optimising your inventories and move into the realms of supply chain optimisation. Taking it further, you can include the procurement – order placement, receipt and putaways, demand forecasting and shaping, supply planning – production and fulfilment to essentially optimise the basic supply chain. But now, leading companies are not only optimising basic supply chain, they are also moving into collaborating with finance to optimise budgeting. Many are also collaborating with their suppliers and customers to optimise product development, research and marketing. Yield management and customer behavioural analysis helps optimise the price at the point of sale and targeted coupons and offers. Combining revenue optimisation with the cost optimisation can lead to profit optimisation which can move beyond dynamic pricing to supply chain segmentation of one. The key point of this article would have been clear by now – everyone talks about optimisation. What matters more is WHAT ARE YOU OPTIMISING, AND HOW WELL ARE YOU DOING IT? I have already written article How good is your optimisation? to cover the second part of this question.
The digital revolution (aka tech revolution) has changed the way we live, work and play. The boom of software and IT solutions have caused disruption and realignment for businesses. When business intelligence is implemented and used effectively there is a real pay-off. There are still a lot more developments in technology to come and businesses that have their finger on the pulse have a huge vantage point. For business transformation, the key question will be how IT can facilitate the process without everyone feeling enslaved by technology. For more information on the answer to this critical question please refer to my newest book Unchain Your Corporation.
Digitization is the buzzword of the moment in Supply Chain. Going by the number of articles and posts on digitization, you would think that the pope has just discovered religion. In fact, I recently read an article which used the word ‘digitization’ nearly 100 times in about 4 paragraphs. It talked about demand digitization, supply digitization, inventory digitization, fulfillment digitization, planning digitization, and many such things. Is this really that new? Since the days of SAP (late 80s), or before, digitization has been gradually gaining pace. Yet, current articles are making out as if there is a switch you flick – and suddenly you have ‘light – aka digitization’ Reality is far more interesting and juicy. Thinking of digitization, I was reminded of our business transformation projects and trouble with getting accurate data. Despite spending hundreds of millions of dollars on ERP systems, (and in many cases over a billion dollars), most companies still fall way short in terms of their data – both in terms of accuracy and completeness. Before starting almost every project we are assured that the data will be in our hands within a few days – at the most. Typically, we count ourselves lucky if the data extracts are available within 3 weeks, and are accurate enough to be useful for analysis. But, this blog post is not about the barriers to digitization, rather it is about the nature of digitization itself. Why the data is not readily available, and why is it of such poor quality that it is barely useful for most analysis – this discussion will open up a pandora’s box of pent up feelings within the companies. Most technology companies are clueless about the human element, and continue to plough ahead in darkness – and blame their customers for technology failures. Reading the recent spate of articles on digitization left me with a distinct impression that another element which they show a marked ignorance about is the nature of digitization itself. The belief that it is a binary switch where you get technology and suddenly your company is ‘digitized’ is far from reality. Recently, I had the occasion of spending nearly a month on a sabbatical and family holiday in the island of Bali. I happened to travel over the entire length and breadth of the island during this period and noticed the state of the roads varied significantly depending on how far I was from the ‘touristy Bali’. What started as paving over the village footpaths, would gradually morph into high quality road, which would later be widened to accommodate growing traffic, and later replaced by a highway/motorway in parts. Most island roads were however, still narrow village paths paved over for modern transport. All this existed simultaneously at the same time and will continue to exist well into the future – with gradual upgrades from one level to next over the years. That is the state of digitization of supply chain and will continue to be, with gradual upgrades from one level to next well into the future. We have no Y2K type crisis (remember that?) that will force upgrades, and dollars are scarce in most companies that do not enjoy some historical or political advantage. No amount of hype from IT vendors is going to change this reality. Also, CEOs and CFOs of long memories of past IT projects that failed to fully deliver. Perhaps the next generation of executives will be gullible enough to fall for the same hype again. You can find comments on “What Do Roads in Rural Bali Have to Do With Supply Chain Digitization?” article on LinkedIn.
In the rapidly changing world – role of supply chain is constantly evolving. There are now at least three generations of supply chains and the confusion about the roles and expectations is leading to massive losses inside the corporations. Here are some insights and excerpts from my speech on this topic. You can see the video on Latest Advances in Supply Chain Management – a Keynote Speech. Everyone has a circle of influence – in LinkedIn, Facebook, Twitter, contacts and colleagues. If these ideas make sense to you, share them far and wide. If they do not – make a comment here. To know more about Vivek Sood, make sure to visit my website viveksood.com or Global Supply Chain Group. For any questions or comments, feel free to contact us or email at firstname.lastname@example.org. You can find comments on this article on LinkedIn.
One of the reasons I invest so much time and resources of our company in keeping current with the information technology is that good supply chain depends almost entirely on good information.
And, your information is only as good as the technology deployed to collect, collate, store, parse and reproduce the information on demand. It is no secret that most of our supply chain transformation projects are highly time intensive and heavily data driven.
We trust all participants in the supply chain, and we verify everything – from several angles. However, if you have been working in freight cost reduction for over 30 years like I have been, you know the reality on ground. But that raises a big question about the data.
In most projects the data is woefully inadequate – even today in 2016.
Rather than talk about our current freight cost reduction projects, I will give an example from several years ago (for sake of propriety and confidentiality I will disguise some details).
When our team completed the initial 8 week diagnostic on that project for an industrial corporation with $1.3 Billion supply chain, it was clear that despite heavy investment in SAP, supply chain data was far from adequate. In fact for ocean shipping it was so inadequate that we had to employ temporary staff in to digitize a paper trail of transaction details in order to conduct our analysis.
I could probably spend another 5,000 words just writing about how difficult it was to get hold of the data, and then how difficult it was to verify the veracity of that SAP extracts. After all my team was sharing their travails with me on a daily basis.
We had signed a fixed price 10 week contract for completing the work.
We anticipated the usual data problems for the first week or 2. What we did not anticipate was a 5 week run around to get hold of the SAP extract, and then another 2 weeks to verify its veracity. As a result our team had to find additional resources, and time, to conduct a 6-7 week analysis in 3-4 weeks in order to meet the deadline for senior executive off-site meeting scheduled for the end of the diagnostic.
I asked the team to make full record of all the inadequacies they found in the SAP set-up so that we could provide recommendations on system upgrade to facilitate good supply chain planning, control and decision making. While this was not something our company worked on, and it was not even part of the project brief, it was going to be extremely useful for future SAP upgrades in the company.
(Now that upgrade is a subject for another blog, at some other time). It was clear to all that SAP was set-up mainly for financial reporting purposes, and supply chain management was an afterthought to the transaction recording.
As a result, the system did a marvelous job of providing aggregate data on financial well-being of the organisation. It also facilitated adequate drilling-down of financial transactions. Yet linking those financial details to actual supply chain movements was less than adequate.
In fact, for ocean shipping, nearly 25 hand-over points in the transaction workflow were all aggregated into one single SAP transaction.
Our team diligently recorded all the issues with supply chain transaction processing that we found during our strategic diagnostics of supply chain. Several pages of tables similar to the one below were cross-checked, verified and created.
Not just that, an annex report with high level requirements for future upgrade of SAP was also created, even though this was not part of our original project brief. Unfortunately, I am disinclined to publicly share even sanitized version of a sample extract out of this report .
I chose this case example for several reasons.
Firstly, it has gone through a full cycle of business and information technology outcomes, which are now well known. On business side our supply chain transformation project was a massive success. In fact the global head of supply chain (who later became the CEO) wrote this in the foreword to one of my books:
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.
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.
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.