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2013

     You probably saw stories earlier this week marking the one year anniversary of Superstorm Sandy, and the devastation it left on the Eastern United States, as well as how people and businesses alike are still dealing with the aftermath.

 

     With those stories fresh on my mind, I was interested to also see an article about risk and the insurance business, which pointed out that disasters such as Sandy, the earthquake and tsunami in Japan in 2011 and flooding in Thailand later that year all showed how a catastrophe can slow global supply chains—and possibly bring them to a halt. These events also serve to remind the insurance industry of the challenges in quantifying risk and accounting for exposure in an increasingly complex supply chain environment, write the authors, Timothy Comer and Neil Silverblatt, of insurance and risk management firm Hylant. Consequently, risk managers are being asked new questions as insurance underwriters require them to seek information from a broader range of stakeholders within and outside of their organizations, they write in the article, which ran on Industryweek.

 

     What I found intriguing is that insurance underwriters already know what an individual insured’s supply chain loss could cost through their receipt of business interruption worksheets. That’s because whether an interruption is the result of circumstances at the insured’s facility or at a supplier’s or customer’s facility, the result is the same: They can’t produce products, which means profits are lost and/or extra expenses incurred. What the underwriters don’t always know—and what is changing in the aftermath of such disasters—is which of an insured’s suppliers or customers is more likely to have an interruption, what percentage of revenue is exposed based on any one supplier or customer, what interdependencies exist across operations and suppliers, where these losses will occur in the world and the magnitude of all losses related to the occurrence, write Comer and Silverblatt.

 

     The problem is that a significant disruption anywhere along the supply chain can cause substantial impact for the rest of the supply chain. Furthermore, risk managers, who are already challenged to accumulate and collate underwriting information on their own company, now must also collect additional information about partners—often—across international and cultural borders. And while purchasing and procurement professionals consider a multitude of risk issues and seek inputs from multiple parties in making their sourcing decisions, the article’s authors point out that it’s unlikely these professionals know how well a supplier’s facility is protected, or if it’s located in a high-hazard flood or earthquake zone, for example.

 

     Considering all that, the authors then list some factors to bear in mind when evaluating risk. For example, companies should ask if a supplier’s facilities are well protected. That way, while the facilities may experience loss events such as fires, they won’t suffer catastrophic damage and can generally recover quickly with little or no interruption.

 

     In addition to asking where the supplier’s sources are located geographically, other key questions for suppliers include:

 

     How quickly could they reestablish production after a significant disruption, and are there plans to do so?

 

     Does the supplier have multiple manufacturing sites and excess capacity to draw from, and where on the priority scale do you fall relative to other customers?

 

     Are there proprietary technologies or processes involved, and would your supplier be willing to license those technologies or processes to others to fill your needs?

 

     Are there alternative products or suppliers that can be substituted without compromising quality or performance of your product?

 

     There are, of course, a great number of other questions to ask suppliers, including questions about their suppliers. While it takes a great deal of time and effort, in the end, it can prove extremely beneficial.

 

     How well does your company know its suppliers and the possible risk they present?

     Some estimates calculate between 70 and 80 percent of the world’s population now lives in emerging countries. It comes as no surprise then that companies are increasingly targeting these countries for expansion. For instance, according to recent research from KPMG, 69 percent of survey respondents said their company plans to make capital investments of more than U.S. $5 million over the next year in Brazil, China, Mexico and India.

 

     But expansion into these markets brings a number of challenges. According to research from The Hackett Group, globalization leaders have access to near real-time critical information more than 80 percent of the time, reports an article on SupplyChainBrain. However, less than half of all typical companies have “near real-time” access to customer information. Indeed, only about a quarter of all typical companies have similar access to financial performance and forecast data. Similarly, less than 30 percent have “near real-time” access to supplier base spend volumes.

