In this final part of the analysis of the PRTM study finding, I want to look at Challenges 4 & 5 as recounted in the study. The earlier parts of this series can be found in the posts – PRTM Study: Five Key Supply Chain Challenges – Challenge 1 & 2 and PRTM Study: Five Key Supply Chain Challenges – Challenge 3 & 4.

Challenge 4: Risk Management Involves the End-t0-end Supply Chain

Risk management, to me it seems, has grown by leaps and bounds since the financial crisis – finding applicability everywhere and dare I say rightly so.

During the global financial crisis, many companies operated with the fear that suppliers would be forced into default, cutting off critical sources of components and increasing the cost of introducing alternative suppliers.

Yet, the following observation flies in the face of the purported effort to manage risks within the supply chain.

Dealing with cost pressures of their own, many customers have increased their efforts in asset management and have started shifting supply chain risks upstream to their suppliers.

Is this managing risk or passing the buck? Isn’t the end result of this that the supply chain risks are passed back to the production point? The purpose of inventory within the supply chain is to buffer variability that occurs. In the case of offshored/outsource supply chains, significantly greater amounts of inventory is required to buffer variability because of the longer lead times. Shifting supply chain risks upstream just means that the lead times that are currently experienced (which are long) are about to get longer. You’re about to enter the twilight zone – of worsening lead times that is. Why?

Variability in lead times, require greater amounts of inventory to cover it but the greater requirement for inventory is what causes the worsening lead time in the first place. If this is true, then the consequent observation (a few quarters down the road) will be that offshored/outsourced production centers are buzzing to the brim but there is all sort of snafus in the supply chain downstream from the production point. And that is the consequence of passing the risk instead of managing it.

C’mon folks – If you’ve committed to the long lead time supply chain, inventory is a fact of life. Maybe, the fact of life. If the volatility of demand from the consumer (straining under the economic headline of the day, week or month) is getting to you, the response cannot be to cut inventory because that is the only thing that is keeping the risk of supply chain disruption at bay. Interesting times indeed!!!

At this point, the decisions based on unit costs don’t look very good – this is what is meant by the phrase “There’s no free lunch.”

Volatility and risk can become intolerable at which point, there will be sufficient reason to realign the global supply chains towards more regional supply chains.

 Challenge 5: Existing Supply Chain Organizations are not truly Integrated and Empowered

Yeah, and which organization is truly integrated and empowered? Thankfully, we have work to do just because of this facet of organizational gaps.

Related posts:

1. PRTM Study: Five Key Supply Chain Challenges – Challenges 2 & 3 In this ongoing series about the five key supply chain...
2. PRTM Study: Five Key Supply Chain Challenges – Challenge 1 In my previous post, PRTM study highlights five key supply...
3. PRTM study highlights five key supply chain challenges SupplyChainStandard.com has an article about a PRTM study that highlights...

At long last, I am posting the review of this book The Supply-Based advantage by Stephen Rogers about which the author had contributed a summary some time ago. Actually, this is the second time I am writing the review because unfortunately, the first one was deleted from my hard drive (pesky, pesky little thing).

When reading this book, the first thing that jumped out at me is that the book is really divided into two parts – the first three chapters are a sort of conceptual and definitional gambit. The fourth chapter is a short introduction into what the blueprint for a supply-based advantage should look like and the rest of the chapters in the book are a study in erecting the different elements of a successful supply based strategy illuminated through the metaphor of a house i.e. foundation, walls, roof, utilities. you get the rough picture.

In the first part of the book, Steve introduces the concepts of competitive advantage, value, complexity and risk (rapid change not being a concept but a reality). It is a good idea to keep those concepts in mind (but because they’re in some way detached from the metaphor of constructing a good house, they float somewhere in the ether and you need to suffuse your reading with the implicit relation to these concepts).

There are some interesting questions asked in the first part of the book (that which I pored over in my previous review but will only touch on briefly now):

1. Why do smaller companies understand better how to structure a good relationship with suppliers and larger companies (and even smaller companies that grow large) forget this? Steve’s answer takes the form that in most small businesses, owners are usually spending their own money and therefore seek to get the most value of their spending. I think that is a good observation. I would only add that a small business entrepreneur is risking everything with the idea that there is something about a particular niche or segment that is uniquely appreciated by him and he proposes to fill that gap with the expectation of reward. Therefore, I infer, that if deriving supply advantages are part of that gap equation, then the owner will set about creating some measure of defensible value that will add to his overall advantage. Now, as the company grows, others come in that do not share the owner’s appreciation of the gap or of the value – the further the owners are pushed from this basic equation, the less of an understanding the organization now possesses of the situation. However, those who add to the firm’s headcount bring along their own ideas of what is really important to the equation or their understanding of the equation – sometimes better and sometimes not.

