Supply Chain Transformation
October 12, 2011
Earlier this year, Primark, the fastest growing fast-fashion retailer in Europe, was named “winner of the Retail category in the European Supply Chain Excellence Awards. … Last year, Gordon Colborn, chairman of the judging panel said: ‘Primark simply have a stunning supply chain – Primark are now setting the standards in the sector and are out to “out Wal-mart” Wal-mart in the supply chain.'” [“Simply stunning! Is your supply chain that good?” Supply Chain Standard, 3 May 2011] Colburn went on to note that Primark “runs a £2bn supply chain with just eight people. Their turnaround times are quite incredible – their supply chain is set up in such a way that products on the catwalk for London Fashion Week today will be in the store the following week.” As the article asks, “Can your supply chain compete with that?” If your answer is “no,” perhaps it’s time to think about transforming your supply chain.
Roddy Martin, senior vice president of CCI, told the folks at SupplyChainBrain that “there’s a big difference between actual supply-chain transformation and simply making incremental improvements.” [“Supply Chain Transformation: What Does It Really Mean?,” 30 September 2011]
“For major companies such as Du Pont, Procter & Gamble and Coca-Cola, transformation entails fundamental change in the organization. It calls for much more than making small improvements within traditional corporate ‘silos.’ ‘Transformation is when the business from the top down thinks and behaves differently,’ says Martin. ‘It’s disappointing when companies misuse the term. It’s consulting-speak all over again.’ The effort requires a clear mission set forth by upper management, and strict alignment of processes throughout the organization in order to ensure proper execution.”
In that short paragraph, a number of critical points are made. First, the old nemesis of business integration is mentioned — traditional corporate silos. The first thing that true transformation will do is help break down the walls between those traditional silos. For more on this subject, read my post entitled The Curse of Silo Thinking. The second good point that Martin makes is that transformation of the supply chain involves the entire company, not just those involved with logistics. As some supply analysts assert, for many companies the supply chain is the business. Third, Martin points out that transformation requires the commitment of upper management. The reason that most companies fail to truly transform is that supply chain processes are still viewed in the boardroom as peripheral to the company’s “real” business. Finally, Martin talks about alignment. In their book entitled Fundamentals of Logistics Management, Douglas M. Lambert, James R. Stock, and LIsa M. Ellram write, “A supply chain is the alignment of firms that brings products or services to market.” In other words, if you want your company aligned, you had better pay attention to the supply chain. The SupplyChainBrain article continues:
“Making matters more complicated is the ever-shrinking tenure of top executives. Often the departure of a chief executive officer brings an end to that individual’s efforts to transform the organization. Martin says companies can avoid this pitfall by making sure that the program is solidly in place, and designed to outlive the senior executive who started it. Effective transformation requires great leaders, says Martin. They reject long ‘mission statements’ in favor of ‘very simple galvanizing principles.’ Procter & Gamble, for example, pursued what it termed ‘two moments of truth,’ in its effort to eliminate billions of dollars worth of stockouts. Du Pont stuck by its decision not to outsource key processes. And Coca-Cola focused squarely on growth and brand.”
C-level executives are always looking for a quick fix, hoping, perhaps, that such a fix will save their jobs. But, as Martin notes, “a typical corporate transformation is no quick fix.”
“A decade or more is not unusual. P&G’s took at least 14 years, says Martin. ‘This is not something where a company wakes up and says, “I want to see results in six months.”‘ But executives should celebrate short-term wins along the way, in order to keep up enthusiasm for the effort over the long term.”
Martin makes a great point. Long-term goals are best achieved when a series of short-term wins sustain them. Jeffrey Boudreau, a Partner at XCD Performance Consulting, told supply chain analyst Dustin Mattison, that the time is right for companies to transform their supply chains. One reason that the timing is right, Boudreau notes, is because the era of supersizing seems to have ended. Many companies are breaking into smaller companies that focus more tightly on specific product lines. As a result, Boudreau insists, “This is really a year to pause, breathe and catch up. Now they can optimize their supply chain rather than supersize their supply chain.” [“Improving Supply Chain Without Capital,” Dustin Mattison’s Blog, 25 August 2011]
Before stepping out on the path toward transformation, “two veterans of numerous high profile projects agree that one mark of success is investing ample time and energy up front.” [“Keys to Successful Supply Chain Transformation,” SupplyChainBrain, 24 June 2011] One of those veterans, Ken Mullen, senior managing partner at enVista Corp, told the SupplyChainBrain staff, “Much of the most important work on complex supply chain projects needs to be done before a single dollar is spent. A lot of organizations tend to see technology as a panacea, but we believe that perhaps half of the opportunity comes in looking at processes and asking the right questions before technology ever enters the picture.” I agree with Mullen on two counts. First, asking good questions always leads to better answers. The best analysts find the best answers because they ask the best questions. Second, I agree with Mullen that looking at processes is more important than looking at technology. Technology should support processes. Too often it’s the other way around. The article continues:
“John White, president of Fortna, agrees, citing ‘clarification around the business case,’ as his most important predictor of success. ‘This means understanding the full breadth of the change being undertaken, the resources required to execute and the measurable outcomes,’ he says. ‘Too often companies focus on information systems or the materials handling equipment to be installed and lose sight of all the implications that those changes will have on people, processes and risk.’ Once you have clarification around the business case, it is important to build out that case in detail, including costs and timeline, White adds. ‘In any company today, people are competing for investment dollars across many projects, so showing that you can get the best return on invested dollars is very important relative to justifying a project and being able to move forward,’ he says. In trying to justify a project, however, don’t make the mistake of ‘trying to fit a square peg into a round hole,’ says Mullen. ‘It is not uncommon to see customers who already have a piece of technology and who want to find a way to make that technology solve their business problem. We believe the right approach is to design a solution to the business problem and then find the technology to support it. Then you don’t purchase the wrong technology and you get more value out of what you do purchase.'”
