CFOs are not the only ones who underestimate the impact of Supply Chains on modern corporations. CMOs, COOS and even CEOs are not fully aware of the full potential of supply chain management. When the potential is not fully known, expectations are too low and results are even lower. This speech and will show you the impact of Supply Chain Management in Modern Corporations. Here is the video of a keynote speech on Impact of Supply Chain Management in Modern Corporations. To know more about Vivek Sood, make sure to visit the website viveksood.com or Global Supply Chain Group. For any questions or comments, feel free to contact us at firstname.lastname@example.org. You can find comments on Why Executives Underestimate the Impact of Supply Chains? article on LinkedIn.
Supply Chain Management (SCM) is an essential element of operational efficiency. SCM is critical to business operations, therefore it is clearly important for a company to know, understand and master the supply chain.
Supply chain’s evolution can be break down into three generations. That is an easy way for companies to understand how to be more efficient and maximize the benefits of a good supply chain. The three generations of supply chain go from supply chain 0.0 to supply chain 1.0, then to supply chain 2.0 and eventually reach supply chain 3.0.
Now, an important question should cross your mind: What are the differences between supply chain 0.0, 1.0, 2.0 and 3.0?
Supply chain evolution is quite logical. The generation 0.0 represents the absence of supply chain. Business act is then individualistic, each group is on its side working without or with very weak cross-functional communication and relationship. A company which is intending to be a well-established player in its field cannot stay at this stage.
The first main change brought by supply chain 1.0 is communication. Communication channels at horizontal level between different departments are created which is break down the silos. In order to be more efficient, people talk with each other across the departmental line and planning and scheduling become a team work. An ERP System is put into place to formalize communication.
But such a supply chain can become a little bit inflexible. If a company wants to overcome this difficulty, it has to expand its circle of collaborators. All the groups of the company have to take part in brainstorming and collaborate for the creation of a more structured planning environment. That is the aim of supply chain 2.0: Helping the finance to work together with operations and sales in order to establish a coherent set of integrated business plans to shape one single business outlook that can be agreed on and actionable by everybody.
The next step is to go beyond this to an attractive flexible and structured plan. How can we do it? It is time for the company to reach the supply chain 3.0 and stop taking its positions for granted. The solution is called the flywheel of supply chain 3.0: create collaboration with suppliers and customers in order to create products at lower cost and higher degree of matching with consumers’ expectations.
As everybody knows, three giants in the tech and software world have amassed an incomparable power in recent years from their networks and their strategies. With a vast range of products, they have stitched up the market amongst themselves. But what are the strengths and weaknesses of each giant?
What are the deep business and supply chain implications of the battle of these Titans?
Each one of them is a Business-to-Business Network in its own way with excellent partners and supply chain participants. Apple has its own ecosystem, which is not just their customers, but also thousands of programmers and app developers as well as millions of sellers on iTunes. That is Apple‘s biggest strength.
The same goes for Amazon, with an ecosystem including a very large customer base as well as thousands of sellers that sell their products on their website.
On the other hand, almost everybody uses Google as a search engine, which means they have the largest market share now in the mobile operating systems with Android. Google also owns YouTube and many other digital properties. Each one of them has a formidable Supply Chain, Business-to-Business Network or Supply Network in its own right.
Yet now, all three of them are facing problems in different ways.
Apple is facing problems because its success has always been based on creating the next big product, especially if you look at Apple’s history (iPod à iPhone à iPad). Now, Apple is launching the new Apple watch, which is not a very successful product in my mind. IPhone 6 is obviously just a minor update of the previous successful iPhone. That is where Apple is currently failing. However, they are creating some really innovative services such as Apple-Pay, which allows you to use your mobile as a NFC-based payment option, and Apple-SIM, which allows you to roam at a very low cost in foreign countries.
Apple continues to profit from past supply chain and product successes, and sits on top of huge pile of cash. Amazon, on the other hand, does not make much profit, although it has a very high growth rate of revenue (it grew by around $24 billion in two years) and still growing.