 

     “Companies understand that tapping into emerging markets is a key to success in the future,” says Sean Kracklauer, The Hackett Group President of Advisory & Research Services, in the article. “To accomplish this, they require both visibility and control so they can understand their customer base, make the best pricing decisions and make the right choices regarding a wide array of opportunities and risks.”

 

     In addition to a lack of visibility, companies expanding into emerging markets often struggle with local issues. One way to minimize this challenge is to partner with local business partners to gain an understanding of particular markets, cultures and legal requirements, notes CFO Research’s recent report, “Pushing the Boundaries of Business Overseas,” published in collaboration with High Street Partners. The report is based on a survey of finance and other senior executives at U.S. companies with annual revenues of between $50 million and $1 billion.

 

     One CFO of a professional services firm replied in the survey that the best way to get started overseas is to “pick one country and get someone on the ground that you trust.” Partners with local knowledge can help companies become successful in new markets because they offer valuable guidance such as insight into government regulation and they can clarify customer requirements, the report notes.

 

     Two areas stand out in this capability. The first is foreign policy because survey respondents said they are burdened by bureaucratic red tape and obscure rules and regulations, all of which dramatically slows the timeline for expansion and significantly raises expenses, the article explains. Overall, CFO survey respondents noted that complying with local rules was the most challenging obstacle, followed by evaluating risk exposures and managing tax implications.

 

     Risk, or risk awareness, is indeed important to consider because hard-to-understand rules make the risks associated with overseas expansion difficult to evaluate. Furthermore, the cost of an oversight may be multiplied exponentially. An example from the survey is that strict labor laws in Brazil caught the controller of an auto/industrial/manufacturing firm off guard, the article notes. As a result, the controller says it was “very expensive” to streamline operations as necessary.

 

     While working to gain visibility to real-time information and partnering with a local firm to leverage their expertise can make a big difference, there still are other obstacles to overcome when expanding operations into emerging countries. What are some of the key challenges you see?

     There are signs that global supply chains are becoming more resilient, although there is still room for improvement. For instance, use of sole suppliers and just-in-time manufacturing techniques may keep costs low by reducing in-process inventory, eliminating redundancies, and maximizing output, however, they also increase supply chain vulnerability.

 

     Indeed, a white paper from Advisen Ltd.—titled “The Vulnerability of Global Supply Chains: The Importance of Resiliency in the Face of Systemic Risk,” which was sponsored by AIG—notes that modern supply chains are structured to optimize manufacturing operations under normal conditions, but aren’t necessarily engineered to withstand catastrophic events. Supply chain vulnerability also occurs when suppliers are concentrated in the same region or vicinity, and may be impacted by a single event.

 

     “This is an increasingly common global occurrence, particularly in Asia where industrial parks specialize in one or two key industries and therefore concentrate risk,” Carol Barton, head of commercial property, from AIG’s Global Property Division, explains in the paper.

 

     In the aftermath of several major catastrophes, many companies have had to reassess their operating models and develop supply chain strategies that incorporate more comfortable levels of risk. The just-in-time production strategy, while efficient and cost effective, has also proven extremely vulnerable to a variety of risks. This has led to an increased focus on mitigating risk and building resiliency into supply chains, but many companies may still be inadequately prepared for a major disruption, Barton says. Understanding the sources of supply chain risks, mapping and modeling supply chain exposures, and developing and implementing effective risk management strategies to minimize exposures to loss will position companies to fare much better in an increasingly challenging global environment, she says.

 

     Steve Culp, managing director for Accenture Risk Management, wrote on Forbes earlier this month that many companies are re-establishing the balance between risk and cost focus as they manage their global supply chain. To address these risks, companies should consider their operating models, in an effort to define an optimum balance between financial efficiency and assuredness of a stable supply chain, Culp says.

 

     There are several key steps that should be given consideration while organizations assess and manage supply chain risk, Culp explains in the article. I found a few of the steps particularly interesting, and the first of them is to review all of the organization’s risks. Those risks—which may span the entire supply chain—include business continuity, creditworthiness of suppliers, currency risk, commodity volatility, supply chain integrity, political risks and a number of other operational risks.

