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2012

 

Earlier this month, the Wall Street Journal’s Theory and Practice series published an article, The New GE Way: Go Deep, Not Wide.  (paid subscription required or free metered view) For many of us who are familiar with General Electric’s previous tenets of management education, this article notes that the company that once prided itself on a curriculum of grooming  broad industry and functional generalists has instead shifted its management training focus in favor of deeper expertise. The WSJ points out that like all companies, GE requires both horizontal and vertical traits in its leaders, but the balance has tipped toward deeper expertise. Instead of purposely relocating senior leaders often to expose them to more of the company’s diverse businesses, GE now assigns these future leaders with longer assignments to develop a deeper understanding of products and the specific customer needs within an industry segment.

 

The reasons for this shift are those that many in our community have likely observed.  The pace of global business requires a much more intimate knowledge of the aspects of customer needs, product development, supply chain tradeoffs and go-to-market strategies. In the article, Anders Wold, head of GE’s ultrasound business is quoted: “Customers tell us exactly what they want. If you are very generic, if you don’t have the domain understanding, you will develop products that will be average and not successful.” GE’s aviation business unit, one of the fastest growing businesses, is headed by David Joyce who has devoted his entire career to aviation engine platforms.  Previous leaders of this GE business unit came from outside of aviation.

 

In our view, this trend is also a reflection on accountability, staying in a leadership position for the time to make longer-term initiatives successful and avoiding the constant “parachuting” into and out of programs without a consistency in leadership and follow-through to initially targeted results. Broad initiatives directed at implementing a company-wide S&OP process, implementing advanced technology or shepherding a multi-year supply chain transformation effort can often lose momentum or perspective from frequent changes in leadership.

 

The point of this commentary is for our supply chain community to reflect on the functional and leadership skills that are required in this new era of dynamic business change, globally extended supply chains and risk exposures.  Supply Chain Matters offers a point-of-view that required skills should reflect broad functional supply chain skills and deep business and program management skills.

 

Regarding functional knowledge, not everyone can effectively contribute within this new and faster clock speed of business without broader supply chain functional knowledge. That is why current certification programs offered by either APICS or CSCMP test on broad based functional knowledge in areas such as customer relationship management, procurement, planning, transportation and logistics, among other areas.  The goal of certification is to reflect a fundamental baseline knowledge of the processes involved in the supply chain, and we would add, the newest price of admission into the function.  Beyond acquiring certification are years of actual experience working within and across many supply chain functional areas in implementing business and functional program needs.  Thus, broad supply chain horizontal skills and practical knowledge remain extremely pertinent to success.

 

Conversely, at the management level, we submit that deep understanding of the business, effective communication to senior management, coupled with demonstrated leadership at implementing needed strategic, tactical and operational change are clearly new stakes for global supply chain leadership.

 

It may be no secret that some current managers within individual functional domains have risen to leadership roles because of their deeper functional and tactical leadership skills vs. broader understanding of either supply chain multi-functional requirements or needs to directly integrate supply chain business process and information technology initiatives with required longer-term business outcomes.  This is often where initiatives for ‘taking cost out of the supply chain’ conflict with ‘providing enhanced services’ for innovative new products.

 

Tomorrow’s supply chains require leaders who can articulate how supply chain capabilities impact a required business outcome or desired metric of performance.  They are leaders who build their resume on facilitating timely strategic and tactical change vs. multiple assignments implementing short-term objectives.

 

What about your supply chain organization? 

 

Are functional and management training or mentoring programs addressing the unique needs of broad supply chain functional and deeper business and management skill knowledge?

 

What are other thoughts to this important area of management skills development?

 

Bob Ferrari

 

The one year anniversary of the tragic earthquake and tsunami that impacted northern Japan was by many accounts a game changing event for global supply chains. In a recent Supply Chain Expert Community blog posting, blogger Jim Fulcher makes mention of recent research findings from the Business Continuity Institute indicating that one year after, 82 percent of companies that reported supply chain disruption have confirmed some changes to their supply chain strategy, with 12 percent indicating significant changes implement. 

 

The notion that no company is immune to such risks, even one that has incredible influence and buying power was brought forward last week in conjunction with the announcement from Apple of its latest generation iPad tablet computer. The Wall Street Journal featured an article that extracted from two individual teardown analysis of the new iPad performed by firms UBM TechInsights and IHS iSuppli. The UBM analysis “found components with the same functions made by at least three manufacturers in different tablets.” Specifically, Apple has multiple tablet production sources for device memory and high-resolution display. NAND flash memory came from Micron Technology, Hynix Semiconductor along with Toshiba Corporation, a previous high volume supplier of memory for Apple iPhones. The new highly touted iPad high resolution displays were determined to be sourced from Samsung Electronics, LG Display and another company not conclusively identified.

 

While the strategy may not be a surprise for those who may know of Apple’s internal supply chain practices, the fact that a diversified sourcing strategy is expanding is another indication of the new importance of active supply chain mitigation has become. UBM and the WSJ both noted that the breath of suppliers is one of the most notable elements of the recent teardown of the next generation iPad and further speculate that the reason may be a sign that Apple is more actively practicing supply risk mitigation because of the past Japan and other disruptive incidents.  A glance at the suppliers of mention also triggers the thought that each supplier’s main operations are located in different geographic regions.