But they invested in a number of things, which did not turn out that well. This type of experimentation is in the DNA of the company, and at the moment, it is not a big problem, at least not yet. Nonetheless, a couple of these investment, noted by analysts and commentators, have raised red flags in my mind. Amazon Fresh seems to be a resurrection of the business model of an failed company called Webvan, which invested $1 billion in this field and went bankrupt in two years.
Amazon also continues to invest in expanding its business in India, which is a very competitive environment. With local market players who know the local characteristics much better, and a chaotic marketplace, this is perhaps the most uncertain field for Amazon in my view. The competition may not even be from other B2C e-commerce companies; every man with a mobile phone and a bicycle is a potential competitor. Amazon persists in investing in these two markets.
This could be much more harmful to Amazon than their mobile phones or other hardware devices that they keep creating every few months. They are losing money on those but for a purpose: they are trying to lock customers into the Amazon Network. Nevertheless, these products will never replace iPhones/iPads or equivalent Samsung products and will always be number two in customers’ minds.
The question is: Where is Amazon’s next platform for growth?
Amazon’s “unsexy” B2B business, a “$8 trillion bet”, has been growing silently in the background, perhaps making it eight times bigger than Alibaba and the biggest 5-STAR Business Network on earth.
AmazonSupply, a wholesale and distribution hub, started in 2005 and has grown to carry 2.2 million products, ranging from office equipment to industrial components, materials and more. After nearly 15 years of languishing on the wayside, the B2B exchanges are finally coming true, slowly.
Already, wholesalers are whispering about the threats from AmazonSupply; although many specialty wholesalers and distributors are somewhat confident that their turf is safe from the giant’s claws due to their highly segmented market.
Nonetheless, AmazonSupply, Alibaba, or B2B exchanges, could become so powerful that they will suck small players into their enormous vacuum of suppliers. The process can even accelerate if trust keeping mechanisms are built into B2B exchanges.
Seller and buyer ratings, as well as seller/buyer protection seen on sites such as eBay and PayPal are not enough to cover the sheer size of B2B transactions. Even the current rating system on Alibaba will not suffice, should this attractive market grow in the years to come.
Looking at Google, basically revenues of advertisements relating to search engine are stagnating/saturating. Fake clicks are being identified much more easily. People are becoming more careful of what they are spending on online advertisements. Android and YouTube are two engines of growth for Google. Google has declared a strategy of continuing investment in its YouTube products
It is easy to argue that Apple has the best chance of leading the pack in 5 years’ time depending on what kind of new hardware they manage to create in the next 2-3 years. Google and Amazon are probably equal second depending on whether Amazon succeeds in its strategy to capture Business-to-Business markets or whether Google manages to monetise YouTube as much as they can.
Equally likely, new competitors might emerge on the horizon – like superUber! That will be very interesting to see.
ABOUT VIVEK SOOD:
Vivek is the Global Supply Chain Strategist and Author who works globally with large and mid-size corporations to FIX their Business-to-Business Networks in order to their multiply profits.
In that last 14 years he created several new breakthroughs in Supply Chain – including business transformations led by SCM 3.0. His more than 400 projects have spanned approximately 84 countries on five continents, with clients ranging from fortune 500 companies to innovative green technology companies.
Get free extracts of his books and see why thousands of executives at the world’s leading corporations trust Global Supply Chain Group to build brilliant business-to-business network strategy.
We are rapidly growing and hiring. Exceptional (world’s best) Outsourcing Experts, Logisticians, Strategists and Supply Chain should contact me directly.
Follow Vivek here and @GlobalSupplyCG
If you are a HR professional, recruitment or HR consultant – and you think your clients might benefit from these insights about business transformations – feel free to forward this blog series via email or linkedin. The nature of your industry is changing rapidly as a result of forces mentioned in this article.
I came across the following picture on the blog of Thaku Huni and the thought struck me about a situation I encounter quite frequently:
If you asked any objective person about the KPIs of the group of six men above – most people will agree that at least on quality (meeting customer specifications about the rails) this team will rate 0%.
Yet, if you asked this team, they might in all honesty, claim that at least one rail is meeting the opposite side – so their quality rating should be 50%.
Time and time again I encounter this situation. Let me give you one example. I have to fly frequently for client assigments, and Qantas our national carrier rates its on time performance quite highly. Yet, numerous times they have just cancelled my flight and moved me to the next flight, or done many similar things to meet their publicly declared on time performance targets.