 

     Secondly, companies should integrate risk management into operations planning and management, both in terms of functions and workflow. The problem is that risk function is typically “headquarters-centric” and doesn’t provide input into the daily decision-making process for operations, Culp says. Therefore, changes in the organizational set-up may be needed to foster an environment in which risk management flows into key supply chain decisions.

 

     The final step I found especially noteworthy is to use financial modeling capability for the supply chain. Use of advanced supply chain modeling tools may help gauge the financial impact of supply volatility on supply chain economics; analyze the impact of product and service demand volatility; and measure the impact that launching a new product or entering a new market may have on long-term production capacity, Culp explains. Such tools can also quantify the cost of operational disruptions and balance the distribution of risk between the company and its customers, suppliers and joint venture partners.

 

     In the end, market volatility and supply chain disruptions appear to be growing. Although risk-based, cost-effective supply chain management can be time consuming and require on-going effort, it also can not only help prevent losses but also become a competitive advantage.

 

     What do you think? Do an over reliance on sole suppliers and just-in-time manufacturing present possible threats to your organization’s supply chain?

     When they think about quality, many people think of “fixing” existing products or systems when something goes wrong. Two recent articles, however, point out the value of using quality to drive continuous improvement.

 

     In the first article, running on SupplyChainBrain, Robert J. Bowman writes that Hannah Kain, president and chief executive officer of Alom Technologies—a provider of supply-chain services to Fortune 100 companies—refers to the potential savings from quality as “gold in the mine.” Unfortunately, many leaders don’t understand how quality really impacts the bottom line, she says.

 

     There are two points Kain makes that I found interesting. The first is that for a typical manufacturing company lacking a concerted quality effort, the cost of making errors is about 15 percent of revenue, Kain says. A quality program, by contrast, costs no more than one percent—and that doesn’t even take into account the money saved by preventing errors.

 

     So quality cost calculation may be considered as having three dimensions: preventive costs, involving a formal quality effort, employee training and the up-front prevention of errors; assessment costs, including in-line testing; and failure costs, racked up by things that actually go wrong, both internally and externally. Companies can reduce those incidents through a rigorous Six Sigma initiative, which can push the cost of mistakes down to half a percent of revenue or less. As Kain says, that’s a huge improvement, although in the world of Six Sigma, there’s always the possibility of getting better.

 

     Secondly, Kain is ambivalent about the way dashboards are often used. A typical dashboard, she says, involves data that’s “all in the rear view mirror.” Hard numbers don’t tell the whole story, especially when it comes to customer dissatisfaction arising from a botched order. Kain instead thinks companies ought to employ KPIs in a more strategic manner, to analyze trends and drive constant process improvements moving forward.

 

     Another executive recently discussing the need to evaluate trends and continuously make improvements, is Alicia Boler-Davis, senior vice president, global quality and customer experience for General Motors. In a profile in USAtoday, she said that in the past, being quality chief at a major automaker was pretty straightforward. The job was to figure out what broke, study the part and every move on the assembly line, then change the part or the way people or machines work to fix the problem. Today, however, the job is far more complex because customers’ definitions of what constitutes quality have expanded, she says.

 

     “People don’t define quality as things breaking anymore,” Boler-Davis says in the article.

 

     She offers instrument panel knobs as an example. So while the knobs may work well, consumers don’t like the way the instrument knobs feel. Consequently, the knobs need to be changed to improve overall consumer satisfaction.

 

     To make the task of constantly making improvements to meet evolving consumer demands, Boler-Davis has some priorities. The first is to drive quality. Customers don’t always know what they want so asking them what they want may not be useful, she says. Instead, GM is using new technology to, for instance, evaluate ride quality. This sophisticated testing equipment can decipher the stiffness or so-called squishiness of a ride—rather than having the company solely rely on the opinion of a chief vehicle engineer.