 

On Supply Chain Matters we recently dwelled on the one year anniversary and noted specific actions that automotive manufacturers Toyota and Nissan have implemented as a result of learning from the recent quake. Toyota alone discovered that approximately 300 production locations could be at risk and has now asked these specific suppliers to implement risk mitigation measures. Last week, Automotive lessons learned from the Japan quake apply to other sectors, too! that if often takes a significant event to make all of the organization sensitized to the importance of assessing supply chain risk and developing risk mitigation strategies.  Jim also argues that supply chain risk management should be integrated under the umbrella of the Sales and Operations (S&OP) planning process because of its current scope, process frequency and data utilized to make decisions.   This author happens to agree with Jim and encourages our community to have a dialogue of its own regarding this important topic.

 

What we are now beginning to understand is that even Apple, the largest global supply chain influencer, who managed to come through the Japan tsunami and later Thailand floods incidents relatively unscathed, has implemented discernable supply chain risk mitigation.  The takeaway for all others is that like other areas of supply chain capability, the gap among leaders and laggards continues to widen, and supply chain risk mitigation is another critical capability within this gap.

 

Once again, are you educating and influencing your senior management to the need for more active risk management identification and mitigation strategies? 

 

Do you believe that this responsibility falls under the umbrella of supply chain management, as opposed to finance or enterprise risk management?

 

Do you view the S&OP process as a natural extension to inclusion of supply chain risk mitigation?

 

One year is a long time in the current dynamic clock speed of business.

 

Bob Ferrari

 

Last week, Apple again captured traditional and social media mindshare with the introduction of the newest version of the iPad, which is scheduled for customer availability later this week. Consumer frenzy for having the latest and greatest Apple device is again building and already the company is warning that initial supplies may not be able to satisfy pre-order demand expected for the planned March 16 availability date.

 

Beyond the headlines and the consumer frenzy to be the first to get one’s hands on this latest new device is speculation as to whether the post Steve Jobs era of Apple also implies shifting and added challenges to supply chain strategies for Apple.

 

If you believe that supply chain strategies must support business outcomes, then Apple will have to adjust some of its supply chain strategies.

 

In terms of sheer capabilities, the existing scope of supply chain fulfillment is staggering. The company boasts that it sold 176 million iPod, iPhones and iPad devices in 2011, accounting for 76 percent of total revenues. This represents over a half million of these devices shipped every day if you do not count Sundays. That is not a lot of room to allow for capacity or supply shortages. The continued shipments of all of these devices also led to the company’s recent announcement of surpassing 25 billion ‘Apps’ downloads from the Apple App Store. The leveraging of recurring electronic content sales is another key strategic component of Apple’s business plan.

 

It is no wonder that Apple surpassed Exxon as the most valued company. With market capitalization exceeding 500 billion, stockholders respond to every move or any setback, particularly when it relates to supply chain.

 

The open question for speculation, however, is whether Apple has reached a crossroads concerning its strategic supply chain strategies and future capabilities.  Visibility to the company has clearly escalated given the numbers cited above, along with more visibility to the company’s high profit margins. Our recent commentary on Supply Chain Matters pointed to two recent watershed events as triggering a new phase. Apple’s January announcement of a more aggressive stance in supplier social responsibility standards, a revealing New York Times article revealing current production and supply chain practices, and a corresponding ABC News Nightline visit to Foxconn facilities in China have added considerably more visibility to the inner workings of Apple’s supply chain. There have also been reported rumors coming from Apple’s supply base that indicate testing of a subsequent tablet computer with a screen size of about 8 inches with a potentially lower cost market entry. Our Supply Chain Matters belief is that Apple is positioning the next generation of capabilities to penetrate broader, perhaps more cost sensitive geographic markets.

 

All of these current signs point to the need for changing supply chain strategies for Apple, some of which may be conflicting. Reuters columnist Richard Beales argues on his blog that http://www.reuters.com/article/2012/03/08/us-apple-retailers-idUSBRE8270ZN20120308Apple needs good, not just better, supply chain. The title is a bit of a misnomer since this columnist’s argument is that with $500 billion in market capitalization and $100 billion in cash, Apple needs to shift its supply chain strategy to a higher cost model to fund more social responsibility. The sheer visibility and brand image of Apple has placed the company supply chain practices under the looking glass, and Beale’s argument is that just as Nike encountered in the 1990’s, consumers will demand a more socially responsible Apple supply chain.

 

Last week in the Opinion section of the Wall Street Journal, Holman Jenkins Jr. column, The End of Apple’s Roach Motel, (paid subscription or free metered view) speculates that if Apple continues to be successful in its content and cloud services models, its devices will become cheaper and more disposable. His argument is that Apple’s margins will start coming down sharply and the “Roach Motel” will prove less formidable than assumed. That seems to argue for a lower-cost supply chain driven model.