2. The importance of timing. This important idea is illustrated through the example of P&G before the American Civil War and how the owners of the firm seized the import of securing the supply of a key component before the outbreak of war that served them well through and after the war. In fact, the claim goes that the additional profits generated from this strategic move funded their future operations and growth. This is a lesson of life – cut your losers short before they consume you but press your winners home before they are undone by others.

As for the second part of the book, there is a litany of plans, activities and processes that can be marshaled towards building up (or conversely breaking down) supply-based advantages. These chapters deal with the nitty-gritty of structuring these activities and processes for success. Also, what I found helpful in the reading is the well distributed “Practitioner’s take” in grey boxes that provide reflections every step of the way which by itself renders these chapters within the framework of “Here’s a good way to structure things” – “Oh! by the way, here’s how I found it”. Now of course, your straddle upon this framework is going to be different but you have a reference point in these appraisals of salient supplier planning and engagement processes.

Lastly, a shortcoming of the book is the use of an overarching metaphor (of constructing a home) which on the surface seemed very useful but as one gets through the chapters, the metaphor finds little depth beyond the first paragraph of a chapter. Metaphors are tricky to begin with but a good metaphor not only permeates but also reaches deep into a subject and allows a reader to connect beyond the prose so that long after the particulars have escaped one’s grasp, the metaphor resonates and its particulars return on a superficial recounting.

Overall, I think its a worthwhile addition to your library as a reference if you work in the supply management field.

P.S: I am on vacation till mid-June and that will explain the lack of updates. Not that I have explained the lack of updates this month but I am just saying. I have  reason this time. Wish you all well!!

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As you might know, I am an IBMer now by way of acquisition of my erstwhile firm ILOG. In addition to reading The Supply-Based Advantage: How to Link Suppliers to Your Organization’s Corporate Strategy which was discussed in the last guest post – Supply Based Management in Tough Times, I am also reading All Customers Are Irrational: Understanding What They Think, What They Feel, and What Keeps Them Coming Back by William J. Cusick.

One of the opening insights that Bill presents in this book is the idea of Brand Promise. He talks about Brand Promise in the following way:

To be clear, when I say, "brand promise," I’m not asking about positioning, which is more a strategic discussion, wherein you map out the market position of you competitors and contemplate how you can carve out a position or spot in the market and in your propect’s mind. Determining your positioning is a key discussion in your company, but it is more cut and dried; it is purely a business consideration. Brand promise moves to a different, more emotional level. Positioning is really about pure strategy Brand promise is about an appeal to the customer.

and further,

We feel it’s absolutely critical to understand what it is that this particular company is promising to prospective and existing customers. What, in other words, are the customers’ expectation whey "buy" (whatever that might mean). What is the distinctive value proposition? Some might even describe it as the company’s soul. Surely a company that generates billions of dollars in revenues each year begins all work and initiatives from a common, consistent, and unique brand promise – a raison d’etre, if you will – right?

So I’ve been through the IBM orientation and having worked for IBM (my client) as a consultant before that – take a look at one of the latest ads that I’m sure that you’ve seen on the TV every now and then:

Then tell me, What is the Brand Promise here?

My answer:

I thought it was "Barriers in the rear view". Or in plain-speak: "Out-nerd ya!"

Tags: All Customers are irrational, Brand Promise, IBM, IBM’s brand promise, Out-nerd ya!

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Supply Based Management is a new book by Stephen Rogers that I’m reading right now – a review to follow shortly. In the meantime, I have the pleasure of posting an excerpt by the author himself about supply based management in these difficult times.

SUPPLY-BASED MANAGEMENT IN TOUGH TIMES

In today’s deep recession, customer vulnerability and top line revenue declines need to set the tone for the actions that create advantage not merely survival.Cutting costs is vital to your competitiveness but the knee jerk reaction to squeeze suppliers, as much as you fear your customers will squeeze you, will not create a business model that rises above survival.