 

     “We’re taking the subjectiveness out of ride quality,” Boler-Davis says.

 

     What are your thoughts on quality? Does your company take a historical view to fix what went wrong or is quality used to make continuous improvements?

     “It’s not right that suppliers are not getting paid on time for the work they do and the services they provide.” I think there are plenty of folks who would agree with that statement, but in this particular case, it was said by David Cameron, prime minister of the United Kingdom, when recently discussing new proposals which would fine businesses that fail to pay suppliers on time. He went on to add, late payment can have devastating effects on small and medium-sized businesses, reports an article on The Guardian.

 

     Adding to that, Katja Hall, chief policy director of the Confederation of British Industry said, late payment is a serious issue for all businesses but particularly for smaller firms, as cash flow is their life blood. Businesses already have a number of routes for recourse if they are paid late, but the reality is that few choose to act on late payment for fear of fall out with their customers, Hall notes.

 

     This is a hot topic for all parties, and it’s easy to understand why companies seek to extend payment terms to increase cash. At the same time, procurement works to save as much as is possible. The result, in some cases, is that the practices are taken to a level where suppliers’ viability may be at risk. Add to that, as an article on manufacturing.net notes, suppliers often are now located beyond the BRIC countries. Many suppliers in emerging markets can’t handle payment terms that have grown as high as 120 days, especially when they are getting pressured on price, the article notes.

 

     What’s interesting is that manufacturers recognize the cost associated with a supplier failure, and that the repercussions may impact their entire supply network. As more companies recognize this reality, the trend to work to strengthen partnerships continues to grow. Indeed, manufacturers who support and assist their trading partners often find that they reap improved supplier performance, fewer delays and higher margins.

 

     The manufacturing.net article offers an example of a Tier-one auto manufacturer which established a supplier risk manager role, tasked with identifying single source suppliers and other at-risk trading partners facing financial constraint and liquidity issues. This manufacturer launched a program to help suppliers access capital and design back-up plans, if needed. The program works with suppliers to deliver early access to payments, along with events-triggered financing to deliver capital when needed.

 

     For instance, a self-funded early payment program removes the need to involve financial institutions, and instead, allows the manufacturer to get a better return on cash while removing finance-related risk and cost from the supplier’s world, the article reports. So the manufacturer uses its own cash and pays its supplier invoices within 10 days, instead of 45—in exchange for a discount on the invoice. The discount is greater than any return that could be obtained in an overnight account, the article explains.

 

     More importantly, the supplier has the cash it needs to run its business and deliver goods on time. It also eliminates the need to borrow elsewhere. And for factories in emerging regions, this can be a significant added cost that gets factored into the cost consumers will pay for goods sold, so it’s an added benefit for the manufacturer, the article notes.

 

     In the end, I think there’s a fine line to walk here. On the one hand, there’s the need to cut costs and preserve funds as much as possible. On the other hand, suppliers’ viability is an important factor to consider in risk mitigation due to its potential impact. The task obviously is to strike a balance between the two extremes.

 

     I am intrigued though by efforts to strengthen partnerships with suppliers—or at least critical suppliers—and work to ensure they receive faster payments, and in some cases, even share the cost of capital investments on equipment that can deliver mutual benefits.

 

     How does your company treat suppliers?

     To address perpetually mounting competitive pressures, organizations need workers who bring passion to their jobs to navigate challenges and accelerate performance improvement, according to new research. Yet only 11 percent of U.S. workers surveyed by Deloitte possess the necessary attributes that lead to accelerated learning and performance improvement, explains “Unlocking Passion of the Explorer,” a new report from Deloitte’s Center for the Edge.

 

 

     That leads to Deloitte’s report. Instead of recruiting skillsets, organizations would be better off recruiting passionate people and fostering passion in existing workers. However, the passion of the “explorer”—workers who embrace challenges as opportunities to learn new skills and rapidly improve performance—is rare in the current U.S. workforce, and outdated practices and structures are to blame, write the report’s authors.