And, Qantas is not the only airlines to do this. Over the years, I have noticed that the tricks employed by airlines have included blaming mechanical failures, blaming weather, moving the departure times in case of delay, coming up with a plethora of ‘exclusions’ to maintain their impeccable on-time departure record.
Almost all KPIs are suspect till you get to the depth of how they are defined, how they are calculated, how the data is collected and analysed. A quick example to make it real.
A large logistics company was the preferred supplier for our clients – a multi-billion dollar fast moving consumer goods company. The logistics company would every month send reports proudly claiming on-time delivery track record of close to 100%. When our team delved into the details it because clear that the due dates/times for any deliveries likely to not meet the target would be quietly changed to indicate the new delivery times. Voila – near 100% track record.
Obviously, the deliverables must be pre-agreed and held firm barring exceptional circumstances. KPIs must not be allowed to be doctored to shore up the numbers, lest they become meaningless exercise in data collection and analysis.
BAD KPIs are WORSE than no KPIs. I would rather navigate a ship without a gyro compass, than with a faulty gyro compass – because I can do better with a reasonable magnetic compass than with a faulty gyro.
Now, I am sure that I am not the only one who has come across these type of incidents. In fact most experienced business people will have their own experiences – some more colourful than others. If you want, share your favourite tricks in the comments section below. You might even win the best entry get a prize – my latest book.
I have set the scene in the first entry of this blog series. Things are changing, moving, and old business models are not working anymore. That is why I proposed even a new organisational model in my book The 5-STAR Business Network from which some of the following excerpts are taken with modifications.
It is a well-known aphorism in the circles of architecture that form follows function. In other words, the structure of a particular unit, in general, evolves to facilitate the functioning of that unit. Moreover, if the form does not match the function, the structure will change or the function changes over a period of time.
While conducting research, we examined the organisational structure of more than 50 companies; almost all of them looked variations of the generic structure given in the figure below:
The titles in the boxes, as well as placement of the boxes, vary quite a bit; however, most companies still agree this is the best way to look at how they are organised to serve their customers’ needs.
At the same time, most of these companies have evolved within the last 2 decades; their functioning has become almost entirely customer centric with their customers’ priorities driving most of the business workings.
In our work with corporations, I have frequently found that the supply chain structure frequently results in limiting the effectiveness of the organisation. The traditional structure of the organisation shown above frequently stifles customer responsiveness and innovation. In the modern outsourced-globalised world, a traditional structure with very strict hierarchies and internal walls between departments is a hindrance rather than an aid for achieving success in business.
In today’s hypercompetitive world of consumer electronics, Apple is a standout among peers as great as Sony, Samsung, Panasonic, Motorola, Nokia and Dell. With convergence, all of these companies are vying for their share of consumer wallets with increasingly similar looking products which do similar things. What did Apple do that its market value now nearly surpasses Microsoft’s? How did it manage to get over entrenched competitive advantage of companies such as Sony, Motorola or Nokia?
Our work in global supply network strategies and supply network design has convinced us that a modern distributed organisation needs to look at redesigning its explicit structure to keep up with the realities of the modern world. The business world has changed tremendously in the last 20 years.
A typical supply chain now runs across multiple continents seamlessly, through boundaries of several organisations, to finally serve a customer with a unique product. To do so, organisations have created de facto structures, which are far different from the traditional structures that they have put in their organisation charts.
The purists might argue that this does not really matter if the organisations are already acting in accordance with a de facto structure – an argument which holds some merit. However, people who make up an organisation respond to the explicitly shown structure with much more enthusiasm and clarity that to a de facto or mutually understood structure.
I believe that organisations should formalise their de facto structures and use them to gain further competitive advantage. For this purpose, we have created the following model:
The customer centric model shown in Figure 2 starts with customers at the apex of the organisation. Clearly, it is the customer’s need which the organisation is trying to serve and aligned to this customer is the sales team, which is in direct contact with the customer all the time.
The function of the sales team is to have intimate understanding of the customer needs, customers’ usage of its products and their demographics, psychographics and profile. Only then can an organisation create successful products, which will gain wider acceptance in its customer base.