Although I agree with most of what Mullen and White say, I also understand why a company that already has “a piece of technology … want[s] to find a way to make that technology solve their business problem.” At Enterra Solutions, we try to develop solutions that complement legacy systems to get the most out of them rather than try to replace them. Sunk costs in IT systems can be a sore point; but, finding solutions that utilize legacy systems can soften the pain.
“Another key to success is to make sure that you get your best and brightest people involved, that you empower them and make them accountable, says White. ‘The consultants and outside partners will go away at some point, so making sure there is ownership within the organization from the best people with the best ideas is critical,’ he says. There always is a lot of energy at the start of major projects, but it is important to build in sustainability procedures to protect against diminishing returns, says White. ‘Often business cases anticipate returns several years out, but companies don’t set up a tracking mechanism to see if projects continue to meet goals – and without tracking, they usually don’t.'”
The best way to promote ownership is to implement systems and processes that are user friendly. If those tasked with using technologies embrace them, then the sustainability issue goes away. Users become champions of the technology or process. Mullen concludes with a final, important thought, “Setting the right expectations up front is very important.” As Martin pointed out earlier, true transformation takes a long time. Expecting something different can only lead to frustration.
Obviously, transformation is easier to discuss than to implement; which makes Xavier Hubert ask, “Is It Worth Giving Your Supply Chain an Upgrade?” [Value Unchained, 17 August 2011] He writes:
“Sorting out the real advantages from the frills may reap more rewards than austerity. … The recent recession has forced many companies to make difficult cuts, including reducing their supply chain processes to the strict minimum. There is no doubt that extraordinary times required extraordinary measures and the move has perhaps helped eliminate some of the frills that had crept-up over the years. However – in the long run – some of the choices that helped weather the storm may prevent companies from surfing the next wave.”
Hubert goes on to describe six areas a company needs to think about if they are going to transform their supply chains.
- “Quality & Safety: Industry papers and recruitment specialists both agree that it has not been a good period of late for quality assurance and health and safety professionals as numerous companies lowered standards to the legal minimum in order to save costs. While the benefits are immediate, these practices can become very costly over time – and yet more difficult to evaluate – through extra support, warranty costs or damaging customer experience.”
Cutting quality and endangering lives are long-term recipes for disaster. “Simply stunning” supply chains don’t cut corners.
- “Business Continuity: In the wake of the 9/11 attacks and the destruction of many companies’ nerve centres housed in the twin towers, businesses took a hard look at their disaster recovery strategies, built some level of redundancy and required same from their business partners. Redundancies, looking like a ‘dead weight’ on any struggling balance sheet, were quietly replaced by hyper-centralized solutions, prompting claims that little had been learnt when all this came to light again after the Japanese disaster.”
Jeffrey Boudreau insists that companies have gone so far down the path of reducing redundancy and inventory that they are “at a risk of destroying their supply base.”
- “Scalability: The only theory economists seem to agree upon is that the economy works in cycles. Things are certainly slow picking up, but the drive to full utilization of assets – that may have helped margins in the short term – might represent the biggest obstacle to future growth if an intermediate plan is not put in place right now.”
I’m not about to get into economic theory; but, Hubert is right to stress planning. Planning is important in both good times and bad.
- “Customer Satisfaction: Customers were hard-hit too and are now more than ever looking for a ‘bargain.’ They might have somewhat lowered their service expectations for a lower price, but still very much expect a service! Sometimes making a higher level of service available – be it at an extra cost (e.g. a next day delivery) – can generate more satisfaction than the ‘rock-bottom only’ option.”
For more on this topic, read my post entitled To Survive the Current Economic Malaise Retailers Should Try a Little Customer Service.
- “Information: As supply chain services go, best price will mean basic standard messaging and reporting. Meaningful information comes at a price but in the age of business intelligence servers and ‘cloud’ services a small investment in customized and more frequent reporting and feedback – be it from your shop floor or supply chain partners – may yield a great return.”
Most supply chain analysts believe that how companies handle “big data” is going to differentiate the winners from the also-rans. For more on the transforming power of big data see my posts entitled, “The Big Data Dialogues,” Part 1, Part 2, and Part 3, and look for future posts on the subject as well.
- “Innovation: ‘Yesterday’s solutions won’t necessarily solve today’s problems’. Innovation is most likely one of the keys to a brighter future. Few supply chains can justify dedicated research and development or engineering departments, however carefully lightening you supply chain staff workload might just give them the space they need to drive tomorrow’s changes as opposed to just run today’s business.”
Since innovation has been a frequently discussed topic in this blog, I certainly agree that innovative companies have the best chance of surviving and thriving in the decades ahead. All of those factors must be taken into account if a company is going to transform its supply chain into one that can be called “simply stunning.” The bar has been set now is the time to reach for it.
Also check out the new look and feel of Enterra’s website.