 

     CEOs are struggling to position their organizations within the hypercompetitive global economy, but instead of simply squeezing harder on costs, they should take a step back and reconsider exactly how they are pursuing their mission, says John Hagel, director, Deloitte Consulting LLP and co-chairman, Center for the Edge. Unleashing the passion that is latent within existing employees is a long-term solution versus narrowly focusing on just recruiting passionate people. Passionate people will naturally drive their organization to the next level and set up their employer for longer-term success, Hagel says.

 

     The report also notes that while only a small minority of U.S. employees possess the passion of the explorer, almost half of U.S. employees demonstrate at least one or two of the three characteristics necessary to build passion: long-term commitment to a specific domain (those who maintain long-range goals and perspective, despite short-term disruption), questing disposition (those who embrace challenges as opportunities to learn and get stronger), and connecting disposition (those who seek to build strong, trust-based relationships essential for collaboration and rapid feedback). Individuals with any of these characteristics are important to organizations because these attributes can provide a foundation for cultivating the passion that drives accelerated learning and sustained high performance.

 

     Interestingly, my own informal—and admittedly, small—poll of manufacturing and supply chain directors and executives mirrors the results of the Deloitte research. None of the six people I spoke with said they are what Deloitte termed, an “explorer.” Each said they used to be passionate, but the situation has changed in recent years.

 

     Each of the six has a long history of being a “proven performer” who consistently exceeds expectations, and each still takes a great deal of pride in their job as well as their team, department or division’s performance. However, recent years of working harder and increasingly longer hours as a result of layoffs and cutbacks, fighting to add necessary headcount, and seeing raises as well as bonuses slashed has taken a toll. So while each does their job very well, as B.B. King used to sing, “The thrill is gone.”

 

     I’d like to know what you think. Are you passionate about your job? As a follow-up, how important to do you think hiring and retaining passionate people is to a company’s success?

     Amid all the discussion about the ongoing U.S. government shutdown, I was interested to see that the U.S. Trade Representative’s office said on Tuesday it will allow a U.S. ban to go into effect which blocks importing or selling mobile devices made by Samsung Electronics that infringe on Apple patents. The ban, ordered by the International Trade Commission, was issued in August after the agency determined that Samsung had violated two Apple patents.

 

     “After carefully weighing policy considerations, including the impact on consumers and competition, advice from agencies, and information from interested parties, I have decided to allow the commission’s determination to become final,” U.S. Trade Representative Michael Froman wrote in a statementReuters reports.

 

     Apple had filed a complaint in mid-2011, accusing Samsung of infringing its patents in making a wide range of smartphones and tablets. Apple said in its 38-page suit that, “Rather than innovate and develop its own technology and a unique Samsung style for its smartphone products and computer tablets, Samsung chose to copy Apple’s technology, user interface and innovative style in these infringing products.”

 

     There are some interesting elements in the development. First, Trade Representative Froman said the ban would cover Samsung’s older smartphones and tablets. The decision, he said, would have little effect on the availability of Samsung products, because Samsung has been able to make changes to its newer products so that they avoid infringing Apple’s patents, The New York Times reports.

 

     Nonetheless, winning a U.S. import ban against some Samsung smartphones and tablets is one thing but actually getting the ban enforced may be problematic. The problem is that determining which products are banned, and which were successfully designed around the patents, falls to U.S. Customs and Border Protection. Apple, Microsoft and other technology companies have criticized the security agency for lacking the know-how to enforce these types of rulings—and that was before the U.S. government’s shutdown, an article on Businessweek explains.

 

     “They’re focusing on their truly primary missions of national security and public safety—like  weapons and drugs,” says Jim Altman, a lawyer with Foster, Murphy, Altman & Nickel in the article. “My guess is intellectual property wouldn’t get the attention it would normally.”