An organisation can outsource almost everything it does, but it can never outsource its sales. Sales are a fundamentally, integral part of an organisation’s structure. Virtually everything else but sales, could be done outside the organisation. However, two other key functions which are equally important and support the sales teams and also customer phasing are marketing and research & development. Between them, these three – sales, marketing and research & development – form the top tier of the modern organisation’s structure. However, both research & development and marketing can be outsourced, so long as the company and its core team control the outsourced entities.
Forming the second tier is the foundation of the organisation – the supply chain, which incorporates procurement, production and logistics. They are the support base or the backbone of the organisation, which are frequently outsourced either to single provider or to a multitude of ‘best-of-breed’ providers around the world in such a way that the customers’ needs are met seamlessly without any visibility of where any of these activities are actually carried out. It is interesting to note that this customer centric model merely illustrates the actual structure that most modern organisations have evolved into.
What’s surprising is that most business schools and management theories are still persisting with outdated organisational models of 80s and 90s, which bear no resemblance to the actual way businesses are choosing to structure their organisations. Please read the next entry in the series to find out how models of supply chains have evolved.
Business leaders should look to history not the governments for a way out of the current economic morass says the business guru
Businesses that continue to look solely to governments for salvation will ultimately be bitterly disappointed. History is our best teacher, and there are already plenty of lessons in the business networks of the past – says Vivek Sood, an internationally renowned business guru.
In his new book, The 5 Star Business Network, award-winning author Vivek Sood explores the best of what can be learned from business networks spanning thousands of years, converting historical lessons into powerful themes and lessons for the corporate world. Mr Sood is available for immediate comment and interview.
What does history teach business people? Is there a lesson within the archives of history that will show way out of the current economic situation? What can we learn from the example of the East India Company – the world’s first multi-national corporation?
Award-winning author Vivek Sood answers all of these questions and more in his new book, The 5 Star Business Network. He takes the reader on an engaging journey from the ancient silk route to the modern corporate world, nimbly demonstrating the reasons behind the rise and strength of business networks, and showing businesses how they can use these historical lessons to improve their efficiency, reduce their risk and enhance the robustness of their companies.
Tinku Grewal, Chief Executive Officer of Biotech Trading, which operates an extensive business network stretching from Australia to India, commented: “Once every few years a business book comes along that stands far above the clutter, that has more than one single idea, that is based on solid research, that relates theory and models to the real time business, and that is still ahead of the curve. This is one of those rare books. I will buy hundreds of copies and give them to my suppliers, customers and other business network partners. I think it is well worth the expense to orchestrate a business network when everyone is singing from the same song sheet.”
The 5 Star Business Network is available for purchase from April 2013.
Consider this, if you are a typical company your imports and exports have grown at least 20% over the last 10 years. If you are one of those unique companies who prefer to deal with local suppliers then all that is happening is that there is a layer of rent-seeking middleperson who is importing on your behalf and supplying to you. When the concept of the supply chains originated in late 70s, most supply chains were still national – while were moving towards a regional structure. In fact, it might be fair to say (I have to confirm with Dr. Wolfgang Partch – one of my colleagues in Munich and originator of the concept) that the Pan-European regional expasion of companys’ supplier footprint led to the origination or at least quick adoption of the concept in the business world. Here was a practical solution to a real business problem, created by practical people working in the consulting industry. That was before everyone else, including the academia jumped on the the band-wagon and over-complicated things for their own purposes. However, the purpose of this post is to explore what happened to supply chain when the supplier network moved from a regional structure to a more global structure. Hardly a company exists (at least not a large one) which does not have suppliers located outside its immideate regional footprint. No wonder the supply chain models of 80s and 90s are finding it very hard to cope with the globalisation of the supply chains. If you are reading this – what is your view on the matter? Do we need to move beyond supply chains (And please don’t talk about supply network or supply clusters – they are really same things in a more expanded format, merely semantics in most definitions) – into the realms of something totally new. Or, do we need to just expand the reach of the current supply chain models? Or, do we need to expand the supply chain models? Please express your opinions below or by email to me..