 

A recent Reuters article points out that for retailers other than Apple, the profit margins for stocking products are thinner than other consumer electronics products.  From a customer foot traffic and interest perspective, retailers like Best Buy have no choice but to stock Apple products, but must in-turn upsell the customer to other products to uphold margins. While Apple remains ‘the’ channel master, pressure will increase for higher margins or shared profits for retail partners.

 

Which direction Apple eventually takes is up to Tim Cook and his senior supply chain team. As a supply chain community, however, we should anticipate that  some strategy changes may be forthcoming.

 

What about your views? Do you believe that Apple has to shift its supply chain strategies to respond to both business strategy and consumer sentiment requirements?

 

Bob Ferrari

 

Technology and services provider Hewlett Packard remains in crisis and the challenges that have led up to the current crisis, have in this author’s point of view, much to do about supply chain strategy decisions that now span three different CEO’s. 

 

In October 2011, the Supply Chain Matters blog featured two separate commentaries, The Need for C-Level Grounding in Supply Chain Strategy, and HP Finally Reverses its PC Spinoff Decision-What needs to Come Next, which were penned just after the ouster of previous HP CEO Leo Apotheker and the entrance of new CEO, Meg Whitman.  It reflected on the botched decision to jettison HP’s personal systems business and the potential implications that the decision had not only on HP’s future PC revenues, but also on diluting HP’s supply buying leverage.  The takeaways related to this 2011 commentary were our observations that CEO Meg Whitman needed to quickly look at HP from a broad supply chain strategy lens.  Under the former leadership of CEO Mark Hurd, HP elected to de-centralize its supply chain strategy voice in favor of de-centralizing supply chain capabilities among each of HP’s existing business units.

 

During these past two weeks, HP has once again made financial news headlines that raise cautions for existing stockholders and supply chain stakeholders.  In the latest fiscal quarter, HP’s overall profitability among all HP businesses declined a whopping 44 percent. Revenues within its personal computing business unit fell by 15 percent, printing and imaging revenues fell by 7 percent, while server and data storage declined by 10 percent.

 

In her public remarks to stockholders and Wall Street analysts, Ms. Whitman pointed directly to supply chain concerns as causes to the current performance, directly indicating that years of underinvestment in processes and systems made these problems worse.  In an Associated Press syndicated article published in the online Wall Street Journal titled HP CEO pleads patience as earnings fall 44 percent, Whitman is quoted: “ We were not as effective as we needed to be in matching that supply with that demand, ..”. Ms. Whitman is further quoted: “ I’m not sure I’d say we were world class in terms of how we think end to end about supply chain.” Members of the supply chain community are more than cognizant to the reality that when the CEO makes these types of statements reflecting on a company’s supply chain capabilities, then change must inevitably occur. 

 

The effects of the flooding in Thailand were directly attributed to more than half of the company’s revenue drop.  Yet shortly after the potential magnitude Thailand flooding crisis on hard disk supply began to become more visible in the Fall, CEO Whitman indicated that HP’s buying influence and supply chain capabilities would be able to successfully manage the crisis.

 

In the specific case of HP, those of us who have followed supply chain developments for many years can well remember the days when HP’s supply chain capabilities were clearly viewed as a world class benchmark.  Strategies related to segmented supply chain strategy across diverse product segments, risk management practices among volatile and rapidly changing high tech businesses, the first implementation of multi-echelon inventory and extended supply chain trading partner collaboration, and leading edge aspects of sales and operations planning were all attributed to HP’s supply chain teams. 

 

Something obviously changed, and we argue that change can be traced to the former decision to organizationally de-centralize supply chain among the various business units and then expose supply chain capabilities to needs for individual business cost cutting and profitability mandates.

 

We know all too well, however, that the past is past, and HP’s lens needs to quickly focus towards its current dilemmas.  Thus, we have elected to re-iterate our past commentary in the belief that HP, more than ever, needs the voice of supply chain strategy and execution at the senior executive table.

 

Many of the latest business media articles related to HP speculate that even after the Hurd era of extreme cost cutting, HP senior management may be facing yet another long, tough turnaround path that may call for yet additional headcount and cost reductions. More across-the-board cuts would, in our view, be the obvious simplistic approach.  HP would be better served with consideration of two key decisions.  The first is appointing a senior executive with the responsibility and authority for leading HP’s overall supply chain strategies and resource requirements.  The second would be a reassessment of the current and, more importantly, required future supply chain capabilities needed to support HP’s revenue growth and profitability needs.  Such a plan may involve re-investments or re-assessments of the three key areas we all know are so important: processes, technology and people. The context is improving execution, more timely supply chain global visibility and decision-making, as well as making HP’s supply chain once again a competitive advantage. To perhaps use a simple medical analogy, HP’s supply chain may is in need of a complete physical and new health regimen.

 

What about further community viewpoints?  Is the voice of supply chain strategy and execution at the senior executive table a mandatory requirement for high tech focused supply chains? 

 

Bob Ferrari, Founder and Executive Editor, Supply Chain Matters

 

©2012 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.