 

     Both companies will lobby Customs for favorable interpretations. Samsung has presented two arguments: only a small number of models are covered by the ban, and the order will reduce U.S. competition and limit consumer choice. Apple, which will push for a larger number of models to be included, has argued that Samsung gives old devices new names without making the necessary changes to avoid using patented technology.

 

     These developments are the latest in a patent battle between Samsung and Apple, which are the number one and number two smartphone makers globally, respectively. The disputes are closely followed because the two companies are the leading players in the smartphone and tablet markets and also because Samsung products are closely aligned with the Android system created by Apple-rival Google. Then again, the dispute is also followed because, well, Apple is Apple.

 

     However this particular ban turns out, it—and others like it—illustrate how critical it has become for technology companies to develop and then maintain technological advantage by protecting intellectual property as fiercely as possible. Given both the growing exchange of information among, and sheer number of, global partners and suppliers in the supply chain, protecting such product and technology information is increasingly difficult.

 

     What do you think? Are patent complaints and lawsuits simply part of the cost of doing business today?

     When it comes to domestic sourcing, Walmart announced earlier this year it will buy an additional $50 billion of U.S. products over the next 10 years. The company explained it will grow U.S. manufacturing on two fronts: by increasing what it already buys in the U.S.—in sporting goods, apparel basics, storage products, games and paper products—and by helping to onshore U.S. production in high potential areas such as textiles, furniture and higher-end appliances.

 

     The initiative appears to be gaining steam, although, to be fair, many of Walmart’s suppliers had already decided to produce in the U.S. As has been noted, rising wages in China and other emerging economies—along with increased U.S. labor productivity and flexibility—have combined to make reshoring more appealing.

 

     Nevertheless, Walmart’s push to bring jobs back to the United States also makes a great deal of business sense both for suppliers and retailers. Some manufacturers are finding they can profitably produce certain goods at home that they once made offshore. The other side of the coin is that retailers like Wal-Mart benefit from being able to buy those goods closer to distribution centers and stores with lower shipping costs, while gaining consumer goodwill by selling more U.S.-made products.

 

     I saw an interesting example of such a manufacturer in an article on Reuters. Hampton Products International, which supplies locks and door hardware to retailers including Wal-Mart, began “resurrecting manufacturing” at its Wisconsin plant back in 2008, says CEO H. Kim Kelley. However, Wal-Mart’s push this year served mainly to speed its business decision, Kelley adds.

 

     “We moved much more quickly and aggressively to ramp manufacturing to meet Wal-Mart’s timetable,” Kelley says in the article.

 

     Ultimately, Hampton’s decision to manufacture some products back in the U.S. was driven by simple but compelling math, Kelley says. Take the example of a door hardware part Hampton produces. Over the past six years, the price of producing the part in China has risen 24 percent to $2.20 from $1.77, due to the Chinese currency’s appreciation and increased labor costs. Throw in transport costs and U.S. tariffs, and that product, delivered to the U.S. today, would cost about $2.53, Kelley says. By moving production back to the U.S., Hampton can make the part today for just $2.16 instead, Kelley explains.

 

     Relocating production to the U.S. also yields a number of soft but important benefits, Kelley says. These include better control of the manufacturing process, an ability to respond swiftly to customers, and a much smaller impact on the environment as the U.S. plant uses less energy than its Chinese counterpart and is 7,500 miles closer to where the product is sold.

 

     “The benefits are obvious,” says Kelley. “We cut our costs, improve our sustainability, reduce the cost of finished goods inventory and create U.S. jobs.”

 

     What I found more interesting is that in August, Walmart held a U.S. manufacturing summit, which featured speakers such as U.S. Commerce Secretary Penny Pritzker and GE CEO Jeff Immelt, and gave 500 suppliers the chance to meet with governors or economic development officials from 34 states, as well as two banks and one private equity firm. For supplier companies, Walmart’s summit proved to be an opportunity to present potential projects and learn about the resources available in different states.

 

     Furthermore, during the summit, multiple companies announced domestic manufacturing investments, including GE; Kayser-Roth Corporation, maker of No nonsense legwear; Element Electronics Corp., which plans to open a new flat screen TV factory in Winnsboro, S.C.; legwear company Renfro; and Hampton Products International. In total, suppliers’ initiatives are expected to drive more than $70 million worth of investing in U.S. factory growth and create more than 1,000 domestic jobs.

 

     What do you think? Over the years, many people have realized that when Walmart speaks, suppliers as well as other retailers listen. Will Walmart’s increased focus on U.S.-made products be a factor in companies' decisions concerning whether or not they should reshore manufacturing?

     Considering both the sluggish rebound of the U.S. economy and the sheer number of potential customers in emerging markets, it’s no wonder U.S. manufacturers increasingly look to those countries for growth opportunities. There are, however, substantial challenges for companies entering emerging markets, such as following often-changing regulations and tax requirements, developing and retaining local talent and working with typically inadequate logistics and transportation infrastructure.

 

     I was interested to see the results of a recent survey, which found that supply chain visibility and communication among supply chain members are also significant challenges. An article on IndustryWeek reports that, according to a study of senior-level manufacturing executives conducted by consulting firm KPMG, 93 percent of the U.S. manufacturers represented in the survey don’t have complete supplier visibility. Furthermore, almost half (44 percent) of the respondents stated they use e-mail, fax and postal mail as their main tools to communicate issues about demand throughout their supply chain.

 

     Moving toward a demand-driven supply chain is probably the single most important step a global manufacturer can take today, says Jeff Dobbs, global sector chair, Diversified Industrials with KPMG. But taking that step is going to be challenging at the very least if the supply chain technology being used is outdated, he adds.

 

     “The winners will be the companies which can network real-time across their entire supply chains, reducing the information lag that costs companies significant time and money,” Dobbs says.

 

     It isn’t just use of technology that sets successful companies apart. The authors of a book titled “Emerging Markets Rule: Growth Strategies of the New Global Giants,” believe that leaders of successful emerging market multinational (EMM) companies also follow different strategies. The authors—Mauro Guillén, professor of management of University of Pennsylvania’s Wharton School, and Esteban Garcia-Canal, a professor at the University of Oviedo in Spain—explain that these companies also focus, for example, on showing strong commitment to suppliers and building capacity in anticipation of demand.

 

     In an article that ran on CFO, Guillén explains these companies also place an emphasis on execution, which is even more important than strategy. One example is a Mexican company Bimbo, now the largest bread maker in the world. What the leaders at Bimbo did was focus on improving their distribution network. Guillén says. They focused on making their trucks, drivers and delivery routes more efficient, paying attention to the nitty-gritty details that a lot of corporate executives dismiss, Guillén says.

 

     I was interested to read that Guillén thinks EMMs have also typically become large companies by hitting the marginal customers that the biggest firms neglected. One example is Haier, which surpassed Whirlpool as the top global refrigerator manufacturer in 2008. Haier was able to break into the U.S. market by targeting a small group of potential customers that Whirlpool had dismissed as insignificant: college students.

 

     The Chinese company started making mini-refrigerators for students to keep in their dorm rooms. With the only available mini-fridge option for students, Haier started to build customer loyalty with a new generation, Guillén explains. And when those students graduated, many of them bought full-size Haier refrigerators from Walmart. The lesson for CFOs of U.S. multinationals is that companies let underdogs enter the market through the small corners that they neglect, says Guillén.

 

     To me, there were two key takeaways to all this. First, of course, is that to gain real-time supply chain visibility to help increase speed-to-market, reduce capital expenditures and manage risk, companies must commit to investing in technology. Secondly, entering, and succeeding in, emerging markets requires a different mindset than usual. Adopting strategies that include increasing the focus on execution, increasing time spent strengthening relationships with partners and fine tuning just who the target customer is, can all pay significant dividends.

 

     What about you? What do you think is crucial for succeeding in emerging markets?